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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


_______________

FORM 10-K

|           |  |                                                                                         
|---------- |  | ----------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                         
|           |  |                                                                                         
|x          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|           |  |                                                                                         
|           |  | For the fiscal year ended: June 30, 2003                                                
|           |  |                                                                                         
|           |  | OR                                                                                      
|           |  |                                                                                         
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|           |  |                                                                                         
|           |  | For the transition period from __________________ to __________________                 

Commission file number: 001-12115

CONTINUCARE CORPORATION

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|FLORIDA                                                        |  | 59-2716023                          
|(State or other jurisdiction of
Incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                               |  |                                     
|80 SW 8th STREET                                               |  |                                     
|SUITE 2350                                                     |  |                                     
|MIAMI, FLORIDA                                                 |  | 33130                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code: (305) 350-7515

Securities registered pursuant to Section 12(b) of the Act:

|                               |  |                                          
|------------------------------ |  | -----------------------------------------
|Title of each class            |  | Name of each exchange on which registered
|COMMON STOCK,
$.0001 PAR VALUE |  | AMERICAN STOCK EXCHANGE                  

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has 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 to such
filing requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. x

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes o No x

Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant at September 5, 2003 (computed by reference to
the last reported sale price of the registrants Common Stock on the American
Stock Exchange on such date): $25,427,401.

Number of shares outstanding of each of the registrants classes of Common
Stock at September 5, 2003: 42,379,001 shares of Common Stock, $.0001 par value
per share.



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TABLE OF CONTENTS



|                                                     |                                                                                               |  |  |  |  |  |  | 
|---------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|GENERAL                                             
|CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
|RISK FACTORS                                        
|AVAILABLE INFORMATION                               
|PART I                                              
|                                                     | ITEM 1. BUSINESS                                                                             
|                                                     | ITEM 2. PROPERTIES                                                                           
|                                                     | ITEM 3. LEGAL PROCEEDINGS                                                                    
|                                                     | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                                             
|                                                     | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS                
|                                                     | ITEM 6. SELECTED FINANCIAL DATA                                                              
|                                                     | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                     | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                                     | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|                                                     | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|                                                     | ITEM 9A. CONTROLS AND PROCEDURES                                                             
|PART III                                            
|                                                     | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                                     | ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION                                        
|SUMMARY COMPENSATION TABLE                          
|                                                     | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                                     | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|                                                     | ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES                                              
|PART IV                                             
|                                                     | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.                   
|SIGNATURES                                          
|INDEX TO FINANCIAL STATEMENTS                       
|REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS  
|CONSOLIDATED BALANCE SHEETS                         
|CONSOLIDATED STATEMENTS OF OPERATIONS               
|CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY     
|CONSOLIDATED STATEMENTS OF CASH FLOWS               
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS          
|EXHIBIT INDEX                                       
|Subsidiaries                                        
|Consent of Ernst & Young LLP                        
|Section 302 Certification - CEO                     
|Section 302 Certification - CFO                     
|Certification Pursuant to Section 906 - CEO         
|Certification Pursuant to Section 906 - CFO         



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GENERAL

Unless otherwise indicated or the context otherwise requires, all
references in this Form 10-K to we, us, Continucare or the Company
refers to Continucare Corporation and our consolidated subsidiaries. We
disclaim any intent or obligation to update forward looking statements. All
references to a Fiscal year are to our fiscal year which ends June 30. As used
herein, Fiscal 2004 refers to fiscal year ending June 30, 2004, Fiscal 2003
refers to fiscal year ending June 30, 2003, Fiscal 2002 refers to fiscal year
ending June 30, 2002 and Fiscal 2001 refers to fiscal year ending June 30,
2001.




CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Sections of this Annual Report contain statements that are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 (the
Securities Act) and Section 21E of the Securities Exchange Act of 1934 (the
Exchange Act), and we intend that such forward-looking statements be subject
to the safe harbors created thereby. Statements in this Report containing the
words estimate, project, anticipate, expect, intend, believe,
will, could, should, may, and similar expressions may be deemed to
create forward-looking statements. Accordingly, such statements, including
without limitation, those relating to our future business, prospects, revenues,
working capital, liquidity, capital needs, interest costs and income, wherever
they may appear in this document or in other statements attributable to us,
involve estimates, assumptions and uncertainties which could cause actual
results to differ materially from those expressed in the forward-looking
statements. Specifically, this Annual Report contains forward-looking
statements, including the following:



| |  |  | our ability to service our indebtedness, make capital expenditures and respond to capital needs;                                                                    
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to restructure any of our debt or current liabilities;                                                                                                  
|
| |  |  | our ability to enhance the services we provide to our members;                                                                                                      
|
| |  |  | our ability to strengthen our medical management capabilities;                                                                                                      
|
| |  |  | our ability to improve our physician network;                                                                                                                       
|
| |  |  | our ability to renew our managed care agreements and
negotiate terms which are favorable to us and affiliated physicians;                                           
|
| |  |  | our ability to maintain our listing with the American Stock
Exchange and our ability to regain compliance with the listing
standards of the American Stock Exchange;
|
| |  |  | our ability to respond to future changes in Medicare
reimbursement levels and reimbursement rates from other third
parties; and                                     
|
| |  |  | our ability to establish relationships and expand into new
geographic markets.                                                                                      

The forward-looking statements reflect our current view about future
events and are subject to risks, uncertainties and assumptions. We wish to
caution readers that certain important factors may have affected and could in
the future affect our actual results and could cause actual results to differ
significantly from those expressed in any forward-looking statement. The
following important factors, in addition to factors we discuss elsewhere in
this Annual Report, including the section entitled Risk Factors, could
prevent us from achieving our goals, and cause the assumptions underlying the
forward-looking statements and the actual results to differ materially from
those expressed in or implied by those forward-looking statements:



| |  |  | pricing pressures exerted on us by managed care organizations
and the level of payments we receive under governmental programs or
from other payors;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | future legislation and changes in governmental regulations;                                                                                         
|
| |  |  | the impact of Medicare Risk Adjustments on payments we receive for our managed care operations;                                                     
|
| |  |  | loss of significant contracts;                                                                                                                      
|
| |  |  | general economic and business conditions;                                                                                                           
|
| |  |  | changes in estimates and judgments associated with our critical accounting policies;                                                                
|
| |  |  | retroactive cost report adjustments;                                                                                                                
|
| |  |  | federal and state investigations;                                                                                                                   
|
| |  |  | the enactment of unfavorable legislation by the Congress of the United States;                                                                      
|
| |  |  | the ability of our home health agencies to become profitable;                                                                                       
|
| |  |  | the collection of our home health agencies receivables from
Medicare and other payors on a timely basis;                                           
|
| |  |  | our ability to successfully recruit and retain medical professionals; and                                                                           
|
| |  |  | impairment charges that could be required in future periods.                                                                                        

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RISK FACTORS

Our Working Capital Deficit and Substantial Leverage Could Adversely Affect Our
Ability to Satisfy Our Obligations as They Become Due

Our auditors opinion on the June 30, 2003 consolidated financial
statements states that, although our financial statements have been prepared on
a going concern basis, there is a significant uncertainty as to whether we will
be able to fund our obligations and satisfy our debt obligations as they become
due in Fiscal 2004. At June 30, 2003, our working capital deficit was
approximately $5,211,000, our total indebtedness accounted for approximately
87% of our total capitalization and we had principal and interest of
approximately $2,363,000 outstanding under our credit facility.

Our credit facility matures on March 31, 2004, is personally guaranteed by
one of our principal shareholders and contains, among other conditions, a
financial covenant that requires us to maintain a fixed charge coverage ratio
of 1.05 to 1.00 beginning December 31, 2003 and measured quarterly thereafter.
There can be no assurances that we will be able to meet this financial covenant
at December 31, 2003 or be able to maintain it as required by the credit
facility. Our failure to satisfy this financial covenant could result in a
default under our credit facility. If a default occurs under our credit
facility, the lender could elect to declare all our outstanding borrowings, as
well as accrued interest, to be due and payable and require us to apply our
available cash to repay these borrowings. Based on our current cash flow
projections, it appears unlikely that we will have sufficient funds available
to fully repay the credit facility on or before March 31, 2004. Additionally,
uncertainty exists as to whether we will be able to extend or replace the
credit facility without either extending the personal guarantee of our
principal shareholder or finding replacement guarantees, and there can be no
assurance that we will be able to obtain such guarantees. Additionally, there
can be no assurance that we will be successful in our attempts to either repay,
extend or replace the credit facility and, if so, if this will occur on terms
acceptable to us.

In Fiscal 2003, we continued to review our operations and institute
measures intended to operate profitably and reduce a significant working
capital deficiency that resulted from losses incurred in prior years. In spite
of the measures we have instituted, our home health agencies have continued to
experience significant increases in their direct and indirect costs while their
revenues have decreased. This has resulted in home health operating losses in
Fiscal 2003, 2002, and 2001 of approximately $1,824,000, $1,275,000 and
$534,000, respectively, before consideration of interest expense. In the
fourth quarter of Fiscal 2003, we began to reorganize the home health agencies
in an effort to reduce their overhead costs and began to explore new payor
sources to increase patient referrals. There can be no assurances that these
efforts will improve the operating results of our home health operations. If
these efforts do not significantly improve the operating results of our home
health operations, we may consider other alternatives with respect to the home
health operations.

During Fiscal 2003, the claims loss ratio for our managed care operations
has stabilized. However, negative changes in the claims loss ratio, due to
increases in the utilization of healthcare services as well as increases in
medical costs without counterbalancing increases in premium revenues from our
contracts with Health Maintenance Organizations (HMOs), would reduce the
profitability and cash flows from our managed care operations. See Our
Physician Group Practice Contracts Require Us to Assume the Responsibility of
Providing Medicare to our Managed Care Patients. If in Fiscal 2004 we are
unable to reduce our home health losses by increasing our referrals and
reducing our indirect costs and are unable to maintain our current claims loss
ratio for our managed care operation, these factors, compounded by the lack of
availability of additional financing through the credit facility and the need
to make annual payments for medical malpractice insurance which are due in the
first and second quarters of Fiscal 2004, will result in a severe strain on our
cash flow. If we are unable to satisfy our cash requirements, we may be
required to take certain steps, such as borrowing additional funds,
restructuring our indebtedness, selling assets, selling equity, reducing or
delaying capital expenditures or payments to trade creditors

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and forgoing certain business opportunities. If we need additional capital to
repay our obligations or fund operations, there can be no assurances that such
capital can be obtained, or, if obtained, will be on terms acceptable to us.
The incurring or assumption of additional indebtedness could result in the
issuance of additional equity and/or debt which can have a dilutive effect on
current shareholders and a significant effect on our operations.

Our Physician Group Practice Contracts Require Us to Assume the Responsibility
of Providing Medical Care to our Managed Care Patients

Approximately 96% of our net medical services revenue is determined under
the terms of our managed care agreements with Vista Healthplan of South
Florida, Inc. and its related affiliated companies (Vista) and Humana Medical
Plans, Inc. (Humana) (collectively, the HMOs). Under these physician group
practice (PGP) agreements we receive either a capitated fee or a percentage
of the premium (POP) that the HMOs charge to their commercial members or
receive from the Centers for Medicare and Medicaid Services (CMS) for their
Medicare members or from the Agency for Health Care Administration (AHCA) for
their Medicaid members. In exchange for our revenue under a POP agreement, we
assume the responsibility for the provision of and payment for all medical
services provided to each covered individual who selects one of our employed or
contracted physicians as their primary care provider. Because the majority of
members for whom we provide care are Medicare-eligible, our revenue to a large
extent is determined by the premiums that CMS pays to the HMOs under their
Medicare+Choice contracts (M+C). For the past three years on January 1st,
CMS has increased the premiums paid to HMOs for M+C members by approximately
2%. There can be no assurance that CMS will maintain its premiums at the
current level or continue to increase its premiums each year. Additionally
there can be no assurances that we will receive the total benefit of any
premium increase the HMOs may receive. While CMS has implemented annual 2%
increases, the cost of providing health care services, including prescription
drugs, has increased approximately 7.3% to 8.7% per year on a national average.
To address this disparity, the HMOs have historically implemented various
annual cost reduction measures, typically effective on January 1st of each
year, such as reducing the benefits provided to their Medicare-eligible
members, instituting copayments for certain services including prescription
drug coverage, and by withdrawing from selective markets. Benefit changes that
reduce the cost of providing services have a positive effect on our
profitability and cash flows. There can be no assurances that any such benefit
changes will be implemented in January 2004 or that benefit changes, if any,
will be sufficient to offset the increasing cost of providing health care
services. Additionally, the HMOs contracts with hospitals and medical
specialists are subject to renegotiation and may be renegotiated on unfavorable
terms, and could, therefore, offset any beneficial change in the HMOs benefit
packages. There can be no assurance that the HMOs will be able to renegotiate
contracts with hospitals and other health care providers on favorable terms.

We attempt to control certain of the health care costs of our HMO members
by emphasizing preventive care, encouraging frequent health check-ups,
monitoring compliance with drug therapies, entering into our own contracts with
health care providers such as medical specialists and recommending that our
members utilize hospitals and outpatient facilities that have favorable rate
structures. Throughout Fiscal 2003, we have focused on strengthening our
managed care operations by enhancing the services provided to members,
strengthening our medical management capabilities and improving our physician
network. We continue to focus on streamlining our managed care operations and
implementing measures to contain the rising costs of providing heath services.
However, increased utilization or unit cost, competition, government
regulations and many other factors may, and often do, cause actual healthcare
costs to exceed what was estimated. These factors may include, among other
things:



| |  |  | increased use of medical facilities and services, including prescription drugs;                                                                                                        
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | increased cost of such services;                                                                                                                                                       
|
| |  |  | changes or reductions of our utilization management functions
such as preauthorization of services, concurrent review or
requirements for physician referrals;                         
|
| |  |  | catastrophes or epidemics;                                                                                                                                                             
|
| |  |  | the introduction of new or costly treatments, including new technologies;                                                                                                              
|
| |  |  | new government mandated benefits or other regulatory changes; and                                                                                                                      
|
| |  |  | increased use of health care services, including doctors
office visits and prescriptions resulting from terrorists attacks
and subsequent terrorists threats, including bioterrorism.

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If we cannot continue to improve our controls and procedures for managing
our costs, our business, results of operations, financial condition and ability
to satisfy our obligations could be adversely affected. To the extent that our
HMO members require more frequent or extensive care, our operating margins may
be reduced and, in certain cases, the revenue derived from our PGP contracts
where we have assumed full financial responsibility for the provision of
medical care may be insufficient to cover the costs of the services provided.
In any of these events, our business prospects, financial condition, results of
operations and cash flows may be materially adversely affected and we may be
unable to meet our financial obligations as they become due.

In addition, in certain jurisdictions, PGP agreements in which the
provider bears the risk are regulated under state insurance laws. The degree to
which these PGP arrangements are regulated by insurance laws varies on a state
by state basis, and as a result, we may be limited in certain states, such as
Florida, in which we may seek to enter into or arrange PGP agreements when
those PGP contracts involve the assumption of risk. There can be no guarantee
that the state of Florida will continue to maintain the position that we are
not regulated as an insurer.

We Rely on Contracts with Two Key Health Maintenance Organizations and the Loss
of a Material Contract with One of these Organizations Would Adversely Affect
our Results of Operations

In Fiscal 2003, we generated approximately 23% of our net medical services
revenue from contracts with Vista and approximately 73% of our net medical
services revenue from contracts with Humana.

Our ability to expand is dependent in part on increasing the number of
managed care patients served by our staff model clinics or managed under PGP
agreements, primarily through negotiating additional and renewing existing
contracts with managed care organizations. Our managed care agreement with
Vista is a 10-year agreement with the initial term expiring on June 30, 2008,
unless terminated earlier for cause. We have the right to close unprofitable
centers under our managed care agreement with Vista. In the event of
termination of the Vista agreement, we must continue to provide services on a
fee for service basis to a patient with a life-threatening or disabling and
degenerative condition for sixty days as medically necessary.

We currently have four managed care agreements with Humana. Two of the
Humana agreements are POP full-risk agreements. One of the Humana agreements
is a limited-risk agreement (the Humana Limited-Risk Agreement) and one
agreement is a no-risk management agreement (See Item 1-Business and Note 1
of our consolidated financial statements). The majority of our business with
Humana is governed by one of the Humana POP full-risk agreements (the Humana
POP Agreement) which has a 10-year term expiring on July 31, 2008, unless
terminated earlier for cause. The Humana POP Agreement automatically renews
for subsequent one-year terms unless either party provides 180-days written
notice of such partys intent not to renew. In addition, the Humana POP
Agreement may be terminated by the mutual consent of both parties at any time.
Under certain limited circumstances, Humana may immediately terminate the
Humana POP Agreement for cause, otherwise termination for cause shall require
90 days prior written notice with an opportunity to cure. In the event of
termination of the Humana POP Agreement, we must continue to provide or arrange
for services on a fee for service basis to any member hospitalized on the date
of termination until the date of discharge or until we have made arrangements
for substitute care. In some cases, Humana may provide 30 days notice as to an
amendment or modification of the agreement, including but not limited to,
renegotiation of rates, covered benefits and other terms and conditions. We
have the right to terminate unprofitable physicians and to close unprofitable
centers under the Humana POP Agreement.

The other POP full-risk agreement with Humana and the Humana Limited-Risk
Agreement are not material to our operations and contain similar termination
provisions as described above.

We maintain other managed care relationships subject to various negotiated
terms. There can be no assurance that we will be able to renew any of these
managed care agreements or, if renewed, that they will contain terms favorable
to us and our affiliated physicians.

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The loss of our managed care agreement with Vista or the Humana POP
Agreement or significant reductions in reimbursement rates under these
contracts could have a material adverse effect on our business, financial
condition and results of operations.

Reimbursement for Our Managed Care Operations will be Effected by the Medicare Risk Adjustment

The Balanced Budget Act of 1997 directed the Health Care Financing
Administration (now CMS) to replace the existing system of risk adjustment,
which previously relied solely on demographic factors, with one that took
enrollees health status into account (the Medicare Risk Adjustment or
MRA). The demographic-only portion of the payment was adjusted for age,
gender, Medicaid eligibility, institutional status and working aged status.
The revised MRA portion of the payment, however, includes these same categories
but adds health status as a new criteria. Such health status is measured by
the previous medical costs for inpatient hospital stays incurred by the
individual. These are then used to determine each individuals expected future
medical risk and, therefore, how much the health plan in which they are
enrolled should be paid. To ensure that health plans had time to adjust to the
new payment method, CMS built a five-year transition period into the MRA
methodology it adopted. The initial data used to facilitate the transition to
MRA was based solely upon inpatient hospital encounter data. For 2000 and
2001, under the Balanced Budget Refinement Act of 1999 (BBRA) the transition
to risk adjustment was based upon a blend percentage consisting of 10% risk
adjustment payment and 90% on the adjustment for demographic factors. For
2002, the blend percentage was adjusted to 20% risk adjustment payment and 80%
on the adjustment for demographic factors. The law requires that the
ambulatory data be incorporated beginning January 1, 2004, at which time the
blend percentage will consist of 30% risk adjustment payment and 70% on the
adjustment for demographic factors. In 2005, the blend percentage will consist
of 50% risk adjustment payment and 50% on the adjustment for demographic
factors. In 2006, the blend percentage will consist of 75% risk adjustment
payment and 25% on the adjustment for demographic factors. In 2007, the blend
percentage will consist of 100% risk adjustment payment and 0% on the
adjustment for demographic factors. Through Fiscal 2003, our payments from the
HMOs have substantially been based on the demographic model. However, in
Fiscal 2004, we anticipate that the payments we receive from the HMOs will
begin reflecting the MRA methodology. At this time, it cannot be determined if
this impact will be favorable or unfavorable.

Our Intangible Assets Represent a Substantial Portion of Our Total Assets

As of June 30, 2003, intangible assets, which include goodwill and other
separately identifiable intangible assets, represented approximately 78% of our
total assets. Effective July 1, 2001, we adopted Statement of Financial
Accounting Standards No. 141, Business Combinations (SFAS No. 141) and
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142). These standards require that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. SFAS No. 141 also specifies criteria that intangible assets acquired
in a purchase method business combination must meet to be recognized and
reported apart from goodwill, noting that any purchase price allocable to an
assembled workforce may not be accounted for separately. Under SFAS No. 142,
goodwill and intangible assets with indefinite useful lives are no longer
amortized, but are reviewed annually for impairment or more frequently if
certain impairment indicators arise. Intangible assets with definite useful
lives are amortized over their respective estimated useful lives to their
estimated residual values and also reviewed for impairment annually, or more
frequently if certain indicators arise. Indicators of a permanent impairment
include, among other things, significant adverse change in legal factors or the
business climate, loss of a key HMO contract, an adverse action by a regulator,
unanticipated competition, loss of key personnel or allocation of goodwill to a
portion of business that is to be sold.

As we operate in a single segment of business, that of managing the
provision of outpatient health care and health care related services in the
state of Florida, management has determined that we have a single reporting
unit and perform our impairment test for goodwill on an enterprise level. In
performing the impairment test, we compare our fair value, as determined by the
current market value of our common stock, to the current value of the total net
assets, including goodwill and intangible assets. We perform our annual
impairment test on May 1st of each year. We completed our annual impairment
test on May 1, 2003 and determined that no impairment existed. Accordingly, no
impairment charges were required at June 30, 2003. Should we determine that an
indicator of impairment has occurred, such as those noted above, we would be
required to perform an additional impairment test which could result in the
determination that a portion of our intangible assets are impaired and must be
written-off. Depending on

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the market value of our common stock at the time that an impairment test
is required, there is a risk that a portion of our intangible assets would be
considered impaired and must be written-off during that period. Such a
write-off could have a material adverse effect on our results of operations.
Any impairment charges required in future periods could also have an adverse
impact on our ability to regain compliance with the continued listing standards
of the American Stock Exchange and could result in the delisting of our common
stock. See If We Do Not Regain Compliance with the Continued Listing
Standards by December 31, 2003, Our Common Stock May be Delisted by the
American Stock Exchange.

In the event we engage in future acquisitions that result in the
recognition of additional intangible assets with definite useful lives, our
amortization expense would increase. In certain circumstances, amortization
generated by these intangible assets may not be deductible for tax purposes.

We Have Various Legal Proceedings Pending Against Us and Our Insurance Coverage
May Not Adequately Cover Our Losses; We Are Subject to Insurance Premium
Increases

Our business entails an inherent risk of claims against physicians for
professional services rendered to patients, and we periodically become involved
as a defendant in medical malpractice lawsuits, some of which are currently
ongoing. See Item 3 Legal Proceedings and Note 12 of our consolidated
financial statements. Medical malpractice claims are subject to the attendant
risk of substantial damage awards. While we intend to defend these matters
vigorously, there can be no assurances that we will prevail. Although these
claims are generally covered by insurance, if liability results from any of our
pending or any future medical malpractice claims, there can be no assurance
that our medical malpractice insurance coverage will be adequate to cover
liability arising out of these proceedings. While we attempt to conduct our
operations in such a way as to reduce the risk that results in litigation,
there can be no assurance that pending or future litigation, including
litigation other than medical malpractice claims and whether or not described
in this Annual Report, will not have a material adverse affect on us or that
liability resulting from litigation will not exceed our insurance coverage.

As a result of the national malpractice award trends and the significant
loss of professional insurance underwriting capacity, the cost of our medical
malpractice insurance has increased while the coverage afforded under the
policies available has decreased. Additionally, as a result of the events of
September 11, 2001, as well as recent high profile director and officer related
litigation, the cost of our director and officer insurance policy has
increased. We anticipate that the cost for both our medical malpractice
insurance as well as our director and officer insurance will increase again in
Fiscal 2004. We also maintain stop-loss insurance for which the premium is
based on a cost per member. We may experience future increases in stop-loss
insurance, which would have a material adverse effect on our business,
financial condition and results of operations.

If We Do Not Regain Compliance with Continued Listing Standards by December 31,
2003, Our Common Stock May be Delisted by the American Stock Exchange

On July 30, 2002, the American Stock Exchange (the Exchange) notified us
it had completed its review of our listing qualifications and has accepted our
plan to regain compliance with continued listing standards by December 31,
2003. The plan includes quarterly milestones which, as of the date of the
filing of this annual report, we have not met. If we do not show progress in
obtaining these milestones or if we are unable to regain compliance with the
continued listing standards by December 31, 2003, our common stock may be
delisted from the Exchange. As of the date of this filing, we are still below
the continued listing requirements of the Exchange with respect to requirements
which include the need for us to maintain stockholders equity of at least $4
million and not sustain losses from continuing operations and/or net losses in
three of our four most recent fiscal years. We are unable to guarantee that
the Exchange will continue to list our common stock.

We are Subject to Risks Under Our Fee for Service Arrangements

Certain of our physicians also render services under a fee-for-service
arrangement and typically bill various payors, such as governmental programs
(e.g. Medicare and Medicaid), private insurance plans and managed care plans,
for health care services provided to patients. In 1992, the Medicare program
began reimbursing physicians and certain non-physician professionals such as
physical, occupational and speech therapists, clinical psychologists

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and clinical social workers, pursuant to a fee schedule derived using a
resource-based relative value scale (RBRVS). Reimbursement amounts under the
physician fee schedule are subject to periodic review and adjustment and may
affect our revenues to the extent they are dependent on reimbursement under the
fee schedule.There can be no assurance that payments under governmental
programs or from other payors will remain at present levels. In addition,
payors can deny reimbursement if they determine that treatment was not
performed in accordance with the cost-effective treatment methods established
by such payors or was experimental or for other reasons. Also, fee-for-service
arrangements involve credit risks related to the uncollectibility of accounts
receivable.

We Depend on Reimbursement by Third-Parties

Our home health agencies (HHAs) receive reimbursement from the Medicare
and Medicaid programs, insurers, self-funded benefit plans for home health
agencies and other third-party payors. The Medicare and Medicaid programs are
subject to statutory and regulatory changes, retroactive and prospective rate
adjustments, administrative rulings and funding restrictions, any of which
could have the effect of limiting or reducing reimbursement levels. Although
we derived less than 4% of our net medical services revenue directly from the
Medicare and Medicaid programs in Fiscal 2003, a substantial portion of our
managed care revenues are based upon Medicare reimbursable rates. Any changes
that limit or reduce Medicare reimbursement levels could have a material
adverse effect on our business. Further, significant changes have or may be
made in the Medicare program, which could have a material adverse effect on our
business, results of operations, prospects, financial results, financial
condition or cash flows. In addition, the Congress of the United States may
enact unfavorable legislation, which could adversely affect operations by, for
example, decreasing Medicare reimbursement rates.

Effective October 1, 2000, our Medicare HHA services became subject to the
prospective pay system (PPS). Under PPS, we are reimbursed a fixed fee per
treatment unit. If we have costs greater than the fixed fee amount, we will
incur losses for our Medicare HHA services. Effective October 1, 2002, as a
result of the Balanced Budget Act of 1997 (the BBA) we became subject to a
15% reduction to the cost limits and per-patient limits that were in place as
of September 30, 1999. In addition, future changes in reimbursement rates
could have a material adverse effect on our business, financial condition or
results of operations.

For periods beginning on or after October 1, 1997, HHAs are required to
submit claims for payment for HHA services only on the basis of the geographic
location at which the service was furnished. However, as each of our HHAs only
operate in the single county in which they are licensed, we have not been
impacted by these requirements. As we expand into other counties, any
resultant reduction in our cost limits could have a material adverse effect on
our business, financial condition or results of operation.

Most services and medical supplies provided by a Medicare HHA during a
particular episode of care must be billed by the HHA. Outside suppliers may
not bill the Medicare program directly for services or medical supplies
provided by the supplier to patients while under the care of a Medicare HHA.
Instead, the HHA must provide most home health services or medical supplies
either directly or pursuant to an arrangement with an outside supplier if the
HHA bills Medicare directly. CMS clarifies that the law is silent regarding
the specific terms of HHA payments to outside suppliers and does not authorize
Medicare to impose any such requirements. To the extent that our HHAs utilize
outside providers for the provision of applicable home health services, we
believe we are in compliance with the consolidated billing requirements.
Additionally, to the extent that we use outside providers, our cost to obtain
such services and medical supplies may be greater than the reimbursement
provided by the Medicare program, especially if Medicare reimbursement
decreases but the cost of such services and medical supplies to us increases or
stays constant.

Pursuant to the Medicaid program, the Federal government supplements funds
provided by the various states for medical assistance to the indigent. Payment
for such medical and health services is made to providers in an amount
determined in accordance with procedures and standards established by state law
under federal guidelines. Significant changes have been and may continue to be
made in the Medicaid program, which may have an adverse effect on our financial
condition, results of operations and cash flows. During certain fiscal years,
the amounts appropriated by state legislatures for payment of Medicaid claims
have not been sufficient to reimburse providers for services rendered to
Medicaid patients. During Fiscal 2003, we did not provide care to any patients
where payment for those services would have been due to us directly from the
Medicaid program. However, if in the future we

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begin providing services directly to Medicaid-eligible patients, failure
of a state to pay Medicaid claims on a timely basis may have an adverse effect
on our cash flow, results of operations and financial condition.

Pricing Pressures Exerted by Managed Care Organizations on Home Health
Reimbursement Could Have a Material Adverse Effect on Us

Payments per visit from managed care organizations typically have been
lower than cost-based reimbursement from Medicare and reimbursement from other
payors for nursing and related patient services. In addition, payors and
employer groups are exerting pricing pressure on home health care providers,
resulting in reduced profitability. Such pricing pressures could have a
material adverse effect on our business, results of operations, prospects,
financial results, financial condition or cash flows.

Future Legislation, Retroactive Adjustments and the Economic Downturn Could
Have a Material Adverse Effect on Us

Congress and the State Legislature may propose legislation altering the
financing and delivery of healthcare services provided by us. It is difficult
to predict the ultimate effect that any future legislation will have on us.
Congress has recently been debating the initiation of a federally funded
prescription drug coverage package. If adopted, this could result in a
decrease in enrollment in M+C plans which would have a material adverse effect
on our business and results of operations. However, it is unclear as this time
if prescription drug coverage will be established as a result of the
Congressional debates, and, if established, what form of prescription drug
coverage will be enacted.

Medicare retrospectively audits all reimbursements paid to participating
providers, including those now or previously managed and/or owned by us.
Accordingly, at any time, we could be subject to overpayment notices for
Medicare reimbursement we have previously received and refund obligations for
prior period cost reports that have not been audited and settled as of the date
hereof. However, our Medicare home health agencies are the only portion of our
current operations which would still be subject to these overpayment notices.
Effective October 1, 2000, Medicare changed the manner in which home health
agencies are reimbursed. Reimbursement to our Medicare home health agencies
for services provided after October 1, 2000 are no longer subject to
overpayment notices. See Managements Discussion and Analysis of Financial
Condition and Results of Operations and Notes 2, 5 and 11 of our Consolidated
Financial Statements regarding the manner in which our home health agencies are
reimbursed by Medicare and the overpayments that have been assessed against us.

Military and security activities which followed terrorist attacks have
impacted the United States economy and government spending priorities, and the
effects of any further such developments pose risks and uncertainties to all
U.S.-based business, including Continucare. Deficit spending by the government
as the result of adverse developments in the economy and costs of the
governments response to the terrorist attacks could lead to increased pressure
to reduce government expenditures for other purposes, including governmentally
funded programs such as Medicare.

Continued Scrutiny of Healthcare Industry

The healthcare industry has in general been the subject of increased
government and public scrutiny in recent years, which has focused on the
appropriateness of the care provided, referral and marketing practices and
other matters. Increased media and public attention has focused on the
outpatient services industry in particular as a result of allegations of
fraudulent practices related to the nature and duration of patient treatments,
illegal remuneration and certain marketing, admission and billing practices by
certain healthcare providers. The alleged practices have been the subject of
federal and state investigations, as well as other legal proceedings. There
can be no assurance that we will not be subject to federal and state review or
investigation from time to time.

Federal and state governments have focused significant attention on
healthcare reform intended to control healthcare costs and to improve access to
medical services for uninsured individuals. These proposals include cutbacks to
the Medicare and Medicaid programs and steps to permit greater flexibility in
the administration of Medicaid. It is uncertain at this time what legislation
regarding healthcare reform may ultimately be enacted or whether other changes
in the administration or interpretation of governmental healthcare programs
will occur. There

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can be no assurance that future healthcare legislation or other changes in
the administration or interpretation of governmental healthcare programs will
not have a material adverse effect on our business, results of operations,
prospects, financial results, financial condition or cash flows.

We are Subject to Extensive Government Regulation

Federal Fraud and Abuse Laws and Regulations. The Anti-Kickback Law
makes it a criminal felony offense to knowingly and willfully offer, pay,
solicit or receive remuneration in exchange for, or in order to induce,
referrals of patients or business for items or services for which reimbursement
is payable in whole or in part by a federal healthcare program, including
without limitation the Medicare and Medicaid programs. Violations of these
laws are punishable by monetary fines, civil and criminal penalties, exclusion
from participation in government-sponsored healthcare programs, and forfeiture
of amounts collected in violation of such laws. The scope of prohibited
payments in the Anti-Kickback Law is broad and includes economic arrangements
involving hospitals, physicians and other health care providers, including
joint ventures, space and equipment rentals, purchases of physician practices
and management and personal services contracts. CMS has published regulations,
which describe certain safe harbor arrangements that will not be deemed to
constitute violations of the Anti-Kickback Law. Because the regulations
describe safe harbors and do not purport to describe comprehensively all lawful
or unlawful economic arrangements or other relationships between health care
providers and referral sources, the failure of an arrangement to meet the
requirements of a safe harbor is not a per se violation of the Anti-kickback
Law.

We believe that our contracts with providers, physicians and other
referral sources are in material compliance with the Anti-Kickback Law and we
will continue to make every effort to comply with the Anti-Kickback Law.
However, the Office of the Inspector General of the Department of Health and
Human Services (HHS), the Department of Justice and other federal agencies
interpret these fraud and abuse provisions liberally and enforce them
aggressively. While we believe that we are in material compliance with such
laws, there can be no assurance that our practices, if reviewed, would be found
to be in full compliance with such laws, as such laws ultimately may be
interpreted. It is our policy to monitor our compliance with such laws and to
take appropriate actions to ensure such compliance.

State Fraud and Abuse Regulations.Various states also have anti-kickback
laws applicable to licensed healthcare professionals and other providers and,
in some instances, applicable to any person engaged in the proscribed conduct.
For example, Florida enacted The Patient Brokering Act which imposes criminal
penalties, including jail terms and fines, for receiving or paying any
commission, bonus, rebate, kickback, or bribe, directly or indirectly in cash
or in kind, or engage in any split-fee arrangement, in any form whatsoever, to
induce the referral of patients or patronage from a healthcare provider or
healthcare facility.

We believe that our contracts with providers, physicians and other
referral sources are in material compliance with the state laws and will make
every effort to comply with the state laws. However, there can be no assurances
that we will not be alleged to have violated the state laws, and if an adverse
determination is reached, whether any sanction imposed would have a material
adverse effect on our financial condition, results of operations or cash flows.

Restrictions on Physician Referrals.The federal Anti-Self Referral Law
(the Stark Law) prohibits certain patient referrals by interested physicians.
Specifically, the Stark Law prohibits a physician, or an immediate family
member, who has a financial relationship with an entity, from referring
Medicare or Medicaid patients with limited exceptions, to that entity for the
following designated health services: clinical laboratory services, physical
therapy services, occupational therapy services, radiology or other diagnostic
services, durable medical equipment and supplies, radiation therapy services
and supplies, parenteral and enteral nutrients, equipment and supplies,
prosthetics, orthotics and prosthetic devices, home health services, outpatient
prescription drugs, and inpatient and outpatient hospital services. A financial
relationship is defined to include an ownership or investment in, or a
compensation relationship with, an entity. The Stark Law also prohibits an
entity receiving a prohibited referral from billing the Medicare or Medicaid
programs for any services rendered to a patient. The Stark Law contains certain
exceptions that protect parties from liability if the parties comply with all
of the requirements of the applicable exception. The sanctions under the Stark
Law include denial and refund of payments, civil monetary penalties and
exclusions from the Medicare and Medicaid programs.

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In January 2001, HHS issued part one of final regulations interpreting the
Stark Law, which became effective in January 2002. We believe that we are
presently in material compliance with the Stark Law, including the new
regulations that became effective in January 2002, and will make every effort
to comply with the Stark Law. However, there can be no assurances that we will
not be alleged to have violated the Stark Law, and if an adverse determination
is reached, whether any sanction imposed would have a material adverse effect
on our results of operations, financial condition or cash flows.

Privacy Laws.The privacy, security and transmission of health information
is subject to federal and state laws and regulations, including the Healthcare
Insurance Portability and Accountability Act of 1996 (HIPAA). Final
regulations with respect to the privacy of certain individually identifiable
health information (the Protected Health Information) were issued in August
2002 and became effective in April 2003. In addition, regulations with respect
to the transmission of Protected Health Information were to become effective in
October 2002 and would establish uniform standards relating to data reporting,
formatting, and coding that certain health care providers must use when
conducting certain transactions involving health information. While the
compliance date for these regulations was October 2002, we applied for an
extension to October 2003 by submitting a compliance extension plan to the
Department of Health and Human Services before October 16, 2002. All covered
entities must comply with the transaction and code set standards by October 16,
2003. We believe we are currently in compliance with the regulations regarding
the transmission of Protected Health Information. However, it is possible that
some covered entities, including our payors, will not be sufficiently prepared
to meet these transaction requirements, potentially causing disruption in the
current claim submission and payment cycles, which could cause us to experience
loss of anticipated revenue until compliance is achieved. Further, since many
of the existing transaction systems established by our payors have not operated
at full capacity using the newly-mandated standard transactions, it is possible
that currently undetected errors may cause rejection of claims, extended
payment cycles, system implementation delays, cash flow reduction, with the
attendant risk of liability and claims against us. Regulations issued in
February 2003 set standards for the security of electronic health information
requiring compliance by April 21, 2005.

Some of our operations will be subject to HIPAA and both sets of
regulations. In addition we will have to comply with any applicable state
privacy laws that are more stringent than HIPAA or are not preempted by HIPAA.
The HIPAA regulations could result in significant financial obligations for us
and will pose increased regulatory risk. The privacy regulations could limit
our use and disclosure of protected health information and could impede the
implementation of some of our business strategies. In addition, failure to
comply with federal or state privacy laws and regulations could subject us to
civil or criminal penalties. We have reviewed the regulations and implemented
changes we believe cause us to continue to be in compliance with all applicable
requirements of HIPAA, its regulations, and state privacy laws. We believe we
are currently in material compliance with applicable state and federal privacy
laws.

Corporate Practice of Medicine Doctrine.Many states prohibit business
corporations from providing, or holding themselves out as a provider of medical
care. Possible sanctions for violation of any of these restrictions or
prohibitions include loss of licensure or eligibility to participate in
reimbursement programs (including Medicare and Medicaid), asset forfeitures and
civil and criminal penalties. These laws vary from state to state, are often
vague and loosely interpreted by the courts and regulatory agencies. We
currently operate only in Florida, which does not have a corporate practice of
medicine doctrine with respect to the types of physicians employed by or that
contract with us at this time. There, however, can be no assurance that such
laws will not change or ultimately be interpreted in a manner inconsistent with
our practices, and an adverse interpretation could have a material adverse
effect on our results of operations, financial condition or cash flows.

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Clinic Registration.The State of Florida passed new legislation,
effective October 1, 2001, which required us to register our medical centers as
clinics with the state. The new legislation also placed some restrictions on
reimbursement for certain services, such as magnetic resonance imaging, when
payable by personal injury payors. Because such services represent a very
small portion of our medical services revenue, we do not expect the new
legislation to have an impact on our revenues. We have registered each of our
medical centers as clinics with the State of Florida. We believe we are in
compliance with the clinic registration requirements of the State of Florida.

Limitations on Contractual Joint Ventures.On April 23, 2003, the Office
of Inspector General (OIG) issued a Special Advisory Bulletin raising
concerns throughout the healthcare industry about the legality of a variety of
provider joint ventures. The suspect arrangements involve a healthcare
provider expanding into a related service line by contracting with an existing
provider of that service to serve the providers existing patient population.
In the OIGs view, the providers share of the profits of the new venture
constitutes remuneration for the referral of the providers Medicare/Medicaid
patients and thus may violate the federal Anti-kickback Statute. We believe
our contractual arrangements with HMOs are not of the type identified in the
OIG Bulletin.

Financial Arrangements.We are also subject to federal and state laws
that govern financial and other arrangements between healthcare providers.
These laws often prohibit certain direct and indirect payments or fee-splitting
arrangements between healthcare providers that are designed to induce or
encourage over-utilization, under-utilization or the referral of patients or
payor funded business, or the recommendation of a particular provider for
medical products and services.

Legislative Proposals.Congress is evaluating proposals to include
establishing additional protections for personal health information, tax
credits for the uninsured, proposals to reduce the number of medical errors by
healthcare providers and systems of care, and various state and federal
purchasing plans to allow individuals and small employers to purchase health
insurance. Also, Congress is evaluating proposals to expand Medicare benefits
to cover prescription drugs for Medicare-eligible seniors, including a pharmacy
discount card.

Our Operations are Concentrated in Florida

All of our medical services revenue in Fiscal 2003 were derived from our
operations in Florida. We anticipate that in Fiscal 2004 our net medical
services revenue will continue to be derived from our operations in Florida.
Unless and until our operations become more diversified geographically (as a
result of acquisitions or internal expansion), adverse economic, regulatory, or
other developments in Florida could have a material adverse effect on our
financial condition or results of operations. In the event that we expand our
operations into new geographic markets, we will need to establish new
relationships with physicians and other healthcare providers. In addition, we
will be required to comply with laws and regulations of states that differ from
the one in which we currently operate, and may face competitors with greater
knowledge of such local markets. There can be no assurance that we will be able
to establish relationships, realize management efficiencies or otherwise
establish a presence in new geographic markets.

We May Not be able to Successfully Recruit or Retain Existing Relationships
with Qualified Physicians and Medical Professionals

The revenue generated by our managed care operations depends on the
employment of physicians and other medical professionals providing medical
services to our managed care patients and independent physicians contracting
with us to participate in provider networks which are developed or managed by
us. The revenue generated by our home health agencies is dependant upon our
ability to recruit and retain nurses, therapists and other medical
professionals to provide medical services to our home health patients.
Physicians and other medical professionals can typically terminate their
employment or service contract with us to provide medical services by providing
notice of such termination. This type of termination would require us to find
other medical professionals to provide services to our patients. We compete
with general acute care hospitals and other healthcare providers for the
services of medical professionals. Demand for physicians and other medical
professionals is high and such professionals often receive competing offers.
In the midst of this competitive environment, the need to recruit and retain
quality nurses to service our home health care patients is further challenged
by a nursing shortage which currently exists in South Florida. No assurance
can be given that we will be able to continue to recruit and retain a
sufficient number of qualified physicians and other medical professionals. The
inability to successfully recruit and

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retain medical professionals could adversely affect our ability to
successfully implement our business strategy. In such a competitive
environment as currently exists, there can be no assurances that the cost to
recruit and retain qualified physicians and other medical professionals will
not exceed the revenues we receive for those services which could have a
material adverse effect on our business, results of operations, prospects,
financial results, financial condition or cash flows. In addition, any
failure of these professionals to maintain the quality of care provided or to
otherwise adhere to certain general operating procedures at our facilities or
any damage to the reputation of a significant number of our practitioners could
damage our reputation, subject us to liability and significantly reduce our
revenues.

We are Controlled by One Shareholder

Dr. Phillip Frost and entities affiliated with Dr. Frost, owned
approximately 51.7% of our outstanding common stock as of September 5, 2003,
assuming conversion of stock options and a convertible promissory note. Based
on Dr. Frosts stock ownership, the stock ownership of his affiliates and the
conversion of stock options and the convertible promissory note, Dr. Frost has
the ability to control most corporate actions requiring shareholder approval,
including the election of directors. This influence by Dr. Frost may make us
less attractive as a target for a takeover proposal. It may also make it more
difficult to discourage a merger proposal or proxy contest for the removal of
incumbent directors. As a result, this may deprive the holders of our common
stock of an opportunity they might otherwise have to sell their shares at a
premium over the prevailing market price in connection with a merger or
acquisition of us or with or by another company.

Our Industry is Already Competitive and Increased Competition Could Adversely
Affect our Business

The healthcare industry is highly competitive. We compete with many
regional and national healthcare companies, some of which have greater
resources than we do. Competition is generally based upon reputation, price and
the ability to offer management expertise, financial benefits and other
benefits for the particular provider in a quality and cost-effective manner.
The pressure to reduce healthcare expenditures has emphasized the need to
manage the appropriateness of health services provided to patients. We many not
be able to continue to compete effectively in this industry, additional
competitors may enter our markets, and this increased competition may have an
adverse effect on our revenues.

We Depend on Our Management Information System

Our operations are heavily dependent on our management information
systems. Both the software and hardware used by us in connection with the
services we provide have been subject to rapid technological change. Although
we believe that our technology can be upgraded as necessary, the development of
new technologies or refinements of existing technology could make our existing
equipment obsolete. Although we are not currently aware of any pending
technological developments that would be likely to have a material adverse
effect on our business, there is no assurance that such developments will not
occur.

* * * * * * *

The risk factors described above could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements made
by us or on our behalf. Any forward-looking statement speaks only as of the
date on which such statement is made, and we undertake no obligation to update
any forward-looking statement or statements to reflect events or circumstances
after the date on which such statement is made or to reflect the occurrences of
unanticipated events. New factors emerge from time to time and it is not
possible for us to predict all of such factors. Further, we cannot assess the
impact of each such factor on our business or the extent to which any factor,
or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements.




AVAILABLE INFORMATION

Our internet address is www.continucare.com. We make available free of
charge on or through our internet website our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports, filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably
practicable after such material has been filed with, or furnished to, the SEC.

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PART I




ITEM 1. BUSINESS

General

We are a provider of outpatient healthcare and home healthcare services in
Florida. Our managed care operations, through various capitated or POP
arrangements, are responsible for providing primary care medical services (the
Primary Care Services) or overseeing the provision of these Primary Care
Services by affiliated physicians to approximately 16,700 patients on a
full-risk basis and 7,100 patients on a limited or non-risk basis at June 30,
2003. Full-risk managed care agreements represent the majority of our managed
care revenues and require that in exchange for a percentage of premium we
assume responsibility to provide and pay for all of our patients medical
needs. Our home health operations provide home healthcare services to
recovering, disabled, chronically ill and terminally ill patients in their
homes. In April 2003, we entered into a new contract with an HMO to provide
management services on a non-risk basis to a group of South Florida primary
care physicians that have contracts with the HMO. See discussion of our
managed care contracts below and Note 1 to our consolidated financial
statements.

Historical Development of Business

On August 9, 1996, a subsidiary of Zanart Entertainment Incorporated
(Zanart) was merged into Continucare Corporation (the Merger), which was
incorporated on February 1, 1996 as a Florida corporation (Old Continucare).
As a result of the Merger, the shareholders of Old Continucare became
shareholders of Zanart, and Zanart changed its name to Continucare Corporation.
During Fiscal 1997, our business focused on managing and providing services to
behavioral health programs in hospitals and freestanding centers. We assigned
these contracts in Fiscal 1998 and began to develop our current strategy, which
currently consists of staff model clinics, Independent Practice Associations
(IPAs) and Home Health Agencies (HHAs).

Industry Overview

We believe the following three principal industry elements have created an
opportunity for us: (i) the continued penetration of managed care in the M+C
market; (ii) the highly fragmented nature of the delivery of outpatient
services; and (iii) the shift in the provision of healthcare services from the
hospital to lower cost outpatient locations and the home.

Continued Penetration of Managed Care in the M+C market. In response to
escalating expenditures in healthcare costs, payors, such as Medicare and
managed care organizations operating under M+C contracts, have increasingly
pressured physicians, hospitals and other providers to contain costs. This
pressure has led to the growth of lower cost outpatient care, and efforts to
reduce hospital admissions and lengths of stay. To further increase efficiency
and reduce the incentive to provide unnecessary healthcare services to
patients, payors have developed a reimbursement structure called percentage of
premium. POP contracts require the payment to healthcare providers of a
percentage of the total healthcare premium that an HMO receives from various
payor sources. For this POP, providers assume responsibility for servicing all
of the healthcare needs of those patients, regardless of their condition, and
paying for all the costs associated with those medical services. We believe
that low cost providers will succeed in the POP environment because such
companies have the ability to manage certain critical components of the cost of
patient care. While there has been a shift away from entering into these types
of arrangements to provide services to commercial patients, rising healthcare
costs and the financial imbalance of the Medicare delivery system has renewed
interest in cost containment concepts.

Highly Fragmented Market. The highly fragmented nature of the delivery of
outpatient services has created an inefficient healthcare services environment
for patients, payors and providers. Managed care companies and other payors
must negotiate with multiple healthcare service providers, including
physicians, hospitals and

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ancillary service providers, to provide geographic coverage to their
patients. Physicians who practice alone or in small groups have experienced
difficulty negotiating favorable contracts with managed care companies and have
trouble providing the burdensome documentation required by such entities. In
addition, healthcare service providers may lose control of patients when they
refer them out of their network for additional services that such providers do
not offer. We intend to continue affiliating with physicians who are sole
practitioners or who operate in small groups to staff and expand our network.

Shift Toward Low Cost Outpatient Treatment. Outpatient treatment has grown
rapidly as a result of: (i) advances in medical technology, which have
facilitated the delivery of healthcare in alternate sites; (ii) demographic
trends, such as an aging population; (iii) significant cost savings in moving
these non-emergent services from an acute care setting to a more cost effective
outpatient setting; and (iv) preferences among patients to receive care outside
of an inpatient setting. We expect this trend to continue as managed care
companies and healthcare providers continue shifting towards the lower cost
providers.

Business Strategy

Our goal is to leverage the current industry dynamics by: (i) increasing
our managed care revenue; (ii) maintaining a profitable physician network; and
(iii) improving the operating results of our home health agencies.

Increasing Managed Care Revenue. Our core business is comprised of our
established network of staff model clinics from which we provide primary care
services to our patients and to the public at large. By securing additional and
expanding existing managed care contracts with the leading managed care
companies in Florida, we believe that we will be able to increase our managed
care enrollments. We believe that we have been successful in developing managed
care relationships due to our network of quality physicians, the provision of a
range of healthcare services, and the depth of our delivery network.

Maintaining Physician Network.The physician network is the platform of
our managed care delivery system. Our goal is to expand the profitability of
our physician network by: (i) adding physicians to our IPAs; (ii) terminating
relationships with physicians that fail to meet the operating criteria that we
have set forth; and/or (iii) hiring physicians to work in our staff model
clinics.

Improving the Operating Results of Our Home Health Agencies. The home
healthcare industry continues to undergo major restructuring in response to
federal legislative enactments. Although we have taken steps to address these
scheduled reimbursement changes, there can be no assurance that these
reimbursement changes will not have a material adverse effect on our business.
In addition to the changes in the home healthcare industry resulting from
legislative enactments, there has also been a growth in the home healthcare
industry for patients of worker compensation cases and in long-term care
patients. In the fourth quarter of Fiscal 2003 we began to reorganize our home
health operations in an effort to reduce certain overhead costs. At June 30,
2003, we operated five HHAs in South Florida.

Business Model

Our core business model consists of three areas: staff model clinics, IPAs
and HHAs. We provide medical services to patients through our employee
physicians, affiliated IPA physicians, nurses, physical therapists and nurse
aides. Additionally, we provide management and administrative services to both
our employee physicians and to the physicians that are affiliated with us. See
We Depend on Reimbursement from Third Parties.

Staff Model Clinics.Our staff model clinics are medical centers where
physicians, who are our employees or independent contractors, act as primary
care physicians practicing in the area of general, family and internal
medicine. Our revenue is generated through either capitated or POP monthly fee
arrangements with HMOs or on a fee for service basis. The monthly POP fee
arrangement is based upon a negotiated percentage of healthcare premium which
is related to either Medicare, Medicaid or a commercial medical insurance
program.

IPAs.We have contracted on an independent contractor basis with various
physicians and physician practices who currently provide or are qualified to
provide medical services to our IPA members. We currently administer 3 IPA
contracts. One IPA contract is a full-risk POP contract, one is a limited-risk
contract and one is a

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management contract where we bear no financial risk for the performance of
the affiliated IPA physicians. We pay the physicians a capitated fee for
providing the services and offer the physician an opportunity to obtain bonus
distributions if they operate their practice in accordance with their
negotiated contract. In addition to providing certain administrative services
to the physicians, we also provide utilization assistance.

Home Health Agencies. Our home health services include five HHAs, two
located in Miami-Dade county, two located in Broward county and one located in
Palm Beach County. These agencies provide comprehensive nursing, physical
therapy, nurses aides and home health aides to individuals in their home who
are disabled, elderly or recovering from a debilitating illness, accident or
surgery. Two of the agencies are compensated by Medicare and Medicaid in
accordance with a pre-determined rate schedule. The remaining three agencies
are private license HHAs.

Integrated Outpatient Healthcare

We are a provider of integrated outpatient healthcare. We have established
a network of physician practices as the primary caregiver to our patients and
to the public at large and we also provide home health services.

Office and Physician/Health Center Practices. Since commencing our
operations in 1996, we have expanded our physician network through the
acquisition of physician practices, employment of new physicians and
affiliations with physicians through our IPAs. We operate fifteen staff model
health center clinics that employ or contract with approximately 28 physicians
and, as of the date of filing this annual report, provide management oversight
assistance for IPAs with 34 physicians all of whom are located in Florida. As
of June 30, 2003, we provided services to approximately 16,700 patients on a
full-risk basis and 7,100 patients on a limited or non-risk basis.

The physicians within our network treat patients in office-based settings
as well as health centers. A typical office-based practice is operated in an
office space that ranges from 2,500 to 3,000 square feet. The office typically
employs or contracts with approximately one to two physicians. The physicians
provide primary care services to their patients. A typical health center is
operated in an office space that ranges from 5,000 to 8,000 square feet. A
health center is typically staffed with approximately two to three physicians,
and is open five days a week.

Home Healthcare. We provide home healthcare services to recovering,
disabled, chronically ill and terminally ill patients in their homes.
Typically, a service care provider (such as a registered nurse, home health
aide, therapist or technician) will visit the patient daily, several times a
week or, in some instances, around-the-clock. Treatment may last for several
weeks, several months or the remainder of the patients life. The services
provided by us include skilled nursing, physical therapy, speech therapy,
occupational therapy, medical social services and home health aide services.
Reimbursement sources for the home health services we provided include
Medicare, Medicaid, commercial insurers and private individuals.

Administrative Support Operations

Administrative Functions. We enhance the operations of our physician
practices by providing management functions such as payor contract
negotiations, credentialing assistance, financial reporting, risk management
services, access to lower cost professional liability insurance and the
operation of integrated billing and collection systems. We believe we offer
physicians increased negotiating power associated with managing their practice
and fewer administrative burdens, which allows the physician to focus on
providing care to patients.

We enhance the operations of IPA physician practices by providing
assistance with utilization management, pharmacy management, and specialist
network development. Additionally, we provide financial reporting for the IPA
practices to further assist with their operations.

Employment and Recruiting of Physicians. We generally enter into
multiple-year employment agreements that contain 90-day termination clauses
with the physicians that we employ. These agreements usually provide for base
compensation and benefits and may contain incentive compensation provisions
based on quality indicators. The recruitment process includes interviews and
reference checks. Our physicians are generally either board certified or board
eligible.

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Contract Negotiations. We believe that our experience in negotiating and
managing risk contracts enhances our ability to market the services of our
affiliated physicians to managed care payors and to negotiate favorable terms
from such payors. The managed care contracts are held, managed and administered
by one of our wholly-owned subsidiaries. We also perform quality assurance and
utilization management under each contract on behalf of our affiliated
physicians.

Information Systems. We support freestanding systems for our physician
practices to facilitate patient scheduling, patient management, billing,
collection and provider productivity analysis. Although we are not currently
aware of any pending technological developments that will likely require
upgrades or additions to our information system, there is no assurance that
such developments will not occur.

Managed Care

Our strategy is to increase enrollment at our wholly-owned centers through
joint marketing efforts with the HMOs and by adding new payor relationships and
new providers to the existing network, as well as by expanding the network into
new geographic areas where the penetration of managed healthcare is growing. We
believe new payor and provider relationships are possible because of our
ability to manage the cost of health care without sacrificing quality.During
Fiscal 2003, substantially all of the revenues from the managed care operations
were generated under a POP monthly fee arrangement with HMOs.

Contracts with Payors.Contracts with payors generally provide for terms
of one to ten years, may be terminated earlier upon notice for cause or upon
renewal and in some cases without cause. Additionally, the contracts are
subject to renegotiation of POP rates, covered benefits and other terms and
conditions. Pursuant to payor contracts, we provide covered medical services
and receive POP payments from payors for each enrollee who selects one of our
network physicians as his or her primary care physician. To the extent that
patients require more care or require supplemental medical care that is not
otherwise reimbursed by payors, aggregate POP payments may be insufficient to
cover the costs associated with the treatment of patients. We maintain
stop-loss insurance coverage, which mitigates the effect of occasional high
utilization of health care services. If revenues are insufficient to cover
costs or we are unable to maintain stop-loss coverage at favorable rates, our
business results of operations and financial condition could be materially
adversely affected. In Fiscal 2003, we generated approximately 23% of our net
medical services revenue from Vista and approximately 73% of our net medical
services revenue from Humana. The loss of significant payor contracts and/or
the failure to regain or retain such payors patients or the related revenues
without entering into new payor relationships could have a material adverse
effect on our business results of operations and financial condition.

Our POP managed care agreement with Vista is a ten-year agreement with the
initial term expiring on June 30, 2008, unless terminated earlier by Vista for
cause. In the event of termination of the Vista agreement, we must continue to
provide services on a fee for service basis to a patient with a
life-threatening or disabling and degenerative condition for sixty days as
medically necessary. Vista can terminate the agreement with respect to one or
more benefit programs, we may only terminate the agreement in its entirety.
However, we have the right to terminate unprofitable physicians and close
unprofitable centers. Vista may also terminate the agreement with us for cause
upon 30 days written notice of a material breach; provided however, that we are
afforded an opportunity to cure such breach. Vista may also immediately
terminate its agreement with us upon Vistas determination that the health,
safety or welfare of any member may be in jeopardy if the agreement is not
terminated.

Effective March 31, 2001, we negotiated an amendment to our professional
provider agreement with Vista (the 2001 Amendment). The 2001 Amendment
eliminated the medical claims liability incurred by a Vista IPA through March
31, 2001 and reduced other liabilities to Vista by $1,000,000. The 2001
Amendment also terminated our association with certain physician practices
effective April 1, 2001 through May 31, 2001, which represented approximately
70% of the Vista IPAs membership at that time. Effective January 1, 2003, we
cancelled the remaining physician contracts under the Vista IPA (The
Terminated Vista IPA.) The results of the Terminated Vista IPAs operations
are shown in the accompanying consolidated financial statements as discontinued
operations. (See Note 1 to the consolidated financial statements.)

We currently have four managed care agreements with Humana. Two of the
Humana agreements are POP full-risk agreements. One of the Humana agreements
is a limited-risk agreement and one agreement is a no-risk

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management agreement. The majority of our business with Humana is
governed by one of the Humana POP full-risk agreements which has a 10-year term
expiring on July 31, 2008 unless terminated earlier for cause. The Humana POP
Agreement renews for subsequent one-year terms unless either party provides
180-days written notice of its intent not to renew. In addition, the Humana POP
Agreement may be terminated by the mutual consent of both parties at any time.
We have the right to terminate unprofitable physicians and to close
unprofitable centers. Under certain limited circumstances, Humana may
immediately terminate the Humana POP Agreement for cause, otherwise termination
for cause shall require 90 days prior written notice with an opportunity to
cure, if possible. Humana may terminate the POP Agreement, and/or any
individual physician credentialed under the POP Agreement, upon written notice
if Humana reasonably determines that: (i) we and/or any of our physicians
continued participation in the Humana POP Agreement may affect adversely the
health, safety or welfare of any Humana member; (ii) we and/or any of our
physicians continued participation in the Humana POP Agreement may bring
Humana or its health care networks into disrepute; (iii) in the event of one of
our doctors death or incompetence; (iv) if any of our physicians fail to meet
Humanas credentialing criteria; (v) if we engage in or acquiesce to any act of
bankruptcy, receivership or reorganization; or (vi) if Humana loses its
authority to do business in total or as to any limited segment or business (but
only to that segment). In the event of termination of the Humana POP
Agreement, we must continue to provide or arrange for services on a fee for
service basis to any member hospitalized on the date of termination until the
date of discharge or until we have made arrangements for substitute care. In
some cases, Humana may provide 30 days notice as to an amendment or
modification of the Humana POP Agreement, including but not limited to,
renegotiation of rates, covered benefits and other terms and conditions. In
the event that Humana exercises its right to amend the Humana POP Agreement
upon 30 days written notice, we may object to such amendment within the 30-day
notice period. Such amendments may include changes to the compensation rates.
If we object to such amendment within the requisite time frame, Humana may
terminate the Humana POP Agreement upon 90 days written notice.

The other POP full-risk agreement with Humana and the Humana Limited-Risk
Agreement are not material to our operations and contain similar termination
requirements as described above.

On February 14, 2003 we executed a Letter of Agreement (the LOA) and a
Promissory Note Restructuring Agreement (the PSNR Agreement) with Humana.
The PSNR Agreement canceled a $3,850,000 defaulted note. See Note 1 to our
consolidated financial statements regarding the accounting treatment of the
canceled note. Pursuant to the LOA, we agreed to execute a no-risk Physician
Group Participation Agreement (PGP Agreement.)

In April 2003, the PGP Agreement was executed that memorialized the terms
of the LOA. The PGP Agreement is a two-year agreement that automatically
renews for subsequent one (1) year terms unless either party provides written
notice of non-renewal at least 60 days prior to end of the initial term or any
subsequent renewal term. At any time during the original or any subsequent
renewal term, either party can terminate the PGP Agreement without cause upon
at least 90 days prior written notice. Additionally, Humana may terminate the
PGP Agreement, and/or any individual physician or group of physicians employed
or contracted by us (Physician), immediately upon written notice in the event
Humana reasonably determines that: (i) continued participation by either us
and/or a Physician under this PGP Agreement may affect adversely the health,
safety or welfare of any Humana member or bring Humana or its provider networks
into disrepute; or (ii) in the event of a Physicians death or incompetence; or
(iii) a Physician(s) fails to meet Humanas credentialing or re-credentialing
criteria; or (iv) if any Physician or any employee, subcontractor or
independent contractor of a Physician is excluded from participation in any
federal health care program; or (v) as specified in Humanas Physician
Administration Manual. Further, Humana may terminate the PGP Agreement
immediately upon written notice to us in the event that: (i) we engage in or
acquiesce to any act of bankruptcy, receivership or reorganization; or (ii)
Humana loses its authority to do business in total or as to any segment of
business, but then only as to that segment. The PGP Agreement also contains a
provision for liquidated damages in the amount of $4,000,000 which can be
asserted by Humana if we fail to exert our best efforts to perform under the
contract or other specific events occur. (See Note 1 to our Consolidated
Financial Statements.)

Pursuant to the PGP Agreement, after June 30, 2003, we agreed to provide
management services in connection with the oversight of an additional 10
physician groups (the Physician Groups) who provide care to approximately
4,500 patients; however, the management of the care for these patients will not
have a material effect on the revenue, or expenses of our managed care
operations. We have not accepted the financial responsibility for the cost of
the medical care provided by the Physician Groups under the PGP Agreement to
the Humana members.

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Accordingly, we do not record any POP revenue, claims expense, claims
surplus or claims deficits for the Physician Groups. As compensation for the
management services we are providing to the Physician Groups, we receive a
management fee based on the number of patients for which are providing services
on a monthly basis. Pursuant to the PGP Agreement, profits and losses incurred
by the Physician Groups will be accounted for in a reserve account (the PGPA
Reserve Account). We do not have any responsibility to replenish any losses
in the PGPA Reserve Account nor will we receive any distribution from surpluses
in the reserve account until the balance of the PGPA Reserve Account reaches
$4,000,000. Once the PGPA Reserve Account reaches a balance of $4,000,000, the
PGPA Reserve Account will no longer be used to account for the profits and
losses incurred by the Physician Group. After that time, any accumulated PGP
Agreement surplus will be paid to us, although we will not be at risk for any
accumulated PGP Agreement losses.

Neither the Vista nor the Humana agreements imposes a limit on the number
of adjustments that may be made to their provider agreement.

We had one additional non-risk based managed care contract during Fiscal
2003 which was cancelled effective July 1, 2003.

We continually review and attempt to renegotiate the terms of our managed
care agreements in an effort to obtain more favorable terms.

Although we did not lose, on an aggregate basis, any significant payor
contracts in Fiscal 2003, the loss of any of our current managed care contracts
or significant reductions in capitated reimbursement rates under these
contracts could have a material adverse effect on our business, financial
condition and results of operations.

Fee-for-Service Arrangements.Certain of our physicians also render
services under a fee-for-service arrangement and typically bill various payors,
such as governmental programs (e.g., Medicare and Medicaid), private insurance
plans and managed care plans, for the health care services provided to their
patients. There can be no assurance that payments under governmental programs
or from other payors will remain at present levels. In addition, payors can
deny reimbursement if they determine that treatment was not performed in
accordance with the cost-effective treatment methods established by such payors
or was experimental or for other reasons.

Compliance Program

We have implemented a compliance program to provide ongoing monitoring and
reporting to detect and correct potential regulatory compliance problems. The
program establishes compliance standards and procedures for employees and
agents. The program includes, among other things: (i) written policies; (ii)
in-service training for each employee on topics such as insider trading,
anti-kickback laws, Federal False Claims Act and Anti-Self Referral Act; and
(iii) a hot line for employees to anonymously report violations.

Competition

The healthcare industry is highly competitive. We compete with many
regional and national healthcare companies, some of which have greater
resources than we do. Competition is generally based upon reputation, price and
the ability to offer management expertise, financial benefits and other
benefits for the particular provider in a quality and cost-effective manner.
The pressure to reduce healthcare expenditures has emphasized the need to
manage the appropriateness of health services provided to patients.

Government Regulation

General.Our business is affected by federal, state and local laws and
regulations concerning healthcare. These laws and regulations impact the
provision of healthcare to patients in physicians offices and in patients
homes. Licensing, certification, reimbursement and other applicable government
regulations vary by jurisdiction and are subject to periodic revision. We are
not able to predict the content or impact of future changes in laws or
regulations affecting the healthcare industry. See Risk Factors.

Present and Prospective Federal and State Reimbursement Regulation.Our
operations are affected on a day-to-day basis by numerous legislative,
regulatory and industry-imposed operational and financial requirements,

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which are administered by a variety of federal and state governmental
agencies as well as by self-regulatory associations and commercial medical
insurance reimbursement programs.

HHAs, including those now or previously managed and/or owned by us, are
subject to numerous licensing, certification and accreditation requirements.
These include, but are not limited to, requirements relating to Medicare
participation and payment, requirements relating to state licensing agencies,
private payors and accreditation organizations. Renewal and continuance of
certain of these licenses, certifications and accreditation are based upon
inspections, surveys, audits, investigations or other review, some of which may
require or include affirmative action or response by us. An adverse
determination could result in a fine, and/or loss or reduction in the scope of
licensure, certification or accreditation or could reduce the payment received
or require the repayment of amounts previously remitted.

Significant changes have been and may be made in the Medicare and Medicaid
programs, which changes could have a material adverse impact on our financial
condition. In addition, legislation has been or may be introduced in the
Congress of the United States, which, if enacted, could adversely affect our
operations by, for example, decreasing reimbursement by third-party payors such
as Medicare or limiting our ability to maintain or increase the level of
services provided to the patients.

Federal Fraud and Abuse Laws and Regulations.The Anti-Kickback Law
makes it a criminal felony offense to knowingly and willfully offer, pay,
solicit or receive remuneration in order to induce business for which
reimbursement is provided under federal health care programs, including without
limitation, the Medicare and Medicaid programs. Violations of these laws are
punishable by monetary fines, civil and criminal penalties, exclusion from care
programs and forfeiture of amounts collected in violation of such laws. The
scope of prohibited payments in the Anti-Kickback Law is broad and includes
economic arrangements involving hospitals, physicians and other health care
providers, including joint ventures, space and equipment rentals, purchases of
physician practices and management and personal services contracts.

We believe that our contracts with providers, physicians and other referral
sources are in material compliance with the Anti-Kickback Law and we will make
every effort to continue to comply with the Anti-Kickback Law. However, in
light of the narrowness of the safe harbor regulations and the scarcity of case
law interpreting the Anti-Kickback Law, there can be no assurances that we will
not be alleged to have violated the Anti-Kickback Law, and if an adverse
determination is reached, whether any sanction imposed would have a material
adverse effect on the Companys financial condition, results of operations or
cash flows

State Fraud and Abuse Regulations.Various states also have anti-kickback
laws applicable to licensed healthcare professionals and other providers and,
in some instances, applicable to any person engaged in the proscribed conduct.
For example, Florida enacted The Patient Brokering Act which imposes criminal
penalties, including jail terms and fines, for receiving or paying any
commission, bonus, rebate, kickback, or bribe, directly or indirectly in cash
or in kind, or engage in any split-fee arrangement, in any form whatsoever, to
induce the referral of patients or patronage from a healthcare provider or
healthcare facility.

We believe that our contracts with providers, physicians and other
referral sources are in material compliance with the State laws and will make
every effort to comply with the State laws. However, there can be no assurances
that we will not be alleged to have violated the State laws, and if an adverse
determination is reached, whether any sanction imposed would have a material
adverse effect on our financial condition, results of operations or cash flows.

Restrictions on Physician Referrals.The federal Anti-Self Referral Law
(the Stark Law) prohibits certain patient referrals by interested physicians.
Specifically, the Stark Law prohibits a physician, or an immediate family
member, who has a financial relationship with an entity, from referring
Medicare or Medicaid patients with limited exceptions, to that entity for the
following designated health services, clinical laboratory services, physical
therapy services, occupational therapy services, radiology or other diagnostic
services, durable medical equipment and supplies, radiation therapy services
and supplies, parenteral and enteral nutrients, equipment and supplies,
prosthetics, orthotics and prosthetic devices, home health services, outpatient
prescription drugs, and inpatient and outpatient hospital services. A financial
relationship is defined to include an ownership or investment in, or a
compensation relationship with, an entity. The Stark Law also prohibits an
entity receiving a prohibited referral from

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billing the Medicare or Medicaid programs for any services rendered to a
patient. The Stark Law contains certain exceptions that protect parties from
liability if the parties comply with all of the requirements of the applicable
exception. The sanctions under the Stark Law include denial and refund of
payments, civil monetary penalties and exclusions from the Medicare and
Medicaid programs.

On January 4, 2001, HHS issued part one of final regulations interpreting
the Stark Law, which become effective on January 4, 2002. We believe that we
are presently in material compliance with the Stark Law, including the new
regulations that became effective January 4, 2002, and will make every effort
to continue to comply with the Stark Law. However, there can be no assurances
that we will not be alleged to have violated the Stark Law, and if an adverse
determination is reached, whether any sanction imposed would have a material
adverse effect on our results of operations, financial condition or cash flows.

Privacy Laws.The privacy, security and transmission of health information
is subject to federal and state laws and regulations, including the Healthcare
Insurance Portability and Accountability Act of 1996 (HIPAA). Final
regulations with respect to the privacy of certain individually identifiable
health information (the protected health information) were issued in August
2002 and became effective in April 2003. In addition, regulations with respect
to the transmission of protected health information became effective in October
2002 and established uniform standards relating to data reporting, formatting,
and coding that certain health care providers must use when conducting certain
transactions involving health information. While the compliance date for these
regulations was October 2002, we applied for an extension to October 2003 by
submitting a compliance extension plan to the Department of Health and Human
Services before October 16, 2002. All covered entities must comply with the
transaction and code set standards by October 16, 2003. We believe we are
currently in compliance with the regulations regarding the transmission of
Protected Health Information. However, it is possible that some covered
entities, including our payors, will not be sufficiently prepared to meet these
transaction requirements, potentially causing disruption in the current claim
submission and payment cycles, which could cause us to experience loss of
anticipated revenue until compliance is achieved. Further, operated at full
capacity using the newly-mandated standard transactions, it is possible that
currently undetected errors may cause rejection of claims, extended payment
cycles, system implementation delays, cash flow reduction, with the attendant
risk of liability and claims against us. Regulations issued in February 2003
set standards for the security of electronic health information requiring
compliance by April 21, 2005.

Some of our operations will be subject to HIPAA and both sets of
regulations. In addition we will have to comply with any applicable state
privacy laws that are more stringent than HIPAA or are not preempted by HIPAA.
We have reviewed the regulations and implemented changes we believe will cause
us to continue to be in compliance with all applicable requirements of HIPAA,
its regulations, and state privacy laws. We believe we are currently in
material compliance with applicable state and federal privacy laws.

Corporate Practice of Medicine Doctrine.Many states prohibit business
corporations from providing, or holding themselves out as a provider of medical
care. Possible sanctions for violation of any of these restrictions or
prohibitions include loss of licensure or eligibility to participate in
reimbursement programs (including Medicare and Medicaid), asset forfeitures and
civil and criminal penalties. These laws vary from state to state, are often
vague and loosely interpreted by the courts and regulatory agencies.
Currently, we only operate in Florida, which currently does not have a
corporate practice of medicine doctrine with respect to the types of physicians
employed with us. There, however, can be no assurance that such laws will not
change or ultimately be interpreted in a manner inconsistent with our
practices, and an adverse interpretation could have a material adverse effect
on our results of operations, financial condition or cash flows.

Clinic Registration.The State of Florida has recently enacted new
legislation which required us to register each of our medical centers as
clinics. The new legislation became effective on October 1, 2001. We have
registered each medical center in accordance with this new legislation.

Limitations on Contractual Joint Ventures.On April 23, 2003, the Office
of Inspector General (OIG) issued a Special Advisory Bulletin raising
concerns throughout the healthcare industry about the legality of a variety of
provider joint ventures. The suspect arrangements involve a healthcare
provider expanding into a related service line by contracting with an existing
provider of that service to serve the providers existing patient population.
In the OIGs view, the providers share of the profits of the new venture
constitutes remuneration for the referral of the

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providers Medicare/Medicaid patients and thus may violate the federal
Anti-kickback Statute. We believe our contractual arrangements with HMOs are
not of the type identified in the OIG Bulletin.

Healthcare Reform.Federal and state governments have recently focused
significant attention on healthcare reform intended to control healthcare costs
and to improve access to medical services for uninsured individuals. These
proposals include cutbacks to the Medicare and Medicaid programs and steps to
permit greater flexibility in the administration of Medicaid. It is uncertain
at this time what legislation on healthcare reform may ultimately be enacted or
whether other changes in the administration or interpretation of governmental
healthcare programs will occur. There can be no assurance that future
healthcare legislation or other changes in the administration or interpretation
of governmental healthcare programs will not have a material adverse effect on
our business, financial condition or results of operations.

Employees

At June 30, 2003, we employed or contracted with approximately 301
individuals of whom approximately 28 are physicians in our staff model clinics.
Additionally at June 30, 2003 we contracted with approximately six IPA
physicians on a full-risk basis and provided management services to 12
physicians on a non-risk basis.

Insurance

We carry general liability, comprehensive property damage, medical
malpractice, workers compensation, stop-loss and other insurance coverages
that management considers adequate for the protection of our assets and
operations. As a result of national malpractice award trends and the
significant loss of professional insurance underwriting capacity, the cost of
our medical malpractice insurance has increased while the coverage afforded
under the policies available has decreased. Additionally, as a result of the
events of September 11, 2001, as well as recent high profile director and
officer related litigation, the cost of our director and officer insurance
policy has increased. We anticipate that the cost for both our medical
malpractice insurance as well as our director and officers insurance will
increase again in Fiscal 2004. There can be no assurance that the coverage
limits of our insurance policies will be adequate. A successful claim against
us in excess of our insurance coverage could have a material adverse effect on
us.

Seasonality

All of our medical services revenue in Fiscal 2003 were derived from our
operations in central and southern Florida. South Florida has historically been
a transient state with the transient factor being directly related to seasonal
climate changes. It is anticipated that in Fiscal 2004 all of our net revenue
will also be derived from our operations in Florida. While there are some
seasonal fluctuations in our business, management does not believe that
seasonality will play an adverse role in our future operations.




ITEM 2. PROPERTIES

We lease approximately 10,000 square feet of space for our corporate
offices in Miami, Florida under a lease expiring in September 2004 with average
annual base lease payments of approximately $200,000. Of the fifteen staff
model clinics that we operated as of June 30, 2003, five are leased from
independent landlords and the other ten clinics are leased from Humana. The
ten Humana centers and one of the clinic spaces leased from an independent
landlord are leased on a month-to-month basis. The leases with Humana are not
tied to our managed care arrangement. As a month-to-month tenant, we have
limited tenancy rights. The month-to-month lease arrangements with Humana can
be cancelled at the option of Humana, without cause, on 30 days written notice.
We are negotiating a multiple year lease for the other clinic space that is
currently leased on a month-to-month basis. However, until a multiple year
lease is executed with the landlord, the lease arrangement can be cancelled at
the option of the landlord, without cause, in a manner that complies with local
tenancy laws. A termination of one or all of these month-to-month leases could
have an adverse effect on us because we would, on 30 days written notice, be
forced to find replacement facilities at which to provide medical services to
our members. If we were unable to find adequate replacement facilities, then
we could experience a disenrollment of our members.

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ITEM 3. LEGAL PROCEEDINGS

A decision has been rendered in the case of WARREN GROSSMAN, M.D., ALAN
REICH, M.D., AND RICHARD STRAIN, M.D. v. CONTINUCARE PHYSICIAN PRACTICE
MANAGEMENT, INC. AND CONTINUCARE CORPORATION. On June 27, 2002, the court
issued its ruling, dismissing all claims asserted by one of the Plaintiffs.
The court found we had improperly terminated the employment contract of the
other two Plaintiffs, but awarded each only nominal damages in the amount of
One Dollar ($1) each. We requested reimbursement for attorneys fees as to two
of the Plaintiffs and requested the court to deny any request for attorney fees
as to the other Plaintiff based on the award of only nominal damages. The
Plaintiffs also asserted a right to reimbursement of certain attorneys fees.
On May 8, 2003, the court ruled that none of the parties will obtain
reimbursement of their attorney fees and costs.

Two of our subsidiaries were parties to the case of NANCY FEIT ET AL. v.
KENNETH BLAZE, D.O. KENNETH BLAZE., D.O., P.A.; SHERIDAN HEALTHCORP, INC.;
WAYNE RISKIN, M.D.; KAHN AND RISKIN, M.D., P.A.; CONTINUCARE PHYSICIAN PRACTICE
MANAGEMENT, INC., D/B/A ARTHRITIS AND RHEUMATIC DISEASE SPECIALTIES, INC.;
JAMES JOHNSON, D.C. AND JOHNSON & FALK, D.C., P.A. The case was filed in
December, 1999 in the Circuit Court of the 17th Judicial Circuit in and for
Broward County, Florida and served on us in April, 2000. On July 16, 2003, we
were dropped as a party to the case.

We are a party to the case of ELBA GONZALEZ AND EFRAIN PELLOT AS PERSONAL
REPRESENTATIVES OF THE ESTATE OF NICHOLAS PELLOT, DECEASED, AND ELBA GONZALEZ
AND EFRAIN PELLOT, INDIVIDUALLY AND JOINTLY AS SURVIVING PARENTS v.
CONTINUCARE CORPORATION; MICHAEL J. CAVANAUGH, M.D.; GUYLENE KERNISANT,
A.R.N.P.; DIAGNOSTIC TESTING GROUP, INC. AND JOHN H. SOKOLOWICZ, M.D. This
case was filed on March 12, 2002 in the Circuit Court of the 11th Judicial
Circuit in and for Dade County, Florida and served on the companies and
individuals in March 2002. The complaint alleges vicarious liability for
medical malpractice and seeks damages in excess of $15,000. Trial was
originally set for June 2, 2003; however, the court has granted a continuance
and a new trial date has not been set. We intend to defend this case
vigorously.

We are a party to the case of JOAN LINDAHL v. HUMANA MEDICAL PLAN, INC.,
COLUMBIA HOSPITAL CORPORATION OF SOUTH BROWARD D/B/A WESTSIDE REGIONAL MEDICAL
CENTER, INPHYNET CONTRACTING SERVICES, INC., CONTINUCARE MEDICAL MANAGEMENT,
INC., LUIS GUERRERO AND JARSLAW PARKOLAP. This case was filed on January 24,
2003 in the Circuit Court of the 17th Judicial Circuit in and for Broward
County, Florida and served on the companies and individuals in February 2003.
The complaint alleges vicarious liability for medical malpractice and seeks
damages in excess of $15,000. Although the case has currently been stayed, we
intend to defend this case vigorously.

On February 13, 1998, we acquired the stock of Rehab Management Systems,
Inc., Integracare, Inc. and J.R. Rehab Associates, Inc. (collectively referred
to as RMS) from Integrated Health Services, Inc. (IHS). RMS operated
numerous rehabilitation clinics in the States of Florida, Georgia, Alabama,
North Carolina and South Carolina as a Medicare and Medicaid provider of
outpatient services. On April 8, 1999, we sold substantially all the assets of
RMS and the assumption of certain liabilities to Kessler Rehabilitation of
Florida, Inc. (Kessler). On August 13, 1999, RMS was formally dissolved as a
corporation with the State of Florida. During the second quarter of Fiscal
2002, we became aware that CMS was pursuing IHS, Kessler and RMS for collection
of principal and interest for certain alleged Medicare overpayments made to
providers purchased from IHS or linked to the purchased entities through the
use of a common provider number (the Providers) for services rendered during
calendar years 1996, 1997 and 1998 (collectively, the Alleged Overpayments).
We were aware of our obligation to CMS for any overpayments for services
rendered by the Providers during calendar years 1997 and 1998. At the time the
cost reports were completed and submitted to CMS for services rendered by the
Providers during calendar years 1997 and 1998, we recorded an estimate for the
overpayments indicated on those cost reports as part of our continuing
operations. When we purchased RMS, the purchase agreement included
indemnification from IHS for any overpayments prior to calendar year 1997.
Subsequent to our purchase of RMS, IHS sought protection under Chapter 11 of
the United States Bankruptcy Code and, as such, is protected from CMS and RMS
efforts to collect on the Alleged Overpayments that relate to calendar year
1996.

During the third quarter of Fiscal 2002, it became clear that we were
being pursued by CMS as the primary

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obligor for all of the Alleged Overpayments, including calendar year 1996.
While we dispute the validity of these claims, in an effort to expedite the
resolution of these matters and halt CMS aggressive collection procedures
which included the threat of withholding payments to our home health agencies,
we entered into a memorandum of understanding for the 1996 and 1997 cost report
years (the 1996 Repayment Memorandum and the 1997 Repayment Memorandum.)
Under both the 1996 Repayment Memorandum and the 1997 Repayment Memorandum, we
agreed to make monthly payments of $10,000 for 24 months for each of the 1996
and 1997 cost report years with the balance due at the end of the respective
terms. Although we began making payments under these Memorandums, we retained
the right to dispute the Alleged Overpayments. While a liability for the 1997
cost report had previously been recorded, no amounts had been recorded for the
1996 cost report liability primarily due to (i) the indemnification we had
received from IHS for any overpayments prior to calendar year 1997; (ii) the
cost report including providers which we never owned or operated; and (iii)
lack of knowledge of a balance owed to CMS for the 1996 cost report and CMS
ability to demand payment from us. As such, during the quarter ended March
31, 2002 we recorded an approximately $2,441,000 Provision for Medicare
Settlement Related to Terminated Operations.

During September 2002, we requested a reopening of the 1996 and 1997 cost
reports and supplied various documentation to demonstrate that the Alleged
Overpayments were incorrect. On April 25, 2003 the Medicare Fiscal Intermediary
notified us of their intent to reopen the 1996 and 1997 cost reports and review
the documentation we submitted. On September 18, 2003, we were notified by the
Medicare Fiscal Intermediary that they had completed the reopening of the 1997
cost report. As a result of this cost report settlement, the original
liability recorded of approximately $402,000 (prior to any payments made under
the 1997 Repayment Memorandum) has been reduced to approximately $40,000. The
Medicare Fiscal Intermediary is currently reviewing the documentation we
submitted for the 1996 cost report reopening. At June 30, 2003, the
outstanding liability for the 1996 alleged overpayments is approximately
$2,300,000. There can be no assurance that the 1996 cost report reopening will
result in a positive adjustment or reduce the liability outstanding. (See Note
11Commitments and Contingencies.)

We are also involved in various other legal proceedings incidental to our
business that arise from time to time out of the ordinary course of business 
including, but not limited to, claims related to the alleged malpractice of
employed and contracted medical professionals, workers compensation claims and
other employee-related matters, and minor disputes with equipment lessors and
other vendors.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At our Annual Meeting of Shareholders held on April 9, 2003, the
shareholders voted to elect Spencer J. Angel, Robert J. Cresci, Neil
Flanzraich, Patrick M. Healy, Jack Nudel and Richard C. Pfenniger, Jr. as
Directors. The number of votes cast for, against or withheld, with respect to
each of the nominees, were as follows:

|                          |  |     |            |         |  |          |         |  |  |  |   | 
|------------------------- |  | --- | ---------- | ------- |  | -------- | ------- |  |  |  | - | 
|Nominee                   |  | For |            | Against |  | Withheld
|                          |  |     |            |         |  |         
|Spencer J. Angel          |  |     | 30,972,513 |         |  |          | 118,900 |  |  |  |  | 
|                          |  |     |            |         |  |          |         |  |  |  |   | 
|Robert J. Cresci          |  |     | 30,972,513 |         |  |          | 118,900 |  |  |  |  | 
|                          |  |     |            |         |  |          |         |  |  |  |   | 
|Neil Flanzraich           |  |     | 30,972,513 |         |  |          | 118,900 |  |  |  |  | 
|                          |  |     |            |         |  |          |         |  |  |  |   | 
|Patrick M. Healy          |  |     | 30,972,513 |         |  |          | 118,900 |  |  |  |  | 
|                          |  |     |            |         |  |          |         |  |  |  |   | 
|Jack Nudel                |  |     | 30,972,513 |         |  |          | 118,900 |  |  |  |  | 
|                          |  |     |            |         |  |          |         |  |  |  |   | 
|Richard C. Pfenniger, Jr. |  |     | 30,972,513 |         |  |          | 118,900 |  |  |  |  | 

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PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market Price

The principal U.S. market in which our common stock is traded is the
American Stock Exchange (AMEX) (symbol: CNU). The following table shows the
high and low sales prices as reported on AMEX for our common stock for the
periods indicated below. These quotations have been obtained from AMEX.

|                 |                |      |   |      |  |  |   |     | 
|---------------- | -------------- | ---- | - | ---- |  |  | - | --- | 
|PRICE PERIOD     |                | HIGH |   | LOW 
|                 |                |      |   |     
|Fiscal Year 2002 |                |      |   |      |  |  |   |    
|                 | First Quarter  |      | $ | 1.00 |  |  | $ | .27 | 
|                 | Second Quarter |      |   | .82  |  |  |   | .28 | 
|                 | Third Quarter  |      |   | .54  |  |  |   | .27 | 
|                 | Fourth Quarter |      |   | .50  |  |  |   | .19 | 
|                 |                |      |   |      |  |  |   |    
|Fiscal Year 2003 |                |      |   |      |  |  |   |    
|                 | First Quarter  |      | $ | .25  |  |  | $ | .11 | 
|                 | Second Quarter |      |   | .16  |  |  |   | .10 | 
|                 | Third Quarter  |      |   | .36  |  |  |   | .11 | 
|                 | Fourth Quarter |      |   | .75  |  |  |   | .30 | 

As of September 5, 2003, there were 132 holders of record of our common
stock.

Dividend Policy

We have never declared or paid any cash dividends on our common stock and
have no present intention to declare or pay cash dividends on our common stock
in the foreseeable future. We intend to retain earnings, if any, which we may
realize in the foreseeable future, to finance our operations. See Managements
Discussion and Analysis of Financial Condition and Results of Operations. The
payment of future cash dividends on our common stock will be at the discretion
of our board of directors and will depend on a number of factors, including
future earnings, capital requirements, our financial condition and prospects
and any restrictions under credit agreements existing from time to time. There
can be no assurance that we will pay any cash dividends on the common stock in
the future.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information as of June 30, 2003, with respect
to all of our compensation plans under which equity securities are authorized
for issuance:

|                                   |  |                      |           |                   |  |                         |      |  |  |  |           | 
|---------------------------------- |  | -------------------- | --------- | ----------------- |  | ----------------------- | ---- |  |  |  | --------- | 
|                                   |  | Number of securities |           | Weighted average  |  |                         |      | 
|                                   |  | to be issued upon    |           | exercise price of |  |                         |      | 
|                                   |  | exercise of          |           | outstanding       |  | Number of securities   
|                                   |  | outstanding options, |           | options, warrants |  | remaining available for
|Plan Category                      |  | warrants and rights  |           | and rights        |  | future issuance        
|                                   |  |                      |           |                   |  |                        
|Plans approved by stockholders     |  |                      | 2,716,000 |                   |  | $                       | 1.15 |  |  |  | 3,684,000 | 
|Plans not approved by
stockholders |  |                      |          |                   |  |                         |     |  |  |  |          | 
|                                   |  |                      |           |                   |  |                         |      |  |  |  |           | 
|                                   |  |                      | 2,716,000 |                   |  |                         |      |  |  |  | 3,684,000 | 
|                                   |  |                      |           |                   |  |                         |      |  |  |  |           | 

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##### Table of Contents



Issuance of Securities

None.




ITEM 6. SELECTED FINANCIAL DATA

Set forth below is our selected historical consolidated financial data for
the five fiscal years ended June 30, 2003. The selected historical
consolidated financial data for the three fiscal years ended June 30, 2003,
2002, and 2001, are derived from our audited consolidated financial statements
included herein. The selected historical consolidated financial data should be
read in conjunction with our consolidated financial statements and related
notes included elsewhere herein.

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SELECTED FINANCIAL INFORMATION

|                                                 |                                                                    |                                                                                                               |                                            |             |         |                             |             |            |          |            |            |            |            |            |            |            |           |             |             |             |             |            |             | 
|------------------------------------------------ | ------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------- | ------- | --------------------------- | ----------- | ---------- | -------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | --------- | ----------- | ----------- | ----------- | ----------- | ---------- | ----------- | 
|                                                 |                                                                    |                                                                                                               |                                            |             |         | For the Year Ended June 30,
|                                                 |                                                                    |                                                                                                               |                                            |             |         |                            
|                                                 |                                                                    |                                                                                                               |                                            |             |         | 2003                        |             | 2002 (2)   |          | 2001 (2)   |            | 2000 (2)   |            | 1999 (2)  
|                                                 |                                                                    |                                                                                                               |                                            |             |         |                             |             |            |          |            |            |            |            |           
|                                                 | Medical services revenue, net                                      |                                                                                                               | $                                          | 101,409,690 |         |                             | $           | 95,350,313 |          |            | $          | 90,379,461 |            |            | $          | 87,927,560 |           |             | $           | 104,656,887 |            
|                                                 | Other income                                                       |                                                                                                               |                                            |            |         |                             |             | 150,000    |          |            |            |           |            |            |            |           |           |             |             |            |            
|                                                 |                                                                    |                                                                                                               |                                            |             |         |                             |             |            |          |            |            |            |            |            |            |            |           |             |             |            
|                                                 |                                                                    |                                                                                                               |                                            | Subtotal    |         |                             | 101,409,690 |            |          |            | 95,500,313 |            |            |            | 90,379,461 |            |           |             | 87,927,560  |             |             |            | 104,656,887 | 
|                                                 |                                                                    |                                                                                                               |                                            |             |         |                             |             |            |          |            |            |            |            |            |            |            |           |             |             |            
|                                                 | Expenses                                                           |                                                                                                               |                                            |             |         |                             |             |            |          |            |            |            |            |            |            |            |           |             |             |             |            
|                                                 |                                                                    |                                                                                                               | Medical services                           |             |         | 86,999,566                  |             |            |          | 81,797,881 |            |            |            | 81,120,771 |            |            |           | 71,486,837  |             |             |             | 85,878,492 |            
|                                                 |                                                                    |                                                                                                               | Payroll and employee benefits              |             |         | 6,070,398                   |             |            |          | 5,312,498  |            |            |            | 5,287,786  |            |            |           | 5,230,779   |             |             |             | 12,771,616 |            
|                                                 |                                                                    |                                                                                                               | Provision for bad debts                    |             |         | 44,333                      |             |            |          | 65,668     |            |            |            | 50,000     |            |            |           |            |             |             |             | 6,196,384  |            
|                                                 |                                                                    |                                                                                                               | Professional fees                          |             |         | 807,222                     |             |            |          | 1,404,337  |            |            |            | 1,177,578  |            |            |           | 902,799     |             |             |             | 1,686,094  |            
|                                                 |                                                                    |                                                                                                               | General and administrative                 |             |         | 6,188,525                   |             |            |          | 5,073,980  |            |            |            | 5,446,059  |            |            |           | 5,787,878   |             |             |             | 10,109,641 |            
|                                                 |                                                                    |                                                                                                               | Gain on disposal of property and equipment |             |         |                            |             |            |          |           |            |            |            | (383,375   | )          |            |           |            |             |             |             |           |            
|                                                 |                                                                    |                                                                                                               | Writedown of long-lived assets             |             |         |                            |             |            |          |           |            |            |            |           |            |            |           |            |             |             |             | 11,717,073 |            
|                                                 |                                                                    |                                                                                                               | Loss on disposal of subsidiaries           |             |         |                            |             |            |          |           |            |            |            |           |            |            |           |            |             |             |             | 5,927,369  |            
|                                                 |                                                                    |                                                                                                               | Depreciation and amortization              |             |         | 636,359                     |             |            |          | 1,027,222  |            |            |            | 2,878,131  |            |            |           | 2,913,440   |             |             |             | 4,936,173  |            
|                                                 |                                                                    |                                                                                                               | Gain on extinguishment of debt (1)         |             |         |                            |             |            |          |           |            |            |            | (3,503,188 | )          |            |           | (13,247,907 | )           |             |             | (130,977   | )          
|                                                 |                                                                    |                                                                                                               |                                            |             |         |                             |             |            |          |            |            |            |            |            |            |            |           |             |             |            
|                                                 |                                                                    |                                                                                                               |                                            | Subtotal    |         |                             | 100,746,403 |            |          |            | 94,681,586 |            |            |            | 92,073,762 |            |           |             | 73,073,826  |             |             |            | 139,091,865 | 
|                                                 |                                                                    |                                                                                                               |                                            |             |         |                             |             |            |          |            |            |            |            |            |            |            |           |             |             |            
|                                                
|Income (loss) from operations                    |                                                                    |                                                                                                               | 663,287                                    |             |         |                             | 818,727     |            |          |            | (1,694,301 | )          |            |            | 14,853,734 |            |           |             | (34,434,978 | )          
|                                                 |                                                                    |                                                                                                               |                                            |             |         |                             |             |            |          |            |            |            |            |            |            |            |           |             |             |            
|Other income (expense)                           |                                                                    |                                                                                                               |                                            |             |         |                             |             |            |          |            |            |            |            |            |            |            |           |             |             |            
|                                                 | Interest income                                                    |                                                                                                               |                                            | 6,647       |         |                             |             | 36,124     |          |            |            | 32,358     |            |            |            | 43,147     |           |             |             | 138,963     |            
|                                                 | Interest expense-convertible subordinated notes                    |                                                                                                               |                                            | (5,740      | )       |                             |             |           |          |            |            |           |            |            |            | (2,054,710 | )         |             |             | (3,639,433  | )          
|                                                 | Interest expense-other                                             |                                                                                                               |                                            | (956,292    | )       |                             |             | (1,573,869 | )        |            |            | (1,632,932 | )          |            |            | (1,182,794 | )         |             |             | (1,505,779  | )          
|                                                 | Provision for Medicare settlement related to
terminated operations |                                                                                                               |                                            |            |         |                             |             | (2,440,971 | )        |            |            |           |            |            |            |           |           |             |             |            |            
|                                                 | Other                                                              |                                                                                                               |                                            |            |         |                             |             |           |          |            |            | 1,425      |            |            |            | 383,623    |           |             |             | 24,906      |            
|                                                 |                                                                    |                                                                                                               |                                            |             |         |                             |             |            |          |            |            |            |            |            |            |            |           |             |             |            
|(Loss) income from continuing operations         |                                                                    |                                                                                                               | (292,098                                   | )           |         |                             | (3,159,989  | )          |          |            | (3,293,450 | )          |            |            | 12,043,000 |            |           |             | (39,416,321 | )          
|                                                 |                                                                    |                                                                                                               |                                            |             |         |                             |             |            |          |            |            |            |            |            |            |            |           |             |             |            
|Discontinued operations:                         |                                                                    |                                                                                                               |                                            |             |         |                             |             |            |          |            |            |            |            |            |            |            |           |             |             |            
|                                                 |                                                                    | Income (loss) from discontinued operations
before contractual revision                                        |                                            |             | 350,696 |                             |             |            | (486,399 | )          |            |            | (1,482,657 | )          |            |            | (978,884  | )           |             |             | (11,094,445 | )         
|                                                 |                                                                    | Contractual revision of previously recorded
medical claims and other liabilities from
discontinued operations |                                            |             |        |                             |             |            |         |            |            |            | 4,638,205  |            |            |            | 3,053,853 |             |             |             |            |           
|                                                 |                                                                    |                                                                                                               |                                            |             |         |                             |             |            |          |            |            |            |            |            |            |            |           |             |             |            
|Income (loss) from discontinued operations       |                                                                    |                                                                                                               | 350,696                                    |             |         |                             | (486,399    | )          |          |            | 3,155,548  |            |            |            | 2,074,969  |            |           |             | (11,094,445 | )          
|                                                 |                                                                    |                                                                                                               |                                            |             |         |                             |             |            |          |            |            |            |            |            |            |            |           |             |             |            
|Net income (loss)                                |                                                                    | $                                                                                                             | 58,598                                     |             |         | $                           | (3,646,388  | )          |          | $          | (137,902   | )          |            | $          | 14,117,969 |            |           | $           | (50,510,766 | )          
|                                                 |                                                                    |                                                                                                               |                                            |             |         |                             |             |            |          |            |            |            |            |            |            |            |           |             |             |            
|Basic and diluted income (loss) per common share |                                                                    | $                                                                                                             |                                           |             |         | $                           | (.09        | )          |          | $          |           |            |            | $          | .65        |            |           | $           | (3.50       | )          
|                                                
|Cash dividends declared                          |                                                                    | $                                                                                                             |                                           |             |         | $                           |            |            |          | $          |           |            |            | $          |           |            |           | $           |            |            
|                                                 |                                                                    |                                                                                                               |                                            |             |         |                             |             |            |          |            |            |            |            |            |            |            |           |             |             |            
|FINANCIAL POSITION                               |                                                                    |                                                                                                               |                                            |             |         |                             |             |            |          |            |            |            |            |            |            |            |           |             |             |            
|Total assets                                     |                                                                    | $                                                                                                             | 20,999,976                                 |             |         | $                           | 21,546,985  |            |          | $          | 22,343,279 |            |            | $          | 27,545,180 |            |           | $           | 30,501,397  |            
|Long-term obligations, including current portion |                                                                    | $                                                                                                             | 9,597,063                                  |             |         | $                           | 13,877,505  |            |          | $          | 11,806,623 |            |            | $          | 17,769,246 |            |           | $           | 51,686,182  |            



---

|(1) |  | Certain amounts presented in prior years have been reclassified in
accordance with Statement of Financial Accounting Standards No. 145,
discussed in Note 2Significant Accounting Policies in the accompanying
Consolidated Financial Statements.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | These amounts have been adjusted to reflect the termination of certain
lines of business, discussed in Note 1General in the accompanying
Consolidated Financial Statements, as discontinued operations.                                          

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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

We are a provider of integrated outpatient healthcare and home health
services in Florida. As of June 30, 2003, we operated, owned and/or managed
fifteen staff model clinics in south and central Florida; a POP-based
Independent Practice Association (IPA) with six physicians; and five home
health agencies. In April 2003, we entered into an agreement with an HMO to
provide management services in connection with the oversight of physician
groups on a no-risk basis. As of June 30, 2003, we managed approximately 12
physicians under the terms of this agreement.

Our managed care operations, which include the staff model clinics and the
IPA, provide healthcare services to some of the nations largest managed care
organizations, including: (i) Humana for which we provided managed care
services for approximately 196,000 and 197,000 member months (members per month
multiplied by the months for which services were available) during Fiscal 2003
and Fiscal 2002, respectively; and (ii) Vista, for which we provided managed
care services for approximately 84,000 member months during both Fiscal 2003
and Fiscal 2002. At June 30, 2003, we were providing care on a full-risk basis
for approximately 12,600 and 4,100 patients for Humana and Vista, respectively.
At June 30, 2002, we were providing care on a full-risk basis for
approximately 13,500 and 4,700 patients for Humana and Vista, respectively.
Our home health operations provide home health services to recovering,
disabled, chronically ill and terminally ill patients in their home.

Accounting Policies

GeneralThe discussion and analysis of our financial condition and results
of operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, we evaluate these
estimates, including those related to our HMO agreements, accounts receivable,
intangible assets and contingencies and litigation. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. These estimates form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from those
estimates under different assumptions or conditions.

Management believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of our
consolidated financial statements. Please refer to the notes to our
consolidated financial statements, particularly Note 2, for a more detailed
description of such policies.

Revenue recognitionRevenue is recorded in the period services are
rendered as determined by the respective contract.

Under our full risk contracts with HMOs, we receive a percentage of
premium for each patient that chooses one of our physicians as their primary
care physician and we assume responsibility for the cost of all medical
services. To the extent that patients require more frequent or expensive care,
our revenue under a contract may be insufficient to cover the costs of care
provided. When it is probable that expected future health care costs and
maintenance costs under a contract or group of existing contracts will exceed
anticipated POP revenue on those contracts, we recognize losses on our prepaid
healthcare services with HMOs. No contracts are considered loss contracts at
June 30, 2003 because we have the right to terminate unprofitable physicians
and close unprofitable centers under our managed care contracts.

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Under our limited risk and no-risk contracts with HMOs, we receive a
management fee based on the number of patients for which we are providing
services on a monthly basis. The management fee is recorded as revenue in the
period in which services are provided.

We record our medical services revenue for the treatment of individuals
covered by Medicare, Medicaid and other contracted reimbursement programs based
on the cost of services provided or predetermined rates, which are generally
less than the established billing rates of our facilities. Reimbursement rates
relating to these receivables, particularly governmental receivables, are
complex and change frequently. We base our determination of the amount to
record as medical services revenue on historical experience; however, final
determination of amounts received from Medicare and Medicaid is subject to
review and audit by the appropriate agencies. These estimates could be
affected by a number of factors, including changes in legislation or results of
audits of our cost reports. Differences between amounts recorded as estimated
settlements and the audited amounts are reflected as adjustments to revenues in
the period the final determination is made.

Recording the cost of health care servicesThe cost of health care
services provided or contracted for is accrued in the period in which the
services are provided. Management estimates medical claims expense and the
related liability for medical claims incurred but not reported each month based
on historical claims incurred per member per month. We adjust our estimate if
we have unusually high or low inpatient utilization. We compare the estimated
expense recorded in prior months to actual claims expense as claims are paid by
the HMO and reported to us and adjust our estimates accordingly. Our estimate
also considers annual changes in the benefits covered by the HMO plans. If
benefit changes are expected to significantly increase or reduce our claims
exposure, we apply a trend factor to the historical claims experience. This
monthly calculation produces what we believe is the best estimate of medical
claims expense and the related liability for medical claims incurred but not
reported.

To further corroborate our estimate of medical claims, an independent
actuarial calculation is performed on a quarterly basis. This independent
actuarial calculation indicates that medical claims incurred but not reported
as of June 30, 2003 are between approximately $12,600,000 and $13,900,000. As
of June 30, 2003, we had recorded a liability of approximately $13,264,000 for
medical claims incurred but not reported, including the medical claims incurred
but not yet reported for discontinued operations, based on our monthly
calculation process. As the amount recorded was within the actuarial range, no
further analysis was necessary.

Consideration of impairment of costs in excess of net tangible assetsOur
balance sheet includes intangible assets, including goodwill and separately
identifiable intangible assets. Effective July 1, 2001, we adopted Statement
of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142). Under SFAS No. 142, goodwill and intangible assets
with indefinite useful lives are no longer amortized, but are reviewed annually
for impairment, or more frequently if certain impairment indicators arise.
Intangible assets with definite useful lives are amortized over their
respective useful lives to their estimated residual values and also reviewed
for impairment annually, or more frequently if certain impairment indicators
arise. Indicators of an impairment include, among other things, significant
adverse change in legal factors or the business climate, loss of a key HMO
contract, an adverse action by a regulator, unanticipated competition, loss of
key personnel or allocation of goodwill to a portion of business that is to be
sold.

As we operate in a single segment of business, that of managing the
provision of outpatient health care and health care related services in the
State of Florida, management has determined that we have a single reporting
unit and perform our impairment test for goodwill on an enterprise level. In
performing the impairment test, we compare our fair value, as determined by the
current market value of our common stock, to the current carrying value of the
total net assets, including goodwill and intangible assets. We perform our
annual impairment test on May 1st of each year. Should we determine that an
indicator of impairment has occurred, such as those noted above, we would be
required to perform an additional impairment test which could result in the
determination that a portion of our intangible assets are impaired and must be
written-off. Depending on the market value of our common stock at the time
that an impairment test is required, there is a risk that a portion of our
intangible assets would be considered impaired and must be written-off during
that period.

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Results of Operations

The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto appearing elsewhere in
this annual report. The following tables set forth, for the periods indicated,
the percentage of total revenues represented by certain items in our
Consolidated Statements of Operations.

|                                           |                                                                                                               |                                                 |     |                                            |       |                                 |        |      |      |      |       |      |       |   |       |  
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | --- | ------------------------------------------ | ----- | ------------------------------- | ------ | ---- | ---- | ---- | ----- | ---- | ----- | - | ----- | -
|                                           |                                                                                                               |                                                 |     |                                            |       | Percent of Revenue for June 30,
|                                           |                                                                                                               |                                                 |     |                                            |       |                                
|                                           |                                                                                                               |                                                 |     |                                            |       | 2003                            |        | 2002 |      | 2001
|                                           |                                                                                                               |                                                 |     |                                            |       |                                 |        |      |      |     
|                                           |                                                                                                               | Medical services revenue, net                   |     |                                            | 100.0 | %                               |        |      | 99.8 | %    |       |      | 100.0 | %
|                                           |                                                                                                               | Other income                                    |     |                                            |      |                                 |        |      | .2   |      |       |      |      |  
|                                           |                                                                                                               |                                                 |     |                                            |       |                                 |        |      |      |      |       |     
|                                           |                                                                                                               |                                                 |     | Subtotal                                   |       |                                 | 100.00 |      |      |      | 100.0 |      |       |   | 100.0 |  
|                                           |                                                                                                               |                                                 |     |                                            |       |                                 |        |      |      |      |       |     
|                                           |                                                                                                               | Expenses                                        |     |                                            |       |                                 |        |      |      |      |       |      |       |  
|                                           |                                                                                                               |                                                 |     | Medical services                           |       |                                 | 85.8   |      |      |      | 85.7  |      |       |   | 89.8  |  
|                                           |                                                                                                               |                                                 |     | Payroll and employee benefits              |       |                                 | 6.0    |      |      |      | 5.5   |      |       |   | 5.9   |  
|                                           |                                                                                                               |                                                 |     | Provision for bad debts                    |       |                                 |       |      |      |      | .1    |      |       |   |      |  
|                                           |                                                                                                               |                                                 |     | Professional fees                          |       |                                 | .8     |      |      |      | 1.4   |      |       |   | 1.3   |  
|                                           |                                                                                                               |                                                 |     | General and administrative                 |       |                                 | 6.1    |      |      |      | 5.3   |      |       |   | 6.0   |  
|                                           |                                                                                                               |                                                 |     | Gain on disposal of property and equipment |       |                                 |       |      |      |      |      |      |       |   | (.4   | )
|                                           |                                                                                                               |                                                 |     | Depreciation and amortization              |       |                                 | .6     |      |      |      | 1.1   |      |       |   | 3.2   |  
|                                           |                                                                                                               |                                                 |     | Gain on extinguishment of debt             |       |                                 |       |      |      |      |      |      |       |   | (3.9  | )
|                                           |                                                                                                               |                                                 |     |                                            |       |                                 |        |      |      |      |       |     
|                                           |                                                                                                               |                                                 |     | Subtotal                                   |       |                                 | 99.3   |      |      |      | 99.1  |      |       |   | 101.9 |  
|                                           |                                                                                                               |                                                 |     |                                            |       |                                 |        |      |      |      |       |     
|                                           |                                                                                                               |                                                 |     |                                            |       |                                 |        |      |      |      |       |     
|Income (loss) from operations              |                                                                                                               |                                                 | .7  |                                            |       |                                 | .9     |      |      |      | (1.9  | )   
|                                           |                                                                                                               |                                                 |     |                                            |       |                                 |        |      |      |      |       |     
|Other income (expense)                     |                                                                                                               |                                                 |     |                                            |       |                                 |        |      |      |      |       |     
|                                           |                                                                                                               | Interest income                                 |     |                                            |      |                                 |        |      |     |      |       |      |      |  
|                                           |                                                                                                               | Interest expense-convertible subordinated notes |     |                                            |      |                                 |        |      |     |      |       |      |      |  
|                                           |                                                                                                               | Interest expense-other                          |     |                                            | (1.0  | )                               |        |      | (1.6 | )    |       |      | (1.8  | )
|                                           | Provision for Medicare settlement related to
terminated operations                                            |                                                 |     |                                           |       |                                 |        | (2.6 | )    |      |       |     |      
|                                           |                                                                                                               | Other                                           |     |                                            |      |                                 |        |      |     |      |       |      |      |  
|                                           |                                                                                                               |                                                 |     |                                            |       |                                 |        |      |      |      |       |     
|Loss from continuing operations            |                                                                                                               |                                                 | (.3 | )                                          |       |                                 | (3.3   | )    |      |      | (3.7  | )   
|                                           |                                                                                                               |                                                 |     |                                            |       |                                 |        |      |      |      |       |     
|Discontinued operations:                   |                                                                                                               |                                                 |     |                                            |       |                                 |        |      |      |      |       |     
|                                           | Income (loss) from discontinued operations
before contractual revision                                        |                                                 |     | .4                                         |       |                                 |        | (.5  | )    |      |       | (1.6 | )    
|                                           | Contractual revision of previously recorded
medical claims and other liabilities from
discontinued operations |                                                 |     |                                           |       |                                 |        |     |      |      |       | 5.1  |      
|                                           |                                                                                                               |                                                 |     |                                            |       |                                 |        |      |      |      |       |     
|Income (loss) from discontinued operations |                                                                                                               |                                                 | .4  |                                            |       |                                 | (.5    | )    |      |      | 3.5   |     
|                                           |                                                                                                               |                                                 |     |                                            |       |                                 |        |      |      |      |       |     
|                                          
|Net income (loss)                          |                                                                                                               |                                                 | .1  | %                                          |       |                                 | (3.8   | )%   |      |      | (.2   | )%  
|                                           |                                                                                                               |                                                 |     |                                            |       |                                 |        |      |      |      |       |     

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The financial results discussed below relate to our operations for the fiscal
year ended June 30, 2003 as compared to the fiscal year ended June 30, 2002.

Revenue from Continuing Operations

Medical services revenue for Fiscal 2003 increased 6.4% to approximately
$101,410,000 from approximately $95,350,000 in Fiscal 2002. The increase was
primarily the result of increases in the number of Medicare members from whom
we receive POP revenue and increases in the premium revenue per member.
Additionally, on September 18, 2003, we were notified by our Medicare Fiscal
Intermediary that they had completed the reopening of the 1997 RMS cost report
which resulted in the original liability of approximately $402,000 being
reduced to approximately $40,000. As a result, in the fourth quarter of Fiscal
2003 we recorded an adjustment of approximately $362,000 as a Medicare cost
report settlement, which is included in net medical services revenue. (See
Note 11 of our Consolidated Financial Statements.)

Revenue from continuing operations generated by our managed care entities
under our contracts with Humana was 73% and 74% of medical services revenue
during Fiscal 2003 and Fiscal 2002, respectively. Revenue from continuing
operations generated by our managed care entities under our contracts with
Vista was 23% and 21% during Fiscal 2003 and Fiscal 2002, respectively.
Revenue from continuing operations generated by our home health agencies was
approximately $4,245,000 and $4,521,000 or 4% and 5% of medical services
revenue during Fiscal 2003 and Fiscal 2002, respectively, and consisted
primarily of Medicare reimbursement.

Other income of $150,000 during Fiscal 2002 represents a settlement
payment received from a vendor regarding a dispute which arose during the year.
No settlement payments were received in Fiscal 2003.

Expenses from Continuing Operations

Medical services expenses for Fiscal 2003 were approximately $87,000,000
or 85.8% of medical services revenue compared to approximately $81,798,000 or
85.7% of medical services revenue for Fiscal 2002. Medical services expenses
for our managed care operations were approximately $84,743,000 or 83.6% of
medical services revenue in Fiscal 2003 compared to approximately $79,735,000
or 83.5% of medical services revenue in Fiscal 2002. Medical services expenses
for our home health operations were approximately $2,256,000 or 53.2% of our
home health revenue in Fiscal 2003 compared to approximately $2,063,000 or
45.6% of our home health revenue in Fiscal 2002. Medical services expenses for
our home health operations were approximately 2.2% of medical services revenue
in both Fiscal 2003 and 2002.

Medical claims represent the costs of medical services provided to our
members by providers other than us but which we are financially responsible for
under the terms of our full risk contracts with HMOs. Claims expense was
approximately $74,046,000 and $69,340,000 for Fiscal 2003 and Fiscal 2002,
respectively, or 76.5% and 76.3% of medical services revenues derived from our
managed care services for Fiscal 2003 and Fiscal 2002, respectively. Our
claims loss ratio varies due to fluctuations in utilization, medical costs and
premium revenues.

Other direct costs include the salaries and benefits of health
professionals providing primary care and home health services, capitation
payments to our contracted primary care IPA physicians, and other costs
necessary to provide medical services to our patients. Other direct costs were
approximately $12,953,000 and $12,458,000 during Fiscal 2003 and Fiscal 2002,
respectively, or 12.8% and 13.1% of medical services revenues.

Payroll and employee benefits for administrative personnel was
approximately $6,070,000 or 6.0% of total revenue during Fiscal 2003 compared
to approximately $5,312,000 or 5.5% of total revenue during Fiscal 2002. The
increase in payroll and employee benefits during Fiscal 2003 is primarily due
to the following: (i) director compensation of $123,000; (ii) the filling of
the general counsel position which had been vacant for nine months in Fiscal
2002; and (iii) annual salary increases and bonuses.

General and administrative expenses during Fiscal 2003 were approximately
$6,188,525 or 6.1% of total revenue compared to approximately $5,074,000 or
5.3% of total revenue during Fiscal 2002. During Fiscal 2002, we adjusted the
accruals for various liabilities, including a settlement for a liability
related to a closed subsidiary. The adjustment of these liabilities resulted
in a reduction of approximately $624,000 of general and administrative

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expenses during Fiscal 2002. No similar transaction occurred during
Fiscal 2003. Additionally, in Fiscal 2003, we experienced an increase in our
liability insurance premiums of approximately $390,000.

Depreciation and amortization for Fiscal 2003 decreased approximately 38%
to approximately $636,000 from approximately $1,027,000 in Fiscal 2002. The
decrease is due primarily to certain intangible assets which became fully
amortized during Fiscal 2002.

Income from Operations

Income from operations for Fiscal 2003 was approximately $663,000 or 0.7%
of total revenues, compared to approximately $819,000 or 0.9% of total revenues
for Fiscal 2002. These results include a loss from our home health operations
of approximately $1,824,000 in Fiscal 2003 compared to a loss of approximately
$1,275,000 in Fiscal 2002, before allocating any corporate overhead expenses.

Interest Expense

Interest expense during Fiscal 2003 was approximately $962,000 or 1.0% of
total revenues compared to approximately $1,574,000 or 1.6% of total revenues
during Fiscal 2002. Interest expense during Fiscal 2003 consisted primarily of
approximately $578,000 related to amortization of deferred financing costs,
approximately $5,700 on the Convertible Subordinated Notes (the Notes),
approximately $21,000 of imputed interest expense on non-interest bearing
notes, interest expense of approximately $128,000 on our credit facility and
interest expense of approximately $230,000 related to various notes payable.
Interest expense during Fiscal 2002 consisted primarily of approximately
$1,278,000 related to amortization of deferred financing costs, approximately
$12,000 of imputed interest expense on non-interest bearing notes, interest
expense of approximately $67,000 on our credit facility and interest expense of
approximately $217,000 related to various notes payable.

Provision for Medicare Settlement Related to Terminated Operations

The Provision for Medicare Settlement Related to Terminated Operations
recorded during Fiscal 2002, relates to alleged overpayments by CMS to a former
subsidiary. On February 13, 1998, we acquired the stock of Rehab Management
Systems, Inc., Integracare, Inc. and J.R. Rehab Associates, Inc. from
Integrated Health Services, Inc. RMS operated numerous rehabilitation clinics
in the States of Florida, Georgia, Alabama, North Carolina and South Carolina
as a Medicare and Medicaid provider of outpatient services. On April 8, 1999,
we sold substantially all the assets of RMS and the assumption of certain
liabilities to Kessler Rehabilitation of Florida, Inc. On August 13, 1999, RMS
was formally dissolved as a corporation with the State of Florida. During the
second quarter of Fiscal 2002, we became aware that CMS was pursuing IHS,
Kessler and RMS for collection of principal and interest for certain alleged
Medicare overpayments made to providers purchased from IHS or linked to the
purchased entities through the use of a common provider number for services
rendered during calendar years 1996, 1997 and 1998. We were aware of our
obligation to CMS for any overpayments for services rendered by the Providers
during calendar years 1997 and 1998. At the time the cost reports were
completed and submitted to CMS for services rendered by the Providers during
calendar years 1997 and 1998, we recorded an estimate for the overpayments
indicated on those cost reports as part of our continuing operations. When we
purchased RMS, the purchase agreement included indemnification from IHS for any
overpayments prior to calendar year 1997. Subsequent to our purchase of RMS,
IHS sought protection under Chapter 11 of the United States Bankruptcy Code
and, as such, is protected from CMS and RMS efforts to collect on the Alleged
Overpayments that relate to calendar year 1996.

During the third quarter of Fiscal 2002, it became clear that we were
being pursued by CMS as the primary obligor for all of the Alleged
Overpayments, including calendar year 1996. While we dispute the validity of
these claims, in an effort to expedite the resolution of these matters and halt
CMS aggressive collection procedures which included the threat of withholding
payments to our home health agencies, we entered into a memorandum of
understanding for the 1996 and 1997 cost report years (the 1996 Repayment
Memorandum and the 1997 Repayment Memorandum.) Under both the 1996 Repayment
Memorandum and the 1997 Repayment Memorandum, we agreed to make monthly
payments of $10,000 for 24 months for each of the 1996 and 1997 cost report
years with the balance due at the end of the respective terms. Although we
began making payments under these Memorandums, we retained the right to dispute
the Alleged Overpayments. While a liability for the 1997 cost

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report had previously been recorded, no amounts had been recorded for the 1996
cost report liability primarily due to (i) the indemnification we had received
from IHS for any overpayments prior to calendar year 1997; (ii) the cost report
including providers which we never owned or operated; and (iii) lack of
knowledge of a balance owed to CMS for the 1996 cost report and CMS ability to
demand payment from us. As such, during the quarter ended March 31, 2002 we
recorded an approximately $2,441,000 Provision for Medicare Settlement Related
to Terminated Operations. During September 2002, we requested a reopening of
the 1996 and 1997 cost reports and supplied various documentation to
demonstrate that the Alleged Overpayments are incorrect. On April 25, 2003 the
Medicare Fiscal Intermediary notified us of their intent to reopen the 1996 and
1997 cost reports and review the documentation we submitted. On September 18,
2003, the Medicare Fiscal Intermediary notified us that they have completed the
reopening of the 1997 cost report and they are currently reviewing the
documentation we submitted for the 1996 cost report reopening. There can be no
assurance that the 1996 cost report reopening will result in a positive
adjustment or reduce the liability outstanding. (See Note 11Commitments and
Contingencies.)

Income (loss) from Discontinued Operations

Income from discontinued operations was approximately $351,000 during
Fiscal 2003 as compared to a loss from discontinued operations of approximately
$486,000 during Fiscal 2002. Effective January 1, 2003, we terminated the
Medicare and Medicaid lines of business for all of the physician contracts
associated with one of our independent practice associations (the Terminated
Vista IPA). The Terminated Vista IPA, which consisted of 29 physicians at the
time of the termination and is considered discontinued operations, contributed
approximately $4,511,000 and $10,189,000 in medical services revenue during
Fiscal 2003 and Fiscal 2002, respectively. While this termination was intended
to streamline our cost structure and stem anticipated operating losses, we may
not achieve any financial benefits as a result of terminating these IPA
contracts.

Net Income (Loss)

Net income for Fiscal 2003 was approximately $59,000 compared to a net
loss of approximately $3,646,000 for Fiscal 2002.

The financial results discussed below relate to our operations for the fiscal
year ended June 30, 2002 as compared to the fiscal year ended June 30, 2001.

Revenue from Continuing Operations

Medical services revenue for Fiscal 2002 increased 5.5% to approximately
$95,350,000 from approximately $90,379,000 in Fiscal 2001. The increase was
primarily the result of increases in the premium revenue per member and
negotiated increases in the percentage of premium revenue we receive for
certain of our members.

Revenue from continuing operations generated by our managed care entities
under our contracts with Humana contract was 74% and 75% of medical service
revenue for Fiscal 2002 and Fiscal 2001, respectively. Revenue from continuing
operations generated by our managed care entities under our contracts with
Vista was 21% and 20% during Fiscal 2002 and 2001, respectively. Revenue from
continuing operations generated by our home health agencies was approximately
$4,521,000 and $4,555,000 or 5% and 5% of medical services revenue during
Fiscal 2002 and Fiscal 2001, respectively, and consisted primarily of Medicare
reimbursement.

Other income of $150,000 during Fiscal 2002 represents a settlement
payment received from a vendor regarding a dispute which arose during the year.
No settlement payments were received in Fiscal 2001.

Expenses from Continuing Operations

Medical services expenses for Fiscal 2002 were approximately $81,798,000
or 85.7% of medical services revenue compared to approximately $81,121,000 or
89.8% of medical services revenue for Fiscal 2001. Medical services expenses
for our managed care operations were approximately $79,735,000 or 83.5% of
medical services revenue in Fiscal 2002 compared to approximately $79,231,000
or 87.7% of medical services revenue in Fiscal

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2001. Medical services expenses for our home health operations were
approximately $2,063,000 or 45.6% of our home health revenue in Fiscal 2002
compared to approximately $1,890,000 or 41.5% of our home health revenue in
Fiscal 2001. Medical services expenses for our home health operations were
approximately 2.2% and 2.1% of medical services revenue in Fiscal 2002 and
2001, respectively.

Medical claims represent the costs of medical services provided to our
members by providers other than us but which we are financially responsible for
under the terms of our full risk contracts with HMOs. Claims expense was
approximately $69,340,000 and $68,620,000 for Fiscal 2002 and Fiscal 2001,
respectively, or 76.3% and 80.0% of medical services revenues derived from our
managed care services during Fiscal 2002 and Fiscal 2001, respectively. Our
claims loss ratio varies due to fluctuations in utilization, medical costs and
premium revenues. Medical claims as a percentage of revenues declined in
Fiscal 2002, primarily due to decreased utilization and various benefit changes
instituted by the HMOs that became effective January 1, 2002, such as requiring
copayments for certain prescription drugs in selected counties in which we
operate. These positive trends were offset, to some extent, in the fourth
quarter by an increase in the cost of stop-loss insurance provided by Vista for
our Medicare members of approximately $60 per member per month.

Other direct costs include the salaries and benefits of health
professionals providing primary care and home health services, capitation
payments to our contracted primary care IPA physicians, and other costs
necessary to provide medical services to our patients. Other direct costs were
approximately $12,458,000 and $12,501,000 during Fiscal 2002 and 2001,
respectively, or 13.1% and 13.8% of medical services revenues.

Payroll and employee benefits for administrative personnel was
approximately $5,312,000 or 5.5% of total revenue during Fiscal 2002 compared
to approximately $5,288,000 or 5.9% of total revenue during Fiscal 2001.

General and administrative expenses during Fiscal 2002 were approximately
$5,074,000 or 5.3% of total revenue compared to approximately $5,446,000 or
6.0% of total revenue during Fiscal 2001.

Depreciation and amortization for Fiscal 2002 decreased approximately 64%
to approximately $1,027,000 from approximately $2,878,000 in Fiscal 2001.
Effective July 1, 2001, we adopted Statement of Financial Accounting Standard
No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). Under SFAS
No. 142, goodwill and other intangible assets with indefinite useful lives are
no longer amortized, but are reviewed annually for impairment or more
frequently if impairment indicators arise. Intangible assets with definite
useful lives are amortized over their respective estimated useful lives to
their estimated residual values and also reviewed for impairment annually, or
more frequently if certain indicators arise. Amortization expense of
approximately $1,061,000 was recorded in Fiscal 2001 for goodwill that was not
subject to amortization in Fiscal 2002 under SFAS No. 142. Additionally,
certain tangible assets became fully depreciated and other intangible assets
became fully amortized during Fiscal 2002. Depreciation and amortization
expense during Fiscal 2002 was reduced by approximately $791,000 for these
fully depreciated and amortized assets.

Gain on Extinguishment of Debt

Effective June 30, 2001, we completed a restructuring (the Fiscal 2001
Restructuring) of our Convertible Subordinated Notes and as a result recorded
a gain on the extinguishment of debt of approximately $3,503,000. The gain
resulted primarily from the conversion of $6,219,511 of the outstanding
principal balance into 6,219,511 shares of common stock, which were valued at
approximately $1,804,000 based on the closing price of our common stock on June
29, 2001, the recording of approximately $595,000 of interest which will accrue
on the remaining balance of the Notes under the revised terms of the agreement
through the maturity date of October 31, 2005, the recording of a new note
payable (the New Note) in the amount of $912,195 and the recording of
approximately $277,000 of interest which will accrue on the New Note. We have
not provided for income taxes on the gain because we believe we will be able to
utilize certain of our net operating loss carryforwards to offset any income
tax liability related to this transaction.

Income (loss) from Operations

Income from operations for Fiscal 2002 was approximately $819,000 or .9%
of total revenues, compared to a loss from operations of approximately
$1,694,000 or 1.9% of total revenues for Fiscal 2001. These results include

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a loss from our home health operations of approximately $1,275,000 in
Fiscal 2002 compared to a loss of approximately $534,000 in Fiscal 2001 before
allocating any corporate overhead expenses.

Interest Expense

Interest expense during Fiscal 2002 was approximately $1,574,000 or 1.6%
of total revenues compared to approximately $1,633,000 or 1.8% of total
revenues during Fiscal 2001. Interest expense during Fiscal 2002 consisted
primarily of approximately $1,278,000 related to amortization of deferred
financing costs, approximately $12,000 of imputed interest expense on
non-interest bearing notes, interest expense of approximately $67,000 on the
credit facility and interest expense of approximately $217,000 related to
various notes payable. Interest expense during Fiscal 2001 consisted primarily
of approximately $1,281,000 related to amortization of deferred financing
costs, approximately $110,000 of imputed interest expense on non-interest
bearing notes, interest expense of approximately $16,000 on the credit facility
and interest expense of approximately $226,000 related to various notes
payable. The Notes were restructured on June 30, 2001. In accordance with
Statement of Financial Accounting Standards, No. 15, Accounting by Debtors and
Creditors for Troubled Debt Restructurings, (SFAS No. 15) all interest which
would accrue over the remaining term of the Notes is included in the
outstanding Notes on the balance sheet. Therefore, no interest expense will be
recorded on the Notes through the maturity date as a result of the terms of the
Fiscal 2001 Restructuring. (See Note 4 of our Consolidated Financial
Statements.)

Provision for Medicare Settlement Related to Terminated Operations

As discussed above, the Provision for Medicare Settlement Related to
Terminated Operations recorded during Fiscal 2002 of approximately $2,441,000
relates to alleged overpayments by CMS to a former subsidiary. (Also see Note
11 to our Consolidated Financial Statements.)

(Loss) income from Discontinued Operations

Loss from discontinued operations was approximately $486,000 during Fiscal
2002 as compared to income from discontinued operations of approximately
$3,156,000 during Fiscal 2001. Effective January 1, 2003, we terminated the
Medicare and Medicaid lines of business for all of the physician contracts
associated with one of our independent practice associations. The Terminated
Vista IPA, which consisted of 29 physicians at the time of the termination and
is considered discontinued operations, contributed approximately $10,189,000
and $22,228,000 in medical services revenue during Fiscal 2002 and 2001,
respectively. The decrease in medical services revenue of approximately 54%
from Fiscal 2001 to Fiscal 2002 resulted from an amendment to this IPA contract
(the 2001 Amendment). Among other things, the 2001 Amendment terminated our
association with certain physician practices effective April 1, 2001 through
May 31, 2001, which represented approximately 70% of this IPAs membership at
that time, and eliminated the medical claims liability incurred by the IPA
through March 31, 2001 and reduced other liabilities to the HMO. As a result,
we recorded a contractual revision of previously recorded medical claims and
other liabilities of approximately $4,638,000 in Fiscal 2001. The IPAs member
months were approximately 17,700 and 44,400 during Fiscal 2002 and 2001,
respectively.

Net Loss

Net loss for Fiscal 2002 was approximately $3,646,000 compared to a net
loss of approximately $138,000 for Fiscal 2001.

Liquidity and Capital Resources

Our auditors opinion on the June 30, 2003 consolidated financial
statements states that, although our financial statements have been prepared on
a going concern basis, there is a significant uncertainty as to whether we will
be able to fund our obligations and satisfy our debt obligations as they become
due in Fiscal 2004. At June 30, 2003, our working capital deficit was
approximately $5,211,000, our total indebtedness accounted for approximately
87% of our total capitalization and we had principal and interest of
approximately $2,363,000 outstanding under our credit facility.

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Our credit facility matures on March 31, 2004, is personally guaranteed by
one of our principal shareholders (see Note 5 to our consolidated financial
statements), contains, among other things, a financial covenant that requires
us to maintain a fixed charge coverage ratio of 1.05 to 1.00 beginning December
31, 2003 and measured quarterly thereafter and is collateralized by all of our
assets. There can be no assurances that we will be able to meet this financial
covenant at December 31, 2003 or be able to maintain it as required by the
credit facility. Our failure to satisfy this financial covenant could result
in a default under our credit facility. If a default occurs under our credit
facility, the lender could elect to declare all our outstanding borrowings, as
well as accrued interest, to be due and payable and require us to apply our
available cash to repay these borrowings. Based on our current cash flow
projections, it appears unlikely that we will have sufficient funds available
to fully repay the credit facility on or before March 31, 2004. Additionally,
uncertainty exists as to whether we will be able to extend or replace the
credit facility without extending the personal guarantee of our principal
shareholder or finding replacement guarantees, and there can be no assurance
that we will be able to obtain such guarantees. Additionally, there can be no
assurance that we will be successful in our attempts to either repay, extend or
replace the credit facility and, if so, if this will occur on terms acceptable
to us.

On March 31, 2003, we modified the terms of our Convertible Subordinated
Notes Payable. The noteholders extended the principal payment of $1,148,000,
which was due on October 31, 2003 to October 31, 2006. In consideration for
this modification to the Notes, we issued an aggregate of 344,400 shares of
restricted stock to the noteholders and increased the annual interest rate on
the deferred principal payment from 7% to 9%. (See Note 4 of the consolidated
financial statements.)

In April 2003, we executed a Physician Group Participation agreement with
one of our HMO partners. Pursuant to the PGP Agreement, we will assume
certain management responsibilities on a non-risk basis for the HMOs Medicare,
Commercial and Medicaid members assigned to selected primary care physicians in
Miami-Dade and Broward counties of Florida. Revenue from this contract
consists of a monthly management fee designed to cover our costs for providing
these services. Simultaneously with the execution of the PGP agreement, we
restructured the terms of a $3,850,000 contract modification note with the HMO.
Pursuant to the restructuring, the contract modification note was cancelled.
The PGP Agreement is for a period of two years and contains a provision for
liquidated damages in the amount of $4,000,000, which can be asserted by the
HMO in the event that (i) continued participation by us under this PGP
Agreement may affect adversely the health, safety or welfare of a member or
bring the HMO or its provider networks into disrepute; (ii) we engage in or
acquiesce to any act of bankruptcy, receivership or reorganization; (iii) we
are excluded from participation in any federal healthcare program; (iv) the HMO
determines that we have not used our best efforts to perform under the PGP
Agreement; or (v) we materially breach the PGP Agreement. Because there are
contingent circumstances under which future payments to the HMO for liquidated
damages could exceed the amount of debt forgiven, the gain to be recognized
from the extinguishment of debt will be deferred and recognized when the
liquidated damages are less than the debt forgiven. If we remain in
compliance with the terms of the PGP Agreement, Humana, at its
option, may reduce the liquidated damages by one-fourth on each of
the following dates: October 10, 2003, April 10, 2004,
October 9, 2004 and April 10, 2005. If we obtain these
reductions, the deferred revenue will be recognized in a manner
consistent with the reduction in the liquidated damages. The deferred gain on
extinguishment of debt is shown as Deferred Revenue in our Consolidated Balance
Sheet. There can be no assurances that we will be able to obtain
reductions in the liquidated  damages or that Humana will not determine that one of
the above events has occurred and assert a claim against us for liquidated
damages.

In Fiscal 2003, we continued to review our operations and institute
measures intended to operate profitably and reduce a significant working
capital deficiency that resulted from losses incurred in prior years. In spite
of the measures we have instituted, our home health agencies have continued to
experience significant increases in their direct and indirect costs while their
revenues have decreased. This has resulted in home health operating losses in
Fiscal 2003, 2002, and 2001 of approximately $1,824,000, $1,275,000 and
$534,000, respectively, before consideration of interest expense. In the
fourth quarter of Fiscal 2003, we began to reorganize the home health agencies
in an effort to reduce their overhead costs and began to explore new payor
sources to increase patient referrals.

During Fiscal 2003, the claims loss ratio for our managed care operations
has stabilized. However, negative changes in the claims loss ratio, due to
increases in the utilization of healthcare services as well as increases in
medical costs without counterbalancing increases in premium revenues from our
contracts with Health Maintenance Organizations (HMOs), would reduce the
profitability and cash flows from our managed care operations. See Our
Physician Group Practices Contracts Require Us to Assume the Responsibility of
Providing Medicare to our Managed Care Patients. Historically, we have been
able to realize advantageous HMO benefit

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changes and premium increases in our managed care operations in the third
quarter of our fiscal year, which have a positive impact on profitability and
cash flow. However, there can be no assurance that any benefit changes will
occur or be realized in the third quarter of Fiscal 2004 or that premium
increases, if any, will be able to offset any negative health cost trends. If
in Fiscal 2004 we are unable to reduce our home health losses by increasing our
referrals and reducing our indirect cost and are unable to maintain our current
claims loss ratio for our managed care operations, these factors, compounded by
the lack of availability of additional financing through the credit facility
and the need to make annual payments for medical malpractice insurance which
are due in the first and second quarters of Fiscal 2004, will result in a
severe strain on our cash flow. There can be no assurances that our efforts to
reorganize the home health operations or any potential benefit changes or
premium increases in our managed care operations will allow us to meet our cash
requirements in Fiscal 2004.

At June 30, 2003, we have payments due on our long-term debt, capital lease
obligations, and contractual obligations as follows:

|      |                                                                            |   |                       |           |                  |   |           |           |           |   |           |           |  |   |           |           | 
|----- | -------------------------------------------------------------------------- | - | --------------------- | --------- | ---------------- | - | --------- | --------- | --------- | - | --------- | --------- |  | - | --------- | --------- | 
|      |                                                                            |   | Payment due by Period
|      |                                                                            |   |                      
|      |                                                                            |   | Total                 |           | Less than 1 Year |   | 1-3 Years |           | 3-5 Years
|      |                                                                            |   |                       |           |                  |   |           |           |          
|      | Long-Term Debt Obligations                                                 |   | $                     | 3,982,890 |                  |   | $         | 2,640,943 |           |   | $         | 797,322   |  |   | $         | 544,625   | 
|      | Credit Facility                                                            |   |                       | 2,315,000 |                  |   |           | 2,315,000 |           |   |           |          |  |   |           |          | 
|      | Convertible Subordinated Notes
Payable, including capitalized
interest (1) |   |                       | 4,356,467 |                  |   |           | 233,716   |           |   |           | 2,974,751 |  |   |           | 1,148,000 | 
|      | Related Party Notes Payable,
including capitalized interest
(1)            |   |                       | 1,061,187 |                  |   |           | 63,854    |           |   |           | 997,333   |  |   |           |          | 
|      | Capital Lease Obligations (2)                                              |   |                       | 243,269   |                  |   |           | 87,986    |           |   |           | 130,535   |  |   |           | 24,748    | 
|      | Operating Lease Obligations (2)                                            |   |                       | 1,328,872 |                  |   |           | 705,650   |           |   |           | 541,899   |  |   |           | 81,323    | 
|      |                                                                            |   |                       |           |                  |   |           |           |           |   |           |           |  |   |           |          
|Total |                                                                            | $ | 13,287,685            |           |                  | $ | 6,047,149 |           |           | $ | 5,441,840 |           |  | $ | 1,798,696 |          
|      |                                                                            |   |                       |           |                  |   |           |           |           |   |           |           |  |   |           |          



---

|(1) |  | The payments shown above for our Convertible
Subordinated Notes Payable and Related Party Notes Payable
include interest that was capitalized in accordance with
Statement of Financial Accounting Standards No. 15,
Accounting by Debtors and Creditors for Troubled Debt
Restructurings. See Note 4 to our Consolidated Financial
Statements.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The payments shown above for Capital Lease Obligations
and Operating Lease Obligations reflect all payments due
under the terms of the respective leases. See Note 3 to our
Consolidated Financial Statements to reconcile the payments
shown above to the capital lease obligation recorded in our
Consolidated Balance Sheet.                  

We have no off-balance sheet arrangements and have not entered into any
transactions involving unconsolidated, limited purpose entities or commodity
contracts.

We plan to fund our capital commitments, operating cash requirements and
satisfy our obligations from a combination of cash on hand and operating cash
flow improvements realized through decreased utilization, HMO premium
increases, advantageous HMO benefit changes from our managed care operations
and reducing indirect costs and increasing patient referrals for our home
health agencies. We continue to focus on strengthening our managed care
operations by enhancing our physician network, streamlining our operations and
implementing measures to contain the rising costs of providing health services
to our members. Such measures include, among other things, emphasizing
preventive care, encouraging frequent health check-ups, monitoring compliance
with drug therapies, entering into our own contracts with health care providers
such as medical specialists and recommending that our members utilize hospitals
and outpatient facilities that have favorable rate structures. In the fourth
quarter of Fiscal 2003 we began to reorganize our home health agencies in an
effort to reduce their overhead costs and began exploring new payor sources to
increase patient referrals. If we can not maintain our current claims loss
ratio for our managed care operations or reduce the home health losses, our
business, results of operations, and cash flow may be materially adversely
affected and we may be unable to meet our financial obligations as they become
due.

If we are unable to satisfy our cash requirements, we may be required to
take certain steps, such as borrowing additional funds, restructuring our
indebtedness, selling assets, selling equity, reducing or delaying capital

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expenditures or payments to trade creditors and forgoing certain business
opportunities. If we need additional capital to repay our obligations or fund
operations, there can be no assurances that such capital can be obtained or, if
obtained, that it will be on terms acceptable to us. The incurring or
assumption of additional indebtedness could result in the issuance of
additional equity and/or debt which can have a dilutive effect on current
shareholders and a significant effect on our operations.

Our net income from continuing operations was approximately $59,000 for
Fiscal 2003. Net cash provided by continuing operations was approximately
$1,382,000. The following were the most significant items which are reflected
in our net loss but did not affect our cash flows from operations:



| |  |  | Depreciation and amortization, including the amortization of
deferred loan costs, reduced net income by approximately $1,237,000,
without reducing cash from operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The net increase in due to/from Medicare was approximately
$138,000. This increase reflects the following: (i) the transfer of
amounts due to Medicare for overpayments in prior years for filed cost
reports to long term debt upon agreement of repayment terms with CMS;
(ii) a decrease in due from Medicare for amounts due to us for filed
cost reports for prior years; (iii) an increase in the due from
Medicare as a result of the settlement of the RMS 1997 cost report
reopening; and (iv) an increase in the receivable from Medicare
generated from current home health operations. The transfer of amounts
due to Medicare to long-term debt did not impact our loss from
continuing operations and did not require a cash outflow from
operations. The decrease in due from Medicare for amounts due to us
for filed cost reports for prior years did not impact our loss from
continuing operations but did provide cash. The increase in the
receivable from Medicare resulting from the settlement of the RMS 1997
cost report reopening reduced our loss from continuing operations but
did not increase cash flows from operations. The increase in the
receivable from Medicare for current operations reduced our loss from
continuing operations but did not impact the cash flows from continuing
operations.
|
| |  |  | The increase in patient receivables of approximately $273,000
reduced our net loss, but did not provide cash in Fiscal 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | During Fiscal 2003, we recorded $123,000 in director compensation
which was paid through the issuance of 900,000 shares of restricted
common stock. This director compensation reduced income from
continuing operations without reducing cash from operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

The following were significant items that affected our cash flows but did not
affect our net income:



| |  |  | Decreases in other receivables of approximately $423,000 provided
cash from operations but did not affect our net loss in Fiscal 2003.                
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Decreases in accounts payable and accrued expenses of approximately
$114,000 used cash from operations but did not affect our net loss in
Fiscal 2003.
|
| |  |  | Our net receivable from HMOs decreased by approximately $384,000
provided cash in Fiscal 2003, but did not impact our net loss.                       

Cash used by discontinued operations was approximately $84,000 for Fiscal
2003.

Our cash used in investing activities was approximately $137,000 for
Fiscal 2003, includes approximately $170,000 primarily for the purchase of
equipment and $70,000 for the purchase of a certificate of deposit offset by
approximately $100,000 in maturities of restricted cash.

Our cash used in financing activities was approximately $1,181,000,
primarily due to payments of various notes payable.

The Balanced Budget Act of 1997 directed the Health Care Financing
Administration (now CMS) to replace the existing system of risk adjustment,
which previously relied solely on demographic factors, with one that took
enrollees health status into account (the Medicare Risk Adjustment or
MRA). The demographic-only portion of the payment was adjusted for age,
gender, Medicaid eligibility, institutional status and working aged status.
The revised MRA portion of the payment, however, includes these same categories
but adds health status as a

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new criteria. Such health status is measured by the previous medical
costs for inpatient hospital stays incurred by the individual. These are then
used to determine each individuals expected future medical risk and,
therefore, how much the health plan in which they are enrolled should be paid.
To ensure that health plans had time to adjust to the new payment method, CMS
built a five-year transition period into the MRA methodology it adopted. The
initial data used to facilitate the transition to MRA was based solely upon
inpatient hospital encounter data. For 2000 and 2001, under the Balanced
Budget Refinement Act of 1999 (BBRA) the transition to risk adjustment was
based upon a blend percentage consisting of 10% risk adjustment payment and 90%
on the adjustment for demographic factors. For 2002, the blend percentage was
adjusted to 20% risk adjustment payment and 80% on the adjustment for
demographic factors. The law requires that the ambulatory data be incorporated
beginning January 1, 2004, at which time the blend percentage will consist of
30% risk adjustment payment and 70% on the adjustment for demographic factors.
In 2005, the blend percentage will consist of 50% risk adjustment payment and
50% on the adjustment for demographic factors. In 2006, the blend percentage
will consist of 75% risk adjustment payment and 25% on the adjustment for
demographic factors. In 2007, the blend percentage will consist of 100% risk
adjustment payment and 0% on the adjustment for demographic factors. Through
Fiscal 2003, our payments from the HMOs have substantially been based on the
demographic model. However, in Fiscal 2004, we anticipate that the payments we
receive from the HMOs will begin reflecting the MRA methodology. At this time,
it cannot be determined if this impact will be favorable or unfavorable.

Approximately 4% of our medical services revenue from continuing
operations during Fiscal 2003 was derived from our HHAs. Effective October 1,
2000, two of our HHAs, which primarily provide services to patients eligible
under the Medicare program, began to be reimbursed by Medicare under the
prospective payment system. Under PPS, we are paid a predetermined fee for
services provided to patients for every 60-day period for which care is
rendered. Any reduction in reimbursement under a PPS predetermined fee
schedule would have a negative impact on our business, results of operations
and cash flow.

Prior to the implementation of PPS, our HHAs were reimbursed for services
provided based on a reasonable cost methodology. We were reimbursed for cost
reimbursable items at a tentative rate with final settlement determined after
submission of annual cost reports and subsequent audits by CMS. Changes in the
estimated settlements we recorded may be adjusted in future periods as final
settlements are determined and may have a material adverse affect on our
results of operations and cash flow. See Note 5 of our Consolidated Financial
Statements regarding amounts currently due to CMS.

One of our HMO contracts requires that we fund a claims reserve fund for
certain of our staff model clinics. As a result of increased membership, our
obligations under this reserve fund increased by approximately $85,000
effective May 1, 2003, and will be paid over five months. At June 30, 2003 the
unfunded portion of this required reserve was approximately $50,000. The HMO
can only draw upon this reserve in the event that the staff model clinics in
question have incurred an account deficit and that we are unable or unwilling
to satisfy the HMOs demand to fund the deficit. At no time during Fiscal
2003 were the staff model clinics in question in an account deficit position.

Other factors that could affect our liquidity and cash flow are discussed
elsewhere in this Annual Report, including Risk Factors and include: (i)
increasing costs of health care services; (ii) loss of a material contract;
(iii) decreases in reimbursement rates by third-party payors; (iv) retroactive
cost report adjustments; (v) adverse governmental regulation, (vi) damage
awards under pending or future litigation; and (vii) increased insurance costs.

On July 30, 2002, the American Stock Exchange notified us it had completed
its review of our listing qualifications and has accepted our plan to regain
compliance with continued listing standards by December 31, 2003. The plan
includes quarterly milestones which, as of the date of the filing of this
annual report, we have not met. If we do not show progress in obtaining these
milestones or if we are unable to regain compliance with the continued listing
standards by December 31, 2003, our common stock may be delisted from the
Exchange. As of the date of this filing, we are still below the continued
listing requirements of the Exchange with respect to requirements which include
the need for us to maintain stockholders equity of at least $4 million and not
sustain losses from continuing operations and/or net losses in three of our
four most recent fiscal years. We are unable to guarantee that the Exchange
will continue to list our common stock.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At June 30, 2003, our cash equivalents were invested in high grade, very
short-term securities, which are not typically subject to material market risk.
We have loans outstanding at fixed rates. For loans with fixed interest
rates, a hypothetical 10% change in interest rates would have no impact on our
future earnings and cash flows related to these instruments and would have an
immaterial impact on the fair value of these instruments. Our Credit Facility
is interest rate sensitive. A 100 basis point adverse movement (increase) in
interest rates would have increased the net loss for Fiscal 2003 and Fiscal
2002 by approximately $25,000 and $15,000, respectively. We have no material
risk associated with foreign currency exchange rates or commodity prices.




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is submitted in a separate section of this report.




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.




ITEM 9A. CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, have evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that the disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company and its subsidiaries required to be included in our periodic filings
with the Securities and Exchange Commission. There were no changes in our
internal controls or in other factors during the fourth quarter of our fiscal
year, nor were there any corrective actions required with regard to significant
deficiencies and material weaknesses.




PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Management

The executive officers and directors of Continucare are as follows:

|                          |  |     |    |          |  |                                                                         
|------------------------- |  | --- | -- | -------- |  | ------------------------------------------------------------------------
|Name                      |  | Age |    | Position
|                          |  |     |    |         
|Spencer J. Angel          |  |     | 37 |          |  | President, Chief Executive Officer,
Chief Operating Officer and Director
|                          |  |     |    |          |  |                                                                         
|Janet L. Holt             |  |     | 56 |          |  | Chief Financial Officer                                                 
|                          |  |     |    |          |  |                                                                         
|Richard C. Pfenniger, Jr. |  |     | 48 |          |  | Chairman of the Board                                                   
|                          |  |     |    |          |  |                                                                         
|Robert J. Cresci          |  |     | 59 |          |  | Director                                                                
|                          |  |     |    |          |  |                                                                         
|Neil Flanzraich           |  |     | 60 |          |  | Director                                                                
|                          |  |     |    |          |  |                                                                         
|Patrick M. Healy          |  |     | 45 |          |  | Director                                                                
|                          |  |     |    |          |  |                                                                         
|Jacob Nudel, M.D.         |  |     | 54 |          |  | Director                                                                

Spencer J. Angelhas served as our President and Chief Executive Officer
since November 1999. From July 12, 1999 until his appointment as our President
and Chief Executive Officer, he served as our Executive Vice

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President and Chief Operating Officer. Mr. Angel has served as a member
of our board of directors since September 30, 1999. From 1996 through 2003,
Mr. Angel served as director and president of Harter Financial, Inc., a
diversified financial consulting firm. See Certain Relationships and Related
Transactions. In 1999, Mr. Angel served as president and chief executive
officer of Medical Laser Technologies, Inc., a company that produces digital
x-ray picture archiving and communications systems for cardiac catheterization
labs. He was the secretary, treasurer and director of Autoparts Warehouse,
Inc., an auto parts retail and service company, from September 1997 to January
1999. From December 1994 through August 1996 Mr. Angel was president of 5 East
41 Check Cashing Corp., a company engaged in the payroll service and armored
car business. From November 1991 to 1994 Mr. Angel was an associate attorney
with Platzer, Fineberg & Swergold, a law firm specializing in corporate
financial reorganizations.

Janet L. Holtwas appointed as our Chief Financial Officer in January
2000. From July 1999 when she joined the Company until her appointment as our
Chief Financial Officer, Ms. Holt served as the Vice President of Finance -
Managed Care Division. Ms. Holt served as an audit Senior Manager at Ernst &
Young, LLP from November 1997 until joining Continucare. From June 1995 to
November 1997, Ms. Holt served as the Internal Auditor for InPhyNet Medical
Management, Inc., and she served as an audit manager with Deloitte & Touche,
LLP from 1992 to June 1995.

Richard C. Pfenniger, Jr.has served as one of our directors since March
2002. In September 2002, Mr. Pfenniger was appointed chairman of our board of
directors.Until its sale in July 2003, Mr. Pfenniger served as the Chief
Executive Officer and Vice Chairman of Whitman Education Group, Inc. since 1997
and as a director of Whitman Education Group, Inc. since 1992. From 1994 to
1997, Mr. Pfenniger served as the Chief Operating Officer of IVAX and from 1989
to 1994 he served as the Senior Vice President-Legal Affairs and General
Counsel of IVAX. Mr. Pfenniger currently serves as a director of IVAX.

Robert J. Crescihas served as one of our directors since February 2000.
He has been a Managing Director of Pecks Management Partners Ltd., an
investment management firm, since 1990. Mr. Cresci currently serves on the
boards of Sepracor, Inc.; Luminex Corporation; Aviva Petroleum Ltd.; j2 Global
Communications, Inc.; Candlewood Hotel Co.; SeraCare Life Sciences Inc.; LTWC
Corporation and several private companies.

Patrick M. Healyhas served as one of our directors since February 2000.
He has served as president and chief administrative officer and as a member of
the board of directors for Mayo Health Plan, Inc. since its inception in June
1996 to December 2001. Mr. Healy served as president and chief administrative
officer and as a member of the board of directors for MHP Health and Life, Inc,
and MHP Holding, Inc. from June 1998 to December 2001. Previously, Mr. Healy
was president and chief executive officer and member of the board of directors
for Cleveland Clinic Florida Health Plan from its inception in 1992 through
1996. Mr. Healy also served as a regional director of operations-southeast
region and executive director Florida/Caribbean for The Travelers Insurance
Company from 1990 through 1992.

Neil Flanzraichhas served as one of our directors since March 2002. Mr.
Flanzraich has served as the Vice Chairman and President of IVAX, a
pharmaceutical manufacturer, since May 1998. Mr. Flanzraich served as Chairman
of the Life Sciences Legal Practices Group of Heller Ehrman White & McAuliff, a
law firm, from 1995 to 1998. From 1981 to 1994, Mr. Flanzraich served in
various capacities at Syntex Corporation and as a member of the Corporate
Executive Committee. From 1994 to 1995, after Syntex Corporation was acquired
by Roche Holding Ltd, Mr. Flanzraich served as Senior Vice President and
General Counsel of Syntex (U.S.A.) Inc., a Roche subsidiary. Mr. Flanzraich
was Chairman of the Board of Directors of North American Vaccine, Inc from 1989
to 2000. Mr. Flanzraich also currently serves on the boards of IVAX, Whitman
Education Group, Inc., IVAX Diagnostics, Inc. and Rae Systems, Inc.

Jacob Nudel, M.D.has served as one of our directors since October 2002.
As the founder of MEDWerks.com Corporation, Dr. Nudel has served as their Chief
Executive Officer since 2000. From 1995 to 2000, Dr. Nudel served as Chief
Executive Officer of Allied Health Group, Inc. From 1992 to 2000, Dr. Nudel
also served as Chief Executive Officer of Florida Specialty Network, Inc.

Officers serve at the pleasure of the board of directors, subject to the
terms of any employment agreements. See Employment Agreements.

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Key Employee

The following is a key employee of Continucare:

|                           |  |     |    |          |  |                              
|-------------------------- |  | --- | -- | -------- |  | -----------------------------
|Name                       |  | Age |    | Position
|                           |  |     |    |         
|Roberto L. Palenzuela, Esq |  |     | 40 |          |  | General Counsel and Secretary

Roberto L. Palenzuela, Esq.was appointed General Counsel in May of 2002
and Corporate Secretary in February of 2003. Mr. Palenzuela served as an
officer and director of Community Health Plan of the Rockies, Inc., a health
maintenance organization based in Denver, Colorado from 1994 to 2003.
Community Health Plan of the Rockies, Inc. filed for protection under Chapter
11 of the federal bankruptcy laws on November 15, 2002, and was released from
Chapter 11 on December 16, 2003. From March 1999 through June 2001, Mr.
Palenzuela served as General Counsel of Universal Rehabilitation Centers of
America, Inc. (n/k/a Universal Medical Concepts, Inc.), a physician practice
management company. Mr. Palenzuela was General Counsel and director for Trident
Medical Concepts, Inc., a multi-state physician practice management company
from June 1997 to February 1999. On November 18, 1998, Trident Medical
Concepts, Inc. filed for protection under Chapter 11 of the federal bankruptcy
laws. From May 1996 to June 1997, Mr. Palenzuela was a partner with the law
firm of Adams, Gallinar, Iglesias & Palenzuela, P.A.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers and persons who own more than 10% of our
outstanding common stock, to file with the Securities and Exchange Commission
(the SEC) initial reports of ownership and reports of changes in ownership of
common stock. Such persons are required by SEC regulation to furnish us with
copies of all such reports they file.

To our knowledge, based solely on a review of the copies of such reports
furnished to us and written representations that no other reports were
required, we believe that all Section 16(a) filing requirements applicable to
our officers, directors and greater than 10% beneficial owners were complied
with.




ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION

Summary of Cash and Certain Other Compensation

The following table sets forth certain summary information concerning
compensation paid or accrued by us to or on behalf of (i) our chief executive
officer, and (ii) the other executive officer who was serving as an executive
officer at the end of the last fiscal year, whose total annual salary and
bonus, determined as of the end of the fiscal year ended June 30, 2003,
exceeded $100,000 (hereinafter referred to as the Named Executive Officers).

41



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##### Table of Contents






SUMMARY COMPENSATION TABLE

|                   |                         |        |                     |            |              |           |         |              |  |                    |        |              |  |                   |    |           |   |  |           |         |     |  |   |   | 
|------------------ | ----------------------- | ------ | ------------------- | ---------- | ------------ | --------- | ------- | ------------ |  | ------------------ | ------ | ------------ |  | ----------------- | -- | --------- | - |  | --------- | ------- | --- |  | - | - | 
|                   |                         |        |                     |            |              |           |         |              |  |                    |        |              |  |                   |    |           |   |  | Long-Term |         |     |  |  
|                   |                         |        | Annual Compensation |            | Compensation |           |         |              | 
|                   |                         |        |                     |            |              |           |         |              | 
|Name and           |                         | Fiscal |                     |            |              |           |         |              |  |                    |        | Other Annual |  | No. of Securities |    | All Other
|Principal Position |                         | Year   |                     | Salary ($) |              | Bonus ($) |         | Compensation |  | Underlying Options |        | Compensation
|                   |                         |        |                     |            |              |           |         |              |  |                    |        |             
|Spencer J. Angel,  |                         |        | 2003                |            |              |           | 259,000 |              |  |                    | 0      |              |  |                   | (1 | )         |   |  | 200,000   | (2)     |     |  | 0 |  
|                   | President and Chief     |        |                     | 2002       |              |           |         | 259,000      |  |                    |        | 0            |  |                   |    | (1        | ) |  |           | 0       |     |  |   | 0 | 
|                   | Executive Officer       |        |                     | 2001       |              |           |         | 268,307      |  |                    |        | 0            |  |                   |    | (1        | ) |  |           | 600,000 | (3) |  |   | 0 | 
|                   |                         |        |                     |            |              |           |         |              |  |                    |        |              |  |                   |    |           |   |  |           |         |     |  |   |  
|Janet L. Holt,     |                         |        | 2003                |            |              |           | 133,887 |              |  |                    | 25,000 |              |  |                   | (1 | )         |   |  | 0         |         |     |  | 0 |  
|                   | Chief Financial Officer |        |                     | 2002       |              |           |         | 127,849      |  |                    |        | 0            |  |                   |    | (1        | ) |  |           | 0       |     |  |   | 0 | 
|                   |                         |        | 2001                |            |              |           | 103,846 |              |  |                    | 0      |              |  |                   | (1 | )         |   |  | 75,000    | (4)     |     |  | 0 |  



---

|(1) |  | The total perquisites and other personal benefits provided is less than
10% of the total annual salary and bonus to such officer.                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | 200,000 fully vested stock options were awarded on September 23, 2002 in
connection with Mr. Angels service as a member of the Board of Directors.
See Director Compensation.                               
|   
|(3) |  | 100,000 fully vested stock options valued were awarded on July 20, 2000.
An additional 500,000 stock options were also awarded on July 20, 2000
and vest ratably over three years. See Director Compensation.
|   
|(4) |  | 75,000 stock options were awarded on July 20, 2000 and vest ratably over
three years.                                                                                                                           

Option Grants During Fiscal 2003

The following table sets forth certain information concerning grants of
stock options made during Fiscal 2003 to our Named Executive Officers. We did
not grant any stock appreciation rights in Fiscal 2003.

Individual Option Grants in Fiscal 2003

|                                                        |  |                  |         |                    |  |                  |      |                 |  |    |     |     |  |                     |  |                            |   |  |  |  |       | 
|------------------------------------------------------- |  | ---------------- | ------- | ------------------ |  | ---------------- | ---- | --------------- |  | -- | --- | --- |  | ------------------- |  | -------------------------- | - |  |  |  | ----- | 
|                                                        |  |                  |         |                    |  |                  |      |                 |  |    |     |     |  |                     |  | Potential Realizable Value
|                                                        |  |                  |         |                    |  |                  |      |                 |  |    |     |     |  |                     |  | at Assumed Annual Rates of
|                                                        |  |                  |         |                    |  |                  |      |                 |  |    |     |     |  |                     |  | Stock Price Appreciation  
|                                                        |  | Shares of Common |         |                    |  |                  |      |                 |  |    |     |     |  | For Option Term (1)
|                                                        |  | Stock Underlying |         | % of Total Granted |  |                  |      |                 |  |    |     |    
|Name                                                    |  | Options          |         | to Employees       |  | Option Price ($) |      | Expiration Date |  | 5% |     | 10%
|                                                        |  |                  |         |                    |  |                  |      |                 |  |    |     |    
|Spencer J. Angel,
President and Chief
Executive Officer |  |                  | 200,000 |                    |  |                  | 100% |                 |  | $  | .36 |     |  | 9/23/12             |  |                            | 0 |  |  |  | 1,000 | 



---

|(1) |  | The dollar amounts set forth in these columns are the result of
calculations at the 5% and 10% rates set by the Securities and Exchange
Commission, and therefore are not intended to forecast possible future
appreciation, if any, of the market price of the common stock.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Option Exercises in 2003 and Year End Option Values

The following table sets forth information with respect to (i) the number
of unexercised options held by the Named Executive Officers as of June 30,
2003, and (ii) the value as of June 30, 2003 of unexercised in-the-money
options. No options were exercised by any of the Named Executive Officers in
Fiscal 2003.

|                 |  |                                |         |                      |  |             |         |               |  |   |        |  |  |  |   | 
|---------------- |  | ------------------------------ | ------- | -------------------- |  | ----------- | ------- | ------------- |  | - | ------ |  |  |  | - | 
|                 |  | Number of Securities           |         | Value of Unexercised
|                 |  | Underlying Unexercised Options |         | In-the-Money Options
|                 |  | at June 30, 2003               |         | at June 30, 2003 (1)
|                 |  |                                |         |                     
|                 |  | Exercisable                    |         | Unexercisable        |  | Exercisable |         | Unexercisable
|                 |  |                                |         |                      |  |             |         |              
|Spencer J. Angel |  |                                | 633,333 |                      |  |             | 166,667 |               |  | $ | 12,000 |  |  |  | 0 | 
|Janet L. Holt    |  |                                | 50,000  |                      |  |             | 25,000  |               |  |   | 0      |  |  |  | 0 | 



---

|(1) |  | Market value of shares covered by in-the-money options on June 30, 2003,
less option exercise price. Options are in-the-money if the market value
of the shares covered thereby is greater than the option exercise price.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Director Compensation

Our directors do not currently receive any cash compensation for service
on the board of directors but may be reimbursed for certain expenses in
connection with attendance at board of director meetings or other meetings on
our behalf. All of our directors are eligible to receive options under our
Stock Option Plan.

On September 23, 2002, Board members that served during calendar years
2001 and 2002 were granted fully vested options to purchase 100,000 shares of
common stock for each year of service, and newly appointed Board members were
granted fully vested options to purchase an additional 100,000 shares of common
stock. These Board members had the choice to receive restricted stock instead
of options.

In October 2002, Dr. Jack Nudel was appointed to the Board. At the time of
his appointment, Dr. Nudel was entitled to receive either fully vested options
to purchase 100,000 shares of common stock or to receive 100,000 shares of
restricted stock as compensation for his service as a director. On October 30,
2002, Dr. Nudel elected to receive this award in the form of restricted stock.

Employment Agreements

Mr. Angels employment agreement is for a one-year period commencing July
12, 1999, with additional one-year automatic renewals and provides for an
annual base salary of $250,000. Additionally, he is eligible to receive a
bonus equal to 7% of our earnings before interest, taxes, depreciation and
amortization in excess of $3 million for the fiscal year. The agreement may be
terminated by either party with or without cause upon 60 days notice prior to
an anniversary date of the agreement. Pursuant to the terms of his agreement,
Mr. Angel is prohibited from competing with Continucare for a one-year period
following termination of his employment with Continucare. In the event that Mr.
Angel is terminated without cause, Mr. Angel is entitled to his base salary for
the period of one year and any unpaid accrued bonus.

Ms. Holts employment agreement is for a one-year period commencing
October 1, 2001, with additional one-year automatic renewals and provides for
an annual base salary of $125,000. Additionally, she is eligible to receive
bonuses and stock option grants as determined by the Chief Executive Officer
and the Compensation Committee of our Board of Directors. The agreement may be
terminated by Continucare with or without cause at any time. In the event Ms.
Holt is terminated without cause, Ms. Holt is entitled to her base salary for a
period of six months and any unpaid accrued bonuses. Ms. Holt may terminate
the agreement upon 60 days written notice. Pursuant to the terms of the
agreement, Ms. Holt is prohibited from competing with Continucare for a 90-day
period following termination of her employment with Continucare.

43



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##### Table of Contents



Compensation Committee Interlocks

The following directors served as members of the compensation committee
during Fiscal 2003: Richard C. Pfenniger, Jr., Neil Flanzraich, Patrick M.
Healy and Robert J. Cresci. None of the members of the compensation committee
was, at any time either during or before such fiscal year, an employee of ours
or any of our subsidiaries.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of September 5, 2003
concerning the beneficial ownership of the common stock by:



| |  |  | each person known by Continucare to be the beneficial owner
of more than 5% of the outstanding common stock,
| | - |  | ------------------------------------------------------------------------------------------------------------
|
| |  |  | each of the directors who own our shares,                                                                   
|
| |  |  | the Named Executive Officers, and                                                                           
|
| |  |  | all of our executive officers and directors as a group.                                                     

All holders listed below have sole voting power and investment power over the
shares beneficially owned by them, except to the extent such power may be
shared with such persons spouse.

|                                                                                                                 |                          |                  |               |  |  |  |      | 
|---------------------------------------------------------------------------------------------------------------- | ------------------------ | ---------------- | ------------- |  |  |  | ---- | 
|Name and Address                                                                                                 | Amount and Nature of     | Percent of      
|of Beneficial Owner                                                                                              | Beneficial Ownership (1) | Common Stock (2)
|                                                                                                                 |                          |                 
|Spencer J. Angel
   80 S.W. 8th Street
   Miami, FL 33131                                                        |                          |                  | 792,760(3)    |  |  |  | 1.8  | 
|                                                                                                                 |                          |                  |               |  |  |  |      | 
|Robert Cresci
   c/o Pecks Management Partners, Ltd.
   One Rockefeller Plaza
   Suite 900
   New York, NY 10020 |                          |                  | 300,000(4)    |  |  |  | *    | 
|                                                                                                                 |                          |                  |               |  |  |  |      | 
|Neil Flanzraich
   4400 Biscayne Boulevard
   Miami, FL 33137                                                    |                          |                  | 200,000       |  |  |  | *    | 
|                                                                                                                 |                          |                  |               |  |  |  |      | 
|Patrick Healy
   1670 Atlantic Boulevard
   Jacksonville, FL 32207                                               |                          |                  | 301,000(5)    |  |  |  | *    | 
|                                                                                                                 |                          |                  |               |  |  |  |      | 
|Janet L. Holt
   80 S.W. 8th Street
   Miami, FL 33131                                                           |                          |                  | 50,000(5)     |  |  |  | *    | 
|                                                                                                                 |                          |                  |               |  |  |  |      | 
|Richard C. Pfenniger, Jr
   4400 Biscayne Boulevard
   Miami, FL 33137                                           |                          |                  | 205,000       |  |  |  | *    | 
|                                                                                                                 |                          |                  |               |  |  |  |      | 
|Jacob Nudel, M.D.
   100 NE 3rd Avenue
   Suite 490
   Fort Lauderdale, FL 33301                                 |                          |                  | 100,000       |  |  |  | *    | 
|                                                                                                                 |                          |                  |               |  |  |  |      | 
|Dr. Phillip Frost
   4400 Biscayne Boulevard
   Miami, FL 33137                                                  |                          |                  | 22,019,450(6) |  |  |  | 51.7 | 

44



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##### Table of Contents



|                                                                                           |                          |                  |              |  |  |  |      | 
|------------------------------------------------------------------------------------------ | ------------------------ | ---------------- | ------------ |  |  |  | ---- | 
|Name and Address                                                                           | Amount and Nature of     | Percent of      
|of Beneficial Owner                                                                        | Beneficial Ownership (1) | Common Stock (2)
|                                                                                           |                          |                 
|Pecks Management Partners Ltd.
   One Rockefeller Plaza
   Suite 900
   New York, NY 10020 |                          |                  | 8,511,582(7) |  |  |  | 18.6 | 
|                                                                                           |                          |                  |              |  |  |  |      | 
|All directors and executive officers
as a group (7 persons)                                |                          |                  | 2,019,480    |  |  |  | 4.6  | 



---

|*   |  | Less than one percent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | For purposes of this table, beneficial ownership is computed pursuant to
Rule 13d-3 under the Exchange Act; the inclusion of shares as beneficially
owned should not be construed as an admission that such shares are
beneficially owned for purposes of the Exchange Act. Under the rules of
the Securities and Exchange Commission, a person is deemed to be a
beneficial owner of a security he or she has or shares the power to vote
or direct the voting of such security or the power to dispose of or direct
the disposition of such security. Accordingly, more than one person may
be deemed to be a beneficial owner of the same security.
|   
|(2) |  | Based on 42,379,001 shares outstanding as of September 5, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(3) |  | Includes (i) 800 shares held by Arkangel, Inc., an entity controlled by
Mr. Angel; (ii) 150,000 shares held directly by Mr. Angel; (iii) 633,333
shares of common stock underlying options that are currently exercisable,
and (iv) 8,627 shares of common stock issuable upon conversion of a
convertible promissory note.                                                                                                                                                                                                                                                                                                                             
|   
|(4) |  | Includes (i) 200,000 shares of stock and (ii) 100,000 shares of common
stock underlying options granted that are currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(5) |  | Represents shares of common stock underlying options that are currently
exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(6) |  | Includes (i) 20,922,288 shares owned beneficially through Frost Gamma
Investments Trust; (ii) 797,162 shares issuable upon conversion of a
convertible promissory note beneficially owned through Frost Nevada
Investments Trust; (iii) 200,000 shares of common stock underlying options
granted that are currently exercisable; and (iv) 100,000 shares of stock.
See Certain Transactions.                                                                                                                                                                                                                                                         
|   
|(7) |  | The information set forth herein is based solely on the most recent
Schedule(s) 13G/A filed with the SEC by the entity and, accordingly, may
not reflect their respective holdings as of the date of this report.
Includes 3,407,927 shares of Common Stock that may be issued upon the
conversion of Convertible Subordinated Notes.                                                                                                                                                                                                                                                                                                                   




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain Transactions

At June 30, 2003, we had a principal amount of $797,162 outstanding under
a convertible promissory note, maturing on October 31, 2005, due to Frost
Nevada Investment Trust (Frost Nevada), an entity related to Dr. Phillip
Frost, our majority shareholder. The annual interest rate on the promissory
note to Frost Nevada, which is payable semiannually, increased from 7% to 9% on
March 31, 2003 as compensation to Dr. Frost for his extension of his personal
guarantee of our credit facility. During Fiscal 2003 we had principal amounts
outstanding under convertible promissory notes with October 31, 2005 maturity
dates bearing interest at 7% due semi-annually with Harter Financial, entity
affiliated with Mr. Angel, and Mr. Angel of $37,386 and $8,627, respectively.

During Fiscal 2003, we paid approximately $64,000, $3,000 and $1,000 in
interest on the convertible promissory notes to Frost Nevada, Harter Financial,
and to Mr. Angel, respectively.

In June 2003, Mr. Angel sold his ownership interest in Harter Financial to
which we have an outstanding convertible promissory note of $37,386 as
discussed above.

In addition to
increasing the interest rate on a note due to an entity related to
Dr. Frost, as discussed above, we also issued 1,500,000 shares of
restricted stock to an entity related to Dr. Frost as consideration for his extension of his personal guarantee of our credit facility.
The shares of common stock, which were valued at $525,000 based on
the closing price of our common stock on March 31, 2003 when the guarantee was granted,
have been recorded as a deferred financing cost which will be amortized over the term of the guarantee.

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##### Table of Contents






ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Audit Fees                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | The aggregate fees billed for each of the last two fiscal years by our
principal accountant, Ernst & Young LLP, for professional services
rendered for the audit of our annual financial statement and review of
financial statements included in our Form 10-Qs or services that are
normally provided by the accountant in connection with statutory and
regulatory filings or engagements for those fiscal years were as
follows:
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | Fiscal 2003:   $202,224                                                                                                                                                                                                                                                                                                                                                                                                             
|    |  | Fiscal 2002:   1$71,900                                                                                                                                                                                                                                                                                                                                                                                                             
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(2) |  | Audit-Related Fees                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | The aggregate fees billed for each of the last two fiscal years for
assurance and related services by our principal accountant, Ernst
&
Young LLP, that are reasonably related to the performance of the audit
or review of our financial statements and are not reported in the
preceding paragraph were as follows:                                                                                                               
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | Fiscal 2003:   $40,076                                                                                                                                                                                                                                                                                                                                                                                                              
|    |  | Fiscal 2002:   $6,000                                                                                                                                                                                                                                                                                                                                                                                                               
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(3) |  | Tax Fees                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | The aggregate fees billed for each of the last two fiscal years for
professional services provided by our principal accountant Ernst &
Young LLP, for tax compliance, tax advice, and tax planning were as
follows:                                                                                                                                                                                                                 
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | Fiscal 2003:   $43,870                                                                                                                                                                                                                                                                                                                                                                                                              
|    |  | Fiscal 2002:   $44,532                                                                                                                                                                                                                                                                                                                                                                                                              
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(4) |  | All Other Fees                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | The aggregate fees billed for each of the last two fiscal years for
the products and services provided by our principal accountant, Ernst
& Young LLP, other than the services reported in paragraphs (1), (2),
and (3) above were as follows;                                                                                                                                                                                      
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | Fiscal 2003:   $19,420                                                                                                                                                                                                                                                                                                                                                                                                              
|    |  | Fiscal 2002:   $                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(5) |  | Our audit committees pre-approval policies and procedures
described in paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X were
that the audit committee pre-approve all accounting related activities
prior to the performance of any services by any accountant or auditor.                                                                                                                                                       
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(6) |  | The percentage of hours expended on the principal accountants
engagement to audit our financial statements for the most recent
fiscal year that were attributable to work performed by persons other
than the principal accountants full-time, permanent employees was 0%                                                                                                                                                         

46



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##### Table of Contents






PART IV




ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)(1) Financial Statements

Reference is made to the Index set forth on Page F-1 of this Annual Report on Form 10-K.

(a)(2) Financial Statement Schedules

All schedules have been omitted because they are inapplicable or the
information is provided in the consolidated financial statements,
including the notes hereto.

(a)(3) Exhibits

|     |  |                                                                                                                                                                                                                                                                                                                                                                     
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Restated Articles of Incorporation of Company, as amended (3)                                                                                                                                                                                                                                                                                                       
|3.2  |  | Restated Bylaws of Company (3)                                                                                                                                                                                                                                                                                                                                      
|4.1  |  | Form of certificate evidencing shares of Common Stock (3)                                                                                                                                                                                                                                                                                                           
|4.2  |  | Indenture, dated as of October 30, 1997, between the Company and American
Stock Transfer & Trust Company, as Trustee, relating to 8% Convertible
Subordinated Notes due 2002 (5)                                                                                                                                                                                    
|4.3  |  | Registration Rights Agreement, dated as of October 30, 1997, by and between
the Company and Loewenbaum & Company Incorporated (5)                                                                                                                                                                                                                                   
|4.4  |  | Continucare Corporation Amended and Restated 1995 Stock Option Plan (7)                                                                                                                                                                                                                                                                                             
|4.5  |  | Amended and Restated 2000 Stock Option Plan (17)                                                                                                                                                                                                                                                                                                                    
|4.6  |  | Convertible Subordinated Promissory Note (18)                                                                                                                                                                                                                                                                                                                       
|4.7  |  | Form of Convertible Promissory Note, dated June 30, 2001 (21)                                                                                                                                                                                                                                                                                                       
|4.8  |  | Amendment to Convertible Promissory Note, dated March 31, 2003, between the
Company and Frost Nevada Limited Partnership (21)                                                                                                                                                                                                                                       
|4.9  |  | Form of Amendment to Convertible Promissory Note, dated March 31, 2003 (21)                                                                                                                                                                                                                                                                                         
|10.1 |  | Employment Agreement between the Company and Charles M. Fernandez dated as of
September 11, 1996 (2)                                                                                                                                                                                                                                                                
|10.2 |  | Agreement and Plan of Merger by and among Continucare Corporation, Zanart
Entertainment Incorporated and Zanart Subsidiary, Inc. dated August 9, 1996
(1)                                                                                                                                                                                                           
|10.3 |  | Stock Purchase Agreement dated April 10, 1997 by and among Continucare
Corporation, Continucare Physician Practice Management, Inc., AARDS, Inc. and
Sheridan Healthcorp. Inc (4)                                                                                                                                                                                   
|10.4 |  | Stock Purchase Agreement dated April 10, 1997 by and among Continucare
Corporation, Continucare Physician Practice Management, Inc., Rosenbaum,
Weitz & Ritter, Inc. and Sheridan Healthcorp, Inc (4)                                                                                                                                                               
|10.5 |  | Stock Purchase Agreement dated April 10, 1997 by and among Continucare
Corporation, Continucare Medical Management, Inc., Arthritis & Rheumatic
Disease Specialties, Inc. and Sheridan Healthcare, Inc (4)                                                                                                                                                          
|10.6 |  | Placement Agreement, dated as of October 27, 1997, between the Company and
Loewenbaum & Company Incorporated (5)                                                                                                                                                                                                                                                    
|10.7 |  | Purchase Agreement, dated as of September 4, 1997, by and among Continucare
Corporation, Continucare Physician Practice Management, Inc., a wholly owned
subsidiary of Continucare Corporation, DHG Enterprises, Inc. f/k/a Doctors
Health Group, Inc. and Doctors Health Partnership, Inc., both Florida
corporations, and Claudio Alvarez and Yvonne Alvarez (6)

47



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##### Table of Contents



|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.8  |  | Stock Purchase Agreement, dated as of February 13, 1998, by and among
Continucare Corporation, Continucare Rehabilitation Services, Inc.,
Integrated Health Services, Inc., Rehab Management Systems, Inc.,
IntegraCare, Inc. and J.R. Rehab Associates, Inc (8)                                                                                                                                                                
|10.9  |  | Asset Purchase Agreement, dated as of April 7, 1998, by and among: (i) SPI
Managed Care, Inc., SPI Managed Care of Hillsborough County, Inc., SPI
Managed Care of Broward, Inc., Broward Managed Care, Inc., each a Florida
corporation; (ii) First Medical Corporation, a Delaware corporation and First
Medical Group, Inc., a Delaware corporation; and (iii) CNU Acquisition
Corporation, a Florida corporation (9) and (10)
|10.10 |  | Asset Purchase Agreement, dated as of August 18, 1998, by and among: (i)
Caremed Health Systems, Inc.; (ii) Caremed Medical Management, Inc.; Caremed
Health Administrators, Inc., each a Florida corporation; and (iii)
Continucare Managed Care, Inc., a Florida corporation (11)                                                                                                                                             
|10.11 |  | Physician Practice Management Participation Agreement between Continucare
Medical Management, Inc., and Humana Medical Plan, Inc. entered into as of
the 1st day of August, 1998 (16)                                                                                                                                                                                                                                           
|10.12 |  | Asset Purchase Agreement, dated April 7, 1999, by and among: (i) Kessler
Rehabilitation of Florida, Inc., a Florida Corporation; Rehab Management
Systems, Inc., a Florida Corporation; Continucare Occmed Services, Inc., a
Florida Corporation; and Continucare Corporation, a Florida Corporation (12)                                                                                                                       
|10.13 |  | Employment Agreement dated July 12, 1999 between Continucare Corporation and
Spencer Angel (13) **                                                                                                                                                                                                                                                                                                                              
|10.14 |  | Lease Agreement, dated as of the 28th day of July 1999, between Doral Park
Joint Venture, Lennar Mortgage Holdings Corporation, LNR/CREC Brickell
Bayview Limited Partnership, and Universal American Realty Corporation, as
tenants-in-common, and Continucare Corporation (16)                                                                                                                                                
|10.15 |  | First Amendment to Employment Agreement, dated October 1, 1999, between
Charles Fernandez and Continucare Corporation (13)                                                                                                                                                                                                                                                                                                      
|10.16 |  | First Amendment to Employment Agreement between Spencer J. Angel and the
Company, entered into as of the 1st day of November, 1999 (14) **                                                                                                                                                                                                                                                                                      
|10.17 |  | Employment Agreement dated October 1, 2001 between Continucare Corporation
and Janet L. Holt (20) **                                                                                                                                                                                                                                                                                                                            
|10.18 |  | Agreement, dated March 31, 2003, between the Company and Phillip Frost, M.D.,
Frost Gamma Investments Trust and Frost Nevada Investments Trust (21)                                                                                                                                                                                                                                                                             
|10.19 |  | Agreement, dated March 31, 2003, between the Company and Pecks Management
Partners, Ltd. (21)                                                                                                                                                                                                                                                                                                                                   
|10.20 |  | Agreement, dated March 31, 2003, between the Company and Carret & Company (21)                                                                                                                                                                                                                                                                                                                                                  
|21.1  |  | Subsidiaries of the Company * (Exhibit 21.1)                                                                                                                                                                                                                                                                                                                                                                                    
|23.1  |  | Consent of Ernst & Young LLP * (Exhibit 23.1)                                                                                                                                                                                                                                                                                                                                                                                   
|31.1  |  | Section 302 Certification of Chief Executive Officer * (Exhibit 31.1)                                                                                                                                                                                                                                                                                                                                                           
|31.2  |  | Section 302 Certification of Chief Financial Officer * (Exhibit 31.2)                                                                                                                                                                                                                                                                                                                                                           
|32.1  |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 * (Exhibit 32.1)                                                                                                                                                                                                                                                                                         
|32.2  |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 * (Exhibit 32.2)                                                                                                                                                                                                                                                                                         
|99.1  |  | Consent Letter and Agreement to the First Supplemental Indenture between the
Securityholders of the Convertible Notes due 2002 and Continucare
Corporation, dated December 9, 1999 (15)                                                                                                                                                                                                                                         

Documents incorporated by reference to the indicated exhibit to the following
filings by the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934.

48



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---

|(1)  |  | Current Report Form 8-K dated August 9, 1996.                                                                                     
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | Form 10-KSB filed with the Commission on September
30, 1996.                                                                      
|    
|(3)  |  | Post Effective Amendment No. 1 to the Registration
Statement on SB-2 on Form S-3 Registration Statement filed on
October 29, 1996.
|    
|(4)  |  | Form 8-K filed with the Commission on April 25,
1997.                                                                             
|    
|(5)  |  | Form 8-K dated October 30, 1997 and filed with the
Commission on November 13, 1997.                                               
|    
|(6)  |  | Form 8-K dated October 31, 1997 and filed with the
Commission on November 13, 1997.                                               
|    
|(7)  |  | Schedule 14A dated December 26, 1997 and filed with
the Commission on December 30, 1997.                                          
|    
|(8)  |  | Form 8-K dated February 13, 1998 and filed with the
Commission on February 26, 1997.                                              
|    
|(9)  |  | Form 8-K dated April 14, 1998 and filed with the
Commission on April 27, 1998.                                                    
|    
|(10) |  | Form 8-K/A dated May 11, 1998 and filed with the
Commission on May 15, 1998.                                                      
|    
|(11) |  | Form 8-K dated and filed with the Commission on
September 2, 1998.                                                                
|    
|(12) |  | Form 8-K dated April 21, 1999 and filed with the
Commission on April 23, 1999.                                                    
|    
|(13) |  | Form 10-K/A for the fiscal year ended June 30,
1999.                                                                              
|    
|(14) |  | Form 10-K/A, Amendment No. 2 for the fiscal year
ended June 30, 1999.                                                             
|    
|(15) |  | Form 10-Q for the quarterly period ended December
31, 1999                                                                        
|    
|(16) |  | Form 10-K for the fiscal year ended June 30, 2000                                                                                 
|    
|(17) |  | Form S-8 File No. 333-61246, filed May 18, 2001.                                                                                  
|    
|(18) |  | Form 8-K dated August 3, 2001, filed August 15,
2001.                                                                             
|    
|(19) |  | Form 10-K for the fiscal year ended June 30, 2001.                                                                                
|    
|(20) |  | Form 10-Q for the quarterly period ended September
30, 2001.                                                                      
|    
|(21) |  | Form 10-Q for the quarterly period ended March 31,
2003.                                                                          
|    
|*    |  | Filed herewith                                                                                                                    
|    
|**   |  | Management contract or compensatory plan or
arrangement.                                                                          

(b) Reports on Form 8-K

We filed or furnished two reports on Form 8-K during our fourth quarter
ended June 30, 2003

|                        |  |                |  |               |  |                                                                                                                                                        
|----------------------- |  | -------------- |  | ------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|Date Filed or Furnished |  | Item No.       |  | Description  
|                        |  |                |  |              
|                        |  | April 15, 2003 |  | Items 5 and 7 |  | We reported the amendment
of our line of credit, the
modification of our
subordinated debt and the
issuance of shares of our
common stock.             
|                        |  |                |  |               |  |                                                                                                                                                        
|                        |  |                |  |               |  | We also reported the
assumption of management
responsibilities for an
Independent Physician
Network and the
cancellation of a note
with an HMO partner.
|                        |  |                |  |               |  |                                                                                                                                                        
|                        |  | May 19, 2003   |  | Items 7 and 9 |  | We announced the results
of operations for the
third quarter of our
fiscal year.                                                                       

49



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                          |  |                                                                                
|------------------------- |  | -------------------------------------------------------------------------------
|                          |  | CONTINUCARE CORPORATION                                                        
|                          |  |                                                                                
|                          |  | By: /s/ Spencer J. Angel                                                       
|                          |  |                                                                                
|                          |  | SPENCER J. ANGEL
Chief Executive Officer, Chief
Operating Officer and President
|                          |  |                                                                                
|Dated: September 25, 2003 |  |                                                                                

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.

|                                                         |  |                                                                                                        |  |                   
|-------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | ------------------
|SIGNATURE                                                |  | TITLE                                                                                                  |  | DATE              
|                                                         |  |                                                                                                        |  |                   
|/s/ Spencer J. Angel

Spencer J. Angel                   |  | President, Chief Executive
Officer, Chief Operating Officer
and Director
(Principal Executive Officer) |  | September 25, 2003
|                                                         |  |                                                                                                        |  |                   
|/s/ Janet L. Holt

Janet L. Holt                         |  | Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer)                 |  | September 25, 2003
|                                                         |  |                                                                                                        |  |                   
|/s/ Richard C. Pfenniger, Jr.

Richard C. Pfenniger, Jr. |  | Chairman of the Board                                                                                  |  | September 25, 2003
|                                                         |  |                                                                                                        |  |                   
|/s/ Robert J. Cresci

Robert J. Cresci                   |  | Director                                                                                               |  | September 25, 2003
|                                                         |  |                                                                                                        |  |                   
|/s/ Neil Flanzraich

Neil Flanzraich                     |  | Director                                                                                               |  | September 25, 2003
|                                                         |  |                                                                                                        |  |                   
|/s/ Patrick Healy

Patrick Healy                         |  | Director                                                                                               |  | September 25, 2003
|                                                         |  |                                                                                                        |  |                   
|/s/ Jacob Nudel, M.D.

Jacob Nudel, M.D.                 |  | Director                                                                                               |  | September 25, 2003

50



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##### Table of Contents






INDEX TO FINANCIAL STATEMENTS

|                                                                                                 |  |      |     | 
|------------------------------------------------------------------------------------------------ |  | ---- | --- | 
|                                                                                                 |  | PAGE
|                                                                                                 |  |     
|Report of Independent Certified Public Accountants                                               |  |      | F-2 | 
|                                                                                                 |  |      |     | 
|Consolidated Balance Sheets as of June 30, 2003 and 2002                                         |  |      | F-3 | 
|                                                                                                 |  |      |     | 
|Consolidated Statements of Operations for the years ended June 30, 2003, 2002
and 2001           |  |      | F-4 | 
|                                                                                                 |  |      |     | 
|Consolidated Statements of Shareholders Equity for the years ended
June 30, 2003, 2002 and 2001 |  |      | F-5 | 
|                                                                                                 |  |      |     | 
|Consolidated Statements of Cash Flows for the years ended June 30, 2003, 2002
and 2001           |  |      | F-6 | 
|                                                                                                 |  |      |     | 
|Notes to Consolidated Financial Statements                                                       |  |      | F-8 | 

F-1



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##### Table of Contents






REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Continucare Corporation and Subsidiaries:

We have audited the accompanying consolidated balance sheets of
Continucare Corporation and subsidiaries as of June 30, 2003 and 2002, and the
related consolidated statements of operations, shareholders equity and cash
flows for each of the three years in the period ended June 30, 2003. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Continucare
Corporation and subsidiaries at June 30, 2003 and 2002 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 2003, in conformity with accounting principles
generally accepted in the United States.

The accompanying consolidated financial statements have been prepared
assuming that Continucare Corporation and subsidiaries will continue as a going
concern. As more fully described in Note 1, the Company has incurred recurring
operating losses, has a working capital deficiency and its credit facility
matures on March 31, 2004. These conditions raise substantial doubt about the
Companys ability to continue as a going concern. Managements plans in
regards to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the outcome of
this uncertainty.

As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for goodwill during the year ended
June 30, 2002.

|                                  |  |                      
|--------------------------------- |  | ---------------------
|                                  |  | /s/ ERNST & YOUNG LLP
|                                  |  |                      
|Miami, Florida
September 22, 2003 |  |                      

F-2



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##### Table of Contents



CONTINUCARE CORPORATION




CONSOLIDATED BALANCE SHEETS

|                                                                                                                 |                                                                                                                                                                                                                             |                                            |                                      |             |            |          |            |             |            |  |  | 
|---------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | ----------- | ---------- | -------- | ---------- | ----------- | ---------- |  |  | 
|                                                                                                                 |                                                                                                                                                                                                                             |                                            |                                      |             |            | June 30,
|                                                                                                                 |                                                                                                                                                                                                                             |                                            |                                      |             |            |         
|                                                                                                                 |                                                                                                                                                                                                                             |                                            |                                      |             |            | 2003     |            | 2002       
|                                                                                                                 |                                                                                                                                                                                                                             |                                            |                                      |             |            |          |            |            
|                                                                                                                 |                                                                                                                                                                                                                             |                                            |                                      | ASSETS      |            |          |            |             |            |  |  | 
|Current assets                                                                                                   |                                                                                                                                                                                                                             |                                            |                                      |             |            |          |            |            
|                                                                                                                 | Cash and cash equivalents                                                                                                                                                                                                   |                                            | $                                    | 160,743     |            |          | $          | 180,410     |           
|                                                                                                                 | Certificates of deposit, current                                                                                                                                                                                            |                                            |                                      | 101,258     |            |          |            | 100,813     |           
|                                                                                                                 | Accounts receivable, net of allowance for doubtful accounts of $4,823,000 and $4,807,000, respectively                                                                                                                      |                                            |                                      | 323,443     |            |          |            | 94,967      |           
|                                                                                                                 | Other receivables                                                                                                                                                                                                           |                                            |                                      | 410,765     |            |          |            | 834,227     |           
|                                                                                                                 | Due from Medicare, net                                                                                                                                                                                                      |                                            |                                      | 258,930     |            |          |            |            |           
|                                                                                                                 | Due from HMOs, net of a liability for incurred but not reported medical claims expense of
approximately $13,014,000 and $12,480,000, respectively                                                                           |                                            |                                      | 1,414,469   |            |          |            | 1,798,651   |           
|                                                                                                                 | Prepaid expenses and other current assets                                                                                                                                                                                   |                                            |                                      | 572,744     |            |          |            | 548,322     |           
|                                                                                                                 |                                                                                                                                                                                                                             |                                            |                                      |             |            |          |            |            
|                                                                                                                 |                                                                                                                                                                                                                             | Total current assets                       |                                      |             | 3,242,352  |          |            |             | 3,557,390  | 
|Certificates of deposit                                                                                          |                                                                                                                                                                                                                             |                                            | 30,000                               |             |            |          | 60,000     |            
|Assets related to discontinued operations                                                                        |                                                                                                                                                                                                                             |                                            |                                     |             |            |          | 6,646      |            
|Equipment, furniture and leasehold improvements, net                                                             |                                                                                                                                                                                                                             |                                            | 632,402                              |             |            |          | 580,779    |            
|Goodwill, net of accumulated amortization of approximately $3,661,000,                                           |                                                                                                                                                                                                                             |                                            | 14,663,392                           |             |            |          | 14,663,392 |            
|Managed care contracts, net of accumulated amortization of approximately $1,717,000 and $1,364,000,
respectively |                                                                                                                                                                                                                             |                                            | 1,793,431                            |             |            |          | 2,146,243  |            
|Deferred financing costs, net of accumulated amortization of $3,562,000 and $2,985,000, respectively             |                                                                                                                                                                                                                             |                                            | 518,382                              |             |            |          | 435,375    |            
|Other assets, net                                                                                                |                                                                                                                                                                                                                             |                                            | 120,017                              |             |            |          | 97,160     |            
|                                                                                                                 |                                                                                                                                                                                                                             |                                            |                                      |             |            |          |            |            
|                                                                                                                 |                                                                                                                                                                                                                             | Total assets                               |                                      | $           | 20,999,976 |          |            | $           | 21,546,985 | 
|                                                                                                                 |                                                                                                                                                                                                                             |                                            |                                      |             |            |          |            |            
|                                                                                                                 |                                                                                                                                                                                                                             |                                            |                                      |             |            |          |            |            
|                                                                                                                 |                                                                                                                                                                                                                             |                                            | LIABILITIES AND SHAREHOLDERS EQUITY |             |            |          |            |             |            |  | 
|                                                                                                                 |                                                                                                                                                                                                                             |                                            |                                      |             |            |          |            |            
|Current liabilities                                                                                              |                                                                                                                                                                                                                             |                                            |                                      |             |            |          |            |            
|                                                                                                                 | Accounts payable                                                                                                                                                                                                            |                                            | $                                    | 683,488     |            |          | $          | 680,443     |           
|                                                                                                                 | Accrued expenses                                                                                                                                                                                                            |                                            |                                      | 2,283,048   |            |          |            | 2,400,410   |           
|                                                                                                                 | Liabilities related to discontinued operations, net                                                                                                                                                                         |                                            |                                      | 110,345     |            |          |            | 629,789     |           
|                                                                                                                 | Credit Facility                                                                                                                                                                                                             |                                            |                                      | 2,315,000   |            |          |            | 2,315,000   |           
|                                                                                                                 | Due to Medicare, net                                                                                                                                                                                                        |                                            |                                      |            |            |          |            | 350,991     |           
|                                                                                                                 | Current portion of convertible subordinated notes payable                                                                                                                                                                   |                                            |                                      | 233,716     |            |          |            | 273,896     |           
|                                                                                                                 | Current portion of long-term debt                                                                                                                                                                                           |                                            |                                      | 2,640,943   |            |          |            | 4,375,329   |           
|                                                                                                                 | Current portion of related party note payable                                                                                                                                                                               |                                            |                                      | 63,854      |            |          |            | 63,854      |           
|                                                                                                                 | Accrued interest payable                                                                                                                                                                                                    |                                            |                                      | 51,754      |            |          |            | 10,708      |           
|                                                                                                                 | Current portion of capital lease obligations                                                                                                                                                                                |                                            |                                      | 70,913      |            |          |            | 107,479     |           
|                                                                                                                 |                                                                                                                                                                                                                             |                                            |                                      |             |            |          |            |            
|                                                                                                                 |                                                                                                                                                                                                                             | Total current liabilities                  |                                      |             | 8,453,061  |          |            |             | 11,207,899 | 
|Deferred revenue                                                                                                 |                                                                                                                                                                                                                             |                                            | 3,850,000                            |             |            |          |           |            
|Capital lease obligations, less current portion                                                                  |                                                                                                                                                                                                                             |                                            | 125,606                              |             |            |          | 42,171     |            
|Convertible subordinated notes payable                                                                           |                                                                                                                                                                                                                             |                                            | 4,122,751                            |             |            |          | 4,356,468  |            
|Long-term debt, less current portion                                                                             |                                                                                                                                                                                                                             |                                            | 1,341,947                            |             |            |          | 3,597,122  |            
|Related party note payable, less current portion                                                                 |                                                                                                                                                                                                                             |                                            | 997,333                              |             |            |          | 1,061,186  |            
|                                                                                                                 |                                                                                                                                                                                                                             |                                            |                                      |             |            |          |            |            
|                                                                                                                 |                                                                                                                                                                                                                             | Total liabilities                          |                                      |             | 18,890,698 |          |            |             | 20,264,846 | 
|Commitments and contingencies                                                                                    |                                                                                                                                                                                                                             |                                            |                                      |             |            |          |            |            
|Shareholders equity                                                                                             |                                                                                                                                                                                                                             |                                            |                                      |             |            |          |            |            
|                                                                                                                 | Common stock, $0.0001 par value: 100,000,000 shares authorized; 45,375,194 shares issued and
42,379,001 shares outstanding at June 30, 2003; and 42,630,794 shares issued and 39,634,601shares
outstanding at June 30, 2002 |                                            |                                      | 4,239       |            |          |            | 3,964       |           
|                                                                                                                 | Additional paid-in capital                                                                                                                                                                                                  |                                            |                                      | 60,279,880  |            |          |            | 59,511,614  |           
|                                                                                                                 | Accumulated deficit                                                                                                                                                                                                         |                                            |                                      | (52,750,140 | )          |          |            | (52,808,738 | )         
|                                                                                                                 | Treasury stock (2,996,192 shares at June 30, 2003 and 2002)                                                                                                                                                                 |                                            |                                      | (5,424,701  | )          |          |            | (5,424,701  | )         
|                                                                                                                 |                                                                                                                                                                                                                             |                                            |                                      |             |            |          |            |            
|                                                                                                                 |                                                                                                                                                                                                                             | Total shareholders equity                 |                                      |             | 2,109,278  |          |            |             | 1,282,139  | 
|                                                                                                                 |                                                                                                                                                                                                                             |                                            |                                      |             |            |          |            |            
|                                                                                                                 |                                                                                                                                                                                                                             | Total liabilities and shareholders equity |                                      | $           | 20,999,976 |          |            | $           | 21,546,985 | 
|                                                                                                                 |                                                                                                                                                                                                                             |                                            |                                      |             |            |          |            |            

The accompanying notes are an integral part of these consolidated financial statements.



F-3



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##### Table of Contents



CONTINUCARE CORPORATION




CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                     |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |      |            |            |            | 
|---------------------------------------------------- | ----------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------------- | ----------- | --------------------------- | ----------- | ---- | ---------- | ---------- | ---------- | ---- | ---------- | ---------- | ---------- | 
|                                                     |                                                             |                                                                                                               |                                            |                |             | For the Year Ended June 30,
|                                                     |                                                             |                                                                                                               |                                            |                |             |                            
|                                                     |                                                             |                                                                                                               |                                            |                |             | 2003                        |             | 2002 |            | 2001      
|                                                     |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |           
|                                                     |                                                             | Medical services revenue, net                                                                                 |                                            | $              | 101,409,690 |                             |             | $    | 95,350,313 |            |            | $    | 90,379,461 |           
|                                                     |                                                             | Other income                                                                                                  |                                            |                |            |                             |             |      | 150,000    |            |            |      |           |           
|                                                     |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |     
|                                                     |                                                             |                                                                                                               |                                            | Subtotal       |             |                             | 101,409,690 |      |            |            | 95,500,313 |      |            |            | 90,379,461 | 
|                                                     |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |     
|                                                     |                                                             | Expenses                                                                                                      |                                            |                |             |                             |             |      |            |            |            |      |            |           
|                                                     |                                                             |                                                                                                               | Medical services:                          |                |             |                             |             |      |            |            |            |      |            |            |           
|                                                     |                                                             |                                                                                                               |                                            | Medical claims |             |                             | 74,046,265  |      |            |            | 69,340,067 |      |            |            | 68,620,251 | 
|                                                     |                                                             |                                                                                                               |                                            | Other          |             |                             | 12,953,301  |      |            |            | 12,457,814 |      |            |            | 12,500,520 | 
|                                                     |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |     
|                                                     |                                                             |                                                                                                               | Total medical services                     |                |             | 86,999,566                  |             |      |            | 81,797,881 |            |      |            | 81,120,771 |           
|                                                     |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |     
|                                                     |                                                             |                                                                                                               | Payroll and employee benefits              |                |             | 6,070,398                   |             |      |            | 5,312,498  |            |      |            | 5,287,786  |           
|                                                     |                                                             |                                                                                                               | Provision for bad debts                    |                |             | 44,333                      |             |      |            | 65,668     |            |      |            | 50,000     |           
|                                                     |                                                             |                                                                                                               | Professional fees                          |                |             | 807,222                     |             |      |            | 1,404,337  |            |      |            | 1,177,578  |           
|                                                     |                                                             |                                                                                                               | General and administrative                 |                |             | 6,188,525                   |             |      |            | 5,073,980  |            |      |            | 5,446,059  |           
|                                                     |                                                             |                                                                                                               | Gain on disposal of property and equipment |                |             |                            |             |      |            |           |            |      |            | (383,375   | )         
|                                                     |                                                             |                                                                                                               | Depreciation and amortization              |                |             | 636,359                     |             |      |            | 1,027,222  |            |      |            | 2,878,131  |           
|                                                     |                                                             |                                                                                                               | Gain on extinguishments of debt            |                |             |                            |             |      |            |           |            |      |            | (3,503,188 | )         
|                                                     |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |     
|                                                     |                                                             |                                                                                                               |                                            | Subtotal       |             |                             | 100,746,403 |      |            |            | 94,681,586 |      |            |            | 92,073,762 | 
|                                                     |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |     
|                                                     |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |     
|Income (loss) from operations                        |                                                             |                                                                                                               | 663,287                                    |                |             |                             | 818,727     |      |            |            | (1,694,301 | )   
|                                                    
|Other income (expense)                               |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |     
|                                                     |                                                             | Interest income                                                                                               |                                            |                | 6,647       |                             |             |      | 36,124     |            |            |      | 32,358     |           
|                                                     |                                                             | Interest expense                                                                                              |                                            |                | (962,032    | )                           |             |      | (1,573,869 | )          |            |      | (1,632,932 | )         
|                                                     |                                                             | Provision for Medicare settlement related to terminated operations                                            |                                            |                |            |                             |             |      | (2,440,971 | )          |            |      |           |           
|                                                     |                                                             | Other                                                                                                         |                                            |                |            |                             |             |      |           |            |            |      | 1,425      |           
|                                                     |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |     
|                                                     |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |     
|Loss from continuing operations                      |                                                             |                                                                                                               | (292,098                                   | )              |             |                             | (3,159,989  | )    |            |            | (3,293,450 | )   
|                                                     |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |     
|Discontinued operations:                             |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |     
|                                                     |                                                             | Income (loss) from discontinued operations before contractual
revision                                        |                                            |                | 350,696     |                             |             |      | (486,399   | )          |            |      | (1,482,657 | )         
|                                                     |                                                             | Contractual revision of previously recorded medical claims and
other liabilities from discontinued operations |                                            |                |            |                             |             |      |           |            |            |      | 4,638,205  |           
|Income (loss) from discontinued operations           |                                                             |                                                                                                               | 350,696                                    |                |             |                             | (486,399    | )    |            |            | 3,155,548  |     
|                                                     |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |     
|Net income (loss)                                    |                                                             | $                                                                                                             | 58,598                                     |                |             | $                           | (3,646,388  | )    |            | $          | (137,902   | )   
|                                                     |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |     
|                                                     |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |     
|Basic and diluted net income (loss) per common share |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |     
|                                                     | Loss from continuing operations per common share            |                                                                                                               | $                                          | (.01           | )           |                             | $           | (.08 | )          |            | $          | (.10 | )         
|                                                     | Income (loss) from discontinued operations per common share |                                                                                                               |                                            | .01            |             |                             |             | (.01 | )          |            |            | .10  |           
|                                                     |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |     
|Net income (loss) per common share                   |                                                             | $                                                                                                             |                                           |                |             | $                           | (.09        | )    |            | $          |           |     
|                                                     |                                                             |                                                                                                               |                                            |                |             |                             |             |      |            |            |            |     

The accompanying notes are an integral part of these consolidated financial statements.

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##### Table of Contents



CONTINUCARE CORPORATION




CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

|                                                                          |  |        |       |         |  |             |            |          |  |               |             |   |  |   |            |       |  |   |            |  
|------------------------------------------------------------------------- |  | ------ | ----- | ------- |  | ----------- | ---------- | -------- |  | ------------- | ----------- | - |  | - | ---------- | ----- |  | - | ---------- | -
|                                                                          |  |        |       |         |  | Additional  |            |          |  |               |             |   |  |   |            | Total
|                                                                          |  | Common |       | Paid-In |  | Accumulated |            | Treasury |  | Shareholders'
|                                                                          |  | Stock  |       | Capital |  | Deficit     |            | Stock    |  | Equity       
|                                                                          |  |        |       |         |  |             |            |          |  |              
|Balance at June 30, 2000                                                  |  | $      | 3,325 |         |  | $           | 57,708,595 |          |  | $             | (49,024,448 | ) |  | $ | (5,424,701 | )     |  | $ | 3,262,771  |  
|                                                                          |  |        |       |         |  |             |            |          |  |               |             |   |  |   |            |       |  |   |            |  
|Issuance of stock for debt restructuring                                  |  |        | 621   |         |  |             | 1,803,037  |          |  |               |            |   |  |   |           |       |  |   | 1,803,658  |  
|                                                                          |  |        |       |         |  |             |            |          |  |               |             |   |  |   |            |       |  |   |            |  
|Net loss                                                                  |  |        |      |         |  |             |           |          |  |               | (137,902    | ) |  |   |           |       |  |   | (137,902   | )
|                                                                          |  |        |       |         |  |             |            |          |  |               |             |   |  |   |            |       |  |   |            |  
|                                                                          |  |        |       |         |  |             |            |          |  |               |             |   |  |   |            |       |  |   |            |  
|Balance at June 30, 2001                                                  |  |        | 3,946 |         |  |             | 59,511,632 |          |  |               | (49,162,350 | ) |  |   | (5,424,701 | )     |  |   | 4,928,527  |  
|                                                                          |  |        |       |         |  |             |            |          |  |               |             |   |  |   |            |       |  |   |            |  
|Issuance of stock as final consideration for a
prior business combination |  |        | 18    |         |  |             | (18        | )        |  |               |            |   |  |   |           |       |  |   |           |  
|                                                                          |  |        |       |         |  |             |            |          |  |               |             |   |  |   |            |       |  |   |            |  
|Net loss                                                                  |  |        |      |         |  |             |           |          |  |               | (3,646,388  | ) |  |   |           |       |  |   | (3,646,388 | )
|                                                                          |  |        |       |         |  |             |            |          |  |               |             |   |  |   |            |       |  |   |            |  
|                                                                          |  |        |       |         |  |             |            |          |  |               |             |   |  |   |            |       |  |   |            |  
|Balance at June 30, 2002                                                  |  |        | 3,964 |         |  |             | 59,511,614 |          |  |               | (52,808,738 | ) |  |   | (5,424,701 | )     |  |   | 1,282,139  |  
|                                                                          |  |        |       |         |  |             |            |          |  |               |             |   |  |   |            |       |  |   |            |  
|Issuance of stock for director compensation                               |  |        | 90    |         |  |             | 122,910    |          |  |               |            |   |  |   |           |       |  |   | 123,000    |  
|                                                                          |  |        |       |         |  |             |            |          |  |               |             |   |  |   |            |       |  |   |            |  
|Issuance of stock to guarantor of credit facility                         |  |        | 150   |         |  |             | 524,850    |          |  |               |            |   |  |   |           |       |  |   | 525,000    |  
|                                                                          |  |        |       |         |  |             |            |          |  |               |             |   |  |   |            |       |  |   |            |  
|Issuance of stock as consideration for extension
of note repayment terms  |  |        | 35    |         |  |             | 120,506    |          |  |               |            |   |  |   |           |       |  |   | 120,541    |  
|                                                                          |  |        |       |         |  |             |            |          |  |               |             |   |  |   |            |       |  |   |            |  
|Net income                                                                |  |        |      |         |  |             |           |          |  |               | 58,598      |   |  |   |           |       |  |   | 58,598     |  
|                                                                          |  |        |       |         |  |             |            |          |  |               |             |   |  |   |            |       |  |   |            |  
|                                                                          |  |        |       |         |  |             |            |          |  |               |             |   |  |   |            |       |  |   |            |  
|Balance at June 30, 2003                                                  |  | $      | 4,239 |         |  | $           | 60,279,880 |          |  | $             | (52,750,140 | ) |  | $ | (5,424,701 | )     |  | $ | 2,109,278  |  
|                                                                          |  |        |       |         |  |             |            |          |  |               |             |   |  |   |            |       |  |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.

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##### Table of Contents



CONTINUCARE CORPORATION




CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                       |                                                       |                                                                                        |                                                                                       |          |                             |           |          |            |      |            |            |            |   |            |  
|------------------------------------------------------ | ----------------------------------------------------- | -------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | -------- | --------------------------- | --------- | -------- | ---------- | ---- | ---------- | ---------- | ---------- | - | ---------- | -
|                                                       |                                                       |                                                                                        |                                                                                       |          | For the Year Ended June 30,
|                                                       |                                                       |                                                                                        |                                                                                       |          |                            
|                                                       |                                                       |                                                                                        |                                                                                       |          | 2003                        |           | 2002     |            | 2001
|                                                       |                                                       |                                                                                        |                                                                                       |          |                             |           |          |            |     
|CASH FLOWS FROM OPERATING ACTIVITIES                   |                                                       |                                                                                        |                                                                                       |          |                             |           |          |            |      |            |            |           
|                                                       | Net income (loss)                                     |                                                                                        | $                                                                                     | 58,598   |                             |           | $        | (3,646,388 | )    |            | $          | (137,902   | )
|                                                       | (Income) loss from discontinued operations            |                                                                                        |                                                                                       | (350,696 | )                           |           |          | 486,399    |      |            |            | (3,155,548 | )
|                                                       |                                                       |                                                                                        |                                                                                       |          |                             |           |          |            |      |            |            |           
|                                                       | Loss from continuing operations                       |                                                                                        |                                                                                       | (292,098 | )                           |           |          | (3,159,989 | )    |            |            | (3,293,450 | )
|                                                       |                                                       |                                                                                        | Depreciation and amortization, including amortization of
deferred
loan costs          |          |                             | 1,236,645 |          |            |      | 2,317,906  |            |            |   | 4,268,741  |  
|                                                       |                                                       |                                                                                        | Provision for bad debts                                                               |          |                             | 44,333    |          |            |      | 65,668     |            |            |   | 50,000     |  
|                                                       |                                                       |                                                                                        | Gain on disposal of property and equipment and release from
asset related liabilities |          |                             | 500       |          |            |      | (28,642    | )          |            |   | (383,375   | )
|                                                       |                                                       |                                                                                        | Director compensation paid through the issuance of restricted
common stock            |          |                             | 123,000   |          |            |      |           |            |            |   |           |  
|                                                       |                                                       |                                                                                        | Gain on early extinguishment of debt                                                  |          |                             |          |          |            |      |           |            |            |   | (3,503,188 | )
|                                                       |                                                       | Changes in assets and liabilities, excluding the effect of
acquisitions and disposals: |                                                                                       |          |                             |           |          |            |      |            |            |            |   |           
|                                                       |                                                       |                                                                                        | Increase in accounts receivable                                                       |          |                             | (272,809  | )        |            |      | (79,503    | )          |            |   | (36,166    | )
|                                                       |                                                       |                                                                                        | (Increase) decrease in prepaid expenses and other current assets                      |          |                             | (24,422   | )        |            |      | (242,061   | )          |            |   | 62,170     |  
|                                                       |                                                       |                                                                                        | Decrease (increase) in other receivables                                              |          |                             | 423,462   |          |            |      | (70,590    | )          |            |   | (65,660    | )
|                                                       |                                                       |                                                                                        | Increase in other assets                                                              |          |                             | (29,629   | )        |            |      | (6,641     | )          |            |   | (4,604     | )
|                                                       |                                                       |                                                                                        | Decrease in accounts payable and accrued expenses                                     |          |                             | (114,317  | )        |            |      | (399,151   | )          |            |   | (310,831   | )
|                                                       |                                                       |                                                                                        | Decrease (increase) in Due from HMOs, net                                             |          |                             | 384,182   |          |            |      | (1,158,598 | )          |            |   | 106,248    |  
|                                                       |                                                       |                                                                                        | Increase in due to/from Medicare, net                                                 |          |                             | (137,695  | )        |            |      | 3,118,054  |            |            |   | 797,140    |  
|                                                       |                                                       |                                                                                        | Increase (decrease) in accrued interest payable                                       |          |                             | 41,046    |          |            |      | (6,995     | )          |            |   | 11,659     |  
|                                                       |                                                       |                                                                                        |                                                                                       |          |                             |           |          |            |      |            |            |           
|Net cash provided by (used in) continuing operations   |                                                       |                                                                                        | 1,382,198                                                                             |          |                             |           | 349,458  |            |      |            | (2,301,316 | )         
|Net cash (used in) provided by discontinued operations |                                                       |                                                                                        | (84,189                                                                               | )        |                             |           | (97,865  | )          |      |            | 707,601    |           
|                                                       |                                                       |                                                                                        |                                                                                       |          |                             |           |          |            |      |            |            |           
|Net cash provided by (used in) operating activities    |                                                       |                                                                                        | 1,298,009                                                                             |          |                             |           | 251,593  |            |      |            | (1,593,715 | )         
|                                                       |                                                       |                                                                                        |                                                                                       |          |                             |           |          |            |      |            |            |           
|CASH FLOWS FROM INVESTING ACTIVITIES                   |                                                       |                                                                                        |                                                                                       |          |                             |           |          |            |      |            |            |           
|                                                       | Cash proceeds from disposal of property and equipment |                                                                                        |                                                                                       | 500      |                             |           |          |           |      |            |            | 451,500    |  
|                                                       | Purchase of certificate of deposit                    |                                                                                        |                                                                                       | (70,000  | )                           |           |          |           |      |            |            |           |  
|                                                       | Proceeds from maturity of certificates of deposit     |                                                                                        |                                                                                       | 99,555   |                             |           |          | 26,187     |      |            |            | 30,000     |  
|                                                       | Property and equipment additions                      |                                                                                        |                                                                                       | (170,273 | )                           |           |          | (185,599   | )    |            |            | (230,289   | )
|                                                       |                                                       |                                                                                        |                                                                                       |          |                             |           |          |            |      |            |            |           
|Net cash (used in) provided by continuing operations   |                                                       |                                                                                        | (140,218                                                                              | )        |                             |           | (159,412 | )          |      |            | 251,211    |           
|Net cash provided by discontinued operations           |                                                       |                                                                                        | 3,593                                                                                 |          |                             |           |         |            |      |            |           |           
|                                                       |                                                       |                                                                                        |                                                                                       |          |                             |           |          |            |      |            |            |           
|Net cash (used in) provided by investing activities    |                                                       |                                                                                        | (136,625                                                                              | )        |                             |           | (159,412 | )          |      |            | 251,211    |           

Continued on next page.

F-6



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##### Table of Contents



CONTINUCARE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |            |  
|----------------------------------------------------------------------------- | --------------------------------------------------- | - | --------------------------- | -------- | ---- | - | --------- | --------- | - | - | ---------- | ---------- | -
|                                                                              |                                                     |   | For the Year Ended June 30,
|                                                                              |                                                     |   |                            
|                                                                              |                                                     |   | 2003                        |          | 2002 |   | 2001     
|                                                                              |                                                     |   |                             |          |      |   |          
|CASH FLOWS FROM FINANCING ACTIVITIES                                          |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|                                                                              | Payments on Convertible Subordinated Notes          |   |                             | (273,897 | )    |   |           | (273,896  | ) |   |            | (350,000   | )
|                                                                              | Payments on Related Party Notes                     |   |                             | (63,853  | )    |   |           | (63,854   | ) |   |            |           |  
|                                                                              | Principal repayments under capital lease obligation |   |                             | (112,256 | )    |   |           | (106,251  | ) |   |            | (96,233    | )
|                                                                              | Payment of deferred financing costs                 |   |                             | (15,000  | )    |   |           | (15,000   | ) |   |            | (15,000    | )
|                                                                              | Repayment of Term and Revolving Notes               |   |                             |         |      |   |           |          |   |   |            | (150,000   | )
|                                                                              | Net increase in Credit Facility                     |   |                             |         |      |   |           | 1,815,000 |   |   |            | 500,000    |  
|                                                                              | Advances from HMOs                                  |   |                             | 75,000   |      |   |           |          |   |   |            | 1,450,000  |  
|                                                                              | Payments on advances from HMOs                      |   |                             | (75,000  | )    |   |           | (450,000  | ) |   |            | (1,000,000 | )
|                                                                              | Third party assumption of capital lease obligation  |   |                             | (1,789   | )    |   |           |          |   |   |            |           |  
|                                                                              | Repayments to Medicare per agreement                |   |                             | (632,750 | )    |   |           | (770,746  | ) |   |            | (666,704   | )
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|Net cash (used in) provided by continuing operations                          |                                                     |   | (1,099,545                  | )        |      |   | 135,253   |           |   |   | (327,937   | )         
|Net cash used in discontinued operations                                      |                                                     |   | (81,506                     | )        |      |   | (418,494  | )         |   |   |           |           
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|Net cash used in financing activities                                         |                                                     |   | (1,181,051                  | )        |      |   | (283,241  | )         |   |   | (327,937   | )         
|Net decrease in cash and cash equivalents                                     |                                                     |   | (19,667                     | )        |      |   | (191,060  | )         |   |   | (1,670,441 | )         
|Cash and cash equivalents at beginning of fiscal year                         |                                                     |   | 180,410                     |          |      |   | 371,470   |           |   |   | 2,041,911  |           
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|Cash and cash equivalents at end of fiscal year                               |                                                     | $ | 160,743                     |          |      | $ | 180,410   |           |   | $ | 371,470    |           
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:                       |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|Stock issued for deferred financing costs                                     |                                                     | $ | 645,541                     |          |      | $ |          |           |   | $ |           |           
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|Stock issued as final consideration for a prior business combination          |                                                     | $ |                            |          |      | $ | 18        |           |   | $ |           |           
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|Stock issued for extinguishment of debt                                       |                                                     | $ |                            |          |      | $ |          |           |   | $ | 1,803,658  |           
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|Repayment plans issued for refunds due to Medicare for overpayments           |                                                     | $ | 694,800                     |          |      | $ | 3,267,108 |           |   | $ | 370,622    |           
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|Medicare repayment plan canceled due to settlement of cost report
reopening   |                                                     | $ | 222,574                     |          |      | $ |          |           |   | $ |           |           
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|Purchase of furniture and fixtures with proceeds of capital lease
obligations |                                                     | $ | 167,258                     |          |      | $ | 48,784    |           |   | $ | 127,428    |           
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           
|Cash paid for interest                                                        |                                                     | $ | 325,337                     |          |      | $ | 266,945   |           |   | $ | 580,665    |           
|                                                                              |                                                     |   |                             |          |      |   |           |           |   |   |            |           

The accompanying notes are an integral part of these consolidated financial statements.

F-7



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##### Table of Contents



CONTINUCARE CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  GENERAL

Continucare Corporation (Continucare or the Company), which was
incorporated on February 1, 1996 as a Florida corporation, is a provider of
integrated outpatient healthcare and home health care services in Florida. As
of June 30, 2003 the Company operated, owned and/or managed: (i) fifteen staff
model clinics in South and Central Florida; an Independent Practice Association
with six physicians; and five Home Health agencies. Additionally at June 30,
2003, the Company was in the start up phase of contracting with physicians and
managing an IPA on a no-risk basis. For Fiscal 2003, approximately 73% of net
medical services revenue from continuing operations was derived from managed
care contracts with Humana Medical Plans, Inc. (Humana) and 23% of net
medical services revenue from continuing operations was derived from managed
care contracts with Vista Healthplan of South Florida, Inc. and Vista
Healthplan (collectively Vista) (formerly Foundation Health Corporation
Affiliates). (Humana and Vista may hereinafter be collectively referred to as
the HMOs.) For Fiscal 2002, approximately 74% of net medical services
revenue from continuing operations was derived from managed care contracts with
Humana and 21% of net medical services revenue from continuing operations was
derived from managed care contracts with Vista. For Fiscal 2001, approximately
75% of net medical services revenue from continuing operations was derived from
managed care contracts with Humana and 20% of net medical services revenue from
continuing operations was derived from managed care contracts with Vista.

In Fiscal 2003, the Company continued to review operations and institute
measures intended to operate profitably and reduce a significant working
capital deficiency that resulted from losses incurred in prior years. In an
effort to streamline the cost structure and stem anticipated operating losses,
effective January 1, 2003, the Company terminated the Medicare and Medicaid
lines of business for all of the physician contracts associated with one of its
independent practice associations (Terminated IPA). The Terminated IPA,
which consisted of 29 physicians at the time of the termination and is shown as
discontinued operations, contributed approximately $4,511,000 in revenue and
generated operating income of approximately $351,000 in Fiscal 2003. Severance
costs and other exit costs resulting from the termination of the IPA totaled
less than $10,000 and were paid prior to June 30, 2003. At June 30, 2003,
liabilities related to discontinued operations of approximately $110,000
consisted primarily of net amounts due to the HMO for medical claims incurred
by the Terminated IPA prior to January 1, 2003 and other payables which arose
during the ordinary course of business. There can be no assurances that the
Company will achieve any financial benefits as a result of terminating these
IPA contracts.

In April 2003, the Company executed a Physician Group Participation Agreement
(the PGP Agreement) with one of its HMO partners. Pursuant to the PGP
Agreement, the Company will assume certain management responsibilities on a
non-risk basis for the HMOs Medicare, Commercial and Medicaid members assigned
to selected primary care physicians in Miami-Dade and Broward counties of
Florida. Revenue from this contract consists of a monthly management fee
designed to cover the costs for providing these services. Simultaneously with
the execution of the PGP agreement, the Company restructured the terms of a
$3,850,000 contract modification note with the HMO. Pursuant to the
restructuring, the contract modification note was cancelled. The PGP Agreement
is for a period of two years and contains a provision for liquidated damages in
the amount of $4,000,000, which can be asserted by the HMO in the event that
(i) continued participation by the Company under this PGP Agreement may affect
adversely the health, safety or welfare of a member or bring the HMO or its
provider networks into disrepute; (ii) the Company engages in or acquiesces to
any act of bankruptcy, receivership or reorganization; (iii) the Company is
excluded from participation in any federal healthcare program; (iv) the HMO
determines that the Company has not used its best efforts to perform under the
PGP Agreement; or (v) the Company materially breaches the PGP Agreement.
Because there are contingent circumstances under which future payments to the
HMO for liquidated damages could exceed the amount of debt forgiven, the gain
to be recognized from the extinguishment of debt has been deferred and will be
recognized when the liquidated damages are less than the debt
forgiven. If the Company remains in compliance with the terms of the
PGP Agreement, the HMO, at its option, may reduce the liquidated
damages by one-fourth on each of the following dates:
October 10, 2003, April 10, 2004, October 9, 2004 and
April 10, 2005. If the Company obtains these reductions, the
deferred revenue will be recognized in a manner consistent with
the reduction in the liquidated damages.

In spite of the measures taken in Fiscal 2003 intended to operate profitably,
the home health agencies have continued to experience increases in their direct
and indirect costs while their revenues have decreased. This has resulted in
home health operating losses in Fiscal 2003, Fiscal 2002 and Fiscal 2001 of
approximately $1,824,000, $1,275,000 and $534,000, respectively, before
consideration of interest expense. In the fourth quarter of Fiscal 2003, the

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CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Company began to reorganize the home health agencies in an effort to reduce
their overhead costs and began exploring new payor sources to increase patient
referrals. While in prior years, the Company has experienced fluctuations in
the claims loss ratio for its managed care operations, in Fiscal 2003 the
claims loss ratio has stabilized. The claims loss ratio in Fiscal 2003, 2002 and 2001 was 76.5%, 76.3% and 80.0%, respectively. The Company continues to focus
on strengthening its managed care operations by enhancing its physician
network, streamlining its operations and implementing measures to contain the
rising costs of providing health services to its members. Such measures
include, among other things, emphasizing preventive care, encouraging frequent
health check-ups, monitoring compliance with drug therapies, entering into
contracts with health care providers such as medical specialists and
recommending that its members utilize hospitals and outpatient facilities that
have favorable rate structures. However, there can be no assurances that in
the future the Company will not experience a negative change in the claims loss
ratio. Negative changes in the claims loss ratio, which result from increases
in the utilization of healthcare services as well as increases in medical costs
without counterbalancing increases in premium revenues from the Companys
contracts with Health Maintenance Organizations (HMOs), would reduce the
profitability and cash flows of our managed care operations.

Although the financial statements have been prepared assuming that the Company
will continue as a going concern, there is significant uncertainty as to
whether the Company will be able to fund its obligations and satisfy its debt
obligations as they become due in Fiscal 2004. At June 30, 2003, the working
capital deficit was approximately $5,211,000, total indebtedness accounted for
approximately 87% of the Companys total capitalization and the Company had
principal and interest of approximately $2,363,000 outstanding under the credit
facility. The credit facility matures on March 31, 2004, is personally
guaranteed by Dr. Phillip Frost, one of our principal shareholders, and
contains among other conditions, a financial covenant that requires the Company
to maintain a fixed charge coverage ratio of 1.05 to 1.00 beginning December
31, 2003 and measured quarterly thereafter. (See Note 5.) There can be no
assurances that the Company will be able to meet this financial covenant at
December 31, 2003 or be able to maintain it as required by the credit facility.
The failure to satisfy this financial covenant could result in a default under
the credit facility. If a default occurs, the lender could elect to declare
all outstanding borrowings, as well as accrued interest, to be due and payable
and require the Company to apply all available cash to repay these borrowings.
Based on the Companys current cash flow projections, it appears unlikely that
we will have sufficient funds available to fully repay the credit facility on
or before March 31, 2004. Additionally, uncertainty exists as to whether the
Company will be able to extend or replace the credit facility without either
extending the personal guarantee of Dr. Frost or finding replacement
guarantees, and there can be no assurances that the Company will be able to
obtain such guarantees. There can be no assurance that we will be successful
in our attempts to either repay, extend or replace the credit facility and, if
so, if this will occur on terms acceptable to the Company.

The Company plans to fund its capital commitments, operating cash requirements
and satisfy its obligations from a combination of cash on hand and operating
cash flow improvements realized from decreased utilization, HMO premium
increases and advantageous HMO benefit changes for its managed care operations
and reducing indirect costs and increasing patient referrals for its home
health agencies. If in Fiscal 2004, the Company is unable to reduce the home
health losses and is unable to maintain the current claims loss ratio for the
managed care operations, these factors, compounded by the lack of availability
of additional financing through the credit facility and the need to make annual
payments for medical malpractice insurance which are due in the first and
second quarters of Fiscal 2004, will result in the Company experiencing a
severe strain on its cash flow. There can be no assurances that the measures
discussed above will provide sufficient cash flow to fund the Companys cash
requirements in Fiscal 2004.

NOTE 2  SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash EquivalentsThe Company defines cash and cash equivalents as
those highly-liquid investments purchased with an original maturity of three
months or less.

Deposits in banks may exceed the amount of insurance provided on such deposits.
The Company performs reviews of the credit worthiness of its depository banks.
The Company has not experienced any losses on its deposits.

Certificates of DepositCertificates of deposit have original maturities of
greater than three months and are pledged as collateral in support of various
stand-by letters of credit issued as security for various lease and insurance
policies.

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CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Accounts ReceivableAccounts receivable result primarily from medical services
provided to patients on a fee-for-service basis. Fee-for-service amounts are
paid by government sponsored health care programs (primarily Medicare and
Medicaid), insurance companies, self-insured employers and patients.

Accounts receivable include an allowance for contractual adjustments, charity
and other adjustments. Contractual adjustments arise from the Companys home
health operations when we enter into contracts with insurance companies or
other payors to provide services at rates which are less than our standard
charges. The contractual adjustment is known at the time services are provided
and recorded at the same time that revenue, based on the Companys standard
rates, is recorded. Revenue is shown net of the contractual adjustment on the
income statement.

Charity and other adjustments, which were immaterial for the years ended June
30, 2003, 2002, and 2001, represent services provided to patients for which
fees are not expected to be collected at the time the service is provided.
Accounts receivable are also presented net of intermediary final settlement
adjustments.

Due to/from Medicare, netDue to/from Medicare results primarily from medical
services provided by the Companys home health operations to Medicare
beneficiaries. Through September 30, 2000, the Companys services to Medicare
beneficiaries were paid based on a reasonable cost methodology. The Company
was reimbursed for cost reimbursable items at a tentative rate with final
settlement determined after submission of annual cost reports and audits
thereof by the payor. Prior to the final settlement, the Company recorded an
estimate of either a receivable from or liability to Medicare based on the
filed cost report. Changes in the estimated settlements recorded by the
Company may be adjusted in future periods as final settlements are determined.
The Company has not had any material settlements with third-party payors that
have not been disclosed.

Since October 31, 2000, the Companys home health services to Medicare
beneficiaries have been paid under a prospective payment system (PPS)
administered by the Medicare program. Under this program the Company is paid a
predetermined fee for each patient which considers the patients condition and
treatment plan for a sixty-day episode of care. Contractual adjustments are
estimated on the Companys Medicare home health services because the amount
initially recorded as revenue is based on the patients condition and treatment
plan at the start of care. Events which can occur that could result in changes
to the final revenue received include modifications to the plan of care, length
of that care and other factors. The Company estimates these adjustments based
on historical experience for Medicare reimbursement. Revenue is shown net of
the contractual adjustment on the income statement.

Due from HMOsThe HMOs pay medical claims and other costs on our behalf. Our
contract with the HMOs requires that the HMOs offset the medical claims
expense, calculated as claims they have paid on our behalf plus the HMOs
estimate of claims incurred but not reported, with the revenue we have earned
and remit to us a net payment. Therefore, the amounts due from HMOs are
presented in the balance sheet net of the estimated amounts for incurred but
not reported medical claims.

Equipment, Furniture and Leasehold ImprovementsEquipment, furniture and
leasehold improvements are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets,
which range from three to five years. Leasehold improvements are amortized over
the underlying assets useful lives or the term of the lease, whichever is
shorter. Repairs and maintenance costs are expensed as incurred. Improvements
and replacements are capitalized.

Goodwill and Other Intangible AssetsEffective July 1, 2001, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill
and Other Intangible Assets (SFAS No. 142). Prior to the adoption of SFAS
No. 142, costs in excess of net tangible assets acquired were stated net of
accumulated amortization and amortized on a straight-line basis over periods
ranging from 3 to 20 years. Under SFAS No. 142, goodwill and intangible assets
with indefinite useful lives are no longer amortized but are reviewed annually
for impairment, or more frequently if certain indicators arise. Intangible
assets with definite useful lives are amortized over their respective estimated
useful lives to their estimated residual values, and also reviewed for
impairment annually, or more frequently if certain indicators arise, in
accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS No. 144). Indicators of a permanent impairment
include, among other things, significant adverse change in legal factors or the
business climate, loss of a key HMO contract,

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CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

an adverse action by a regulator, unanticipated competition, loss of key
personnel or allocation of goodwill to a portion of a business that is to be
sold.

As the Company operates in a single segment of business, that of managing the
provision of outpatient health care and health care related services in the
State of Florida, management has determined that the Company has a single
reporting unit and performs the impairment test for goodwill on an enterprise
level. In performing the impairment test, the fair value of the Company, as
determined by the current market value of the common stock, is compared to the
current carrying value of the total net assets, including goodwill and
intangible assets. The Company performs the annual impairment test on May 1st
of each year. Should it be determined that an indicator of impairment has
occurred, such as those noted above, the Company would be required to perform
an additional impairment test which could result in the determination that a
portion of the intangible assets are impaired and must be written-off.
Depending on the market value of the common stock at the time that an
impairment test is required, there is a risk that a portion of the intangible
assets would be considered impaired and must be written-off during that period.

The Company completed its annual impairment test in accordance with SFAS No.
142 on May 1, 2003 and 2002 and determined that no impairment existed. Prior
to the adoption of SFAS No. 142, impairment testing was performed annually in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. No impairment charges
were required at June 30, 2003, 2002 or 2001.

Intangible assets subject to amortization are being amortized over a
weighted-average amortization period of 6.5 years. Total amortization expense
for intangible assets subject to amortization was approximately $360,000,
$691,000 and $2,416,000 during Fiscal 2003, 2002 and 2001, respectively. The
estimated aggregate amortization expense will be approximately $355,000 for
each of the five succeeding fiscal years. Intangible assets subject to
amortization are summarized as follows:

|                       |  |                  |           |              |  |              |           |             |  |      |           |  |  |                  |     | 
|---------------------- |  | ---------------- | --------- | ------------ |  | ------------ | --------- | ----------- |  | ---- | --------- |  |  | ---------------- | --- | 
|                       |  |                  |           |              |  | June 30,     |           |             |  |     
|                       |  |                  |           |              |  |              |           |             |  |     
|                       |  |                  |           |              |  | 2003         |           | 2002        |  |      |           | 
|                       |  |                  |           |              |  |              |           |             |  |      |           | 
|                       |  |                  |           |              |  |              |           |             |  |      |           |  |  | Estimated Useful
|                       |  |                  |           |              |  | Accumulated  |           | Accumulated |  | Life
|                       |  | Intangible Asset |           | Amortization |  | Amortization |           | (in years) 
|                       |  |                  |           |              |  |              |           |            
|Managed Care Contracts |  | $                | 3,509,985 |              |  | $            | 1,716,554 |             |  | $    | 1,363,742 |  |  |                  | 9.6 | 

Had the Company accounted for its goodwill and other intangible assets not
subject to amortization under SFAS No. 142 for all periods presented, the
Companys net loss and loss per share would have been as follows:

|                                      |                                                                              |   |                     |        |      |   |            |            |   |   |          |           | 
|------------------------------------- | ---------------------------------------------------------------------------- | - | ------------------- | ------ | ---- | - | ---------- | ---------- | - | - | -------- | --------- | 
|                                      |                                                                              |   | Year Ended June 30,
|                                      |                                                                              |   |                    
|                                      |                                                                              |   | 2003                |        | 2002 |   | 2001      
|                                      |                                                                              |   |                     |        |      |   |           
|Reported Net Income (Loss):           |                                                                              | $ | 58,598              |        |      | $ | (3,646,388 | )          |   | $ | (137,902 | )        
|                                      | Add back amortization of intangible
assets no longer subject to
amortization |   |                     |       |      |   |            |           |   |   |          | 1,061,315 | 
|                                      |                                                                              |   |                     |        |      |   |            |            |   |   |          |          
|                                      | Adjusted net income (loss)                                                   |   | $                   | 58,598 |      |   | $          | (3,646,388 | ) |   | $        | 923,413   | 
|                                      |                                                                              |   |                     |        |      |   |            |            |   |   |          |          
|                                      |                                                                              |   |                     |        |      |   |            |            |   |   |          |          
|Basic and diluted earnings per share: |                                                                              |   |                     |        |      |   |            |            |   |   |          |          
|                                      | Reported net (loss) income                                                   |   | $                   |       |      |   | $          | (.09       | ) |   | $        |          | 
|                                      | Goodwill amortization                                                        |   |                     |       |      |   |            |           |   |   |          | .03       | 
|                                      |                                                                              |   |                     |        |      |   |            |            |   |   |          |          
|                                      | Adjusted net earnings (loss) per share                                       |   | $                   |       |      |   | $          | (.09       | ) |   | $        | .03       | 
|                                      |                                                                              |   |                     |        |      |   |            |            |   |   |          |          

Deferred Financing CostsExpenses incurred in connection with the credit
facility and the guarantee related to the credit facility have been deferred
and are being amortized using the interest method over the life of the facility
and the guarantee. (See Note 5.)

Fair Value of Financial InstrumentsThe estimated fair values of financial
instruments have been determined by the Company using available market
information and appropriate valuation methods. Considerable judgment is
required

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CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methods may have a material
effect on the estimated fair value amounts. The Company has used the following
market assumptions and/or estimation methods:

| |  |                                                                                                                                                                                                                                                                 
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cash and cash equivalents, accounts receivable, accounts payable
and accrued expensesThe carrying values approximate fair value
due to the relatively short maturity of the respective
instruments.                                                            
| |  |                                                                                                                                                                                                                                                                 
| |  | Convertible subordinated notes payableThe fair value was
approximately $1,643,000 and $743,000 at June 30, 2003 and 2002,
respectively, based on the market value of the Companys common
stock.                                                               
| |  |                                                                                                                                                                                                                                                                 
| |  | Related party notes payableThe fair value was approximately
$383,000 and $173,000 at June 30, 2003 and 2002, respectively,
based on the market value of the Companys common stock.                                                                            
| |  |                                                                                                                                                                                                                                                                 
| |  | Long-term debt and capital lease obligationsThe carrying value at
June 30, 2003 and 2002 approximates fair value based on the terms
of the obligations. The Company has imputed interest on
non-interest bearing debt using an incremental borrowing rate of
8%

Extinguishments of DebtIn April 2002, the Financial Accounting Standards Board
issued SFAS No. 145 (SFAS No. 145), which, among other things, rescinded SFAS
No. 4, Reporting Gains and Losses from Extinguishment of Debt (SFAS No. 4).
Previously under SFAS No. 4, all gains and losses from extinguishments of debt
were required to be aggregated and, if material, classified as an extraordinary
item in the statement of operations. SFAS No. 145 requires that gains and
losses from extinguishments of debt be classified as extraordinary items only
if they meet the criteria in APB Opinion No. 30, Reporting the Results of
OperationsReporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
(Opinion No. 30). Any gain or loss on extinguishments of debt that were
presented as extraordinary items in prior periods but which do not qualify for
classification as an extraordinary item under Opinion No. 30, are to be
reclassified. Companies were required to adopt SFAS No. 145 in fiscal years
beginning after May 15, 2002 but could elect to early adopt.

The Company elected to adopt the provisions of SFAS No. 145 during the fourth
quarter of Fiscal 2002. The Company has reviewed the extinguishments of debt
that were presented as extraordinary items in prior periods and determined that
they do not meet the criteria for such classification under SFAS No. 145 and
Opinion No. 30. As such, all extinguishments of debt in prior periods have
been reclassified and included in Loss/Income from Operations in the
Consolidated Statements of Operations.

Accounting for Stock-Based CompensationThe Company follows Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25) and related Interpretations in accounting for its employee stock
options. Under APB 25, when the exercise price of the Companys employee stock
options equals or exceeds the market price of the underlying stock on the date
of grant, no compensation expense is recognized (see Note 9).

Stock options issued to independent contractors or consultants are accounted
for in accordance with SFAS No. 123 (SFAS No. 123), Accounting for
Stock-Based Compensation..

Although the Company follows APB 25 for its employee stock options, SFAS No.
148, Accounting for Stock Based CompensationTransition and Disclosure,
requires the Company to disclose the pro forma net loss had the stock options
been recorded at the estimated fair value of the options and amortized to
expense over the options vesting period. The Companys pro forma information
follows:

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CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

|                                             |             |  |                     |  |  |  |      |         |      |  |      |            |   |  |   |          |  
|-------------------------------------------- | ----------- |  | ------------------- |  |  |  | ---- | ------- | ---- |  | ---- | ---------- | - |  | - | -------- | -
|                                             |             |  | Year Ended June 30,
|                                             |             |  |                    
|                                             |             |  |                     |  |  |  | 2003 |         | 2002 |  | 2001
|                                             |             |  |                     |  |  |  |      |         |      |  |     
|Net income (loss):                           |             |  |                     |  |  |  |      |         |      |  |      |            |   |  |   |         
|                                             | As reported |  |                     |  |  |  | $    | 58,598  |      |  | $    | (3,646,388 | ) |  | $ | (137,902 | )
|                                             | Pro forma   |  |                     |  |  |  | $    | (61,570 | )    |  | $    | (3,646,388 | ) |  | $ | (137,902 | )
|                                             |             |  |                     |  |  |  |      |         |      |  |      |            |   |  |   |         
|Basic and diluted earnings (loss) per share: |             |  |                     |  |  |  |      |         |      |  |      |            |   |  |   |         
|                                             | As reported |  |                     |  |  |  | $    |        |      |  | $    | (.09       | ) |  | $ |         |  
|                                             | Pro forma   |  |                     |  |  |  | $    |        |      |  | $    | (.09       | ) |  | $ |         |  

Earnings per ShareBasic earnings per share is computed by dividing the net
income or loss by the weighted average common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity.

Business SegmentsThe Company has concluded that it operates in one segment of
business, that of managing the provision of outpatient health care and health
care related services in the State of Florida.

RevenueThe Companys health care providers provide service to patients on
either a fee for service arrangement or under a fixed monthly fee arrangement
with HMOs or through contracts directly with the payor. Revenue is recorded in
the period services are rendered as determined by the respective contract.

Under the Companys full risk contracts with Humana and Vista, the Company
receives a fixed, monthly fee from the HMOs for each covered life in exchange
for assuming responsibility for the provision of medical services. Total
medical services net revenue from continuing operations related to Vista
approximated 23%, 21% and 20% for Fiscal 2003, 2002 and 2001, respectively.
Total medical services net revenue from continuing operations relating to
Humana approximated 73%, 74% and 75% for Fiscal 2003, 2002 and 2001,
respectively. To the extent that patients require more frequent or expensive
care than was anticipated by the Company, revenue to the Company under a
contract may be insufficient to cover the costs of care provided.

When it is probable that expected future health care costs and maintenance
costs under a contract or group of existing contracts will exceed anticipated
capitated revenue on those contracts, the Company recognizes losses on its
prepaid healthcare services with HMOs. No contracts are considered loss
contracts at June 30, 2003 because the Company has the right to terminate
unprofitable physicians and close unprofitable centers under its managed care
contracts.

Through September 30, 2000, certain of the Companys services to Medicare
beneficiaries were paid based on a reasonable cost methodology. The Company was
reimbursed for cost reimbursable items at a tentative rate with final
settlement determined after submission of annual cost reports and audits
thereof by the payor. Changes in the estimated settlements recorded by the
Company may be adjusted in future periods as final settlements are determined.

Since October 1, 2000, the Companys home health services to Medicare
beneficiaries have been paid under a prospective payment system administered by
the Medicare program. Under this program, the Company is paid a predetermined
fee for services provided to patients for every 60-day period for which care is
rendered.

Revenue from the Medicare and Medicaid programs accounted for approximately 3%,
4% and 5% of the Companys net medical services revenue for Fiscal 2003, 2002
and 2001, respectively. Laws and regulations governing the Medicare and
Medicaid programs are complex and subject to interpretation. The Company
believes that it is in compliance with all applicable laws and regulations and
is not aware of any pending or threatened investigations involving allegations
of potential wrongdoing. While no such regulatory inquiries have been made,
compliance with such laws and regulations can be subject to future government
review and interpretation as well as significant regulatory action including
fines, penalties, and exclusion from the Medicare and Medicaid programs. The
Company

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CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

is not aware of any material claims, disputes or unsettled matters with
Medicare or other third-party payors that have not been disclosed.

Medical Service ExpenseThe Company contracts with or employs various health
care providers to provide medical services to its patients. Primary care
physicians are compensated on either a salary or capitation basis. For patients
enrolled under full risk managed care contracts, the cost of specialty services
are paid on either a fee for service, per diem or capitation basis.

The cost of health care services provided or contracted for under full risk
managed care contracts is accrued in the period in which it is provided. In
addition, the Company provides for claims incurred but not yet reported based
on past experience and current factors and compared to an independent actuarial
calculation. Estimates are adjusted as changes in these factors occur and such
adjustments are reported in the year of determination. Although considerable
variability is inherent in such estimates, management believes that the amounts
accrued are adequate.

Reinsurance (stop-loss insurance)Reinsurance premiums are reported as health
care cost which are included in medical service expense in the accompanying
Consolidated Statements of Operations, and reinsurance recoveries are reported
as a reduction of related health care costs.

Principles of ConsolidationThe consolidated financial statements include the
accounts of the Company, its wholly-owned subsidiaries, and all entities in
which the Company has a greater than 50% voting interest. All significant
intercompany transactions and balances have been eliminated in consolidation.

Use of EstimatesThe preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. Changes in the estimates are charged
or credited to operations as the estimates are revised.

Derivative Instruments and Hedging ActivitiesIn Fiscal 2001, the Company
adopted Statement of Financial Accounting Standards No. 133 (SFAS No. 133),
Accounting for Derivative Instruments and Hedging Activities which
establishes standards for the accounting and reporting of derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure these instruments at fair value. In Fiscal 2003 and 2002,
the Company did not have any derivative instruments and had not entered into
any hedging activities as defined in SFAS No. 133.

New Accounting Pronouncements Financial Accounting Standards Board
Interpretation No. 46, Consolidation of Variable Interest Entities,an
interpretation of Accounting Research Bulletin No. 51, Consolidated Financial
Statements,addresses consolidation by business enterprises of variable
interest entities. It is effective immediately for variable interest entities
created after January 31, 2003. It applies in the first fiscal year or interim
period beginning after June 15, 2003, to variable interest entities acquired
before February 1, 2003. The impact of adoption of this statement is not
expected to be significant.

SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities,amends and clarifies accounting for derivative instruments under
SFAS No. 133. It is effective for contracts entered into after June 30, 2003.
The impact of adoption of this statement is not expected to be significant.

SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity,establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liability and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). This statement is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The impact
of adoption of this statement is not expected to be significant.

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CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ReclassificationsCertain prior year amounts have been reclassified to conform
with the current year presentation.

NOTE 3  EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS

Equipment, furniture and leasehold improvements are summarized as follows:

|                                            |  |          |            |              |  |            |            |   |  |  |     | 
|------------------------------------------- |  | -------- | ---------- | ------------ |  | ---------- | ---------- | - |  |  | --- | 
|                                            |  | June 30, |            | Estimated   
|                                            |  |          |            | Useful Lives
|                                            |  | 2003     |            | 2002         |  | (in years)
|                                            |  |          |            |              |  |           
|Furniture, fixtures and equipment           |  | $        | 2,569,435  |              |  | $          | 2,456,027  |   |  |  | 3-5 | 
|Furniture and equipment under capital lease |  |          | 516,125    |              |  |            | 365,129    |   |  |  | 5   | 
|Vehicles                                    |  |          |           |              |  |            | 2,184      |   |  |  | 5   | 
|Leasehold improvements                      |  |          | 157,359    |              |  |            | 107,398    |   |  |  | 5   | 
|                                            |  |          |            |              |  |            |            |   |  |  |     | 
|                                            |  |          | 3,242,919  |              |  |            | 2,930,738  |   |  |  |     | 
|Less accumulated depreciation               |  |          | (2,610,517 | )            |  |            | (2,349,959 | ) |  |  |     | 
|                                            |  |          |            |              |  |            |            |   |  |  |     | 
|                                            |  | $        | 632,402    |              |  | $          | 580,779    |   |  |  |     | 
|                                            |  |          |            |              |  |            |            |   |  |  |     | 

Depreciation expense for the years ended June 30, 2003, 2002 and 2001 was
approximately $279,000, $336,000 and $462,000, respectively.

The Company has entered into various noncancellable leases for certain
furniture and equipment that are classified as capital leases. The leases are
payable over 3 to 5 years and the Company has used incremental borrowing rates
ranging from 9% to 35% per annum. Accumulated amortization for assets recorded
under capital lease agreements was approximately $303,000 at June 30, 2003.
Amortization of assets recorded under capital lease agreements was
approximately $99,000 for the year ended June 30, 2003, and is included in
depreciation expense for all years presented.

Future minimum lease payments under all capital leases are as follows:

|                             |                                                  |  |         |         | 
|---------------------------- | ------------------------------------------------ |  | ------- | ------- | 
|For the year ending June 30, |                                                  |  |         |        
|                             | 2004                                             |  | $       | 87,986  | 
|                             | 2005                                             |  |         | 73,002  | 
|                             | 2006                                             |  |         | 57,533  | 
|                             | 2007                                             |  |         | 20,329  | 
|                             | 2008                                             |  |         | 4,419   | 
|                             |                                                  |  |         |        
|                             |                                                  |  | 243,269 |        
|                             | Less amount representing imputed interest        |  |         | 46,750  | 
|                             |                                                  |  |         |        
|                             | Present value of obligations under capital lease |  |         | 196,519 | 
|                             | Less current portion                             |  |         | 70,913  | 
|                             |                                                  |  |         |        
|                             | Long-term capital lease obligations              |  | $       | 125,606 | 
|                             |                                                  |  |         |        

NOTE 4  CONVERTIBLE SUBORDINATED NOTES PAYABLE AND RELATED PARTY NOTE PAYABLE

On October 30, 1997, the Company issued $46,000,000 of 8% Convertible
Subordinated Notes Payable (the Original Notes) due on October 31, 2002. As
described below, through a series of repurchases and restructurings in Fiscal
2001 and 2000, the outstanding principal balance was approximately $3,913,000
at June 30, 2003.

At the time the Original Notes were issued, interest accrued at 8% and was
payable semiannually beginning April 30, 1998. The Original Notes could be
converted into shares of common stock of the Company at a conversion price of
$7.25 per share at any time after 60 days following the date of initial
issuance which is adjusted upon the occurrence of certain events. In addition,
the Original Notes were redeemable, in whole or in part, at the option of the
Company
F-15Table of Contents

CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

at any time on or after October 31, 2000, at redemption prices (expressed as a
percentage of the principal amount) ranging from 100% to 104%.

On August 12, 1998, the Company repurchased $1,000,000 of the Original Notes
and recorded a gain on retirement of debt of $130,197. The Company used cash
from operations to redeem the Original Notes.

On April 30, 1999 (the April 1999 Default Date), the Company defaulted on its
semi-annual payment of interest on the outstanding Original Notes. On the
April 1999 Default Date, the outstanding principal balance of the Original
Notes was $45,000,000 and the related accrued interest was approximately
$1,800,000.

On July 2, 1999, the Company repurchased $4,000,000 of the Original Notes for
$210,000 and recorded a gain on extinguishment of debt of approximately
$3,776,000. The Company funded the purchase of the Original Notes from working
capital. The Company has not provided for income taxes on the gain because it
believes that it will be able to utilize certain of its net operating loss
carryforwards to offset any income tax liability related to the transaction.

On October 31, 1999 (the October 1999 Default Date), the Company defaulted on
its semi-annual payment of interest on the outstanding Original Notes. On the
October 1999 Default Date, the outstanding principal balance of the Original
Notes was $41,000,000 and the related accrued interest was approximately
$3,300,000.

The Company completed a restructuring of the Original Notes and executed a
Consent Letter and Agreement to the First Supplemental Indenture (the Fiscal
2000 Restructuring). The Fiscal 2000 Restructuring was approved by the
shareholders on February 14, 2000. The following occurred as a result of the
Fiscal 2000 Restructuring: (a) $31,000,000 of the outstanding principal of the
Original Notes was converted, on a pro rata basis, into the Companys common
stock at a conversion rate of $2.00 per share (approximately 15,500,000 shares
of capital stock); (b) all interest which had accrued on the Original Notes
through October 31, 1999 was forgiven (approximately $3,300,000); (c) interest
which accrued from November 1, 1999 through the date of the Fiscal 2000
Restructuring (February 15, 2000) on the $31,000,000 which was converted into
15,500,000 shares of the Companys common stock was forgiven; (d) the interest
payment default on the remaining $10,000,000 principal balance of the Original
Notes was waived and the debentures were reinstated on the Companys books and
records as a performing non-defaulted loan (the Reinstated Subordinated
Debentures); (e) the Reinstated Subordinated Debentures bear interest at the
rate of 7% per annum commencing November 1, 1999; and (f) the conversion rate
for the Reinstated Subordinated Debentures for the period commencing November
1, 2000 to maturity was $2.00. The Fiscal 2000 Restructuring also required the
Company to procure a $3,000,000 bank credit facility and to obtain a
financially responsible person(s) to guarantee the bank credit facility for the
Company (see Note 5 below).

As a result of the Fiscal 2000 Restructuring, the Company recognized a gain of
approximately $9,472,000, net of restructuring costs. The gain consists of the
conversion of $31,000,000 of the outstanding principal balance into 15,500,000
shares of common stock, which were valued at approximately $21,312,500 based on
the closing price of the Companys stock on February 15, 2000, the forgiveness
of approximately $4,237,000 of accrued interest, the write off of approximately
$1,929,000 of unamortized deferred financing costs and the recording of
$2,100,000 of interest which will accrue on the remaining balance of the
Original Notes under the revised terms of the agreement through the maturity
date of October 31, 2002. In accordance with Statement of Financial Accounting
Standards No. 15, Accounting by Debtors and Creditors for Troubled Debt
Restructurings, (SFAS No. 15) the balance of the outstanding Original Notes
on the balance sheet of $11,750,000 at June 30, 2000, includes interest accrued
through June 30, 2000 of $116,667 and the remaining interest of $1,633,333
which was payable in semi-annual payments through October 31, 2002.

On April 30, 2001 (the April 2001 Default Date), the Company defaulted on its
semi-annual payment of interest on the outstanding Original Notes. On the
April 2001 Default Date, the outstanding principal balance of the Original
Notes was $10,000,000 and the related accrued interest was approximately
$300,000.

Effective June 30, 2001, the Company completed a second restructuring of the
Original Notes (the Fiscal 2001 Restructuring). In a private transaction
with certain noteholders, Frost Nevada Limited Partnership (Frost Nevada), an
entity controlled by Dr. Phillip Frost, Vice Chairman of the Companys board of
directors at the time of the Fiscal 2001 Restructuring, purchased Original
Notes in the principal amount of $6,219,511 (the Purchased

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CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Debt) and 9,640,244 shares of our common stock (the Purchased Shares).
Frost Nevada immediately exchanged the Purchased debt for (i) 6,219,511 shares
of our common stock and (ii) a new note (the New Note) in the principal
amount of $912,195. The New Note, which bears interest at 7%, payable
semi-annually, is convertible into shares of common stock at a conversion price
of $1.00 and matures October 31, 2005.

Also as part of the Fiscal 2001 Restructuring, new notes (collectively the
Notes) were issued in exchange for the remaining $3,800,000 of outstanding
Original Notes. Certain terms of the Notes were modified, which include, among
other things, the following: (i) adding interest of $132,317 which accrued
through April 30, 2001 to the outstanding principal balance; (ii) extending the
maturity date through October 2005; (iii) reducing the conversion rate from
$2.00 to $1.00; (iv) providing for quarterly interest payments; (v) adding a
call provision if the outstanding common stock trades at or above $2.50 per
share for twenty trading days and if the common stock trades an average of at
least 100,000 shares per week for a four week period; and (vi) curing all prior
defaults.

As a result of the Fiscal 2001 Restructuring, the Company recognized a gain of
approximately $3,503,000. The gain consists of the conversion of $6,219,511 of
the outstanding principal balance into 6,219,511 shares of common stock, which
were valued at approximately $1,804,000 based on the closing price of the
Companys stock on June 29, 2001, the recording of approximately $595,000 of
interest which will accrue through the new maturity date of October 31, 2005,
the recording of the New Note in the amount of $912,195 and the recording of
approximately $277,000 of interest which will accrue on the New Note.

Subsequent to the Fiscal 2001 Restructuring, Frost Nevada transferred
approximately 13% of the New Note in a private transaction to a group of six
investors (the Related Party Notes). Mr. Angel, the Companys president and
chief executive officer, and an entity controlled by Mr. Angel, comprise 40% of
this investor group.

Effective March 31, 2003, the Company modified the terms of the Notes (the
Fiscal 2003 Note Modification) to extend the principal payment of $1,148,000,
which was originally due on October 31, 2003, to October 31, 2006. As a
result, the first principal payment on the Notes will be due on October 31,
2004. In consideration for the Fiscal 2003 Note Modification, the Company
issued an aggregate of 344,400 shares of restricted stock to the noteholders
and increased the annual interest rate on the deferred principal payment of
$1,148,000 from 7% to 9%. The shares issued, which were valued at
approximately $120,500 based on the closing price of the Companys common stock
on March 31, 2003, have been recorded as a deferred financing cost which will
be amortized over the remaining term of the Notes. Prior to the Fiscal 2003
Note Modification, all interest due during the term of the Notes had been
recorded on the Consolidated Balance Sheet in accordance with SFAS No. 15. As
the Fiscal 2003 Note Modification does not meet the criteria in SFAS No. 15 to
be considered a troubled debt restructuring, the additional interest expense
due during the remaining term of the Notes has not been recorded on the
Consolidated Balance Sheet. The additional interest expense resulting from the
Fiscal 2003 Note Modification on the deferred principal payment will be
recorded as the interest becomes due and payable and is not included in the
payout schedule shown below.

Also effective March 31, 2003, Dr. Phillip Frost extended his personal
guarantee on the Companys credit facility. (See Note 5.) As part of the
consideration given to Dr. Frost for his personal guarantee, the interest rate
on the Related Party Note to Frost Nevada Investment Trust (Frost Nevada),
with an outstanding principal balance of approximately $797,000, was increased
from 7% to 9% (the 2003 Frost Consideration). Prior to Dr. Frosts extension
of his personal guarantee, all the interest due during the term of the Related
Party Note to Frost Nevada had been recorded on the Consolidated Balance Sheet
in accordance with SFAS No 15. As this transaction with Dr. Frost does not
meet the criteria of SFAS No. 15, the additional interest expense resulting
from the increase in the interest rate has not been recorded on the
Consolidated Balance Sheet. This additional interest expense will be recorded
as the interest becomes due and payable and is not included in the payout
schedule shown below.

As a result of the Fiscal 2000 Restructuring and the Fiscal 2001 Restructuring
and in accordance with SFAS No. 15, the balance of the outstanding Notes on the
balance sheet of approximately $4,356,000 at June 30, 2003, includes interest
accrued through June 30, 2002 of approximately $46,000 and the remaining
interest of approximately $444,000 which will be payable in quarterly payments
through October 31, 2005. As discussed above, the Fiscal

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CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2003 Note Modification resulted in additional interest expense due on the Notes
which is not reflected in this total and will be recorded as the interest
becomes due and payable through October 31, 2006.

The balance of the Related Party Notes on the balance sheet of approximately
$1,061,000 at June 30, 2003, also recorded in accordance with SFAS No. 15 at
the time of issuance, includes interest of approximately $149,000 which will be
payable in semi-annual payments through the maturity date of October 31, 2005.
As discussed above, the 2003 Frost Consideration resulted in additional
interest expense due which is not reflected in these totals and will be
recorded as the interest becomes due and payable.

Scheduled payments on the Notes and the Related Party Notes are as follows
(excluding the additional interest due as a result of the Fiscal 2003 Note
Modification and the additional interest due on the Related Party Note to Frost
Nevada):

|            |  |           |           |          |  |       |         |  |  |   |           | 
|----------- |  | --------- | --------- | -------- |  | ----- | ------- |  |  | - | --------- | 
|            |  | Principal |           | Interest |  | Total
|            |  |           |           |          |  |      
|Fiscal 2004 |  | $         |          |          |  | $     | 297,570 |  |  | $ | 297,570   | 
|Fiscal 2005 |  |           | 1,148,000 |          |  |       | 217,210 |  |  |   | 1,365,210 | 
|Fiscal 2006 |  |           | 2,529,001 |          |  |       | 77,873  |  |  |   | 2,606,874 | 
|Fiscal 2007 |  |           | 1,148,000 |          |  |       |        |  |  |   | 1,148,000 | 
|            |  |           |           |          |  |       |         |  |  |   |           | 
|            |  | $         | 4,825,001 |          |  | $     | 592,653 |  |  | $ | 5,417,654 | 
|            |  |           |           |          |  |       |         |  |  |   |           | 

NOTE 5  CREDIT FACILITY AND LONG-TERM DEBT

The following long-term debt was outstanding as of June 30, 2003 and 2002.

|                           |  |      |           |      |  |   |            | 
|-------------------------- |  | ---- | --------- | ---- |  | - | ---------- | 
|                           |  | 2003 |           | 2002
|                           |  |      |           |     
|Contract Modification Note |  | $    |          |      |  | $ | 3,829,037  | 
|Acquisition Liability      |  |      |          |      |  |   | 81,506     | 
|Credit Facility            |  |      | 2,315,000 |      |  |   | 2,315,000  | 
|Other Outstanding Notes    |  |      | 3,982,890 |      |  |   | 4,143,414  | 
|                           |  |      |           |      |  |   |            | 
|                           |  |      | 6,297,890 |      |  |   | 10,368,957 | 
|Less Current Portion       |  |      | 4,955,943 |      |  |   | 6,771,835  | 
|                           |  |      |           |      |  |   |            | 
|Long-Term                  |  | $    | 1,341,947 |      |  | $ | 3,597,122  | 
|                           |  |      |           |      |  |   |            | 

Contract Modification NoteEffective August 1, 1998, the Company entered into
two amendments to its professional provider agreements with an HMO. The
amendments, among other things, extended the term of the original agreement
from six to ten years and increased the percentage of Medicare premiums
received by the Company effective January 1, 1999. In exchange for the
amendments, the Company signed a $4,000,000 non-interest bearing promissory
note with the HMO of which $1,000,000 was to be paid over the 12 months
commencing January 1999 and the remaining $3,000,000 over the ensuing 24
months. The note was recorded net of imputed interest. The $4,000,000 cost,
net of imputed interest calculated at 8%, or approximately $500,000, is
included in other intangible assets on the accompanying consolidated balance
sheet and is being amortized over 9.6 years, the remaining term of the
contract.

On September 27, 2000, the Company entered into an agreement to amend the
repayment terms. However at June 30, 2002, the Company was not in compliance
with the amended repayment terms and the outstanding balance was classified as
a current liability in the accompanying consolidated balance sheet.

In April 2003, the Company executed a two-year Physician Group Participation
with the HMO. Pursuant to the PGP Agreement, the Company will assume certain
management responsibilities for the HMOs Medicare, Commercial and Medicaid
members assigned to selected primary care physicians in Miami-Dade and Broward
counties of

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CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Florida. (See Note 1.) Simultaneously with the execution of the PGP
Agreement, the Company restructured the terms of the $3,850,000 contract
modification note with the HMO. Pursuant to the restructuring, the contract
modification note was cancelled. The PGP Agreement is for a period of two
years and contains a provison for liquidated damages in the amount of
$4,000,000, which can be asserted by the HMO in the event that (i) continued
participation by the Company under this PGP Agreement may affect adversely the
health, safety or welfare of a member or bring the HMO or its provider networks
into disrepute; (ii) the Company engages in or acquiesces to any act of
bankruptcy, receivership or reorganization; (iii) the Company is excluded from
participation in any federal healthcare program; (iv) the HMO determines that
the Company has not used its best efforts to perform under the PGP Agreement;
or (v) the Company has materially breached the PGP Agreement. Because there
are contingent circumstances under which the future payments to the HMO for
liquidated damages could exceed the amount of debt forgiven, the gain on
extinguishment of debt of $3,850,000 resulting from the cancellation of the
contract modification note has been deferred and will be recognized when the
liquidated damages are less than the debt forgiven. If the Company remains in compliance with the terms of the
PGP Agreement, the HMO, at its option, may reduce the liquidated
damages by one-fourth on each of the following dates:
October 10, 2003, April 10, 2004, October 9, 2004 and
April 10, 2005. If the Company obtains these reductions, the
deferred revenue will be recognized in a manner consistent with
the reduction in the liquidated damages. The deferred gain on
extinguishment of debt is shown as Deferred Revenue and is classified as a
long-term liability in the accompanying Consolidated Balance Sheet.

Acquisition LiabilityIn August 1998, the Company, through its managed care
subsidiary, purchased professional provider contracts with approximately 30
physicians from an unrelated entity. The total purchase price was approximately
$6,700,000 of which $4,200,000 was paid in cash at closing and the remaining
$2,500,000 was payable in equal monthly installments over the ensuing 24 months
(the Acquisition Liability.) While the Acquisition Liability was non-interest
bearing, the Company imputed interest at 8%. During Fiscal 1999, the Company
ceased making payments on the Acquisition Liability.

Effective December 31, 1999, the Company negotiated an amendment to its
contract with the HMO (the 2000 Amendment). The 2000 Amendment reduced the
Companys prior medical claims and the Acquisition Liability as of May 31, 1999
to $1,500,000. The 2000 Amendment also required the Company to remit to the
HMO any reinsurance proceeds received for claims generated from the HMOs
members for the period June 1, 1998 through August 31, 1999 up to a maximum of
$1,327,400. As a result of the 2000 Amendment, the Company recorded a
contractual revision of previously recorded medical claims liability of
approximately $3,054,000. The 2000 Amendment resulted in the reduction of
medical claims payable by approximately $2,703,000 and the reduction of the
Acquisition Liability by approximately $351,000. Under the 2000 Amendment, the
outstanding balance of the Acquisition Liability of $1,500,000 was to be repaid
from future surpluses generated by the IPA.

Effective March 31, 2001, the Company negotiated another amendment to its
contract with the HMO (the 2001 Amendment). The 2001 Amendment reduced the
Acquisition Liability to the HMO by $1,000,000 and eliminated the medical
claims liability incurred by the IPA through March 31, 2001. As a result of
the 2001 Amendment, the Company recorded a contractual revision of previously
recorded medical claims and other of approximately $4,638,000. During Fiscal
2002, $418,494 was withheld from surpluses generated by the IPA and applied to
the outstanding balance of the Acquisition Liability. The outstanding balance
of the Acquisition Liability at June 30, 2002 of $81,506 was paid in full
during Fiscal 2003. The operations of the IPA were discontinued effective
January 1, 2003 and, therefore, the gain of approximately $4,638,000 for the
contractual revision in Fiscal 2001 has been included as a component of
discontinued operations for that year.

Credit FacilityThe Company has entered into a credit facility agreement
(Credit Facility), which provides a revolving loan of $3,000,000. On March
31, 2003, the Credit Facility matured. In order to secure an extension until
March 31, 2004, Dr. Frost, a principal shareholder of the Company, was required
to extend his personal guarantee of the Credit Facility through March 31, 2004.
In addition to Dr. Frosts guarantee, the Company has also agreed that a
financial covenant be added to the Credit Facility, which requires the Company
to maintain a fixed charge coverage ratio of 1.05 to 1.00 beginning on December
31, 2003 and measured quarterly thereafter. Interest under the Credit Facility
is payable monthly at 2.9% plus the 30-day Dealer Commercial Paper Rate which
was 1.03% at June 30, 2003. In addition to the guarantee discussed above, all
assets of the Company serve as collateral for the Credit Facility.

In consideration of Dr. Frosts personal guarantee, the Company issued
1,500,000 shares of restricted stock to an entity related to Dr. Frost and
increased the annual interest rate on a currently outstanding note payable to
an entity related to Dr. Frost from 7% to 9%. (See Note 4.) The shares of
common stock issued, which were valued at

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CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

$525,000 based on the closing price of the Companys common stock on March 31,
2003 when the guarantee was granted have been recorded as a deferred financing
cost which will be amortized over the term of the guarantee which expires March
31, 2004.

Other Outstanding NotesIn conjunction with the operation of its Home Health
Division, the Company has entered into fifteen (15) repayment agreements (the
Repayment Agreements) with a governmental agency with an outstanding
principal balance of approximately $1,683,000 as of June 30, 2003. These
Repayments Agreements resulted from various overpayments received by the
Company for expenses that were expected to be generated in conjunction with
home health patient care activities. Two of the fifteen Repayment Agreements
are non-interest bearing. The interest rates on the remaining thirteen
Repayment Agreements range from 12.625% to 13.875%. The maturity dates for the
Repayment Agreements range from Fiscal 2006 to 2008.

On February 13, 1998, the Company acquired the stock of Rehab Management
Systems, Inc., Integracare, Inc. and J.R. Rehab Associates, Inc. (collectively
referred to as RMS) from Integrated Health Services, Inc. (IHS). RMS
operated numerous rehabilitation clinics in the States of Florida, Georgia,
Alabama, North Carolina and South Carolina as a Medicare and Medicaid provider
of outpatient services. On April 8, 1999, the Company sold substantially all
the assets of RMS and the assumption of certain liabilities to Kessler
Rehabilitation of Florida, Inc. (Kessler). On August 13, 1999, RMS was
formally dissolved as a corporation with the State of Florida. During the
second quarter of Fiscal 2002, the Company became aware that CMS was pursuing
IHS, Kessler and RMS for collection of principal and interest for certain
alleged Medicare overpayments made to providers purchased from IHS or linked to
the purchased entities through the use of a common provider number (the
Providers) for services rendered during calendar years 1996, 1997 and 1998
(collectively, the Alleged Overpayments). The Company was aware of its
obligation to CMS for any overpayments for services rendered by the Providers
during calendar years 1997 and 1998. At the time the cost reports were
completed and submitted to CMS for services rendered by the Providers during
calendar years 1997 and 1998, the Company recorded an estimate for the
overpayments indicated on those cost reports as part of our continuing
operations. When the Company purchased RMS, the purchase agreement included
indemnification from IHS for any overpayments prior to calendar year 1997.
Subsequent to the purchase of RMS, IHS sought protection under Chapter 11 of
the United States Bankruptcy Code and, as such, is protected from CMS and RMS
efforts to collect on the Alleged Overpayments that relate to calendar year
1996.

During the third quarter of Fiscal 2002, it became clear that the Company was
being pursued by CMS as the primary obligor for all of the Alleged
Overpayments, including calendar year 1996. While the Company disputes the
validity of these claims, in an effort to expedite the resolution of these
matters and halt CMS aggressive collection procedures which included the
threat of withholding payments to the Companys home health agencies, the
Company entered into a memorandum of understanding for the 1996 and 1997 cost
report years (the 1996 Repayment Memorandum and the 1997 Repayment
Memorandum.) Under both the 1996 Repayment Memorandum and the 1997 Repayment
Memorandum, the Company agreed to make monthly payments of $10,000 for 24
months for each of the 1996 and 1997 cost report years with the balance due at
the end of the respective terms. Although the Company began making payments
under these Memorandums, the Company retained the right to dispute the Alleged
Overpayments. While a liability for the 1997 cost report had previously been
recorded, no amounts had been recorded for the 1996 cost report liability
primarily due to (i) the indemnification the Company had received from IHS for
any overpayments prior to calendar year 1997; (ii) the cost report including
providers which the Company never owned or operated; and (iii) lack of
knowledge of a balance owed to CMS for the 1996 cost report and CMS ability to
demand payment from the Company. As such, during the quarter ended March 31,
2002 the Company recorded an approximately $2,441,000 Provision for Medicare
Settlement Related to Terminated Operations. During September 2002, the
Company requested a reopening of the 1996 and 1997 cost reports and supplied
various documentation to demonstrate that the Alleged Overpayments were
incorrect. On April 25, 2003 the Medicare Fiscal Intermediary notified the
Company of their intent to reopen the 1996 and 1997 cost reports and review the
documentation submitted. The Medicare Fiscal Intermediary is currently
reviewing the documentation submitted for the 1996 cost report reopening. At
June 30, 2003, the outstanding liability for the 1996 alleged overpayments is
approximately $2,300,000. (See Note 11Commitments and Contingencies)

On September 18, 2003, the Company was notified by the Medicare Fiscal
Intermediary that they had completed the reopening of the 1997 cost report. As
a result of this cost report settlement, the original liability recorded of
approximately $402,000 has been reduced to approximately $40,000. As the
original liability for the 1997 cost

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CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

report was recorded as part of continuing operations in Fiscal 1998, an
adjustment of approximately $362,000 has been recorded as a Medicare cost
report settlement in the fourth quarter of Fiscal 2003 and is included in net
medical services revenue. As a result of the significant reduction in
liability for the 1997 cost report and the payments the Company had made in
accordance with the 1997 Repayment Memorandum, as of June 30, 2003, our balance
sheet includes a receivable of approximately $140,000 due from Medicare for the
1997 cost report.

Scheduled payments on the Credit Facility and long-term debt are as follows:

|            |  |   |           | 
|----------- |  | - | --------- | 
|Fiscal 2004 |  | $ | 4,955,943 | 
|Fiscal 2005 |  |   | 393,378   | 
|Fiscal 2006 |  |   | 403,944   | 
|Fiscal 2007 |  |   | 436,896   | 
|Fiscal 2008 |  |   | 107,729   | 
|            |  |   |           | 
|            |  | $ | 6,297,890 | 
|            |  |   |           | 

NOTE 6  EARNINGS PER SHARE

The following table sets forth share and common share equivalents used in the
computation of basic and diluted earnings per share:

|                                                                                    |                   |  |                     |        |      |  |            |            |   |  |            |          |  
|----------------------------------------------------------------------------------- | ----------------- |  | ------------------- | ------ | ---- |  | ---------- | ---------- | - |  | ---------- | -------- | -
|                                                                                    |                   |  | Year Ended June 30,
|                                                                                    |                   |  |                    
|                                                                                    |                   |  | 2003                |        | 2002 |  | 2001      
|                                                                                    |                   |  |                     |        |      |  |           
|Numerator for basic and dilutive
earnings per share                                 |                   |  |                     |        |      |  |            |            |   |  |            |         
|                                                                                    | Net income (loss) |  | $                   | 58,598 |      |  | $          | (3,646,388 | ) |  | $          | (137,902 | )
|                                                                                    |                   |  |                     |        |      |  |            |            |   |  |            |         
|Denominator for basic and diluted
earnings (loss)
per share-weighted average shares |                   |  | 40,776,903          |        |      |  | 39,634,601 |            |   |  | 33,257,130 |         
|                                                                                    |                   |  |                     |        |      |  |            |            |   |  |            |         

Options and warrants to purchase the Companys common stock and the convertible
subordinated notes payable were not included in the computation of diluted
earnings (loss) per share because the effect would be antidilutive to
continuing operations.

For additional disclosure regarding the employee stock options and warrants see
Note 9.

NOTE 7  DIRECTOR COMPENSATION

The Board of Directors granted 100,000 fully vested stock options to all Board
members who served in that capacity during calendar years 2001 and 2002.
Additionally 100,000 fully vested stock options were awarded to the two newly
elected members of the Board. The stock options have an exercise price of $.36
and are valid for a ten-year period. The Board members were given the
opportunity to elect to receive this compensation in the form of restricted
stock instead of stock options. On September 23, 2002, two of the Board
members elected to receive their award in the form of stock options for their
service in calendar years 2001 and 2002, a combined total of 400,000 options.
Also on September 23, 2002, five of the Board members elected to receive their
award in the form of restricted stock for their service in calendar years 2001
and 2002, a combined total of 800,000 shares of restricted stock. The value of
the restricted stock awarded of $112,000 (based on the closing price of the
Companys common stock on September 23, 2002) has been recorded as director
compensation in the first quarter of Fiscal 2003.

During October 2002, the Board appointed Dr. Jack Nudel as a new member of the
Board. At the time of this appointment, the Board granted 100,000 fully vested
stock options to Dr. Nudel with the opportunity to elect to receive this
compensation in the form of restricted stock. On October 30, 2002, Dr. Nudel
elected to receive this

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##### Table of Contents



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

award in the form of restricted stock. The value of the 100,000 shares of
restricted stock awarded of $11,000 (based on the closing price of the
Companys common stock on October 30, 2002) was recorded as director
compensation in the second quarter of Fiscal 2003.

NOTE 8  RELATED PARTY TRANSACTIONS

In connection with the Fiscal 2000 Restructuring of the Notes which occurred in
February 2000, the Company was required to procure a $3,000,000 bank credit
facility and to obtain a financially responsible person(s) to guarantee the
bank credit facility for the Company. The Company obtained such a bank credit
facility and obtained personal guarantees from Dr. Phillip Frost who was a
board member at the time of the Fiscal 2000 Restructuring and an entity
controlled by Mr. Charles Fernandez who was also a board member at the time of
the Fiscal 2000 Restructuring. In consideration for providing the guarantees,
the Company issued an aggregate of 3,000,000 shares of the Companys common
stock to the guarantors. These shares were valued at $3,375,000 based on the
closing price of the Companys stock on February 11, 2000 when the original
guarantees were granted.

On May 29, 2001, the Company granted 1,000 fully vested stock options with an
exercise price of $.32 to one of the Companys directors for consulting
services provided. The stock options expire on May 29, 2011.

In connection with the Fiscal 2001 Restructuring of the Notes which occurred in
June 2001, the Company issued 6,219,511 shares of the Companys common stock to
Frost Nevada, an entity controlled by Dr. Phillip Frost, who was a director of
the Company at the time of the Fiscal 2001 Restructuring, and issued a new note
in the principal amount of $912,195 bearing interest at 7%, payable
semi-annually, which matures in October 2005.

Effective July 31, 2001, Frost Nevada sold approximately 13% of the Purchased
Shares, 13% of the shares of common stock issued upon the conversion of the
Purchased Debt and transferred 13% of the New Note in a private transaction to
a group of six investors (the Investor Group). Mr. Angel, the Companys
president and chief executive officer, and an entity controlled by Mr. Angel
comprised 40% of the Investor Group through May 2003. In June 2003, Mr. Angel
sold his ownership interest in one of the participants in the Investor Group.
As a result of such divestiture, at June 30, 2003, Mr. Angel comprised 7% of
the Investor Group.

On March 31, 2003, Dr. Frost extended his personal guarantee of the Companys
Credit Facility through March 31, 2004. (See Note 5.) In consideration of Dr.
Frosts personal guarantee, the Company issued 1,500,000 shares of restricted
stock to an entity related to Dr. Frost and increased the annual interest rate
on a currently outstanding note payable to an entity related to Dr. Frost from
7% to 9%. (See Note 4.) The shares of common stock issued, which were valued
at $525,000 based on the closing price of the Companys common stock on March
31, 2003 when the guarantee was granted, have been recorded as a deferred
financing cost which will be amortized over the term of the guarantee.

NOTE 9  STOCK OPTION PLAN AND WARRANTS

In January 1999, the Companys shareholders approved an amendment to the
Companys Amended and Restated 1995 Stock Option Plan (the 1995 Stock Option
Plan) to increase the authorized shares for issuance upon the exercise of
stock options from 1,750,000 to 2,400,000 and to cover employees, directors,
independent contractors and consultants of the Company. Under the terms of the
Stock Option Plan, the options expire 10 years after the date of the grant.

In December 2000, the Companys shareholders approved the Amended and Restated
Continucare Corporation 2000 Stock Option Plan (the 2000 Stock Option Plan)
to increase the authorized shares for issuance upon the exercise of stock
options from 3,000,000 to 4,000,000 and to cover employees, directors,
independent contractors and consultants of the Company. Under the terms of the
Stock Option Plan, the options expire 10 years after the date of the grant.

Pro forma information regarding net income and earnings per share is required
by SFAS No. 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 2003 and 2001, respectively: risk-free interest rates of

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CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3.33%, 5.61%; dividend yields of 0%; volatility factors of the expected market
price of the Companys common stock of 107.9% and 90.8%, and a weighted-average
expected life of the options of 10 and 10.

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.

The following table summarizes information related to the Companys stock
option activity for the years ended June 30, 2003, 2002 and 2001:

|                                                               |  |                     |           |      |  |      |  |          |  |           |      |  |  |  |           |          |  |           |  |          |  |          |      |  |  |         |           |   |  |   |      | 
|-------------------------------------------------------------- |  | ------------------- | --------- | ---- |  | ---- |  | -------- |  | --------- | ---- |  |  |  | --------- | -------- |  | --------- |  | -------- |  | -------- | ---- |  |  | ------- | --------- | - |  | - | ---- | 
|                                                               |  | Year Ended June 30,
|                                                               |  |                    
|                                                               |  | 2003                |           | 2002 |  | 2001
|                                                               |  |                     |           |      |  |     
|                                                               |  |                     |           |      |  |      |  |          |  | Weighted  |      |  |  |  |           | Weighted |  |           |  |          |  | Weighted
|                                                               |  |                     |           |      |  |      |  |          |  | Average   |      |  |  |  |           |          |  |           |  | Average  |  |          |      |  |  | Average
|                                                               |  | Number              |           |      |  |      |  | Exercise |  | Number    |      |  |  |  |           | Exercise |  | Number    |  | Exercise
|                                                               |  | of Shares           |           |      |  |      |  | Price    |  | of Shares |      |  |  |  |           | Price    |  | of Shares |  | Price   
|                                                               |  |                     |           |      |  |      |  |          |  |           |      |  |  |  |           |          |  |           |  |         
|Outstanding at beginning of the year                           |  |                     | 2,316,000 |      |  |      |  |          |  | $         | 1.29 |  |  |  | 2,996,750 |          |  |           |  |          |  | $        | 1.30 |  |  |         | 494,000   |   |  | $ | 5.44 | 
|Granted                                                        |  |                     | 400,000   |      |  |      |  |          |  |           | .36  |  |  |  |          |          |  |           |  |          |  |          |     |  |  |         | 2,611,000 |   |  |   | .69  | 
|Forfeited                                                      |  |                     |          |      |  |      |  |          |  |           |     |  |  |  | (680,750  | )        |  |           |  |          |  |          | 1.34 |  |  |         | (108,250  | ) |  |   | 5.48 | 
|                                                               |  |                     |           |      |  |      |  |          |  |           |      |  |  |  |           |          |  |           |  |          |  |          |      |  |  |         |           |   |  |   |      | 
|Outstanding at end of the year                                 |  |                     | 2,716,000 |      |  |      |  |          |  |           |      |  |  |  | 2,316,000 |          |  |           |  |          |  |          |      |  |  |         | 2,996,750 |   |  |   |      | 
|                                                               |  |                     |           |      |  |      |  |          |  |           |      |  |  |  |           |          |  |           |  |          |  |          |      |  |  |         |           |   |  |   |      | 
|                                                              
|Exercisable at end of the year                                 |  |                     | 2,360,997 |      |  |      |  |          |  |           |      |  |  |  | 1,605,997 |          |  |           |  |          |  |          |      |  |  |         | 1,595,000 |   |  |   |      | 
|                                                               |  |                     |           |      |  |      |  |          |  |           |      |  |  |  |           |          |  |           |  |          |  |          |      |  |  |         |           |   |  |   |      | 
|Weighted average fair value of
options granted during the year |  | $                   | .12       |      |  |      |  |          |  |           |      |  |  |  |          |          |  |           |  |          |  |          |      |  |  | $       | .61       |   |  |   |      | 
|                                                               |  |                     |           |      |  |      |  |          |  |           |      |  |  |  |           |          |  |           |  |          |  |          |      |  |  |         |           |   |  |   |      | 

The following table summarizes information about the options outstanding at
June 30, 2003:

|              |           |                |                     |                  |                     |                  |         |           |  |                  |      |             |  |                |      |        |  |                  |  |  |  |  |  |  |  |  |         |           |  |  |  |  |  |  |      |     |  |  |  |  | 
|------------- | --------- | -------------- | ------------------- | ---------------- | ------------------- | ---------------- | ------- | --------- |  | ---------------- | ---- | ----------- |  | -------------- | ---- | ------ |  | ---------------- |  |  |  |  |  |  |  |  | ------- | --------- |  |  |  |  |  |  | ---- | --- |  |  |  |  | 
|              |           |                | Options Outstanding |                  | Options Exercisable
|Range         |           |                |                     |                 
|of            |           |                |                     |                  |                     |                  |         |           |  | Weighted Average |      |             |  |                |      |        |  |                  |  |  |  |  |  |  |  |  |         |           |  |  |  |  |  |  |      |     |  | 
|Exercise      |           | Outstanding at |                     | Remaining        |                     | Weighted Average |         |           |  |                  |      |             |  |                |      | Number |  | Weighted Average
|Prices        |           | June 30, 2003  |                     | Contractual Life |                     | Exercise Price   |         |           |  |                  |      | Exercisable |  | Exercise Price
|              |           |                |                     |                  |                     |                  |         |           |  |                  |      |             |  |               
|$5.125-$5.875 |           |                |                     |                  |                     |                  | 300,000 |           |  |                  | 4.28 |             |  |                | 5.31 |        |  |                  |  |  |  |  |  |  |  |  | 300,000 |           |  |  |  |  |  |  | 5.31 |    
|              | $.32-$.69 |                |                     |                  |                     |                  |         | 2,416,000 |  |                  |      | 7.43        |  |                |      | .64    |  |                  |  |  |  |  |  |  |  |  |         | 2,060,997 |  |  |  |  |  |  |      | .63 | 

The Company has 760,000 warrants outstanding at June 30, 2003 which are
exercisable through December 31, 2007, with exercise prices ranging from $7.25
to $12.50 per share.

Shares of common stock have been reserved for future issuance at June 30, 2003
as follows:

|                                |  |  |           | 
|------------------------------- |  |  | --------- | 
|Convertible subordinated notes  |  |  | 3,912,806 | 
|Convertible related party notes |  |  | 912,195   | 
|Warrants                        |  |  | 760,000   | 
|Stock Options                   |  |  | 2,716,000 | 
|                                |  |  |           | 
|Total                           |  |  | 8,301,001 | 
|                                |  |  |           | 

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##### Table of Contents



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10  INCOME TAXES

The Company accounts for income taxes under FASB Statement No. 109, Accounting
for Income Taxes. Deferred income tax assets and liabilities are determined
based upon differences between the financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse.

There is no provision or benefit for income taxes for the years ended June 30,
2003, 2002 and 2001 as the Company has substantial tax assets, described more
fully below, which have not been recognized as it is more likely than not that
they will not be realized.

Deferred income taxes reflect the net effect of temporary differences between
the carrying amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The tax effects of temporary
differences that give rise to deferred tax assets and deferred tax liabilities
are as follows:

|                                   |                                       |   |          |             |      |   |      |             |   |   |   |             |  
|---------------------------------- | ------------------------------------- | - | -------- | ----------- | ---- | - | ---- | ----------- | - | - | - | ----------- | -
|                                   |                                       |   | June 30,
|                                   |                                       |   |         
|                                   |                                       |   | 2003     |             | 2002 |   | 2001
|                                   |                                       |   |          |             |      |   |     
|Deferred tax assets:               |                                       |   |          |             |      |   |      |             |   |   |   |            
|                                   | Bad debt and notes receivable reserve |   | $        | 4,620,512   |      |   | $    | 4,603,954   |   |   | $ | 4,579,119   |  
|                                   | Depreciable/amortizable assets        |   |          |            |      |   |      |            |   |   |   | 386,686     |  
|                                   | Alternative minimum tax credit        |   |          |            |      |   |      |            |   |   |   | 111,973     |  
|                                   | Other                                 |   |          | 379,628     |      |   |      | 937,650     |   |   |   | 1,013,159   |  
|                                   | Impairment charge                     |   |          | 3,036,963   |      |   |      | 2,513,767   |   |   |   | 2,660,663   |  
|                                   | Capital loss carryover                |   |          | 200,261     |      |   |      | 200,261     |   |   |   | 200,261     |  
|                                   | Net operating loss carryforward       |   |          | 4,590,657   |      |   |      | 3,907,860   |   |   |   | 2,195,114   |  
|                                   |                                       |   |          |             |      |   |      |             |   |   |   |            
|                                   | Deferred tax assets                   |   |          | 12,828,021  |      |   |      | 12,163,492  |   |   |   | 11,146,975  |  
|                                   |                                       |   |          |             |      |   |      |             |   |   |   |            
|Deferred tax liabilities:          |                                       |   |          |             |      |   |      |             |   |   |   |            
|                                   | Depreciable/amortizable assets        |   |          | (965,047    | )    |   |      | (63,762     | ) |   |   |            |  
|                                   | Other                                 |   |          |            |      |   |      |            |   |   |   | (40,211     | )
|                                   | Valuation allowance                   |   |          | (11,862,974 | )    |   |      | (12,099,730 | ) |   |   | (11,106,764 | )
|                                   |                                       |   |          |             |      |   |      |             |   |   |   |            
|                                   | Deferred tax liabilities              |   |          | (12,828,021 | )    |   |      | (12,163,492 | ) |   |   | (11,146,975 | )
|                                   |                                       |   |          |             |      |   |      |             |   |   |   |            
|Net deferred tax (liability) asset |                                       | $ |         |             |      | $ |     |             |   | $ |  |            
|                                   |                                       |   |          |             |      |   |      |             |   |   |   |            

SFAS No. 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
After consideration of all the evidence, both positive and negative, management
determined that a valuation allowance of $11,862,974, $12,099,730 and
$11,106,764 is necessary at June 30, 2003, 2002 and 2001, respectively, to
reduce the deferred tax assets to the amount that will more likely than not be
realized. The change in the valuation allowance for the current period was
approximately $237,000 for the year ended June 30, 2003. At June 30, 2003, the
Company had available net operating loss carryforwards of approximately
$12,199,000, which expire in 2018 through 2023.

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##### Table of Contents



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A reconciliation of the statutory federal income tax rate with the Companys
effective income tax rate for the years ended June 30, 2003, 2002 and 2001 is
as follows:

|                                                      |  |                     |         |      |  |      |       |    |  |  |        |   
|----------------------------------------------------- |  | ------------------- | ------- | ---- |  | ---- | ----- | -- |  |  | ------ | --
|                                                      |  | Year Ended June 30,
|                                                      |  |                    
|                                                      |  | 2003                |         | 2002 |  | 2001
|                                                      |  |                     |         |      |  |     
|Statutory federal rate                                |  |                     | 34.0    | %    |  |      | (34.0 | )% |  |  | (34.0  | )%
|State income taxes, net of federal income tax benefit |  |                     | 3.63    |      |  |      | (3.63 | )  |  |  | 7.37   |   
|Goodwill and other non-deductible items               |  |                     | 356.26  |      |  |      | 4.50  |    |  |  | 103.04 |   
|Change in valuation allowance                         |  |                     | (404.03 | )    |  |      | 30.30 |    |  |  | (76.41 | ) 
|Other                                                 |  |                     | 10.14   |      |  |      | 2.83  |    |  |  |       |   
|                                                      |  |                     |         |      |  |      |       |    |  |  |        |   
|Effective (benefit) tax rate                          |  |                     | 0       | %    |  |      | 0     | %  |  |  | 0      | % 
|                                                      |  |                     |         |      |  |      |       |    |  |  |        |   

NOTE 11  EMPLOYEE BENEFIT PLAN

As of January 1, 1997, the Company adopted a tax qualified employee savings and
retirement plan covering the Companys eligible employees. The Continucare
Corporation 401(k) Profit Sharing Plan and Trust (the 401(k) Plan) was
amended and restated on July 1, 1998. The 401(k) Plan is intended to qualify
under Section 401 of the Internal Revenue Code (the Code) and contains a
feature described in Code Section 401(k) under which a participant may elect to
have his or her compensation reduced by up to 70% (subject to IRS limits) and
have that amount contributed to the 401(k) Plan. On October 25, 2001, the
Internal Revenue Service issued a favorable determination letter for the 401(k)
Plan.

Under the 401(k) Plan, new employees who are at least 18 years of age are
eligible to participate in the 401(k) Plan after 90 days of service. Eligible
employees may elect to reduce their compensation by the lesser of 70% of their
annual compensation or the statutorily prescribed annual limit of $12,000 (for
calendar year ending December 31, 2003) and have the reduced amount contributed
to the 401(k) Plan. The Company may, at its discretion, make a matching
contribution and a non-elective contribution to the 401(k) Plan. There were no
matching contributions for the years ending June 30, 2003, 2002 or 2001.
Participants in the 401(k) Plan do not begin to vest in the employer
contribution until the end of two years of service, with full vesting achieved
after five years of service.

Under the 401(k) Plan, each participant directs the investment of his or her
401(k) Plan account from among the 401(k) Plans many options. During Fiscal
1999, the 401(k) Plan underwent an integration and conversion process by which:
(i) certain 401(k) plans of subsidiaries purchased through past acquisitions
were merged into the 401(k) Plan; and (ii) the 401(k) Plans valuation system
was converted from a quarterly to a daily valuation.

NOTE 12  COMMITMENTS AND CONTINGENCIES

Employment Agreements:

The Company maintains employment agreements with certain officers and key
executives expiring at various dates through October 1, 2003. In addition, one
employment agreement provides for one additional year term for each year of
service by the executive. The agreements provide for annual base salaries in
the aggregate of approximately $375,000, annual increases, bonuses and stock
option grants. The employment agreements with certain officers also provide
that in the event of a change in control of the Company, as defined therein,
each officer is entitled to an acceleration of the remainder of the officers
term and the automatic vesting of any unvested stock options.

Insurance:

The Company maintains policies for general and professional liability insurance
jointly with each of the providers. It is the Companys intention to renew
such coverage on an on-going basis

Leases:

The Company leases office space and equipment under various non-cancelable
operating leases. Rent expense under such operating leases was approximately
$2,089,000, $2,041,000 and $2,081,000 for the years ended June 30, 2003, 2002
and 2001, respectively. Future annual minimum payments under such leases as of
June 30, 2003 are as follows:

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##### Table of Contents



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

|                                    |       |   |         |           | 
|----------------------------------- | ----- | - | ------- | --------- | 
|For the fiscal year ending June 30, |       |   |         |          
|2004                                |       | $ | 705,650 |          
|2005                                |       |   | 399,325 |          
|2006                                |       |   | 142,574 |          
|2007                                |       |   | 48,265  |          
|2008                                |       |   | 33,058  |          
|                                    |       |   |         |          
|                                    | Total |   | $       | 1,328,872 | 
|                                    |       |   |         |          

Concentrations of Revenues:

For the years ended June 30, 2003, 2002 and 2001, the Company generated
approximately 23%, 21% and 20%, respectively, of total revenues from Vista
Healthplan of South Florida, Inc. and its affiliated companies. Humana Medical
Plans, Inc. accounted for 73%, 74% and 75%, respectively, of net medical
revenues in Fiscal 2003, 2002 and 2001.

Other Commitments:

One of the Companys contracts with an HMO requires the funding of a claims
reserve out of operating profits of certain the Companys staff model clinics.
As a result of increased membership, the balance of this reserve fund
increased by approximately $85,000 effective May 1, 2003 which will be payable
over 5 months. At June 30, 2003, the unfounded portion of this required reserve
was approximately $50,000. The HMO can only draw upon this reserve in the
event that the staff model clinics in question have incurred an account deficit
and that the Company is unable or unwilling to satisfy the HMOs demand to fund
the deficit. At no time during Fiscal 2003 were the staff model clinics in
question in an account deficit position.

Legal Proceedings:

Two subsidiaries of the Company were parties to the case of NANCY FEIT ET AL.
v. KENNETH BLAZE, D.O. KENNETH BLAZE., D.O., P.A.; SHERIDAN HEALTHCORP, INC.;
WAYNE RISKIN, M.D.; KAHN AND RISKIN, M.D., P.A.; CONTINUCARE PHYSICIAN PRACTICE
MANAGEMENT, INC., D/B/A ARTHRITIS AND RHEUMATIC DISEASE SPECIALTIES, INC.;
JAMES JOHNSON, D.C. AND JOHNSON & FALK, D.C., P.A. The case was filed in
December, 1999 in the Circuit Court of the 17th Judicial Circuit in and for
Broward County, Florida and served on the companies in April, 2000. On July
16, 2003, the Company was dropped as a party to the lawsuit.

The Company is a party to the case of ELBA GONZALEZ AND EFRAIN PELLOT AS
PERSONAL REPRESENTATIVES OF THE ESTATE OF NICHOLAS PELLOT, DECEASED, AND ELBA
GONZALEZ AND EFRAIN PELLOT, INDIVIDUALLY AND JOINTLY AS SURVIVING PARENTS v.
CONTINUCARE CORPORATION; MICHAEL J. CAVANAUGH, M.D.; GUYLENE KERNISANT,
A.R.N.P.; DIAGNOSTIC TESTING GROUP, INC. AND JOHN H. SOKOLOWICZ, M.D. This
case was filed on March 12, 2002 in the Circuit Court of the 11th Judicial
Circuit in and for Dade County, Florida and served on the companies and
individuals in March 2002. The complaint alleges vicarious liability for
medical malpractice and seeks damages in excess of $15,000. Trial was
originally scheduled for June 2, 2003; however, the court has granted a
continuance and a new trial date has not been set. The Company intends to
defend this case vigorously.

The Company is a party to the case of JOAN LINDAHL v. HUMANA MEDICAL PLAN,
INC., COLUMBIA HOSPITAL COPRORATION OF SOUTH BROWARD d/b/a WESTSIDE REGIONAL
MEDICAL CENTER, INPHYNET CONTRACTING SERVICES, INC., CONTINUCARE MEDICAL
MANAGEMENT, INC., LUIS GUERRERO AND JARSLAW PARKOLAP. This case was filed on
January 24, 2002 in the Circuit Court of the 17th Judicial Circuit in and for
Broward County, Florida and served on the companies and individuals in February
2003. The complaint alleges vicarious liability for medical malpractice and
seeks damages in excess of $15,000. Although the case is currently stayed, the
Company intends to defend this case vigorously.

The Company is also involved in other legal proceedings incidental to its
business that arise from time to time out of the ordinary course of
businessincluding, but not limited to, claims related to the alleged
malpractice of employed and contracted medical professionals, workers
compensation claims and other employee-related matters, and minor disputes with
equipment lessors and other vendors.

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CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On February 13, 1998, the Company acquired the stock of Rehab Management
Systems, Inc., Integracare, Inc. and J.R. Rehab Associates, Inc. from
Integrated Health Services, Inc. RMS operated numerous rehabilitation clinics
in the States of Florida, Georgia, Alabama, North Carolina and South Carolina
as a Medicare and Medicaid provider of outpatient services. On April 8, 1999,
the Company sold substantially all the assets of RMS and the assumption of
certain liabilities to Kessler Rehabilitation of Florida, Inc. On August 13,
1999, RMS was formally dissolved as a corporation with the State of Florida.
During the second quarter of Fiscal 2002, the Company became aware that CMS was
pursuing IHS, Kessler and RMS for collection of principal and interest for
certain alleged Medicare overpayments made to providers purchased from IHS or
linked to the purchased entities through the use of a common provider number
for services rendered during calendar years 1996, 1997 and 1998. The Company
was aware of its obligation to CMS for any overpayments for services rendered
by the Providers during calendar years 1997 and 1998. At the time the cost
reports were completed and submitted to CMS for services rendered by the
Providers during calendar years 1997 and 1998, the Company recorded an estimate
for the overpayments indicated on those cost reports as part of our continuing
operations. When the Company purchased RMS, the purchase agreement included
indemnification from IHS for any overpayments prior to calendar year 1997.
Subsequent to the purchase of RMS, IHS sought protection under Chapter 11 of
the United States Bankruptcy Code and, as such, is protected from CMS and RMS
efforts to collect on the Alleged Overpayments that relate to calendar year
1996.

During the third quarter of Fiscal 2002, it became clear that the Company was
being pursued by CMS as the primary obligor for all of the Alleged
Overpayments, including calendar year 1996. While the Company disputes the
validity of these claims, in an effort to expedite the resolution of these
matters and halt CMS aggressive collection procedures which included the
threat of withholding payments to the Companys home health agencies, the
Company entered into a memorandum of understanding for the 1996 and 1997 cost
report years. Under both the 1996 Repayment Memorandum and the 1997 Repayment
Memorandum, the Company agreed to make monthly payments of $10,000 for 24
months for each of the 1996 and 1997 cost report years with the balance due at
the end of the respective terms. Although the Company began making payments
under these Memorandums, the Company retained the right to dispute the Alleged
Overpayments. While a liability for the 1997 cost report had previously been
recorded, no amounts had been recorded for the 1996 cost report liability
primarily due to (i) the indemnification the Company had received from IHS for
any overpayments prior to calendar year 1997; (ii) the cost report including
providers which the Company never owned or operated; and (iii) lack of
knowledge of a balance owed to CMS for the 1996 cost report and CMS ability to
demand payment from the Company. As such, during the quarter ended March 31,
2002 the Company recorded an approximately $2,441,000 Provision for Medicare
Settlement Related to Terminated Operations. During September 2002, the
Company requested a reopening of the 1996 and 1997 cost reports and supplied
various documentation to demonstrate that the Alleged Overpayments were
incorrect. On April 25, 2003 the Medicare Fiscal Intermediary notified the
Company of their intent to reopen the 1996 and 1997 cost reports and review the
documentation submitted. The Medicare Fiscal Intermediary is currently
reviewing the documentation submitted for the 1996 cost report reopening.
There can be no assurances that the 1996 cost report reopening will result in a
positive adjustment or reduce the liability outstanding. At June 30, 2003, the
outstanding liability for the 1996 alleged overpayments is approximately
$2,300,000. (See Note 11Commitments and Contingencies.)

On September 18, 2003, the Company was notified by the Medicare Fiscal
Intermediary that they had completed the reopening of the 1997 cost report. As
a result of this cost report settlement, the original liability recorded of
approximately $402,000 has been reduced to approximately $40,000. As the
original liability for the 1997 cost report was recorded as part of continuing
operations in Fiscal 1998, an adjustment of approximately $362,000 has been
recorded as a Medicare cost report settlement in the fourth quarter of Fiscal
2003 and is included in net medical services revenue. As a result of the
significant reduction in liability for the 1997 cost report and the payments
the Company had made in accordance with the 1997 Repayment Memorandum, as of
June 30, 2003, our balance sheet includes a receivable of approximately
$140,000 due from Medicare for the 1997 cost report.

The Company has recorded a liability for the Alleged Overpayments as discussed
above. Additionally, the Company has recorded an accrual for medical
malpractice claims, which includes amounts for insurance deductibles and legal
fees, based on managements estimate of the ultimate outcome of such claims.
No other liabilities have been recorded for the above matters as it is not
possible to estimate the liability, if any, that will result from the
resolution of these matters.

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CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13  VALUATION AND QUALIFYING ACCOUNTS

Activity in the Companys Valuation and Qualifying Accounts consists of the
following:

|                                                                |  |                     |            |      |  |      |            |  |  |   |            |  
|--------------------------------------------------------------- |  | ------------------- | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- | -
|                                                                |  | Year ended June 30,
|                                                                |  |                    
|                                                                |  | 2003                |            | 2002 |  | 2001
|                                                                |  |                     |            |      |  |     
|Allowance for doubtful accounts related to accounts
receivable: |  |                     |            |      |  |      |            |  |  |   |            |  
|Balance at beginning of period                                  |  | $                   | 4,807,000  |      |  | $    | 4,741,000  |  |  | $ | 4,691,000  |  
|Provision for doubtful accounts                                 |  |                     | 44,000     |      |  |      | 66,000     |  |  |   | 50,000     |  
|Write-offs of uncollectible accounts receivable                 |  |                     | (28,000    | )    |  |      |           |  |  |   |           |  
|                                                                |  |                     |            |      |  |      |            |  |  |   |            |  
|Balance at end of period                                        |  | $                   | 4,823,000  |      |  | $    | 4,807,000  |  |  | $ | 4,741,000  |  
|                                                                |  |                     |            |      |  |      |            |  |  |   |            |  
|                                                                |  |                     |            |      |  |      |            |  |  |   |            |  
|Allowance for doubtful accounts related to notes receivable:    |  |                     |            |      |  |      |            |  |  |   |            |  
|Balance at beginning of period                                  |  | $                   | 6,367,000  |      |  | $    | 6,367,000  |  |  | $ | 7,051,000  |  
|Provision for doubtful accounts                                 |  |                     |           |      |  |      |           |  |  |   |           |  
|Write-offs of uncollectible notes receivable                    |  |                     |           |      |  |      |           |  |  |   | (684,000   | )
|                                                                |  |                     |            |      |  |      |            |  |  |   |            |  
|Balance at end of period                                        |  | $                   | 6,367,000  |      |  | $    | 6,367,000  |  |  | $ | 6,367,000  |  
|                                                                |  |                     |            |      |  |      |            |  |  |   |            |  
|                                                                |  |                     |            |      |  |      |            |  |  |   |            |  
|Tax valuation allowance for deferred tax assets:                |  |                     |            |      |  |      |            |  |  |   |            |  
|Balance at beginning of period                                  |  | $                   | 12,099,730 |      |  | $    | 11,106,764 |  |  | $ | 12,619,238 |  
|Additions                                                       |  |                     |           |      |  |      | 992,966    |  |  |   |           |  
|Deductions                                                      |  |                     | (236,756   | )    |  |      |           |  |  |   | (1,512,474 | )
|                                                                |  |                     |            |      |  |      |            |  |  |   |            |  
|Balance at end of period                                        |  | $                   | 11,862,974 |      |  | $    | 12,099,730 |  |  | $ | 11,106,764 |  
|                                                                |  |                     |            |      |  |      |            |  |  |   |            |  

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CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)

|                                            |  |                                      |            |                |  |               |            |                |  |   |            |  |  |   |            | 
|------------------------------------------- |  | ------------------------------------ | ---------- | -------------- |  | ------------- | ---------- | -------------- |  | - | ---------- |  |  | - | ---------- | 
|                                            |  | For the Year Ended June 30, 2003 (a)
|                                            |  |                                     
|                                            |  | First Quarter                        |            | Second Quarter |  | Third Quarter |            | Fourth Quarter
|                                            |  |                                      |            |                |  |               |            |               
|Total revenue from continuing operations    |  | $                                    | 24,391,721 |                |  | $             | 24,959,027 |                |  | $ | 25,358,084 |  |  | $ | 26,700,858 | 
|Net (loss) income                           |  | $                                    | (691,636   | )              |  | $             | (372,487   | )              |  | $ | 298,376    |  |  | $ | 824,345    | 
|Basic and diluted (loss) earnings per share |  | $                                    | (.02       | )              |  | $             | (.01       | )              |  | $ | .01        |  |  | $ | .02        | 

|                                            |  |                                      |            |                |  |               |            |                |  |   |            |   |  |   |            | 
|------------------------------------------- |  | ------------------------------------ | ---------- | -------------- |  | ------------- | ---------- | -------------- |  | - | ---------- | - |  | - | ---------- | 
|                                            |  | For the Year Ended June 30, 2002 (a)
|                                            |  |                                     
|                                            |  | First Quarter                        |            | Second Quarter |  | Third Quarter |            | Fourth Quarter
|                                            |  |                                      |            |                |  |               |            |               
|Total revenue from continuing operations    |  | $                                    | 21,582,917 |                |  | $             | 23,840,413 |                |  | $ | 25,202,455 |   |  | $ | 24,874,527 | 
|Net (loss) income                           |  | $                                    | (1,569,670 | )              |  | $             | (586,460   | )              |  | $ | (2,422,586 | ) |  | $ | 932,328    | 
|Basic and diluted (loss) earnings per share |  | $                                    | (.04       | )              |  | $             | (.01       | )              |  | $ | (.06       | ) |  | $ | .02        | 



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|(a) |  | As discussed in Note 2, effective January 1, 2003, the Company terminated
the Medicare and Medicaid lines of business for all of the physician
contracts associated with one of its IPAs and this IPA is shown as
discontinued operations. Therefore, the above quarterly information has
been reclassified to agree with the current presentation. This
reclassification has no effect on the previously reported net income
(loss) or net income (loss) per share for any quarter presented.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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EXHIBIT INDEX

|                                                                                                                       |  |                |      | 
|---------------------------------------------------------------------------------------------------------------------- |  | -------------- | ---- | 
|Description                                                                                                            |  | Exhibit Number
|                                                                                                                       |  |               
|Subsidiaries of the Company                                                                                            |  |                | 21.1 | 
|                                                                                                                       |  |                |      | 
|Consent of Ernst & Young LLP                                                                                           |  |                | 23.1 | 
|                                                                                                                       |  |                |      | 
|Section 302 Certification of Chief Executive Officer                                                                   |  |                | 31.1 | 
|                                                                                                                       |  |                |      | 
|Section 302 Certification of Chief Financial Officer                                                                   |  |                | 31.2 | 
|                                                                                                                       |  |                |      | 
|Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |  |                | 32.1 | 
|                                                                                                                       |  |                |      | 
|Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |  |                | 32.2 |