##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended: June 30, 2009
 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
  Florida
    
    59-2716023(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)7200 Corporate Center DriveSuite 600Miami, Florida
    
    33126(Address of Principal Executive Offices)
    
    (Zip Code)
 (305) 500-2000
  Title of Each Class
    
    Name of Each Exchange On Which RegisteredCOMMON STOCK
    
    NYSE AMEX$.0001 PAR VALUE
 None
 o þ
 o þ
 þ o
 o o
 þ
  Large accelerated filer oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o
 o þ




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##### 



CONTINUCARE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2009
 TABLE OF CONTENTS
 PAGEGeneral
    
    
    3PART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    12Item 1B.
    
    Unresolved Staff Comments
    
    
    18Item 2.
    
    Properties
    
    
    19Item 3.
    
    Legal Proceedings
    
    
    19Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    19PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    19Item 6.
    
    Selected Financial Data
    
    
    21Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 8.
    
    Financial Statements and Supplementary Data
    
    
    30Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    30Item 9A.
    
    Controls and Procedures
    
    
    30Item 9B.
    
    Other Information
    
    
    32PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    32Item 11.
    
    Executive Compensation
    
    
    33Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    33Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    33Item 14.
    
    Principal Accounting Fees and Services
    
    
    33PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    33Signatures
    
    
    36EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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GENERAL
  
 PART I
 
 ITEM 1.
    
    BUSINESS
  Company Overview
      3




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Acquisition
      4




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Industry Overview
         5




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Our Market and Business Strategy
   
    
    increase patient volume at our existing medical centers;
    
    selectively expand our network to include additional medical centers or other medical
facilities and to penetrate new geographic markets;
    
    further develop our IPA management activities; and
    
    selectively expand our operations into other areas in which we believe we can leverage
our expertise in order to establish additional sources of revenue.
 Increasing Patient Volume
  Selectively Expanding Our Network
  
    
    staffed with highly qualified medical professionals;
    
    a history of profitable operations or a predictable synergy such as opportunities for
economies of scale through a consolidation of management functions;
    
    a competitive environment with respect to a high concentration of hospitals and
physicians; and
    
    a geographic proximity to our current operations.
 Developing Our IPA Management Activities
  6




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Selectively Expanding Our Operations Into Other Areas
  Our Medical Centers
  Our IPAs
   Medicare and Medicaid Considerations
  7




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Our HMO Affiliates
  Humana
   8




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Vista
    Wellcare
    9




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Compliance Program
  Competition
  Government Regulation
 General.
  Present and Prospective Federal and State Reimbursement Regulation
 Federal Fraud and Abuse Laws and Regulations.
 State Fraud and Abuse Regulations
 10




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Restrictions on Physician Referrals
   Privacy Laws.
 Corporate Practice of Medicine Doctrine.
 Clinic Regulation and Licensure.
 Limitations on Contractual Joint Ventures.
 Occupational Safety and Health Administration (OSHA)
 11




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Environmental Regulations.
 Medicare Marketing Restrictions.
 Sanctioned Parties
 Healthcare Reform.
 Health Care Professional Licensure and Supervision.
 Employees
  Insurance
   Available Information
   
 ITEM 1A.
    
    RISK FACTORS
  12




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Risks related to our business
 Our operations are dependent on three health maintenance organizations.
  Under our most important contracts we are responsible for the cost of medical services to our
patients in return for a capitated fee.
  Our revenues will be affected by the Medicare Risk Adjustment program.
    If we are unable to manage medical benefits expense effectively, our profitability will likely be
reduced.
  13




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A failure to estimate incurred but not reported medical benefits expense accurately will affect our
profitability.
  We compete with many health care providers for patients and HMO affiliations.
  We may not be able to successfully recruit or retain existing relationships with qualified
physicians and medical professionals.
  Our business exposes us to the risk of medical malpractice lawsuits.
  We primarily operate in Florida.
  14




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A significant portion of our voting power is concentrated.
  We are dependent on our executive officers and other key employees.
  We depend on the management information systems of our affiliated HMOs.
  We depend on our information processing systems.
  
    
    we fail to adequately identify or are unsuccessful in implementing solutions for our
information and processing needs;
    
    our processing or information systems fail; or
    
    we fail to upgrade systems as necessary.
 Volatility of our stock price could adversely affect you.
  
    
    state and federal budget decreases;
    
    adverse publicity regarding HMOs and other managed care organizations;
    
    government action regarding eligibility;
    
    changes in government payment levels;
    
    changes in state mandatory programs;
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
    
    changes in expectations of our future financial performance or changes in financial
estimates, if any, of public market analysts;
    
    announcements relating to our business or the business of our competitors;
    
    conditions generally affecting the managed care industry or our provider networks;
    
    the success of our operating strategy;
    
    the operating and stock price performance of other comparable companies;
    
    the termination of any of our contracts;
    
    regulatory or legislative changes;
    
    acts of war or terrorism or an increase in hostilities in the world; and
    
    general economic conditions, including inflation and unemployment rates.
 A failure to successfully implement our business strategy could materially and adversely affect our
operations and growth opportunities.
  Our intangible assets represent a substantial portion of our total assets.
   
    
    a significant adverse change in legal factors or the business climate;
    
    the 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.
  Competition for acquisition targets and acquisition financing and other factors may impede our
ability to acquire other businesses and may inhibit our growth.
  16




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Our acquisitions could result in integration difficulties, unexpected expenses, diversion of
managements attention and other negative consequences.
  
    
    we may be unable to centralize and consolidate our financial, operational and
administrative functions with those of the businesses we acquire;
    
    our managements attention may be diverted from other business concerns;
    
    we may be unable to retain and motivate key employees of an acquired company;
    
    litigation, indemnification claims and other unforeseen claims and liabilities
may arise from the acquisition or operation of acquired businesses;
    
    the costs necessary to complete integration may exceed our expectations or
outweigh some of the intended benefits of the transactions we complete;
    
    we may be unable to maintain the patients or goodwill of an acquired business;
and
    
    the costs necessary to improve the operating systems and services of an acquired
business may exceed our expectations.
 Risks related to our industry
 Health care reform initiatives, particularly changes to the Medicare system, could adversely affect our operations.
  A decrease to our Medicare capitation payments may have a material adverse effect on our results of
operations, financial position and cash flows.
  We are subject to government regulation.
  17




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
    
    forfeiture of amounts we have been paid;
    
    imposition of civil or criminal penalties, fines or other sanctions on us;
    
    loss of our right to participate in government-sponsored programs, including Medicare
and Medicaid;
    
    damage to our reputation in various markets;
    
    increased difficulty in hiring or retaining qualified medical personnel or marketing our
products and services; and
    
    loss of one or more of our licenses to provide health care services.
  The health care industry is subject to continued scrutiny.
  Our insurance coverage may not be adequate, and rising insurance premiums could negatively affect
our profitability.
  Deficit spending and economic downturns could negatively impact our results of operations.
  Many factors that increase health care costs are largely beyond our ability to control.
  
    
    increased use of medical facilities and services, including prescription drugs
and doctors office visits;
    
    increased cost of such services;
    
    new benefits to patients added by the HMOs to their covered services, whether as
a result of the Medicare Modernization Act or otherwise;
    
    changes or reductions of our utilization management functions such as
preauthorization of services, concurrent review or requirements for physician
referrals;
    
    catastrophes (including hurricanes), epidemics or terrorist attacks;
    
    the introduction of new or costly treatments, including new technologies;
    
    new government mandated benefits or other regulatory changes; and
    
    increases in the cost of stop loss or other insurance.
  
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  18




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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, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
  HIGH
    
    LOWFiscal Year 2009:Quarter Ended June 30, 2009
    
    $
    2.55
    
    
    $
    1.71Quarter Ended March 31, 2009
    
    
    2.12
    
    
    
    1.57Quarter Ended December 31, 2008
    
    
    2.63
    
    
    
    1.53Quarter Ended September 30, 2008
    
    
    2.67
    
    
    
    2.06Fiscal Year 2008Quarter Ended June 30, 2008
    
    $
    2.79
    
    
    $
    1.04Quarter Ended March 31, 2008
    
    
    2.68
    
    
    
    1.70Quarter Ended December 31, 2007
    
    
    2.90
    
    
    
    2.16Quarter Ended September 30, 2007
    
    
    3.10
    
    
    
    2.08
  19




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Securities Authorized for Issuance Under Equity Compensation Plans
  Number of securities to
    
    Weighted averagebe issued upon exercise
    
    exercise price of
    
    Number of securitiesof outstanding options,
    
    outstanding options,
    
    remaining availablePlan Category
    
    warrants and rights
    
    warrants and rights
    
    for future issuanceEquity compensation
plans approved by
stockholders
    
    
    6,296,304
    
    
    $
    2.00
    
    
    
    1,288,417Equity compensation
plans not approved
by stockholders
    
    
    
    
    
    
    
    
    
    
    6,296,304
    
    
    
    
    
    
    
    1,288,417
 Performance Graph
  
 Cumulative Total Return6/04
    
    6/05
    
    6/06
    
    6/07
    
    6/08
    
    6/09Continucare Corporation
    
    
    100.00
    
    
    
    127.60
    
    
    
    153.65
    
    
    
    160.94
    
    
    
    121.35
    
    
    
    121.35NYSE Amex Composite
    
    
    100.00
    
    
    
    131.88
    
    
    
    164.58
    
    
    
    205.93
    
    
    
    204.46
    
    
    
    151.95NASDAQ Health Services
    
    
    100.00
    
    
    
    125.34
    
    
    
    121.93
    
    
    
    135.51
    
    
    
    105.84
    
    
    
    85.29
 Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  20




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ITEM 6.
    
    SELECTED FINANCIAL DATA
  CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
 For the Year Ended June 30,2009
    
    2008
    
    2007
    
    2006
    
    2005Revenue
    
    $
    281,270,360
    
    
    $
    254,440,048
    
    
    $
    217,146,287
    
    
    $
    132,990,912
    
    
    $
    112,231,113Operating expenses:Medical services:Medical claims
    
    
    199,167,856
    
    
    
    181,097,183
    
    
    
    161,153,828
    
    
    
    97,781,447
    
    
    
    81,104,665Other direct costs
    
    
    28,456,121
    
    
    
    26,942,472
    
    
    
    22,919,746
    
    
    
    13,137,396
    
    
    
    12,648,297Total medical services
    
    
    227,623,977
    
    
    
    208,039,655
    
    
    
    184,073,574
    
    
    
    110,918,843
    
    
    
    93,752,962Administrative payroll and employee benefits
    
    
    12,655,975
    
    
    
    12,119,139
    
    
    
    9,192,670
    
    
    
    6,538,295
    
    
    
    5,107,672General and administrative
    
    
    16,261,750
    
    
    
    16,413,801
    
    
    
    13,990,439
    
    
    
    7,584,205
    
    
    
    7,059,602Gain on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,000,000
    )Total operating expenses
    
    
    256,541,702
    
    
    
    236,572,595
    
    
    
    207,256,683
    
    
    
    125,041,343
    
    
    
    102,920,236Income from operations
    
    
    24,728,658
    
    
    
    17,867,453
    
    
    
    9,889,604
    
    
    
    7,949,569
    
    
    
    9,310,877Other income (expense):Interest income
    
    
    174,039
    
    
    
    602,826
    
    
    
    356,192
    
    
    
    331,001
    
    
    
    108,000Interest expense
    
    
    (21,255
    )
    
    
    (67,898
    )
    
    
    (49,746
    )
    
    
    (12,870
    )
    
    
    (702,946
    )Income before income tax provision (benefit)
    
    
    24,881,442
    
    
    
    18,402,381
    
    
    
    10,196,050
    
    
    
    8,267,700
    
    
    
    8,715,931Income tax provision (benefit)
    
    
    9,600,321
    
    
    
    7,132,727
    
    
    
    3,892,605
    
    
    
    2,930,161
    
    
    
    (7,175,561
    )Net income
    
    $
    15,281,121
    
    
    $
    11,269,654
    
    
    $
    6,303,445
    
    
    $
    5,337,539
    
    
    $
    15,891,492Net income per common share:Basic
    
    $
    .25
    
    
    $
    .16
    
    
    $
    .10
    
    
    $
    .11
    
    
    $
    .32Diluted
    
    $
    .24
    
    
    $
    .16
    
    
    $
    .10
    
    
    $
    .10
    
    
    $
    .31
 CONSOLIDATED BALANCE SHEET DATA:
 As of June 30,2009
    
    2008
    
    2007
    
    2006
    
    2005Total assets
    
    $
    125,303,386
    
    
    $
    118,490,304
    
    
    $
    116,937,548
    
    
    $
    41,994,347
    
    
    $
    34,137,935Long-term obligations, including current portion
    
    $
    204,985
    
    
    $
    196,379
    
    
    $
    331,319
    
    
    $
    195,819
    
    
    $
    107,710
 
 ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General
   21




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Medicare and Medicaid Considerations
      Critical Accounting Policies and Estimates
  Revenue Recognition
  22




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Medical Claims Expense Recognition
    Consideration of Impairment Related to Goodwill and Other Intangible Assets
    23




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Realization of Deferred Income Tax Assets
   Share-Based Payment
      24




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Results of Operations
  Year ended June 30,2009
    
    2008
    
    2007Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Medical services:Medical claims
    
    
    70.8
    
    
    
    71.2
    
    
    
    74.2Other direct costs
    
    
    10.1
    
    
    
    10.6
    
    
    
    10.6Total medical services
    
    
    80.9
    
    
    
    81.8
    
    
    
    84.8Administrative payroll and employee benefits
    
    
    4.5
    
    
    
    4.7
    
    
    
    4.2General and administrative
    
    
    5.8
    
    
    
    6.5
    
    
    
    6.4Total operating expenses
    
    
    91.2
    
    
    
    93.0
    
    
    
    95.4Income from operations
    
    
    8.8
    
    
    
    7.0
    
    
    
    4.6Other income (expense):Interest income
    
    
    
    
    
    
    0.2
    
    
    
    0.1Income before income tax provision
    
    
    8.8
    
    
    
    7.2
    
    
    
    4.7Income tax provision
    
    
    3.4
    
    
    
    2.8
    
    
    
    1.8Net income
    
    
    5.4
    %
    
    
    4.4
    %
    
    
    2.9
    %
 COMPARISON OF FISCAL YEAR ENDED JUNE 30, 2009 TO FISCAL YEAR ENDED JUNE 30, 2008
 Revenue
     Operating Expenses
  25




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Income from Operations
  Taxes
  Net Income
  COMPARISON OF FISCAL YEAR ENDED JUNE 30, 2008 TO FISCAL YEAR ENDED JUNE 30, 2007
 Revenue
   26




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Operating Expenses
      27




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Income from Operations
  Taxes
  Net Income
  Liquidity and Capital Resources
       28




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Off-Balance Sheet Arrangements
  Contractual Obligations
  Payment due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsCapital Lease Obligations (1)
    
    $
    208,935
    
    
    $
    130,695
    
    
    $
    78,240
    
    
    $
    
    
    
    $
    Operating Lease Obligations (1)
    
    
    5,363,311
    
    
    
    1,852,224
    
    
    
    2,167,701
    
    
    
    917,815
    
    
    
    425,571Total
    
    $
    5,572,246
    
    
    $
    1,982,919
    
    
    $
    2,245,941
    
    
    $
    917,815
    
    
    $
    425,571
 
 (1)
    
    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 4 to our Consolidated Financial Statements appearing elsewhere in this Annual
Report on Form 10-K to reconcile the payments shown above to the capital lease
obligations recorded in our Consolidated Balance Sheets. FORWARD-LOOKING STATEMENTS
  
    
    Our operations are dependent on three health maintenance organizations;
    
    Under our most important contracts we are responsible for the cost of medical
services to our patients in return for a capitated fee;
    
    Our revenues will be affected by the Medicare Risk Adjustment program;
    
    If we are unable to manage medical benefits expense effectively, our profitability
will likely be reduced;
    
    A failure to estimate incurred but not reported benefits expense accurately will
affect our profitability;
    
    We compete with many health care providers for patients and HMO affiliations;
    
    We may not be able to successfully recruit or retain existing relationships with
qualified physicians and medical professionals;
    
    Our business exposes us to the risk of medical malpractice lawsuits;
 29




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
    
    We primarily operate in Florida;
    
    A significant portion of our voting power is concentrated;
    
    We are dependent on our executive officers and other key employees;
    
    We depend on the management information systems of our affiliated HMOs;
    
    We depend on our information processing systems;
    
    Volatility of our stock price could adversely affect you;
    
    A failure to successfully implement our business strategy could materially and
adversely affect our operations and growth opportunities;
    
    Our intangible assets represent a substantial portion of our total assets;
    
    Competition for acquisition targets and acquisition financing and other factors may
impede our ability to acquire other businesses and may inhibit our growth;
    
    Our acquisitions could result in integration difficulties, unexpected expenses,
diversion of managements attention and other negative consequences;
    
    Health care reform initiatives, particularly changes to the Medicare system, could
adversely affect our operations;
    
    A decrease to our Medicare capitation payments may have a material adverse effect on
our results of operations, financial position and cash flows;
    
    We are subject to government regulation;
    
    The health care industry is subject to continued scrutiny;
    
    Our insurance coverage may not be adequate, and rising insurance premiums could
negatively affect our profitability;
    
    Deficit spending and economic downturns could negatively impact our results of
operations; and
    
    Many factors that increase health care costs are largely beyond our ability to
control.
 
 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
 Evaluation of Disclosure Controls and Procedures
   30




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Managements Annual Report on Internal Control Over Financial Reporting
  Changes in Internal Control over Financial Reporting
  Section 302 Certifications
  31




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Report of Independent Registered Public Accounting Firm
 
 -
    .
  /s/ Ernst & Young LLPCertified Public Accountants 
 
 ITEM 9B.
    
    OTHER INFORMATION
  
 PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  32




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ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES
  
 PART IV
 
 ITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES
      3.1
    
    Restated Articles of Incorporation, as amended (1)3.2
    
    Amended and Restated Bylaws (2)3.3
    
    First Amendment to the Amended and Restated Bylaws (18)4.1
    
    Form of certificate evidencing shares of Common Stock (1)4.2
    
    Registration Rights Agreement, dated as of October 30, 1997, by and
between Continucare Corporation and Loewenbaum & Company Incorporated (3)4.3
    
    Continucare Corporation Amended and Restated 1995 Stock Option Plan** (4)4.4
    
    Amended and Restated 2000 Stock Option Plan ** (19)4.5
    
    Convertible Subordinated Promissory Note (6)4.6
    
    Form of Convertible Promissory Note, dated June 30, 2001 (7)4.7
    
    Amendment to Convertible Promissory Note, dated March 31, 2003, between
Continucare Corporation and Frost Nevada Limited Partnership (7)4.8
    
    Form of Amendment to Convertible Promissory Note, dated March 31, 2003 (7)10.1
    
    Form of Stock Option Agreement**(8)
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##### Table of Contents



10.2
    
    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 (9)10.3
    
    Amended and Restated Primary Care Provider Services dated November 12,
2004, by and between Vista Healthplan of South Florida, Inc., Vista
Insurance Plan, Inc. and Continucare Medical Management, Inc. (10)10.4
    
    Airport Corporate Center office lease dated June 3, 2004, by and between
Miami RPFIV Airport Corporate Center Associates Limited Liability Company
and Continucare Corporation (11)10.5
    
    Agreement, dated March 31, 2003, between the Company and Pecks Management
Partners, Ltd. (7)10.6
    
    Agreement, dated March 31, 2003, between Continucare Corporation and
Carret & Company (7)10.7
    
    WCMA Loan and Security Agreement dated March 9, 2000 between Merrill
Lynch Business Financial Services, Inc. and Continucare Corporation (12)10.8
    
    Letter Agreement dated March 18, 2005 between Merrill Lynch Business
Financial Services, Inc. and Continucare Corporation (13)10.9
    
    Form of Promissory Note dated December 29, 2004 (14)10.10
    
    Letter Agreement between Continucare Corporation and Merrill Lynch
Business Financial Services, Inc. regarding amendment and extension of
Credit Facility (15)10.11
    
    Asset Purchase Agreement, dated as of May 10, 2006, among Continucare
Corporation, a Florida corporation, CNU Blue 1, Inc., a Florida
corporation and a wholly-owned subsidiary of CNU, CNU Blue2, LLC, a
Florida limited liability company and a wholly-owed subsidiary of Buyer,
Miami Dade Health and Rehabilitation Services, Inc., a Florida
corporation, Miami Dade Health Centers, Inc., a Florida corporation, West
Gables Open MRI Services, Inc., a Florida corporation, Kent Management
Systems, Inc., Pelu Properties, Inc., a Florida corporation, Peluca
Investments, LLC, a Florida limited liability company owned by the
Owners, and Miami Dade Health Centers One, Inc., a Florida corporation,
MDHC Red, Inc., a Florida corporation, and each of the shareholders of
each Seller identified therein. (16)10.12
    
    Integrated Delivery System Participation Agreement effective as of April
1, 1999 between MDHRS and Humana Medical Plan, Inc., as amended (17)10.13
    
    Management Services Agreement dated as of September 1, 2004 between MDHC
and Vista Healthplan, Inc., as amended (17)10.14
    
    WCMA Reducing Revolver Loan and Security Agreement dated September 26,
2006, between Continucare MDHC LLC and Merrill Lynch Business Financial
Services, Inc. (17)10.15
    
    WCMA Reducing Revolver Loan and Security Agreement dated September 26,
2006, between Continucare MDHC LLC and Merrill Lynch Business Financial
Services, Inc. (17)10.16
    
    Amendment of Credit Facility dated September 26, 2006, between
Continucare Corporation and Merrill Lynch Business Financial Services,
Inc. (17)10.17
    
    Independent Practice Association Participation Agreement dated as of
October 11, 2007 by and among Continucare Medical Management, Inc. and
Humana Insurance Company, Humana Health Insurance Company of Florida,
Inc., Humana Medical Plan, Inc. and their affiliates that underwrite or
administer health plans. (20)10.18
    
    Independent Practice Association Participation Agreement dated as of
October 11, 2007 by and among Continucare Medical Management, Inc. and
Humana Insurance Company, Humana Health Insurance Company of Florida,
Inc., Humana Medical Plan, Inc. and their affiliates that underwrite or
administer health plans. (20)10.19
    
    Independent Practice Association Participation Agreement dated as of
October 11, 2007 by and among Continucare Medical Management, Inc. and
Humana Insurance Company, Humana Health Insurance Company of Florida,
Inc., Humana Medical Plan, Inc. and their affiliates that underwrite or
administer health plans. (20)21.1
    
    Subsidiaries of the Company*23.1
    
    Consent of Independent Registered Public Accounting Firm *31.1
    
    Section 302 Certification of Chief Executive Officer *31.2
    
    Section 302 Certification of Chief Financial Officer *32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 *
 34




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##### Table of Contents



32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 *
  (1)
    
    Post Effective Amendment No. 1 to the Registration Statement on SB-2
on Form S-3 Registration Statement filed on October 29, 1996.(2)
    
    Form 8-K dated September 12, 2006, filed September 13, 2006.(3)
    
    Form 8-K dated October 30, 1997 and filed with the Commission on
November 13, 1997.(4)
    
    Schedule 14A dated December 26, 1997 and filed with the Commission on
December 30, 1997.(5)
    
    Schedule 14A dated January 8, 2007, filed January 8, 2007.(6)
    
    Form 8-K dated August 3, 2001, filed August 15, 2001.(7)
    
    Form 10-Q for the quarterly period ended March 31, 2003.(8)
    
    Form 10-Q for the quarterly period ended September 30, 2004.(9)
    
    Form 10-K for the fiscal year ended June 30, 2000.(10)
    
    Form 10-Q for the quarterly period ended December 31, 2004.(11)
    
    Form 10-K for the fiscal year ended June 30, 2004.(12)
    
    Form 10-Q for the quarterly period ended March 31, 2000.(13)
    
    Form 10-Q for the quarterly period ended March 31, 2005.(14)
    
    Form 8-K dated December 30, 2004, filed January 5, 2005.(15)
    
    Form 8-K dated March 8, 2006, and filed on March 10, 2006.(16)
    
    Form 8-K dated May 10, 2006 and filed on May 11, 2006.(17)
    
    Form 10-Q for the quarterly period ended September 30, 2006.(18)
    
    Form 8-K dated November 6, 2007 and filed November 7, 2007.(19)
    
    Form 10-K for the fiscal year ended June 30, 2007.(20)
    
    Form 8-K dated October 11, 2007 and filed on October 15, 2007.
 
 *
    
    Filed herewith**
    
    Management contract or compensatory plan or arrangement 35




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##### Table of Contents



SIGNATURES
  CONTINUCARE CORPORATIONBy:
    /s/ Richard C. Pfenniger, Jr.RICHARD C. PFENNIGER, JR.Chairman of the Board, Chief Executive Officer and President   SIGNATURE
    
    TITLE
    
    DATE/s/ Richard C. Pfenniger, Jr.

Richard C. Pfenniger, Jr.
    
    Chairman of the Board, Chief Executive
Officer, President and Director
(Principal Executive Officer)
    
    September 10, 2009/s/ Fernando L. Fernandez

Fernando L. Fernandez
    
    Senior Vice President  Finance, Chief
Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
    
    September 10, 2009/s/ Luis Cruz, M.D.

Luis Cruz, M.D.
    
    Vice Chairman of the Board and Director
    
    September 10, 2009/s/ Robert J. Cresci

Robert J. Cresci
    
    Director
    
    September 10, 2009/s/ Neil Flanzraich

Neil Flanzraich
    
    Director
    
    September 10, 2009/s/ Phillip Frost, M.D.

Phillip Frost, M.D.
    
    Director
    
    September 10, 2009/s/ Jacob Nudel, M.D.

Jacob Nudel, M.D.
    
    Director
    
    September 10, 2009/s/ Jacqueline Simkin

Jacqueline Simkin
    
    Director
    
    September 10, 2009/s/ A. Marvin Strait

A. Marvin Strait
    
    Director
    
    September 10, 2009
 36




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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS
 PAGEReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of June 30, 2009 and 2008
    
    
    F-3Consolidated Statements of Income for the years ended June 30, 2009, 2008 and 2007
    
    
    F-4Consolidated Statements of Shareholders Equity for the years ended
June 30, 2009, 2008 and 2007
    
    
    F-5Consolidated Statements of Cash Flows for the years ended June 30, 2009, 2008 and
2007
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-8
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     /s/ Ernst & Young LLPCertified Public Accountants 
 F-2




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##### Table of Contents



CONTINUCARE CORPORATION


CONSOLIDATED BALANCE SHEETS
 June 30,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    13,895,823
    
    
    $
    9,905,740Due from HMOs, net of a liability for
incurred but not reported medical claims
expense of approximately $23,719,000 and
$23,900,000 at June 30, 2009 and 2008,
respectively
    
    
    17,323,599
    
    
    
    15,325,783Prepaid expenses and other current assets
    
    
    812,970
    
    
    
    708,841Deferred income tax assets
    
    
    141,420
    
    
    
    413,932Total current assets
    
    
    32,173,812
    
    
    
    26,354,296Certificates of deposit, restricted
    
    
    1,233,653
    
    
    
    1,274,147Property and equipment, net
    
    
    10,489,383
    
    
    
    8,363,427Goodwill
    
    
    73,204,582
    
    
    
    73,204,582Intangible assets, net of accumulated
amortization of approximately $3,406,000 and
$2,168,000 at June 30, 2009 and 2008,
respectively
    
    
    5,253,666
    
    
    
    6,492,333Deferred income tax assets
    
    
    2,795,588
    
    
    
    2,574,472Other assets, net
    
    
    152,702
    
    
    
    227,047Total assets
    
    $
    125,303,386
    
    
    $
    118,490,304LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    652,305
    
    
    $
    402,718Accrued expenses and other current liabilities
    
    
    4,455,675
    
    
    
    4,458,119Income taxes payable
    
    
    1,575,511
    
    
    
    1,198,722Total current liabilities
    
    
    6,683,491
    
    
    
    6,059,559Deferred income tax liabilities
    
    
    6,435,732
    
    
    
    6,256,205Other liabilities
    
    
    981,640
    
    
    
    948,263Total liabilities
    
    
    14,100,863
    
    
    
    13,264,027Commitments and contingenciesShareholders equity:Common stock, $0.0001 par value: 100,000,000
shares authorized; 59,391,049 shares issued
and outstanding at June 30, 2009 and
64,796,303 shares issued and outstanding at
June 30, 2008
    
    
    5,939
    
    
    
    6,480Additional paid-in capital
    
    
    105,210,519
    
    
    
    114,514,853Accumulated earnings (deficit)
    
    
    5,986,065
    
    
    
    (9,295,056
    )Total shareholders equity
    
    
    111,202,523
    
    
    
    105,226,277Total liabilities and shareholders equity
    
    $
    125,303,386
    
    
    $
    118,490,304
 The accompanying notes are an integral part of these consolidated financial statements.
 F-3




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CONTINUCARE
CORPORATION


CONSOLIDATED STATEMENTS OF INCOME
 For the Year Ended June 30,2009
    
    
    2008
    
    
    2007Revenue
    
    $
    281,270,360
    
    
    $
    254,440,048
    
    
    $
    217,146,287Operating expenses:Medical services:Medical claims
    
    
    199,167,856
    
    
    
    181,097,183
    
    
    
    161,153,828Other direct costs
    
    
    28,456,121
    
    
    
    26,942,472
    
    
    
    22,919,746Total medical services
    
    
    227,623,977
    
    
    
    208,039,655
    
    
    
    184,073,574Administrative payroll and employee benefits
    
    
    12,655,975
    
    
    
    12,119,139
    
    
    
    9,192,670General and administrative
    
    
    16,261,750
    
    
    
    16,413,801
    
    
    
    13,990,439Total operating expenses
    
    
    256,541,702
    
    
    
    236,572,595
    
    
    
    207,256,683Income from operations
    
    
    24,728,658
    
    
    
    17,867,453
    
    
    
    9,889,604Other income (expense):Interest income
    
    
    174,039
    
    
    
    602,826
    
    
    
    356,192Interest expense
    
    
    (21,255
    )
    
    
    (67,898
    )
    
    
    (49,746
    )Income before income tax provision
    
    
    24,881,442
    
    
    
    18,402,381
    
    
    
    10,196,050Income tax provision
    
    
    9,600,321
    
    
    
    7,132,727
    
    
    
    3,892,605Net income
    
    $
    15,281,121
    
    
    $
    11,269,654
    
    
    $
    6,303,445Net income per common share:Basic
    
    $
    .25
    
    
    $
    .16
    
    
    $
    .10Diluted
    
    $
    .24
    
    
    $
    .16
    
    
    $
    .10Weighted average common shares outstanding:Basic
    
    
    61,405,620
    
    
    
    68,862,836
    
    
    
    65,044,319Diluted
    
    
    62,488,340
    
    
    
    70,007,760
    
    
    
    66,324,613
 The accompanying notes are an integral part of these consolidated financial statements.
 F-4




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CONTINUCARE CORPORATION


CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 Additional
    
    Accumulated
    
    TotalCommon Stock
    
    Paid-In
    
    Earnings
    
    ShareholdersShares
    
    Amount
    
    Capital
    
    (Deficit)
    
    EquityBalance at June 30, 2006
    
    
    50,242,478
    
    
    $
    5,024
    
    
    $
    63,838,051
    
    
    $
    (26,868,155
    )
    
    $
    36,974,920Recognition of compensation expense related to
issuance of stock options
    
    
    
    
    
    
    
    
    
    
    1,692,190
    
    
    
    
    
    
    
    1,692,190Excess tax benefits related to exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    523,964
    
    
    
    
    
    
    
    523,964Issuance of stock related to acquisition of MDHC
Companies
    
    
    19,735,858
    
    
    
    1,974
    
    
    
    58,502,594
    
    
    
    
    
    
    
    58,504,568Fees related to issuance of stock
    
    
    
    
    
    
    
    
    
    
    (44,402
    )
    
    
    
    
    
    
    (44,402
    )Issuance of stock upon exercise of stock options
    
    
    64,750
    
    
    
    6
    
    
    
    103,694
    
    
    
    
    
    
    
    103,700Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,303,445
    
    
    
    6,303,445Balance at June 30, 2007
    
    
    70,043,086
    
    
    
    7,004
    
    
    
    124,616,091
    
    
    
    (20,564,710
    )
    
    
    104,058,385Recognition of compensation expense related to
issuance of stock options
    
    
    
    
    
    
    
    
    
    
    1,332,786
    
    
    
    
    
    
    
    1,332,786Tax deficiency related to exercise of stock options
    
    
    
    
    
    
    
    
    
    
    (1,776
    )
    
    
    
    
    
    
    (1,776
    )Issuance of stock upon exercise of stock options
    
    
    83,750
    
    
    
    9
    
    
    
    64,366
    
    
    
    
    
    
    
    64,375Repurchase and retirement of common stock
    
    
    (5,330,533
    )
    
    
    (533
    )
    
    
    (11,451,614
    )
    
    
    
    
    
    
    (11,452,147
    )Fees related to issuance of stock
    
    
    
    
    
    
    
    
    
    
    (45,000
    )
    
    
    
    
    
    
    (45,000
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,269,654
    
    
    
    11,269,654Balance at June 30, 2008
    
    
    64,796,303
    
    
    
    6,480
    
    
    
    114,514,853
    
    
    
    (9,295,056
    )
    
    
    105,226,277Recognition of compensation expense related to
issuance of stock options
    
    
    
    
    
    
    
    
    
    
    1,163,472
    
    
    
    
    
    
    
    1,163,472Excess tax benefits related to exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    116,593
    
    
    
    
    
    
    
    116,593Issuance of stock upon exercise of stock options
    
    
    13,750
    
    
    
    1
    
    
    
    23,374
    
    
    
    
    
    
    
    23,375Repurchase and retirement of common stock
    
    
    (5,419,004
    )
    
    
    (542
    )
    
    
    (10,607,773
    )
    
    
    
    
    
    
    (10,608,315
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,281,121
    
    
    
    15,281,121Balance at June 30, 2009
    
    
    59,391,049
    
    
    $
    5,939
    
    
    $
    105,210,519
    
    
    $
    5,986,065
    
    
    $
    111,202,523
 The accompanying notes are an integral part of these consolidated financial statements.
 F-5




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##### Table of Contents



CONTINUCARE
CORPORATION   CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Year Ended June 30,2009
    
    
    2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    15,281,121
    
    
    $
    11,269,654
    
    
    $
    6,303,445Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    2,303,327
    
    
    
    2,507,535
    
    
    
    2,013,486Loss on impairment of fixed assets
    
    
    
    
    
    
    171,515
    
    
    
    Loss on disposal of fixed assets
    
    
    65,760
    
    
    
    
    
    
    
    35,924Provision for bad debts
    
    
    
    
    
    
    181,081
    
    
    
    165,181Compensation expense related to issuance of stock options
    
    
    1,163,472
    
    
    
    1,332,786
    
    
    
    1,692,190Excess tax benefits related to exercise of stock options
    
    
    (116,593
    )
    
    
    
    
    
    
    (523,964
    )Deferred income tax expense
    
    
    230,923
    
    
    
    (198,598
    )
    
    
    2,172,618Changes in operating assets and liabilities:Due from HMOs, net
    
    
    (1,997,816
    )
    
    
    (1,251,657
    )
    
    
    (1,803,016
    )Prepaid expenses and other current assets
    
    
    (104,129
    )
    
    
    676,782
    
    
    
    (870,957
    )Other assets
    
    
    42,735
    
    
    
    (128,743
    )
    
    
    151,360Accounts payable
    
    
    249,587
    
    
    
    (605,151
    )
    
    
    369,688Accrued expenses and other current liabilities
    
    
    (33,689
    )
    
    
    145,851
    
    
    
    (275,196
    )Income taxes payable
    
    
    549,398
    
    
    
    1,131,324
    
    
    
    1,419,894Net cash provided by operating activities
    
    
    17,634,096
    
    
    
    15,232,379
    
    
    
    10,850,653CASH FLOWS FROM INVESTING ACTIVITIESPurchases of certificates of deposit
    
    
    (682,948
    )
    
    
    (112,512
    )
    
    
    (49,648
    )Proceeds from sales of certificates of deposit
    
    
    723,442
    
    
    
    15,000
    
    
    
    Proceeds from sales of fixed assets
    
    
    
    
    
    
    
    
    
    
    70,000Acquisition of MDHC Companies, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (6,109,980
    )Purchase of property and equipment
    
    
    (3,100,935
    )
    
    
    (939,270
    )
    
    
    (894,325
    )Net cash used in investing activities
    
    
    (3,060,441
    )
    
    
    (1,036,782
    )
    
    
    (6,983,953
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from note payable
    
    
    
    
    
    
    
    
    
    
    1,813,317Repayments on note payable
    
    
    
    
    
    
    
    
    
    
    (1,813,317
    )Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    6,917,808Repayment on long-term debt
    
    
    
    
    
    
    (6,083
    )
    
    
    (14,690,960
    )Principal repayments under capital lease obligations
    
    
    (115,225
    )
    
    
    (113,249
    )
    
    
    (96,248
    )Proceeds from exercise of stock options
    
    
    23,375
    
    
    
    64,375
    
    
    
    103,700Excess tax benefits related to exercise of stock options
    
    
    116,593
    
    
    
    
    
    
    
    523,964Payment of fees related to issuance of stock
    
    
    
    
    
    
    (45,000
    )
    
    
    (44,402
    )Repurchase of common stock
    
    
    (10,608,315
    )
    
    
    (11,452,147
    )
    
    
    Net cash used in financing activities
    
    
    (10,583,572
    )
    
    
    (11,552,104
    )
    
    
    (7,286,138
    )Net increase (decrease) in cash and cash equivalents
    
    
    3,990,083
    
    
    
    2,643,493
    
    
    
    (3,419,438
    )Cash and cash equivalents at beginning of fiscal year
    
    
    9,905,740
    
    
    
    7,262,247
    
    
    
    10,681,685Cash and cash equivalents at end of fiscal year
    
    $
    13,895,823
    
    
    $
    9,905,740
    
    
    $
    7,262,247
 F-6




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##### Table of Contents



CONTINUCARE
CORPORATION   CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 For the Year Ended June 30,2009
    
    
    2008
    
    
    2007SUPPLEMENTAL DISCLOSURE OF
NONCASH INVESTING AND
FINANCING TRANSACTIONS:Purchase of equipment,
furniture and fixtures with
proceeds of capital lease
obligations
    
    $
    123,831
    
    
    $
    38,922
    
    
    $
    171,135Retirement of treasury stock
    
    $
    10,608,315
    
    
    $
    11,452,147
    
    
    $
    SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:Cash paid for taxes
    
    $
    8,820,000
    
    
    $
    6,200,000
    
    
    $
    306,000Cash paid for interest
    
    $
    16,255
    
    
    $
    20,898
    
    
    $
    49,746
 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
  Business
  NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Principles of Consolidation
  Accounting Estimates
  Fair Value of Financial Instruments
  Cash and Cash Equivalents
  F-8




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##### Table of Contents



Certificates of Deposit
  Due from HMOs
  Property and Equipment
  Goodwill and Other Intangible Assets
  st
  F-9




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##### Table of Contents



Share-Based Payment
  Earnings Per Share
  Revenue Recognition
      Medical Service Expense
   F-10




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##### Table of Contents



Stop-loss Insurance
  Recent Accounting Pronouncements
      F-11




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##### Table of Contents



Other Comprehensive Income
  Subsequent Events
  NOTE 3  ACQUISITION
    F-12




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##### Table of Contents



Year EndedJune 30, 2007Revenue
    
    $
    240,389,071Net income
    
    
    277,454Diluted earnings per share
    
    
    
  F-13




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##### Table of Contents



NOTE 4  PROPERTY AND EQUIPMENT
  EstimatedJune 30,
    
    
    Useful Lives2009
    
    
    2008
    
    
    (in years)Land
    
    $
    1,919,746
    
    
    $
    1,919,746
    
    
    
    Building and improvements
    
    
    4,754,375
    
    
    
    4,738,175
    
    
    
    40Construction in progress
    
    
    1,175,462
    
    
    
    119,829
    
    
    
    Vehicles
    
    
    724,479
    
    
    
    622,444
    
    
    
    5Furniture, fixtures and equipment
    
    
    5,028,440
    
    
    
    4,894,797
    
    
    
    3-5Furniture and equipment under capital lease
    
    
    474,389
    
    
    
    517,253
    
    
    
    3-5Leasehold improvements
    
    
    1,160,692
    
    
    
    267,526
    
    
    
    515,237,583
    
    
    
    13,079,770Less accumulated depreciation and amortization
    
    
    (4,748,200
    )
    
    
    (4,716,343
    )$
    10,489,383
    
    
    $
    8,363,427
     For the year ending June 30,2010
    
    $
    130,6952011
    
    
    63,4672012
    
    
    14,773208,935Less amount representing imputed interest
    
    
    3,950Present value of obligations under capital lease
    
    
    204,985Less current portion
    
    
    122,702Long-term capital lease obligations
    
    $
    82,283
  NOTE 5  DEBT
  F-14




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##### Table of Contents



NOTE 6  EARNINGS PER SHARE
  Year Ended June 30,2009
    
    2008
    
    2007Basic weighted average number of shares outstanding
    
    
    61,405,620
    
    
    
    68,862,836
    
    
    
    65,044,319Dilutive effect of stock options
    
    
    1,082,720
    
    
    
    1,144,924
    
    
    
    1,280,294Diluted weighted average number of shares outstanding
    
    
    62,488,340
    
    
    
    70,007,760
    
    
    
    66,324,613Not included in calculation of dilutive earnings per
share as impact is antidilutive:Stock options outstanding
    
    
    3,775,750
    
    
    
    2,998,250
    
    
    
    18,000Warrants
    
    
    
    
    
    
    
    
    
    
    760,000
 NOTE 7  SHARE-BASED PAYMENT
     F-15




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##### Table of Contents



Number
    
    
    Weighted Averageof Shares
    
    
    Exercise PriceOutstanding at beginning of the year
    
    
    5,373,804
    
    
    $
    1.95Granted
    
    
    1,017,500
    
    
    
    2.27Exercised
    
    
    (13,750
    )
    
    
    1.70Forfeited
    
    
    (48,750
    )
    
    
    2.55Expired
    
    
    (32,500
    )
    
    
    2.29Outstanding at end of the year
    
    
    6,296,304
    
    
    $
    2.00Exercisable at end of the year
    
    
    4,324,654Weighted
average fair value per share of options granted during the
year
    
    $
    1.04
   Options Outstanding
    
    Options ExercisableRange of
    
    
    
    
    
    Weighted
    
    Weighted Average
    
    
    
    
    
    Weighted
    
    Weighted AverageExercise
    
    Number
    
    Average
    
    Remaining
    
    Number
    
    Average
    
    RemainingPrices
    
    Outstanding
    
    Exercise Price
    
    Contractual Life
    
    Exercisable
    
    Exercise Price
    
    Contractual Life$0.66-$2.38
    
    
    3,383,054
    
    
    $
    1.48
    
    
    
    5.6
    
    
    
    2,516,804
    
    
    $
    1.18
    
    
    
    4.4$2.40-$3.57
    
    
    2,913,250
    
    
    $
    2.59
    
    
    
    7.1
    
    
    
    1,807,850
    
    
    $
    2.60
    
    
    
    6.9
   NOTE 8  INCOME TAXES
   F-16




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##### Table of Contents



Year Ended June 30,2009
    
    2008
    
    2007Current:Federal
    
    $
    8,199,853
    
    
    $
    6,408,183
    
    
    $
    1,425,993State
    
    
    1,158,154
    
    
    
    923,142
    
    
    
    293,994Total
    
    
    9,358,007
    
    
    
    7,331,325
    
    
    
    1,719,987Deferred:Federal
    
    
    181,483
    
    
    
    (171,415
    )
    
    
    1,897,669State
    
    
    60,831
    
    
    
    (27,183
    )
    
    
    274,949Total
    
    
    242,314
    
    
    
    (198,598
    )
    
    
    2,172,618Total income tax provision
    
    $
    9,600,321
    
    
    $
    7,132,727
    
    
    $
    3,892,605
  June 30,2009
    
    2008
    
    2007Deferred income tax assets:Bad debt and notes receivable reserve
    
    $
    
    
    
    $
    303,871
    
    
    $
    296,420Other
    
    
    75,573
    
    
    
    110,062
    
    
    
    434,225Impairment charge
    
    
    999,617
    
    
    
    1,256,398
    
    
    
    1,476,110Share-based compensation
    
    
    1,861,818
    
    
    
    1,318,073
    
    
    
    823,320Deferred income tax assets
    
    
    2,937,008
    
    
    
    2,988,404
    
    
    
    3,030,075Deferred income tax liabilities:Depreciable/amortizable assets
    
    
    (5,818,179
    )
    
    
    (5,638,652
    )
    
    
    (5,342,721
    )Basis difference in tangible assets
    
    
    (617,553
    )
    
    
    (617,553
    )
    
    
    (872,762
    )Deferred income tax liabilities
    
    
    (6,435,732
    )
    
    
    (6,256,205
    )
    
    
    (6,215,483
    )Net deferred income tax liabilities
    
    $
    (3,498,724
    )
    
    $
    (3,267,801
    )
    
    $
    (3,185,408
    )
   F-17




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##### Table of Contents



Year Ended June 30,2009
    
    2008
    
    2007Statutory federal rate
    
    
    35.00
    %
    
    
    35.00
    %
    
    
    34.00
    %State income taxes, net of federal income tax benefit
    
    
    3.58
    
    
    
    3.58
    
    
    
    3.63Goodwill and other non-deductible items
    
    
    0.01
    
    
    
    0.18
    
    
    
    0.55Effective tax rate
    
    
    38.59
    %
    
    
    38.76
    %
    
    
    38.18
    %
 NOTE 9  SHARE REPURCHASE PROGRAM
  NOTE 10  EMPLOYEE BENEFIT PLAN
   NOTE 11  COMMITMENTS AND CONTINGENCIES
 Legal Proceedings
  F-18




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##### Table of Contents



Leases
   2010
    
    $
    1,852,2242011
    
    
    1,446,6032012
    
    
    721,0982013
    
    
    431,7012014 and thereafter
    
    
    911,685Total
    
    $
    5,363,311
 NOTE 12  VALUATION AND QUALIFYING ACCOUNTS
  Year ended June 30,2009
    
    2008
    
    2007Allowance for doubtful accounts related to
accounts and other receivables:Balance at beginning of period
    
    $
    783,741
    
    
    $
    802,239
    
    
    $
    798,257Provision for doubtful accounts
    
    
    
    
    
    
    181,081
    
    
    
    165,181Write-offs of uncollectible accounts receivable
    
    
    (783,741
    )
    
    
    (199,579
    )
    
    
    (161,199
    )Balance at end of period
    
    $
    
    
    
    $
    783,741
    
    
    $
    802,239
 NOTE 13  RELATED PARTY TRANSACTIONS
     F-19




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##### Table of Contents



NOTE 14  QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
 For the Year Ended June 30, 2009First
    
    
    
    
    
    
    Third
    
    
    
    
    
    FullQuarter
    
    
    Second Quarter
    
    Quarter
    
    Fourth Quarter
    
    YearTotal revenue
    
    $
    65,064,634
    
    
    $
    65,539,894
    
    
    $
    75,395,799
    
    
    $
    75,270,033
    
    
    $
    281,270,360Net income
    
    $
    2,496,132
    
    
    $
    3,659,810
    
    
    $
    4,326,503
    
    
    $
    4,798,676
    
    
    $
    15,281,121Net income per common share:Basic
    
    $
    .04
    
    
    $
    .06
    
    
    $
    .07
    
    
    $
    .08
    
    
    $
    .25Diluted
    
    $
    .04
    
    
    $
    .06
    
    
    $
    .07
    
    
    $
    .08
    
    
    $
    .24For the Year Ended June 30, 2008First
    
    
    
    
    
    Third
    
    
    
    
    
    FullQuarter
    
    Second Quarter
    
    Quarter
    
    Fourth Quarter
    
    YearTotal revenue
    
    $
    60,922,664
    
    
    $
    61,485,447
    
    
    $
    65,936,165
    
    
    $
    66,095,772
    
    
    $
    254,440,048Net income
    
    $
    1,921,500
    
    
    $
    2,511,685
    
    
    $
    3,675,501
    
    
    $
    3,160,968
    
    
    $
    11,269,654Basic and
diluted net income per
common share
    
    $
    .03
    
    
    $
    .04
    
    
    $
    .05
    
    
    $
    .05
    
    
    $
    .16
  F-20




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##### Table of Contents



EXHIBIT INDEX
 ExhibitDescription
    
    NumberSubsidiaries of the Company
    
    
    21.1Consent of Independent Registered Public Accounting Firm
    
    
    23.1Section 302 Certification of Chief Executive Officer
    
    
    31.1Section 302 Certification of Chief Financial Officer
    
    
    31.2Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
    
    
    32.1Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
    
    
    32.2