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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, 2002


OR

|[  ] |  | 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 |  | (I.R.S. Employer   
|Incorporation or organization)  |  | 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 [   ]

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. [   ]

Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant at September 23, 2002 (computed by reference
to the last reported sale price of the registrants Common Stock on the
American Stock Exchange on such date): $5,660,844.

Number of shares outstanding of each of the registrants classes of Common
Stock at September 23, 2002: 40,434,601 shares of Common Stock, $.0001 par
value per share.



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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 2003 refers to fiscal year ending June 30, 2003, Fiscal 2002
refers to fiscal year ending June 30, 2002, Fiscal 2001 refers to fiscal year
ending June 30, 2001 and Fiscal 2000 refers to fiscal year ending June 30,
2000.

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 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;                                         
|
| |  |  | our ability to establish relationships and expand into new geographic markets; and                                                                                  
|
| |  |  | our ability to restructure any of our debt or current liabilities.                                                                                                  

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;                                                                                         
|
| |  |  | 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 expand into other counties;                                                                              
|
| |  |  | the collection of our home health agencies Medicare claims 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, 2002 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 2003. At June 30, 2002, our working capital deficit was
approximately $7,587,000, our total indebtedness accounted for approximately
91% of our total capitalization and we had approximately $2.3 million
outstanding under our credit facility. Our cash flow from operations in Fiscal
2002 was not sufficient to satisfy our debt obligations as they became due,
including payments on various notes payable, and fund our capital expenditures.
We funded our cash deficit in Fiscal 2002 from our credit facility. However,
on August 7, 2002, we drew down the remaining available balance under the
credit facility. The credit facility matures on March 31, 2003. We obtained
this credit facility in Fiscal 2000 based on the personal guarantees of Dr.
Phillip Frost and an entity controlled by Charles Fernandez, former members of
our board of directors, (collectively, the Guarantors). Their guarantee is
effective through the March 31, 2003 maturity date. Based on our current cash
flow projections, it appears unlikely that we will have sufficient funds
available to fully repay the credit facility by March 31, 2003. While we
intend to either extend or replace the credit facility, either in whole or in
part, uncertainty exists as to whether we will be able to extend or replace the
credit facility without either the Guarantors extending their guarantees or
other individuals providing a personal guarantee. If personal guarantees are
required, there can be no assurance that we 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 us.

In Fiscal 2000, we instituted a series of measures intended to reduce
losses incurred in prior years and to operate our core business model
profitably. In spite of the measures instituted in Fiscal 2000, we began to
experience a deterioration in our claims loss ratio in the first and second
quarters of Fiscal 2001 and again in the first and second quarters of Fiscal
2002, which resulted in operating losses and negative cash flow from
operations. Additionally, the impact of the deterioration of the claims loss
ratio did not allow us to reverse a significant working capital deficiency
which originated in prior years. Negative changes in the claims loss ratio,
such as we experienced in Fiscal 2001 and 2002, are due to increases in the
utilization of health services as well as increases in medical costs without
counterbalancing increases in premium revenues from the HMOs. See Our
Percentage of Premium Contracts Require Us to Assume the Responsibility of
Providing Medical Care to our Managed Care Patients. If we should experience
a deterioration in our claims loss ratio in the first two quarters of Fiscal
2003 that, compounded by the lack of availability of additional financing
through our credit facility and the need to make annual payments for our
medical malpractice insurance which are due in the first and second quarters of
Fiscal 2003, we will experience 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 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 Percentage of Premium 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 Foundation Health Corporation
Affiliates and Humana Medical Plans, Inc. (collectively, the HMOs). Under
these agreements we receive 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. In exchange for our
revenue under these POP contracts, we assume the responsibility for the
provision of medical services for 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

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revenue to a large extent is determined by the premiums that CMS pays to the
HMOs. For the past two years, CMS
has increased its premiums by approximately 2% each January 1st. There
can be no assurance that CMS will maintain its premiums at the current level or
continue to increase its premiums each year. While CMS has implemented annual
2% increases, the cost of providing health care services, including
prescription drugs, has increased approximately 7% to 10% per year on a
national average. The HMOs have responded to the inadequacy of the Medicare
rate increases by 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. The HMOs benefit changes have historically gone
into effect on January 1st of each year. There can be no assurances that any
such benefit changes will be implemented in January 2003 or that benefit
changes, if any, will be sufficient to offset the increasing cost of providing
health care services. The HMOs contracts with hospitals and medical
specialists provide some protection from these cost increases, but are subject
to renegotiation and may be renegotiated on unfavorable terms. 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 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
2002, we have focused on strengthening our core business unit by enhancing the
services provided to members, strengthening our medical management capabilities
and improving our physician network. We continue to focus on streamlining our
operations and implementing measures to contain the rising costs of providing
heath services. However, 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 members require more frequent or extensive
care, our operating margins may be reduced and, in certain cases, the revenue
derived from our POP contracts 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, POP agreements in which the
provider bears the risk are regulated under state insurance laws. The degree to
which these POP 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 POP agreements for our
affiliated physicians when those POP 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

In Fiscal 2002, we generated approximately 29% of our net medical services
revenue from contracts with Foundation Health Corporation Affiliates
(Foundation) and approximately 67% of our net medical services revenue from
contracts with Humana Medical Plans, Inc. (Humana).

Our ability to expand is dependent in part on increasing the number of
managed care patients served by our staff model clinics, primarily through
negotiating additional and renewing existing contracts with managed care
organizations. Our managed care agreements with Foundation are ten-year
agreements with the initial terms expiring on June 30, 2008, unless terminated
earlier for cause. We
have the right to terminate unprofitable physicians and close unprofitable
centers under our managed care agreements with Foundation.
In the event of termination of the Foundation agreements, 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. Our managed care agreements with Humana are ten-year
agreements expiring July 31, 2008, unless terminated earlier for cause. The
agreements automatically renew 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 agreements may be terminated by the mutual consent of both parties at
any time. Under certain limited circumstances, Humana may immediately terminate
the agreements for cause, otherwise termination for cause shall require ninety
(90) days prior written notice with an opportunity to cure. In the event of
termination of the Humana agreements, we must continue to

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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 agreements, 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 our managed care agreements with Humana. 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 affiliated
physicians. The loss of any of these contracts or significant reductions in
reimbursement rates under these contracts could have a material adverse effect
on our business, financial condition and results of operations.

Our Intangible Assets Represent a Substantial Portion of Our Total Assets

As of June 30, 2002, intangible assets, which include goodwill and other
separately identifiable intangible assets, represented approximately 80% 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, 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. 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 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, 2002 and determined that no impairment
existed. Accordingly, no impairment charges were required at June 30, 2002.
If we are required to perform an impairment test, either as a result of the
occurrence of an indicator of permanent impairment such as those noted above or
for our annual impairment test, at such time when the market value of our
common stock is significantly below its current level, there is a risk that a
portion of our intangible assets would be considered impaired and, if so, would
require a write-off of the impaired portion of our intangible assets. 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 11 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

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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 events of September 11, 2001, coupled with national
malpractice award trends, 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 action, we anticipate
the cost of our director and officer insurance policy will also increase in
Fiscal 2003. We also maintain stop-loss insurance. Our stop-loss premium is
based on a cost per member. In the fourth quarter of Fiscal 2002, we
experienced an increase of approximately $60 per member per month in the cost
of our stop-loss insurance provided by Foundation, which will materially
increase our medical claims costs in Fiscal 2003. 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.

We are Not in Compliance with the Repayment Terms of a Contract Modification
Note with an HMO

At June 30, 2001 and 2002, we were not in compliance with the repayment
terms of a contract modification note. The balance of approximately $3,800,000
outstanding at June 30, 2002 has been classified as a current liability in our
consolidated financial statements. While no such action has occurred, the HMO
could pursue legal action to enforce their claim against us for repayment of
this note. We are currently in negotiation with the HMO to restructure this
indebtedness. However, there can be no assurance that we will be able to
complete this restructuring on terms acceptable to us or that the HMO will not
assert a claim against us.

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. 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
two of our three 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 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.

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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 2002, 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, we will
be subject to a 15% reduction to the cost limits and per-patient limits that
were in place as of September 30, 1999 as a result of the Balanced Budget Act
of 1997. Once in effect, this legislation will negatively impact our home
health Medicare reimbursement. In addition, future changes in reimbursement
rates could have a material adverse effect on our business, financial condition
or results of operations.

For cost reporting 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 provided by a HHA must be billed by the HHA, and outside
suppliers may not bill the Medicare program directly for services provided by
the supplier under arrangements with the HHA. Instead, the HHA must provide
most home health services 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 may be greater than the reimbursement provided by
the Medicare program, especially if Medicare reimbursement decreases but the
cost of such services 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. 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.

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Future Legislation and Retroactive Adjustments 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 Medicare+Choice plans which would have a material
adverse effect on our business and results of operations. However, it is
unclear as this time if a prescription drug coverage will be established as a
result of the Congressional debates.

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. See Managements Discussion and Analysis of Financial Condition and
Results of Operations and Notes 5 and 11 of our Consolidated Financial
Statements regarding overpayments that have been assessed against us.

Increased 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 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 regarding 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, 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. In addition to criminal
penalties, including fines of up to $25,000 and five (5) years imprisonment,
violations of the Anti-Kickback Law can lead to civil monetary penalties of up
to $50,000 for each violation, plus up to treble damages, and exclusion from
Medicare, Medicaid and certain other state and federal health care programs.
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

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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.

On January 4, 2001, HHS issued part one of final regulations interpreting
the Stark Law, which became 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 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 August 9,
2002 and become effective April 14, 2003. In addition, regulations with
respect to the transmission of protected health information become effective
October 16, 2002 and 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 is October 2002, we may apply for an
extension to October 2003 by submitting a compliance extension plan to the
Department of Health and Human Services before October 16, 2002. We intend to
file for the extension. A third set of regulations, which have not yet been
finalized, will establish minimum security requirements to protect health
information. 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

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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 are reviewing the regulations and implementing
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. 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.

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.

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.

Our Operations are Concentrated in Florida

All of our medical services revenue in Fiscal 2002 were derived from our
operations in Florida. We anticipate that in Fiscal 2003 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 are Dependent on Physicians

A significant portion of our revenue is derived under our managed care
contracts. Revenue derived under capitated managed care contracts depends on
the continued participation of physicians providing medical services to
patients of the managed care companies and independent physicians contracting
with us to participate in provider networks which are developed or managed by
us. Physicians can typically terminate their agreements to provide medical
services under managed care contracts by providing notice of such termination
to the payor. Termination of these agreements by physicians may result in
termination by the payor of a managed care contract between the payor and us.
Any material loss of physicians, whether as a result of the loss of network
physicians or the termination of managed care contracts resulting from the loss
of network physicians or otherwise, could have a material adverse effect on our
business, results of operations, prospects, financial results, financial
condition or cash flows. We compete with general acute care hospitals and other
healthcare providers for the services of medical

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professionals. Demand for such
medical professionals is high and such professionals often receive competing
offers. No assurance can be given that we will be able to continue to recruit
and retain a sufficient number of qualified medical professionals. The
inability to successfully recruit and retain medical professionals could
adversely affect our ability to successfully implement our business strategy.
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 50% of our outstanding common stock as of September 23, 2002,
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 of us 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.

We Face Competition in our Business

The healthcare industry is highly competitive. We compete with several
national competitors and 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 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.

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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 Division, through various managed care agreements and
POP arrangements, is responsible for providing primary care medical services
(the Primary Care Services) to approximately 18,300 patients at June 30,
2002. The various managed care agreements and POP arrangements under which we
provide medical services to our patients require that in exchange for a
percentage of premium that is paid by or on behalf of our patients we assume
responsibility to provide and pay for all of our patients medical needs. Our
Home Health Division provides home healthcare services to recovering, disabled,
chronically ill and terminally ill patients in their homes.

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 the managed care 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 response to escalating
expenditures in healthcare costs, payors, such as Medicare and managed care
organizations, have increasingly pressured physicians, hospitals and other
providers to contain costs. This pressure has led to the growth of lower cost
outpatient care, and 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 fixed amount per patient for a given patient
population, and the providers assume responsibility for servicing all of the
healthcare services needs of those patients, regardless of their condition. We
believe that low cost providers will succeed in the POP environment because
such companies have the ability to manage the cost of patient care.

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 services providers, including
physicians, hospitals and ancillary services 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, which should make us a provider of choice to managed care
organizations.

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; and (iii) preferences among patients to
receive care in their

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homes. 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) maintaining and expanding the Home Healthcare Division.

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 our many locations.

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 of our IPAs that continue to operate
unprofitably; and/or (iii) hiring physicians to work in our company-owned
physician practices and clinics.

Maintaining and Expanding the Home Healthcare Division. 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. We continue to streamline our
Home Healthcare Division and intend to selectively expand this division into
additional markets, primarily within Florida. At June 30, 2002, we operated
four HHAs in South Florida.

Business Model

Our core business model consists of three areas: staff model clinics, IPAs
and HHAs. We provide these 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 by 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 a percentage of premium
monthly fee arrangement with an HMO or on a fee for service basis. The monthly
fee arrangement is based upon a negotiated percentage of premium which is
related to either Medicare, Medicaid or a commercial medical insurance program.

IPAs.We have contracted with various physicians and physician practices,
on an independent contractor basis, who currently provide or are qualified to
provide medical services to our IPA members. We pay the physicians a capitated
fee for providing the services and assume a portion of the financial risk for
the physicians performance related to our IPA members. In addition to
providing certain administrative services to the physicians, we also provide
utilization assistance. Like the staff model clinics, the monthly fee
arrangement is based upon a negotiated percentage of premium, which is related
to either Medicare, Medicaid or a commercial medical insurance program.

Home Health Agencies. Our home health services include four HHAs, two
located in Miami-Dade county and two located in Broward county. These agencies
provide comprehensive nursing, physical therapy, and nurses 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 two agencies are private license HHAs.

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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 operated fifteen staff model
health center clinics, employed or contracted with approximately 70 physicians
all of whom are located in Florida and provided services to approximately
18,300 patients at June 30, 2002.

The physicians within our network treat patients in office-based settings
as well as health centers. A typical office-based practice is located in a
major metropolitan area, in 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 located in or near major metropolitan areas, in 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 the patient may require around-the-clock care. 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.

Employment and Recruiting of Physicians. We generally enter into
multiple-year employment agreements that contain 90-day termination clauses
with the physicians in the practices we purchase. 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 incorporating a number of
credentialing and competency assurance protocols. Our physicians are generally
either board certified or board eligible.

Contract Negotiations. We assist our physicians in obtaining managed care
contracts. 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. We have upgraded these
information systems as necessary during Fiscal 2002. Although we are not
currently aware of any pending additional technological developments that will
likely require additional upgrades, there is no assurance that such
developments will not occur.

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Managed Care

Our strategy is to increase enrollment by adding new payor relationships
and new providers to the existing network and 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 2002, substantially all of the revenues from the Managed Care Division
were generated under a percentage of premium 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, the physicians 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 2002, we generated approximately 29% of our net
medical services revenue from Foundation and approximately 67% 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 agreements with Foundation are ten-year agreements
with the initial term expiring on June 30, 2008, unless terminated earlier by
Foundation for cause. In the event of termination of the Foundation agreements,
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. The agreements are automatically renewed for another
five-year period unless notice by either party is provided 120 days in advance
of the expiration date. Any negotiation must be completed 90 days prior to the
expiration of the term. Although Foundation can terminate the agreements with
respect to one or more benefit programs, we may only terminate the agreements
in their entirety. However, we have the right to terminate unprofitable
physicians and close unprofitable centers. Foundation may also terminate its
agreements with us for cause upon thirty (30) days written notice of a material
breach; provided however, that we are afforded an opportunity to cure such
breach. However, if the breach is one that cannot reasonably be corrected
within thirty (30) days, the agreements will not be terminated if Foundation
determines that we are making substantial and diligent progress toward
correcting the breach. Foundation may also, in a limited number of
circumstances, immediately terminate its agreements with us. Immediate
termination is allowable upon: (1) our documented violation of any applicable
law, rule or regulation; (2) our documented failure to assist Foundation in
upholding the terms, conditions or determinations of any Utilization Management
Program or Quality Management Program or other Benefit Program Requirements; or
(3) Foundations determination that the health, safety or welfare of any member
may be in jeopardy if the Agreement is not terminated. Foundation may also
terminate the agreements, effective the first day of the following month, upon
at least three (3) business days written notice prior to the end of the month,
notifying us of our failure to pay any capitation payment which we have
received from Foundation, either to the applicable provider or back to
Foundation, during the period between our receipt of the compensation from
Foundation and the last business day of the same month. Under the Foundation
agreements, Foundation may, subject to our mutual agreement, amend the Medicare
compensation rates under the contract with us upon thirty (30) days written
notice. For all other purposes, Foundation may upon twenty (20) days written
notice amend the contracts, provided that we do not object to the amendment
within that time frame.

Effective March 31, 2001, we negotiated an amendment to our professional
provider agreement with Foundation (the 2001 Amendment). The 2001 Amendment
eliminated the medical claims liability incurred by the IPA through March 31,
2001 and reduced other liabilities to Foundation 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 IPAs membership at that time.

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Our POP managed care agreements with Humana are ten-year agreements
expiring July 31, 2008, unless terminated earlier for cause. The agreements
shall automatically renew for subsequent one-year terms unless either party
provides 180-days written notice of its intent not to renew. In addition, the
Humana agreements 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 agreements for cause, otherwise termination for cause
shall require ninety (90) days prior written notice with an opportunity to
cure, if possible. Immediate termination is allowable if Humana reasonably
determines that: (1) we and/or any of our physicians continued participation
in the agreements may affect adversely the health, safety or welfare of any
Humana member; (2) we and/or any of our physicians continued participation in
the agreements may bring Humana or its health care networks into disrepute; (3)
in the event of one of our doctors death or incompetence; (4) if any of our
physicians fail to meet Humanas credentialing criteria; (5) if we engage in or
acquiesce to any act of bankruptcy, receivership or reorganization; or (6) 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 agreements, 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 agreements, 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 agreements upon thirty (30) days
written notice, we may object to such amendment within the thirty (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 agreements upon ninety (90) days written notice.

Effective August 1, 1998, we entered into two amendments to our
professional provider agreements with Humana. 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.

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

As of June 30, 2002, we had one additional managed care contract under
which we provided care for approximately 475 patients at June 30, 2002 on a
non-risk basis.

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 2002, 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.

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Competition

The healthcare industry is highly competitive. We compete with several
national competitors and 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, 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. In addition to criminal
penalties, including fines of up to $25,000 and five (5) years imprisonment,
violations of the Anti-Kickback Law can lead to civil monetary penalties
(which, pursuant to the BBA, can amount to as much as $50,000 for each
violation, plus up to treble damages, based on the remuneration illegally
offered, paid, received or solicited) and exclusion from Medicare, Medicaid and
certain other state and federal health care programs. 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

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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.

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 August 9,
2002 and become effective April 14, 2003. In addition, regulations with
respect to the transmission of protected health information become effective
October 16, 2002 and 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 is October 2002, we may apply for an
extension to October 2003 by submitting a compliance extension plan to the
Department of Health and Human Services before October 16, 2002. We intend to
file for the extension. A third set of regulations, which have not yet been
finalized, will establish minimum security requirements to protect health
information. 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 are reviewing the regulations and implementing 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

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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.

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, 2002, we employed or contracted with approximately 330
individuals of whom approximately 70 are IPA and staff model physicians. We do
not have any collective bargaining agreements with any unions and believe that
our overall relations with our employees are good.

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 the events of September 11, 2001, coupled with
national malpractice award trends, 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 action,
we anticipate the cost of our director and officer insurance policy will also
increase in Fiscal 2003. 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 2002 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 2003 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, 2002, four are leased from
independent landlords and the other eleven clinics are leased from Humana. The
eleven 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 currently 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

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the option of the landlord, without cause, in a manner which
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.

ITEM 3. LEGAL PROCEEDINGS

We settled the case of CONTINUCARE CORPORATION, A FLORIDA CORPORATION,
CONTINUCARE PHYSICIAN PRACTICE MANAGEMENT, INC. (CPPM), v. JAY A. ZISKIND, AN
INDIVIDUAL, KENNETH I. ARVIN, AN INDIVIDUAL, TRACY ARVIN, AN INDIVIDUAL,
ZISKIND & ARVIN, P.A., A PROFESSIONAL ASSOCIATION, NORMAN B. GAYLIS, M.D., AN
INDIVIDUAL AND ZAG GROUP, INC., A FLORIDA CORPORATION (COLLECTIVELY ZAG). As
part of the settlement, we released all existing restrictions on 575,000 shares
of common stock previously delivered in accordance with the Agreement and Plan
of Merger and Registration Rights Agreement, dated September 18, 1998 and
issued an additional 175,000 shares of our common stock to the shareholders of
ZAG. Additionally, all parties executed mutual general releases.

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 have 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 have also asserted a right to reimbursement of certain
attorneys fees. As of the date of this filing, the court has not scheduled a
date for a hearing to address these matters.

Two of our subsidiaries are 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. The complaint alleges
vicarious liability for medical malpractice and seeks damages in excess of
$15,000. We filed our answer on May 3, 2000. Discovery is still proceeding.
We have made a demand for assumption of defense and indemnification from Kahn
and Riskin, M.D., P.A. and Wayne Riskin, M.D. The demand was initially
rejected, but is currently being re-evaluated. We have been discussing apportionment
of responsibility with the insurance carriers for Kahn and
Riskin, M.D. We intend to defend this case vigorously.

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. 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

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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. 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 relates 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 the 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 cost report year (the Memorandum)
and recorded an approximately $2,441,000 Provision for Medicare Settlement
Related to Terminated Operations during the quarter ended March 31, 2002.
Under this Memorandum, we will make monthly payments of $10,000 for 24 months
with the balance of the Memorandum due at the end of the term. We have
retained the right to dispute the Alleged Overpayments and continue to review
and evaluate all information available to determine the validity of CMS
claims. During September 2002, we have requested a reopening of the cost
reports and supplied various documentation for cost report years 1996 and 1997
to demonstrate that the Alleged Overpayments are incorrect. At June 30, 2002,
the accrual for all Alleged Overpayments was approximately $2,773,000, of which
approximately $251,000 was reflected in current liabilities.

In Fiscal 1999, we closed or dissolved certain subsidiaries, some of which
had pending claims against them. The liability associated with these closed or
dissolved subsidiaries was approximately $749,000 at June 30, 2001. During
Fiscal 2002, we settled the majority of this liability for $25,000 and
determined that the remaining balance of the liability had been resolved in a
prior year. Accordingly, $724,000 of the liability was reversed and included
as a reduction of General and Administrative Expenses during Fiscal 2002.

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

No matters were submitted to a vote of security holders during the fourth
quarter of Fiscal 2002.

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.

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|                 |                |      |   |      |  |  |   |  |  |  |  |    | 
|---------------- | -------------- | ---- | - | ---- |  |  | - |  |  |  |  | -- | 
|PRICE PERIOD     |                | HIGH |   | LOW 
|                 |                |      |   |     
|Fiscal Year 2001 |                |      |   |      |  |  |   |  |  |  |  |   
|                 | First Quarter  |      | $ | .94  |  |  | $ |  |  |  |  | 50 | 
|                 | Second Quarter |      |   | .69  |  |  |   |  |  |  |  | 25 | 
|                 | Third Quarter  |      |   | .50  |  |  |   |  |  |  |  | 27 | 
|                 | Fourth Quarter |      |   | .40  |  |  |   |  |  |  |  | 15 | 
|Fiscal Year 2002 |                |      |   |      |  |  |   |  |  |  |  |   
|                 | First Quarter  |      | $ | 1.00 |  |  | $ |  |  |  |  | 27 | 
|                 | Second Quarter |      |   | .82  |  |  |   |  |  |  |  | 28 | 
|                 | Third Quarter  |      |   | .54  |  |  |   |  |  |  |  | 27 | 
|                 | Fourth Quarter |      |   | .50  |  |  |   |  |  |  |  | 19 | 

As of September 23, 2002, there were 123 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.

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Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information as of June 30, 2002, with respect
to all of our compensation plans under which equity securities are authorized
for issuance:

|                                   |  |                         |           |                      |  |                      |      |  |  |  |           | 
|---------------------------------- |  | ----------------------- | --------- | -------------------- |  | -------------------- | ---- |  |  |  | --------- | 
|                                   |  | Number of securities to |           | Weighted average     |  |                      |      | 
|                                   |  | be issued upon exercise |           | exercise price of    |  | Number of securities
|                                   |  | of outstanding options, |           | outstanding options, |  | remaining available 
|Plan Category                      |  | warrants and rights     |           | warrants and rights  |  | for future issuance 
|                                   |  |                         |           |                      |  |                     
|Plans approved by stockholders     |  |                         | 2,316,000 |                      |  | $                    | 1.29 |  |  |  | 4,084,000 | 
|Plans not approved by
stockholders |  |                         |          |                      |  |                      |     |  |  |  |          | 
|                                   |  |                         |           |                      |  |                      |      |  |  |  |           | 
|                                   |  |                         | 2,316,000 |                      |  |                      |      |  |  |  | 4,084,000 | 
|                                   |  |                         |           |                      |  |                      |      |  |  |  |           | 

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, 2002. The selected historical
consolidated financial data for the three fiscal years ended June 30, 2002,
2001, and 2000, 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,
|                                                 |                                                                    |                                |                                                 |             |   |                            
|                                                 |                                                                    |                                |                                                 |             |   | 2002                        |             | 2001        |            | 2000       |             | 1999        |             | 1998      
|                                                 |                                                                    |                                |                                                 |             |   |                             |             |             |            |            |             |             |             |           
|OPERATIONS                                       |                                                                    |                                |                                                 |             |   |                             |             |             |            |            |             |             |             |            |             |             |          |             |             |           
|                                                 | Medical services revenue, net                                      |                                | $                                               | 105,539,288 |   |                             | $           | 112,607,916 |            |            | $           | 116,582,895 |             |            | $           | 182,526,752 |          |             | $           | 65,584,293 |  
|                                                 | Other income                                                       |                                |                                                 | 150,000     |   |                             |             |            |            |            |             |            |             |            |             |            |          |             |             |           |  
|                                                 |                                                                    |                                |                                                 |             |   |                             |             |             |            |            |             |             |             |            |             |             |          |             |             |           
|                                                 |                                                                    |                                |                                                 | Subtotal    |   |                             | 105,689,288 |             |            |            | 112,607,916 |             |             |            | 116,582,895 |             |          |             | 182,526,752 |            |   |            | 65,584,293 | 
|                                                 | Expenses                                                           |                                |                                                 |             |   |                             |             |             |            |            |             |             |             |            |             |             |          |             |             |            |  
|                                                 |                                                                    |                                | Medical services                                |             |   | 92,094,949                  |             |             |            | 99,763,805 |             |             |             | 97,623,502 |             |             |          | 163,237,820 |             |            |   | 54,695,446 |           
|                                                 |                                                                    |                                | Payroll and employee benefits                   |             |   | 5,672,721                   |             |             |            | 5,689,206  |             |             |             | 5,687,030  |             |             |          | 13,797,555  |             |            |   | 5,714,653  |           
|                                                 |                                                                    |                                | Provision for bad debts                         |             |   | 65,668                      |             |             |            | 50,000     |             |             |             |           |             |             |          | 6,196,384   |             |            |   | 5,778,216  |           
|                                                 |                                                                    |                                | Professional fees                               |             |   | 1,404,157                   |             |             |            | 1,180,438  |             |             |             | 895,716    |             |             |          | 1,886,661   |             |            |   | 1,637,957  |           
|                                                 |                                                                    |                                | General and administrative                      |             |   | 5,088,562                   |             |             |            | 5,466,496  |             |             |             | 5,777,317  |             |             |          | 10,198,385  |             |            |   | 8,435,001  |           
|                                                 |                                                                    |                                | Gain on disposal of property and
equipment      |             |   |                            |             |             |            | (383,375   | )           |             |             |           |             |             |          |            |             |            |   |           |           
|                                                 |                                                                    |                                | Writedown of long-lived assets                  |             |   |                            |             |             |            |           |             |             |             |           |             |             |          | 11,717,073  |             |            |   |           |           
|                                                 |                                                                    |                                | Loss on disposal of subsidiaries                |             |   |                            |             |             |            |           |             |             |             |           |             |             |          | 15,361,292  |             |            |   |           |           
|                                                 |                                                                    |                                | Depreciation and amortization                   |             |   | 1,030,903                   |             |             |            | 2,883,287  |             |             |             | 2,918,534  |             |             |          | 5,791,982   |             |            |   | 3,247,717  |           
|                                                 |                                                                    | Gain on extinguishment of debt |                                                 |             |  |                             |             |             | (3,503,188 | )          |             |             | (13,247,907 | )          |             |             | (130,977 | )           |             |            |  |           
|                                                 |                                                                    |                                |                                                 |             |   |                             |             |             |            |            |             |             |             |            |             |             |          |             |             |           
|                                                 |                                                                    |                                |                                                 | Subtotal    |   |                             | 105,356,960 |             |            |            | 111,146,669 |             |             |            | 99,654,192  |             |          |             | 228,056,175 |            |   |            | 79,508,990 | 
|                                                 |                                                                    |                                |                                                 |             |   |                             |             |             |            |            |             |             |             |            |             |             |          |             |             |           
|Income (Loss) from operations                    |                                                                    |                                | 332,328                                         |             |   |                             | 1,461,247   |             |            |            | 16,928,703  |             |             |            | (45,529,423 | )           |          |             | (13,924,697 | )         
|Other income (expense)                           |                                                                    |                                |                                                 |             |   |                             |             |             |            |            |             |             |             |            |             |             |          |             |             |           
|                                                 | Interest income                                                    |                                |                                                 | 36,124      |   |                             |             | 32,358      |            |            |             | 43,147      |             |            |             | 138,963     |          |             |             | 932,397    |  
|                                                 |                                                                    |                                | Interest expense-convertible
subordinated notes |             |   |                            |             |             |            |           |             |             |             | (2,054,710 | )           |             |          | (3,639,433  | )           |            |   | (2,453,333 | )         
|                                                 | Interest expense-other                                             |                                |                                                 | (1,573,869  | ) |                             |             | (1,632,932  | )          |            |             | (1,182,794  | )           |            |             | (1,505,779  | )        |             |             | (553,998   | )
|                                                 | Provision for Medicare settlement
related to terminated operations |                                |                                                 | (2,440,971  | ) |                             |             |            |            |            |             |            |             |            |             |            |          |             |             |           |  
|                                                 | Other                                                              |                                |                                                 |            |   |                             |             | 1,425       |            |            |             | 383,623     |             |            |             | 24,906      |          |             |             | 107,696    |  
|                                                 |                                                                    |                                |                                                 |             |   |                             |             |             |            |            |             |             |             |            |             |             |          |             |             |           
|(Loss) income before income taxes                |                                                                    |                                | (3,646,388                                      | )           |   |                             | (137,902    | )           |            |            | 14,117,969  |             |             |            | (50,510,766 | )           |          |             | (15,891,935 | )         
|Benefit for income taxes                         |                                                                    |                                |                                                |             |   |                             |            |             |            |            |            |             |             |            |            |             |          |             | (909,000    | )         
|                                                 |                                                                    |                                |                                                 |             |   |                             |             |             |            |            |             |             |             |            |             |             |          |             |             |           
|Net (loss) income                                |                                                                    | $                              | (3,646,388                                      | )           |   | $                           | (137,902    | )           |            | $          | 14,117,969  |             |             | $          | (50,510,766 | )           |          | $           | (14,982,935 | )         
|                                                 |                                                                    |                                |                                                 |             |   |                             |             |             |            |            |             |             |             |            |             |             |          |             |             |           
|Basic and diluted (loss) income per
common share |                                                                    | $                              | (.09                                            | )           |   | $                           |            |             |            | $          | .65         |             |             | $          | (3.50       | )           |          | $           | (1.20       | )         
|Cash dividends declared                          |                                                                    | $                              |                                                |             |   | $                           |            |             |            | $          |            |             |             | $          |            |             |          | $           |            |           
|FINANCIAL POSITION                               |                                                                    |                                |                                                 |             |   |                             |             |             |            |            |             |             |             |            |             |             |          |             |             |           
|Total assets                                     |                                                                    | $                              | 21,179,713                                      |             |   | $                           | 22,292,904  |             |            | $          | 27,545,180  |             |             | $          | 30,419,978  |             |          | $           | 69,486,105  |           
|                                                 |                                                                    |                                |                                                 |             |   |                             |             |             |            |            |             |             |             |            |             |             |          |             |             |           
|Long-term obligations, including current
portion |                                                                    | $                              | 13,959,011                                      |             |   | $                           | 12,306,623  |             |            | $          | 19,269,246  |             |             | $          | 53,490,787  |             |          | $           | 47,675,061  |           
|                                                 |                                                                    |                                |                                                 |             |   |                             |             |             |            |            |             |             |             |            |             |             |          |             |             |           

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

General

We are a provider of outpatient healthcare services in Florida. We provide
healthcare services through our network of staff model clinics, IPAs and Home
Health Agencies. We provide healthcare services through fifteen staff model
clinics, approximately 41 IPA associated physicians and four Home Health
agencies to some of the nations largest managed care organizations, including:
(i) Humana for which, as of June 30, 2002, we managed the care for
approximately 13,600 patients on a POP basis; and (ii) Foundation, for which,
as of June 30, 2002, we managed the care for approximately 4,700 patients on a
POP basis.

Accounting Policies

GeneralWe have adopted accounting policies which we believe will result in an
accurate presentation of our financial position. We consider critical
accounting policies to be those that require more significant judgments and
estimates in the preparation of our financial statements and include the
following: (1) revenue recognition; (2) recording the cost of health care
services; and (3) consideration of impairment of intangible assets.

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

Under our contracts with HMOs, we receive a percentage of premium that is paid
by or on behalf of each covered life that chooses our physicians as their
primary care physicians in exchange for assuming responsibility for the
provision of 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, 2002 because we have the right to
terminate unprofitable physicians and close unprofitable centers under our
managed care contracts.

Amounts received for treatment of individuals covered by Medicare, Medicaid and
other contracted reimbursement programs, which may be based on the cost of
services provided or predetermined rates, are generally less than the
established billing rates of our facilities. Final determination of amounts
received from Medicare and Medicaid is subject to review and audit by the
appropriate agencies. 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. On a monthly basis we provide for claims incurred but not reported
based on past experience together with current factors. Estimates are adjusted
as changes in these factors occur and such adjustments are reported in the
period of determination. An actuarial calculation has been completed and
indicates that claims incurred but not reported as of June 30, 2002 are between
approximately $12,375,000 and $13,625,000. As of June 30, 2002, we have
recorded a liability of approximately $13,013,000 for claims incurred but not
reported. Although considerable variability is inherent in such estimates, we
believe that the amounts accrued for incurred but not reported medical claims
are adequate.

Consideration of impairment of costs in excess of net tangible assetsWe
evaluate the recovery of the carrying amount of costs in excess of net tangible
assets acquired by determining if a permanent impairment has occurred. This
evaluation is done annually or more frequently if indicators of permanent
impairment arise. Indicators of a permanent impairment include, among other
things, significant adverse change in legal factors or the business climate, 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

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determined that we have a single reporting unit and perform the annual
impairment calculation for goodwill on an entity 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 assets,
including goodwill and intangible assets. We perform our annual impairment test
on May 1st of each year. In addition to the annual impairment test, we are
required to perform an impairment test any time an indicator of impairment
occurs, such as those noted above. At such time as an impairment is
determined, the intangible assets are written off during that period. Although
considerable care is taken to ensure that impairment losses are recorded as
soon as indicators of impairment are noted, material differences could occur if
different, but nonetheless reasonably plausible, indicators existed.

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,
|                       |                                                                    |                                            |          |      |                                
|                       |                                                                    |                                            |          |      | 2002                            |       | 2001 |       | 2000
|                       |                                                                    |                                            |          |      |                                 |       |      |       |     
|                       | Medical services revenue, net                                      |                                            |          | 99.9 | %                               |       |      | 100.0 | %    |       |      | 100.0 | %    
|                       | Other income                                                       |                                            |          | .1   |                                 |       |      |      |      |       |      |      |      
|                       |                                                                    |                                            |          |      |                                 |       |      |       |      |       |      |      
|                       |                                                                    |                                            | Subtotal |      |                                 | 100.0 |      |       |      | 100.0 |      |       |       | 100.0 | 
|                       | Expenses                                                           |                                            |          |      |                                 |       |      |       |      |       |      |       |      
|                       |                                                                    | Medical services                           |          |      | 87.1                            |       |      |       | 88.6 |       |      |       | 83.7  |      
|                       |                                                                    | Payroll and employee benefits              |          |      | 5.4                             |       |      |       | 5.1  |       |      |       | 4.9   |      
|                       |                                                                    | Provision for bad debts                    |          |      | .1                              |       |      |       |     |       |      |       |      |      
|                       |                                                                    | Professional fees                          |          |      | 1.3                             |       |      |       | 1.0  |       |      |       | 0.8   |      
|                       |                                                                    | General and administrative                 |          |      | 4.8                             |       |      |       | 4.8  |       |      |       | 5.0   |      
|                       |                                                                    | Gain on disposal of property and equipment |          |      |                                |       |      |       | (.3  | )     |      |       |       |      
|                       |                                                                    | Depreciation and amortization              |          |      | 1.0                             |       |      |       | 2.6  |       |      |       | 2.5   |      
|                       |                                                                    | Gain on extinguishment of debt             |          |      |                                |       |      |       | (3.1 | )     |      |       | (11.4 | )    
|                       |                                                                    |                                            |          |      |                                 |       |      |       |      |       |      |      
|                       |                                                                    |                                            | Subtotal |      |                                 | 99.7  |      |       |      | 98.7  |      |       |       | 85.5  | 
|Income from operations |                                                                    |                                            | .3       |      |                                 |       | 1.3  |       |      |       | 14.5 |      
|Other income (expense) |                                                                    |                                            |          |      |                                 |       |      |       |      |       |      |      
|                       | Interest income                                                    |                                            |          |     |                                 |       |      |      |      |       |      | 0.1   |      
|                       | Interest expense-convertible subordinated notes                    |                                            |          |     |                                 |       |      |      |      |       |      | (1.8  | )    
|                       | Interest expense-other                                             |                                            |          | (1.5 | )                               |       |      | (1.4  | )    |       |      | (1.0  | )    
|                       | Provision for Medicare settlement related to
terminated operations |                                            |          | (2.3 | )                               |       |      |      |      |       |      |      |      
|                       | Other                                                              |                                            |          |     |                                 |       |      |      |      |       |      | 0.3   |      
|                       |                                                                    |                                            |          |      |                                 |       |      |       |      |       |      |      
|Net (loss) income      |                                                                    |                                            | (3.5     | )%   |                                 |       | (.1  | )%    |      |       | 12.1 | %    
|                       |                                                                    |                                            |          |      |                                 |       |      |       |      |       |      |      

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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

Medical services revenue for Fiscal 2002 decreased 6.3% to approximately
$105,539,000 from approximately $112,608,000 in Fiscal 2001. We provided
managed care services for approximately 220,000 and 252,000 member months
(members per month multiplied by the months for which services were available)
during Fiscal 2002 and 2001, respectively. The decrease in revenue and member
months primarily resulted from an amendment (the 2001 Amendment) to our
independent practice association (IPA) contract with Foundation (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 the Foundation IPAs membership at that
time. The Foundation IPAs member months were approximately 17,700 and 44,400
during Fiscal 2002 and 2001, respectively.

Revenue generated by our managed care entities under contracts with HMOs
as a percentage of medical services revenue was approximately 96% during Fiscal
2002 and 2001. Revenue generated by the Humana contract was 67% and 60% of
medical service revenue for Fiscal 2002 and 2001, respectively. Revenue
generated by the Foundation contracts was 29% and 36% during Fiscal 2002 and
2001, respectively.

Our home health agencies revenue was approximately 4% of medical services
revenue during Fiscal 2002 and 2001 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 such payments were received in Fiscal 2001.

Expenses

Effective March 31, 2001, the 2001 Amendment, among other things,
eliminated the medical claims liability incurred by the Foundation IPA through
March 31, 2001 and reduced other liabilities to Foundation. As a result, we
recorded a contractual revision of previously recorded medical claims liability
of approximately $4,638,000 (the 2001 Contractual Adjustment).

Medical services expenses for Fiscal 2002 were approximately $92,095,000
or 87.1% of medical services revenue compared to approximately $104,402,000 or
92.7% of medical services revenue for Fiscal 2001 excluding the 2001
Contractual Adjustment.

Medical claims represent the costs of medical services provided by
providers other than us but which are to be paid by us for individuals covered
by our POP risk contracts with HMOs. Claims expense was approximately
$78,139,000 and $88,341,000 for Fiscal 2002 and 2001, respectively, or 77.4%
and 81.8% of medical services revenues derived from our managed care entities
prior to the 2001 Contractual Adjustment of claims expense. Our claims loss
ratio varies due to fluctuations in utilization as well as increases in medical
costs without counterbalancing increases in 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 Foundation for our Medicare members of
approximately $60 per member per month. All other factors remaining the same,
this increase in the cost of our stop-loss insurance provided by Foundation
will increase our medical claims costs in Fiscal 2003 by approximately
$1,800,000 above the costs incurred in Fiscal 2002.

Other direct costs include the salaries and benefits of health
professionals providing primary care services, capitation payments to our
contracted primary care IPA physicians, and other costs necessary to operate
our facilities. Other direct costs were approximately $13,956,000 and
$16,061,000 during Fiscal 2002 and 2001, respectively, or 13.2% and 14.3% of
medical services revenues. The decrease in other direct costs is primarily due

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to the 2001 Amendment which resulted in the termination of our association with
certain physician practices effective April 1, 2001 through May 31, 2001.

Payroll and employee benefits for administrative personnel was
approximately $5,673,000 or 5.4% of total revenue during Fiscal 2002 compared
to approximately $5,689,000 or 5.1% of total revenue during Fiscal 2001.

General and administrative expenses during Fiscal 2002 were approximately
$5,089,000 or 4.8% of total revenue compared to approximately $5,466,000 or
4.9% of total revenue during Fiscal 2001. We anticipate that the cost of our
directors and officers insurance coverage will increase in Fiscal 2003.

Depreciation and amortization for Fiscal 2002 decreased approximately 64%
to approximately $1,031,000 from approximately $2,883,000 in Fiscal 2001.
Effective July 1, 2002 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.

Effective June 30, 2001, we completed a restructuring (the Fiscal 2001
Restructuring) of our Convertible Subordinated Notes due 2002 (the 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 from Operations

Income from operations for Fiscal 2002 was approximately $332,000 or .3%
of total revenues, compared to approximately $1,461,000 or 1.3% of total
revenues for Fiscal 2001.

Interest Expense

Interest expense during Fiscal 2002 was approximately $1,574,000 or 1.5%
of total revenues compared to approximately $1,633,000 or 1.4% 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. (See Note 4 of our
Consolidated Financial Statements.)

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Provision for Medicare Settlement Related to Terminated Operations

The Provision for Medicare Settlement Related to Terminated Operations
recorded during the three months ended March 31, 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. 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 the 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 have entered
into a memorandum of understanding for the 1996 cost report year and have
recorded an approximately $2,441,000 Provision for Medicare Settlement Related
to Terminated Operations during the quarter ended March 31, 2002. Under this
Memorandum, we will make monthly payments of $10,000 for 24 months with the
balance of the Memorandum due at the end of the term. We have retained the
right to dispute the Alleged Overpayments and continue to review and evaluate
all information available to determine the validity of CMS claims. During
September 2002, we have requested a reopening of the cost reports and supplied
various documentation for cost report years 1996 and 1997 to demonstrate that
the Alleged Overpayments are incorrect. The accrual for all Alleged
Overpayments is approximately $2,773,000 as of June 30, 2002, of which
approximately $251,000 is reflected in current liabilities. (See Note 11 to
our Consolidated Financial Statements.)

Net Loss

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

The financial results discussed below relate to our operations for the fiscal
year ended June 30, 2001 as compared to the fiscal year ended June 30, 2000.

Revenue

Medical services revenues for Fiscal 2001 decreased 3.4% to approximately
$112,608,000 from approximately $116,583,000 in Fiscal 2000. We provided
managed care services for approximately 252,000 and 257,000 member months
(members per month multiplied by the months for which services were available)
during Fiscal 2001 and 2000, respectively.

Revenue generated by our managed care entities under of contracts with
HMOs as a percentage of medical services revenue was approximately 96% during
Fiscal 2001 and 2000. Revenue generated by the Humana contract was 60% and 57%
of medical service revenue for Fiscal 2001 and 2000, respectively. Revenue
generated by the Foundation contracts was 36% and 39% during Fiscal 2001 and
2000, respectively.

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Our home health agencies revenue was approximately 4% of medical services
revenue during Fiscal 2001 and 2000 and consisted primarily of Medicare
reimbursement.

Expenses

Effective March 31, 2001, we negotiated an amendment to our Foundation IPA
contract. The 2001 Amendment, among other things, eliminated the medical
claims liability incurred by the Foundation IPA through
March 31, 2001 and reduced other liabilities to Foundation. As a result,
we recorded a contractual revision of previously recorded medical claims
liability of approximately $4,638,000.

Effective December 31, 1999, we amended our Foundation IPA contract which
reduced our prior medical claims and long-term debt liabilities to Foundation
for prior medical claims by approximately $3,054,000, resulting in a
corresponding decrease in medical services expense (the 2000 Contractual
Adjustment).

Medical services expenses for Fiscal 2001 were approximately $104,402,000
or 92.7% of medical services revenue compared to approximately $100,677,000 or
86.4% of medical services revenue for Fiscal 2000, excluding the 2001 and 2000
Contractual Adjustments.

Medical claims represent the costs of medical services provided by
providers other than us but which are to be paid by us for individuals covered
by our capitated risk contracts with HMOs. Claims expense was approximately
$88,341,000 and $82,480,000 for Fiscal 2001 and 2000, respectively, or 81.8%
and 73.9% of medical services revenues derived from our managed care entities
prior to the 2001 and 2000 Contractual Adjustments of claims expense. Our claim
loss ratio varies due to fluctuations in utilization as well as increases in
medical costs counterbalanced by any increases in premium revenues.

Other direct costs include the salaries and benefits of health
professionals providing primary care services, capitation payments to our
contracted primary care IPA physicians, and other costs necessary to operate
our facilities. Other direct costs were approximately $16,061,000 and
$18,197,000 during Fiscal 2001 and 2000, respectively, or 14.3% and 15.6% of
medical services revenue. The decrease primarily resulted from cost
containment measures which began in Fiscal 2000 and continued throughout Fiscal
2001.

Payroll and employee benefits for administrative personnel was
approximately $5,689,000 or 5.1% of medical services revenue during Fiscal 2001
compared to approximately $5,687,000 or 4.9% of medical services revenue during
Fiscal 2000.

General and administrative expenses during Fiscal 2001 were approximately
$5,466,000 or 4.8% of medical services revenue compared to approximately
$5,777,000 or 5.0% of medical services revenue during Fiscal 2000. The decrease
in general and administrative expense as a percent of revenues primarily
resulted from cost containment measures which began in Fiscal 2000 and
continued throughout Fiscal 2001.

In July, 1999, we recorded a gain on extinguishment of debt of
approximately $3,776,000 as a result of repurchasing $4,000,000 of our Notes
for a cash payment of $210,000 and the write-off of related deferred financing
costs and accrued interest payable. We have not provided for income taxes on
the gain because we believe that we will be able to utilize certain of our net
operating loss carryforwards to offset any income tax liability related to this
transaction.

On February 15, 2000, we recorded a gain on extinguishment of debt of
approximately $9,472,000 as a result of restructuring the Notes, net of
restructuring costs (the Fiscal 2000 Restructuring). The gain resulted
primarily from 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 our common 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 Notes under the revised terms of the agreement
through the maturity date of October 31, 2002. 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
the

29



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restructuring transaction.

Effective June 30, 2001, we recorded a gain on the extinguishment of debt
of approximately $3,503,000 as a result of the Fiscal 2001 Restructuring of the
Notes. 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 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 from Operations

Income from operations for Fiscal 2001 was approximately $1,461,000 or
1.3% of total revenues, compared to operating income of approximately
$16,929,000 or 14.5% of total revenues for Fiscal 2000.

Interest Expense

Interest expense during Fiscal 2001 was approximately $1,633,000 or 1.4%
of total revenues compared to approximately $3,238,000 or 2.8% of total
revenues during Fiscal 2000. 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 and interest expense of approximately $242,000
related to various notes payable. Interest expense during Fiscal 2000 was
comprised of approximately $784,000 related to amortization of deferred
financing costs, approximately $212,000 of imputed interest expense on
non-interest bearing notes, interest expense of approximately $184,000 related
to various notes payable and approximately $2,055,000 of interest on the Notes.
The Notes were restructured on February 15, 2000 and again on June 30, 2001.
In accordance with 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. (See Note 4 of the our Consolidated Financial Statements.)

Net Income/Loss

Net loss for Fiscal 2001 was approximately $138,000 compared to net income
of approximately $14,118,000 for Fiscal 2000.

Liquidity and Capital Resources

Our auditors opinion on the June 30, 2002 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 2003. At June 30, 2002, our working capital deficit was
approximately $7,587,000, our total indebtedness accounted for approximately
91% of our total capitalization and we had approximately $2.3 million
outstanding under our credit facility. Our cash flow from operations in Fiscal
2002 was not sufficient to satisfy our debt obligations as they became due,
including payments on various notes payable, and fund our capital expenditures.
We funded our cash deficit in Fiscal 2002 from our credit facility. However,
on August 7, 2002, we drew down the remaining available balance under the
credit facility. The credit facility matures on March 31, 2003. We obtained
this credit facility in Fiscal 2000 based on the personal guarantee of Dr.
Phillip Frost and an entity controlled by Charles Fernandez, former members of
our board of directors. Their guarantee is effective through the March 31,
2003 maturity date. Based on our current cash flow projections, it appears
unlikely that we will have sufficient funds available to fully repay the credit
facility by March 31, 2003. While we intend to address this issue by either
extending or replacing the credit facility, either in whole or in part, an
uncertainty exists as to whether we will be able to extend or replace the
credit facility without either the Guarantors extending their guarantees or
other individuals providing a personal guarantee. If personal guarantees are
required, there can be no assurance that we will be able to obtain such

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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 us.

In Fiscal 2000, we instituted a series of measures intended to reduce
losses incurred in prior years and to operate our core business model
profitably. In spite of the measures instituted in Fiscal 2000, we began to
experience a deterioration in our claims loss ratio in the first and second
quarters of Fiscal 2001 and again in the first and second quarters of Fiscal
2002, which resulted in operating losses and negative cash flow from
operations. Additionally, the impact of the deterioration of the claims loss
ratio did not allow us to reverse a significant working capital deficiency
which originated in prior years. Negative changes in the claims loss ratio,
such as we experienced in Fiscal 2001 and 2002, are due to increases in the
utilization of health services as well as increases in medical costs without
counterbalancing increases in premium revenues from the HMOs. See Risk Factor
 Our Percentage of
Premium Contracts Require Us to Assume the Responsibility of Providing
Medical Care to our Managed Care Patients. If we should experience a
deterioration in our claims loss ratio in the first two quarters of Fiscal 2003
that, compounded by the lack of availability of additional financing through
our credit facility and the need to make annual payments for our medical
malpractice insurance which are due in the first and second quarters of Fiscal
2003, we will experience a severe strain on our cash flow. Historically, we
have been able to realize advantageous HMO benefit changes and premium
increases 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 2003
or that premium increases, if any will be able to offset negative health cost
trends and allow us to meet our cash requirements in Fiscal 2003.

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 from decreased utilization, HMO premium increases
and advantageous HMO benefit changes. We continue to focus on strengthening our
core business unit by enhancing our physician net work, 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. If we cannot continue to improve our controls and procedures for
managing our costs, 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
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 loss was approximately $3,646,000 for Fiscal 2002. Net cash
provided by operations was approximately $288,000. 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 $2,309,000,
without reducing cash from operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The increase in due to Medicare was approximately $3,118,000. We
recorded approximately $2,441,000 as a provision for a Medicare
settlement and approximately $389,000 for other Medicare overpayments
related to our home health operations for which we have entered into
long-term repayment plans. These liabilities are included in long-term
debt, with the appropriate amounts shown in the current portion of
long-term debt, and although they increased our net loss, did not
affect our cash flows from operations. Additionally, the due to
Medicare also increased by approximately $288,000. This increase
reflects the current receivable from Medicare generated from our
current home health operations as offset by additional amounts due to
Medicare for which we intend to request long-term repayment plans in
the future. This net increase in due to Medicare

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| |   |  | of approximately
$288,000 increased our Fiscal 2002 net loss, but did not impact the
cash flows from operations in Fiscal 2002.    
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Our net receivable from HMOs increased by approximately $809,000
and reduced our net loss, but did not provide cash in Fiscal 2002.

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



| |  |  | Increases in prepaid expenses and other current assets of
approximately $242,000 used cash from operations but did not affect our
net loss in Fiscal 2002.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Decreases in accounts payable and accrued expenses of approximately
$328,000 used cash from operations but did not affect our net loss in
Fiscal 2002.    

Our cash used in investing activities was approximately $186,000 for
Fiscal 2002, primarily for the purchase of equipment. Our cash used in
financing activities was approximately $283,000, primarily due to borrowings
during the year of $1,815,000 on our credit facility and payments of various
notes payable of approximately $2,098,000.

Approximately 4% of our medical services revenue during Fiscal 2002 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. Effective October
1, 2002, we will be subject to a 15% reduction to the cost limits and
per-patient limits that were in place as of September 30, 1999 as a result of
the Balanced Budget Act of 1997. This reduction will result in a decrease in
the predetermined fees under PPS, on average, by approximately 4% to 6% in the
localities in which we operate our HHAs. Congress may delay the implementation
of this reduction in the predetermined fees; however, there can be no
assurances that such a delay will occur. We continue to take steps to operate
effectively and efficiently under PPS predetermined fee schedule. This
reduction in the reimbursement under PPS predetermined fee schedule will 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 out of
operating profits of certain of our staff model clinics. At June 30, 2002, the
unfunded portion of this required reserve was approximately $200,000. 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
2002 were the staff model clinics in question in an account deficit position.

At June 20, 2002, we were not in compliance with the repayment terms of a
contract modification note with an HMO. The balance of approximately
$3,800,000 outstanding at June 30, 2002 has been classified as a current
liability in our consolidated financial statements. While no such action has
occurred, the HMO could pursue legal action to enforce their claim against us
for repayment of this note. We are currently in negotiation with the HMO to
restructure this indebtedness. There can be no assurance that we will be able
to complete this restructuring on terms acceptable to us or that the HMO will
not assert a claim against us.

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.

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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. 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 two of our three
most recent fiscal years. We are unable to guarantee that the Exchange will
continue to list our common stock.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

At June 30, 2002, 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 2002 by
approximately $15,000. A 100 basis point adverse movement (increase) in
interest rates would have had an immaterial impact in our net loss for Fiscal
2001. 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.

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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          |  |     | 36 |          |  | President, Chief Executive Officer,
Chief Operating Officer and Director
|Janet L. Holt             |  |     | 55 |          |  | Chief Financial Officer                                                 
|Richard C. Pfenniger, Jr. |  |     | 47 |          |  | Chairman of the Board                                                   
|Robert J. Cresci          |  |     | 58 |          |  | Director                                                                
|Neil Flanzraich           |  |     | 59 |          |  | Director                                                                
|Patrick M. Healy          |  |     | 44 |          |  | 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 President and
Chief Operating Officer. Mr. Angel has served as a member of our board of
directors since September 30, 1999. Mr. Angel has served, since 1996, 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.Mr. Pfenniger has 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. Mr. Pfenniger served as the
Senior Vice President-Legal Affairs and General Counsel of IVAX from 1989 to
1994. 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.; Aviva Petroleum Ltd.; Film Roman, Inc.; j2 Global
Communications, Inc.; Candlewood Hotel Co.; SeraCare Life Sciences Inc.; LTWC
Corporation and several private companies.

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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.

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

Key Employee

The following is a key employee of Continucare:

|                           |  |     |    |          |  |                          
|-------------------------- |  | --- | -- | -------- |  | -------------------------
|Name                       |  | Age |    | Position
|                           |  |     |    |         
|Roberto L. Palenzuela, Esq |  |     | 39 |          |  | Corporate General Counsel

Roberto L. Palenzuela, Esq.was appointed as Corporate General Counsel in
May of 2002. 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 2002. 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 ten percent 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 ten percent beneficial owners were
complied with, except: (i) Richard C. Pfenniger, Jr. filed a Form 3 on March
29, 2002 which Form 3 should have been filed no later than March 15, 2002; and
(ii) Neil Flanzraich filed a Form 3 on September 24, 2002 which Form 3 should
have been filed no later than March 15, 2002.

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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, 2002,
exceeded $100,000 (hereinafter referred to as the Named Executive Officers).

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,  |                         |        | 2002                |            |              |           | 259,000 |              |  |                    | 0      |              |  |                   | (1 | )         |   |  | 0         |         |     |  | 0 |  
|                   | President and Chief     |        |                     | 2001       |              |           |         | 268,307      |  |                    |        | 0            |  |                   |    | (1        | ) |  |           | 600,000 | (2) |  |   | 0 | 
|                   | Executive Officer       |        |                     | 2000       |              |           |         | 207,867      |  |                    |        | 0            |  |                   |    | (1        | ) |  |           | 0       |     |  |   | 0 | 
|                  
|Janet L. Holt,     |                         |        | 2002                |            |              |           | 127,849 |              |  |                    | 0      |              |  |                   | (1 | )         |   |  | 0         |         |     |  | 0 |  
|                   | Chief Financial Officer |        |                     | 2001       |              |           |         | 103,846      |  |                    |        | 0            |  |                   |    | (1        | ) |  |           | 75,000  | (3) |  |   | 0 | 
|                   |                         |        | 2000                |            |              |           | 83,077  |              |  |                    | 20,000 |              |  |                   | (1 | )         |   |  | 0         |         |     |  | 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) |  | 100,000 fully vested stock options valued at approximately $68,750 (based
on the closing market price on the date of grant) were awarded on July 20,
2000. An additional 500,000 stock options were also awarded on July 20,
2000 valued at approximately $343,750 (based on the closing market price
on the date of grant) and vest ratably over three years. See Director
Compensation.
|   
|(3) |  | 75,000 stock options were awarded on July 20, 2000 valued at
approximately $51,600 (based on the closing market price on the date of
grant) and vest ratably over three years.                                                                                                                                                                                                             

Option Grants During Fiscal 2002

During Fiscal 2002, we did not grant any stock options or stock appreciation
rights to the Named Executive Officers.

Option Exercises in 2002 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, 2002,
and (ii) the value as of June 30, 2002 of unexercised in-the-money options. No
options were exercised by any of the Named Executive Officers in Fiscal 2002.

36



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|                 |  |                                |         |                      |  |             |         |               |  |  |   |  |  |  |   | 
|---------------- |  | ------------------------------ | ------- | -------------------- |  | ----------- | ------- | ------------- |  |  | - |  |  |  | - | 
|                 |  | Number of Securities           |         | Value of Unexercised
|                 |  | Underlying Unexercised Options |         | In-the-Money Options
|                 |  | at June 30, 2002               |         | at June 30, 2002 (1)
|                 |  |                                |         |                     
|                 |  | Exercisable                    |         | Unexercisable        |  | Exercisable |         | Unexercisable
|                 |  |                                |         |                      |  |             |         |              
|Spencer J. Angel |  |                                | 266,666 |                      |  |             | 333,334 |               |  |  | 0 |  |  |  | 0 | 
|Janet L. Holt    |  |                                | 25,000  |                      |  |             | 50,000  |               |  |  | 0 |  |  |  | 0 | 



---

|(1) |  | Market value of shares covered by in-the-money options on June 30, 2002,
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.

Our former chairman received an annual payment of $50,000 during the time
he served as chairman of the board of directors.

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.

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.

Compensation Committee Interlocks

Mr. Charles
Fernandez, a former board member, served as a member of our
compensation committee from March 2000 until March 2002.
Mr. Fernandez served as our president and chief executive
officer until November 1999.

37



---



##### 



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of September 23,
2002 concerning the beneficial ownership of the common stock by (i) each person
known by Continucare to be the beneficial owner of more than 5% of the
outstanding common stock, (ii) each of the directors and director nominees who
own our shares, (iii) Named Executive Officers, and (iv) 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                                            |                                     |                          | 1,680,147  | (3)              |  |  | 4.09  | %
|                                                            | 80 S.W. 8th Street                  |                          |            |                  |  |  |       |   | 
|                                                            | Miami, FL 33131                     |                          |            |                  |  |  |       |   | 
|Robert Cresci                                               |                                     |                          | 300,000    | (4)              |  |  | *     |  
|                                                            | c/o Pecks Management Partners, Ltd. |                          |            |                  |  |  |       |   | 
|                                                            | One Rockefeller Plaza               |                          |            |                  |  |  |       |   | 
|                                                            | Suite 900                           |                          |            |                  |  |  |       |   | 
|                                                            | New York, NY 10020                  |                          |            |                  |  |  |       |   | 
|Neil Flanzraich                                             |                                     |                          | 200,000    | (5)              |  |  | *     |  
|                                                            | 4400 Biscayne Boulevard             |                          |            |                  |  |  |       |   | 
|                                                            | Miami, FL 33137                     |                          |            |                  |  |  |       |   | 
|Patrick Healy                                               |                                     |                          | 300,000    | (6)              |  |  | *     |  
|                                                            | c/o Mayo Health Plan                |                          |            |                  |  |  |       |   | 
|                                                            | 4168 South Point Parkway            |                          |            |                  |  |  |       |   | 
|                                                            | Suite 102                           |                          |            |                  |  |  |       |   | 
|                                                            | Jacksonville, FL 32216              |                          |            |                  |  |  |       |   | 
|Janet L. Holt                                               |                                     |                          | 50,000     | (6)              |  |  | *     |  
|                                                            | 80 S.W. 8th Street                  |                          |            |                  |  |  |       |   | 
|                                                            | Miami, FL 33131                     |                          |            |                  |  |  |       |   | 
|Richard C. Pfenniger, Jr.                                   |                                     |                          | 205,000    | (5)              |  |  | *     |  
|                                                            | 4400 Biscayne Boulevard             |                          |            |                  |  |  |       |   | 
|                                                            | Miami, FL 33137                     |                          |            |                  |  |  |       |   | 
|Dr. Phillip Frost                                           |                                     |                          | 20,519,450 | (7)              |  |  | 49.53 | %
|                                                            | 4400 Biscayne Boulevard             |                          |            |                  |  |  |       |   | 
|                                                            | Miami, FL 33137                     |                          |            |                  |  |  |       |   | 
|Charles M. Fernandez                                        |                                     |                          | 2,279,167  | (8)              |  |  | 5.59  | %
|                                                            | 4400 Biscayne Boulevard             |                          |            |                  |  |  |       |   | 
|                                                            | Miami, FL 33137                     |                          |            |                  |  |  |       |   | 
|Strategic Investment Partners, Ltd.                         |                                     |                          | 2,250,000  | (9)              |  |  | 5.56  | %
|                                                            | Kaya Flamboyan 9                    |                          |            |                  |  |  |       |   | 
|                                                            | Willemstad, Curaçao                 |                          |            |                  |  |  |       |   | 
|                                                            | Netherlands Antilles                |                          |            |                  |  |  |       |   | 
|Pecks Management Partners Ltd.                              |                                     |                          | 8,511,582  | (10)             |  |  | 19.41 | %
|                                                            | One Rockefeller Plaza               |                          |            |                  |  |  |       |   | 
|                                                            | Suite 900                           |                          |            |                  |  |  |       |   | 
|                                                            | New York, NY 10020                  |                          |            |                  |  |  |       |   | 
|All directors and executive officers
as a group (6 persons) |                                     |                          | 2,735,147  |                  |  |  | 5.91  | %



---

|* |  | Less than one percent.
|- |  | ----------------------

38



---



##### 





|(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 40,434,601 shares outstanding as of September 23, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|(3)  |  | Includes (i) 800 shares held by Arkangel, Inc., an entity controlled by
Mr. Angel; (ii) 850,000 shares held by Harter Financial, Inc., an entity
controlled by Mr. Angel; (iii) 150,000 shares held directly by Mr. Angel;
(iv) 633,334 shares of common stock underlying options that are currently
exercisable, and (v) 46,013 shares of common stock issuable upon
conversion of a convertible promissory note.                                                                                                                                                                                                                                      
|    
|(4)  |  | Includes (i) 200,000 shares of restricted stock and (ii) 100,000 shares
of common stock underlying options granted that are currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|(5)  |  | Includes 200,000 shares of restricted stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|(6)  |  | Represents shares of common stock underlying options that are currently
exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|(7)  |  | Includes (i) 19,422,288 shares owed beneficially through Frost Gamma
L.P.; (ii) 797,162 shares of common stock issuable upon conversion of a
convertible promissory note; (iii) 200,000 shares of common stock
underlying options granted that are currently exercisable; and (iv)
100,000 shares of restricted stock. See Certain Transactions.                                                                                                                                                                                                                                                                                                      
|    
|(8)  |  | Includes (i) 1,816,667 shares of Common Stock are owned of record by the
Fernandez Family Limited Partnership, (ii) 27,500 shares held directly by
Mr. Fernandez; (iii) 335,000 shares of Common Stock underlying options
granted that are currently exercisable; and (iv) 100,000 shares of
restricted stock.                                                                                                                                                                                                                                                                                                                                          
|    
|(9)  |  | The information set forth herein is based solely on the most recent
Schedule(s) 13D/A filed with the SEC by the entity, and, accordingly, may
not reflect their respective holdings as of the date of this report. The
Strategic Investment Partners, Ltd. is deemed to have sole voting power
and each of Quasar Strategic Partners LDC, Quantum Industrial Partners
LLC, QIH Management Investors, L.P. and QIH Management, Inc., Soros Fund
Management, LLC and Mr. George Soros are deemed to have shared power.                                                                                                                                    
|    
|(10) |  | 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

In a private transaction with certain noteholders, effective June 30,
2001, Frost Nevada Limited Partnership, an entity controlled by Dr. Phillip
Frost, the beneficial owner of more than 5% of our outstanding common stock,
purchased Convertible Subordinated Notes due 2002 in the principal amount of
$6,219,511 (the Purchased Debt) and 9,640,244 shares of our common stock (the
Purchased Shares). Frost Nevada Limited Partnership immediately exchanged
the Purchased Debt for (i) 6,219,511 shares of our common stock and (ii) a
convertible promissory note (the New Note) in the principal amount of
$912,195, with an October 31, 2005 maturity date and interest at 7% due
semi-annually. At such time Dr. Frost was deemed to beneficially own 55.5% of
our outstanding common stock, assuming conversion of the New Note.

Effective July 31, 2001, Frost Nevada Limited Partnership 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. Spencer J. Angel,
our President and CEO, and an entity controlled by Mr. Angel comprise 40% of
this group.

As a result, as of June 30, 2002, we had principal amounts outstanding
under convertible promissory notes, with October 31, 2005 maturity dates
bearing interest at 7% due semi-annually, due to Frost Nevada Limited
Partnership, the investor group controlled by Mr. Angel and Mr. Angel of
$797,162, $37,386 and $8,627, respectively.

39



---



##### 



During the year ended June 30, 2002, we paid approximately $56,000, $3,000
and $1,000 in interest on the convertible promissory notes to Frost Nevada
Limited Partnership, the investor group controlled by Mr. Angel, and to Mr.
Angel, respectively.

During the year ended June 30, 2002, we paid Mr. Charles Fernandez , who
is affiliated with an entity that is the beneficial owner of more than 5% of
our outstanding common stock, approximately $23,000 for his services as
chairman of the board of directors. See Director Compensation.

On September 23, 2002, Mr. Frost and Mr. Fernandez each received a grant
of 100,000 shares of restricted stock as compensation for their prior service
as Board members.

PART IV

ITEM 14. 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)                                                                                                                                                             
|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)

40



---



##### 



|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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)                                                            
|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 |  | Second Amendment to Employment Agreement between Charles M. Fernandez
and the Company, entered into as of the 1st day of November 1999 (14)                                                                                                                                                                                                                                                                                     
|10.17 |  | First Amendment to Employment Agreement between Spencer J. Angel and
the Company, entered into as of the 1st day of November, 1999 (14)                                                                                                                                                                                                                                                                                         
|10.18 |  | Employment Agreement dated September 4, 2001 between Continucare
Corporation and Cathy J. Lerman (19)                                                                                                                                                                                                                                                                                                                           
|10.19 |  | Employment Agreement dated October 1, 2001 between Continucare
Corporation and Janet L. Holt (20)                                                                                                                                                                                                                                                                                                                               
|21.1  |  | Subsidiaries of the Company * (Exhibit 21.1)                                                                                                                                                                                                                                                                                                                                                                                    
|23.1  |  | Consent of Ernst & Young LLP * (Exhibit 23.1)                                                                                                                                                                                                                                                                                                                                                                                   
|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)                                                                                                                                                                                                                                         
|99.2  |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 * (Exhibit 99.2)                                                                                                                                                                                                                                                                                         

41



---



##### 



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.

|     |  |                                                                                                                                   
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------
|(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.                                                                      
|*    |  | Filed herewith                                                                                                                    

(a)         Reports on Form 8-K



| |      
| | -----
| | None.

42



---



##### 



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 27, 2002

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. AngelSpencer J. Angel                   |  | President, Chief Executive Officer,
Chief Operating Officer and Director
(Principal Executive Officer) |  | September 27, 2002
|                                                      
|/s/ Janet L. HoltJanet L. Holt                         |  | Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer)                 |  | September 27, 2002
|                                                      
|/s/ Richard C. Pfenniger, Jr.Richard C. Pfenniger, Jr. |  | Chairman of the Board                                                                                  |  | September 27, 2002
|                                                      
|/s/ Robert J. CresciRobert J. Cresci                   |  | Director                                                                                               |  | September 27, 2002
|                                                      
|/s/ Neil FlanzraichNeil Flanzraich                     |  | Director                                                                                               |  | September 27, 2002
|                                                      
|/s/ Patrick HealyPatrick Healy                         |  | Director                                                                                               |  | September 27, 2002

43



---



##### 



CERTIFICATION

I, Spencer J. Angel, Chief Executive Officer of Continucare Corporation (the
Company), certify that:



|1. |  | I have reviewed this annual report on Form 10-K of the Company;                                                                                                                                                                                                                                                                
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under
which such statements were made, not misleading; with respect to the
period covered by this report; and
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this annual report.                             

|                         |  |                                                                                                         
|------------------------ |  | --------------------------------------------------------------------------------------------------------
|Date: September 27, 2002 |  | By: /s/ Spencer J. Angel
SPENCER J. ANGEL
Chief Executive Officer, Chief
Operating Officer and President

CERTIFICATION

I, Janet L. Holt, Chief Financial Officer of Continucare Corporation (the
Company), certify that:



|1. |  | I have reviewed this annual report on Form 10-K of the Company;                                                                                                                                                                                                                                                               
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report; and
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this annual report.                            

|                         |  |                                                            
|------------------------ |  | -----------------------------------------------------------
|Date: September 27, 2002 |  | By: /s/ Janet L. Holt
JANET L. HOLT
Chief Financial Officer

EXPLANATORY NOTE REGARDING CERTIFICATIONS:Representations 4, 5, and 6 of the
Certifications as set forth in this annual report have been omitted, consistent
with the Transition Provisions of SEC Exchange Act Release No. 34-46247.

1



---



##### 



INDEX TO FINANCIAL STATEMENTS

|                                                                                                           |  |      |     | 
|---------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                           |  | PAGE
|                                                                                                           |  |     
|Report of Independent Certified Public Accountants                                                         |  |      | F-2 | 
|Consolidated Balance Sheets as of June 30, 2002 and 2001                                                   |  |      | F-3 | 
|Consolidated Statements of Operations for the years ended June 30, 2002, 2001
and 2000                     |  |      | F-4 | 
|Consolidated Statements of Shareholders Equity (Deficit) for the years ended
June 30, 2002, 2001 and 2000 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the years ended June 30, 2002, 2001
and 2000                     |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                                 |  |      | F-8 | 

F-1



---



##### 



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, 2002 and 2001, and the
related consolidated statements of operations, shareholders equity (deficit)
and cash flows for each of the three years in the period ended June 30, 2002.
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, 2002 and 2001 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 2002, 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 and has a working capital deficiency. 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 and its method of
reporting gains and losses on the extinguishment of debt during the year ended
June 30, 2002.

/s/ ERNST & YOUNG LLP

Miami, Florida
September 6, 2002, except for Note 12,
as to which the date is September 23, 2002

F-2



---



##### 



CONTINUCARE CORPORATION

CONSOLIDATED BALANCE SHEETS

|                                                                                                                            |                      |                                                                                                                                                                                                                             |                                            |                                      |             |            |            |         |             |            |  | 
|--------------------------------------------------------------------------------------------------------------------------- | -------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | ----------- | ---------- | ---------- | ------- | ----------- | ---------- |  | 
|                                                                                                                            |                      |                                                                                                                                                                                                                             |                                            |                                      |             | June 30,  
|ASSETS                                                                                                                      |                      | 2002                                                                                                                                                                                                                        |                                            | 2001                                
|                                                                                                                            |                      |                                                                                                                                                                                                                             |                                            |                                     
|Current assets                                                                                                              |                      |                                                                                                                                                                                                                             |                                            |                                      |             |            |            |        
|                                                                                                                            |                      | Cash and cash equivalents                                                                                                                                                                                                   |                                            | $                                    | 344,276     |            |            | $       | 525,482     |           
|                                                                                                                            |                      | Accounts receivable, net of allowance for doubtful accounts of
$4,807,000 and $4,741,000, respectively                                                                                                                      |                                            |                                      | 94,967      |            |            |         | 81,132      |           
|                                                                                                                            |                      | Other receivables                                                                                                                                                                                                           |                                            |                                      | 834,227     |            |            |         | 763,637     |           
|                                                                                                                            |                      | Due from HMOs, net of a liability for incurred but not reported medical
claims expense of approximately $13,013,000 and $10,660,000,
respectively                                                                           |                                            |                                      | 1,431,379   |            |            |         | 622,666     |           
|                                                                                                                            |                      | Prepaid expenses and other current assets                                                                                                                                                                                   |                                            |                                      | 548,322     |            |            |         | 306,261     |           
|                                                                                                                            |                      |                                                                                                                                                                                                                             |                                            |                                      |             |            |            |        
|                                                                                                                            |                      |                                                                                                                                                                                                                             | Total current assets                       |                                      |             | 3,253,171  |            |         |             | 2,299,178  | 
|Equipment, furniture and leasehold improvements, net                                                                        |                      |                                                                                                                                                                                                                             | 584,372                                    |                                      |             |            | 703,494    |        
|Goodwill, net of accumulated amortization of approximately $3,661,000 at
June 30, 2002 and 2001                             |                      |                                                                                                                                                                                                                             | 14,663,392                                 |                                      |             |            | 14,663,392 |        
|Managed care contracts, net of accumulated amortization of approximately
$1,364,000 and $1,011,000, respectively            |                      |                                                                                                                                                                                                                             | 2,146,243                                  |                                      |             |            | 2,499,055  |        
|Cost in excess of net intangible assets acquired, net of accumulated
amortization of $4,012,000 and $3,674,000 respectively |                      |                                                                                                                                                                                                                             | 15,788                                     |                                      |             |            | 354,304    |        
|Deferred financing costs, net of accumulated amortization of $2,985,000 and
$1,706,000, respectively                        |                      |                                                                                                                                                                                                                             | 435,375                                    |                                      |             |            | 1,698,750  |        
|Other assets, net                                                                                                           |                      |                                                                                                                                                                                                                             | 81,372                                     |                                      |             |            | 74,731     |        
|                                                                                                                            |                      |                                                                                                                                                                                                                             |                                            |                                      |             |            |            |        
|                                                                                                                            |                      |                                                                                                                                                                                                                             | Total assets                               |                                      | $           | 21,179,713 |            |         | $           | 22,292,904 | 
|                                                                                                                            |                      |                                                                                                                                                                                                                             |                                            |                                      |             |            |            |        
|                                                                                                                            |                      |                                                                                                                                                                                                                             |                                            | LIABILITIES AND SHAREHOLDERS EQUITY |             |            |            |         |             |            |  | 
|Current liabilities                                                                                                         |                      |                                                                                                                                                                                                                             |                                            |                                      |             |            |            |        
|                                                                                                                            |                      | Accounts payable                                                                                                                                                                                                            |                                            | $                                    | 688,061     |            |            | $       | 679,745     |           
|                                                                                                                            |                      | Accrued expenses                                                                                                                                                                                                            |                                            |                                      | 2,004,480   |            |            |         | 2,330,456   |           
|                                                                                                                            |                      | Accrued salaries and benefits                                                                                                                                                                                               |                                            |                                      | 569,323     |            |            |         | 579,805     |           
|                                                                                                                            |                      | Credit Facility                                                                                                                                                                                                             |                                            |                                      | 2,315,000   |            |            |         | 500,000     |           
|                                                                                                                            |                      | Advances from HMO                                                                                                                                                                                                           |                                            |                                      |            |            |            |         | 450,000     |           
|                                                                                                                            | Due to Medicare, net |                                                                                                                                                                                                                             |                                            | 350,991                              |             |            |            | 500,045 |            
|                                                                                                                            |                      | Current portion of convertible subordinated notes payable                                                                                                                                                                   |                                            |                                      | 273,896     |            |            |         | 273,896     |           
|                                                                                                                            |                      | Current portion of long-term debt                                                                                                                                                                                           |                                            |                                      | 4,456,835   |            |            |         | 4,952,076   |           
|                                                                                                                            |                      | Current portion of related party note payable                                                                                                                                                                               |                                            |                                      | 63,854      |            |            |         | 53,211      |           
|                                                                                                                            |                      | Accrued interest payable                                                                                                                                                                                                    |                                            |                                      | 10,708      |            |            |         | 17,703      |           
|                                                                                                                            |                      | Current portion of capital lease obligations                                                                                                                                                                                |                                            |                                      | 107,479     |            |            |         | 149,915     |           
|                                                                                                                            |                      |                                                                                                                                                                                                                             |                                            |                                      |             |            |            |        
|                                                                                                                            |                      |                                                                                                                                                                                                                             | Total current liabilities                  |                                      |             | 10,840,627 |            |         |             | 10,486,852 | 
|Capital lease obligations, less current portion                                                                             |                      |                                                                                                                                                                                                                             | 42,171                                     |                                      |             |            | 99,774     |        
|Convertible subordinated notes payable                                                                                      |                      |                                                                                                                                                                                                                             | 4,356,468                                  |                                      |             |            | 4,630,364  |        
|Long-term debt, less current portion                                                                                        |                      |                                                                                                                                                                                                                             | 3,597,122                                  |                                      |             |            | 1,011,704  |        
|Related party note payable, less current portion                                                                            |                      |                                                                                                                                                                                                                             | 1,061,186                                  |                                      |             |            | 1,135,683  |        
|                                                                                                                            |                      |                                                                                                                                                                                                                             |                                            |                                      |             |            |            |        
|                                                                                                                            |                      |                                                                                                                                                                                                                             | Total liabilities                          |                                      |             | 19,897,574 |            |         |             | 17,364,377 | 
|Commitments and contingencies                                                                                               |                      |                                                                                                                                                                                                                             |                                            |                                      |             |            |            |        
|Shareholders equity                                                                                                        |                      |                                                                                                                                                                                                                             |                                            |                                      |             |            |            |        
|                                                                                                                            |                      | Common stock, $0.0001 par value: 100,000,000 shares authorized;
42,630,794 shares issued and 39,634,601shares outstanding at June 30,
2002; and 42,455,794 shares issued and 39,459,601 shares outstanding at
June 30, 2001 |                                            |                                      | 3,964       |            |            |         | 3,946       |           
|                                                                                                                            |                      | Additional paid-in capital                                                                                                                                                                                                  |                                            |                                      | 59,511,614  |            |            |         | 59,511,632  |           
|                                                                                                                            |                      | Accumulated deficit                                                                                                                                                                                                         |                                            |                                      | (52,808,738 | )          |            |         | (49,162,350 | )         
|                                                                                                                            |                      | Treasury stock (2,996,192 shares at June 30, 2002 and 2001)                                                                                                                                                                 |                                            |                                      | (5,424,701  | )          |            |         | (5,424,701  | )         
|                                                                                                                            |                      |                                                                                                                                                                                                                             |                                            |                                      |             |            |            |        
|                                                                                                                            |                      |                                                                                                                                                                                                                             | Total shareholders equity                 |                                      |             | 1,282,139  |            |         |             | 4,928,527  | 
|                                                                                                                            |                      |                                                                                                                                                                                                                             |                                            |                                      |             |            |            |        
|                                                                                                                            |                      |                                                                                                                                                                                                                             | Total liabilities and shareholders equity |                                      | $           | 21,179,713 |            |         | $           | 22,292,904 | 
|                                                                                                                            |                      |                                                                                                                                                                                                                             |                                            |                                      |             |            |            |        

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

F-3



---



##### 



CONTINUCARE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                     |                                                                    |                                            |                                                                      |             |                             |             |           |             |            |             |            |             |             |             |  
|---------------------------------------------------- | ------------------------------------------------------------------ | ------------------------------------------ | -------------------------------------------------------------------- | ----------- | --------------------------- | ----------- | --------- | ----------- | ---------- | ----------- | ---------- | ----------- | ----------- | ----------- | -
|                                                     |                                                                    |                                            |                                                                      |             | For the Year Ended June 30,
|                                                     |                                                                    |                                            |                                                                      |             | 2002                        |             | 2001      |             | 2000      
|                                                     |                                                                    |                                            |                                                                      |             |                             |             |           |             |           
|                                                     | Medical services revenue, net                                      |                                            | $                                                                    | 105,539,288 |                             |             | $         | 112,607,916 |            |             | $          | 116,582,895 |            
|                                                     | Other income                                                       |                                            |                                                                      | 150,000     |                             |             |           |            |            |             |            |            |            
|                                                     |                                                                    |                                            |                                                                      |             |                             |             |           |             |            |             |            |            
|                                                     |                                                                    |                                            | Subtotal                                                             |             |                             | 105,689,288 |           |             |            | 112,607,916 |            |             |             | 116,582,895 |  
|                                                     | Expenses                                                           |                                            |                                                                      |             |                             |             |           |             |            |             |            |             |            
|                                                     |                                                                    | Medical services:                          |                                                                      |             |                             |             |           |             |            |             |            |             |             |            
|                                                     |                                                                    |                                            | Medical claims                                                       |             |                             | 78,138,787  |           |             |            | 88,341,212  |            |             |             | 82,480,144  |  
|                                                     |                                                                    |                                            | Contractual revision of previously recorded
medical claims and other |             |                             |            |           |             |            | (4,638,205  | )          |             |             | (3,053,853  | )
|                                                     |                                                                    |                                            | Other                                                                |             |                             | 13,956,162  |           |             |            | 16,060,798  |            |             |             | 18,197,211  |  
|                                                     |                                                                    | Payroll and employee benefits              |                                                                      |             | 5,672,721                   |             |           |             | 5,689,206  |             |            |             | 5,687,030   |            
|                                                     |                                                                    | Provision for bad debts                    |                                                                      |             | 65,668                      |             |           |             | 50,000     |             |            |             |            |            
|                                                     |                                                                    | Professional fees                          |                                                                      |             | 1,404,157                   |             |           |             | 1,180,438  |             |            |             | 895,716     |            
|                                                     |                                                                    | General and administrative                 |                                                                      |             | 5,088,562                   |             |           |             | 5,466,496  |             |            |             | 5,777,317   |            
|                                                     |                                                                    | Gain on disposal of property and equipment |                                                                      |             |                            |             |           |             | (383,375   | )           |            |             |            |            
|                                                     |                                                                    | Depreciation and amortization              |                                                                      |             | 1,030,903                   |             |           |             | 2,883,287  |             |            |             | 2,918,534   |            
|                                                     |                                                                    | Gain on extinguishments of debt            |                                                                      |             |                            |             |           |             | (3,503,188 | )           |            |             | (13,247,907 | )          
|                                                     |                                                                    |                                            |                                                                      |             |                             |             |           |             |            |             |            |            
|                                                     |                                                                    |                                            | Subtotal                                                             |             |                             | 105,356,960 |           |             |            | 111,146,669 |            |             |             | 99,654,192  |  
|                                                     |                                                                    |                                            |                                                                      |             |                             |             |           |             |            |             |            |            
|Income from operations                               |                                                                    |                                            | 332,328                                                              |             |                             |             | 1,461,247 |             |            |             | 16,928,703 |            
|Other income (expense)                               |                                                                    |                                            |                                                                      |             |                             |             |           |             |            |             |            |            
|                                                     | Interest income                                                    |                                            |                                                                      | 36,124      |                             |             |           | 32,358      |            |             |            | 43,147      |            
|                                                     | Interest expense-convertible subordinated notes payable            |                                            |                                                                      |            |                             |             |           |            |            |             |            | (2,054,710  | )          
|                                                     | Interest expense-other                                             |                                            |                                                                      | (1,573,869  | )                           |             |           | (1,632,932  | )          |             |            | (1,182,794  | )          
|                                                     | Provision for Medicare settlement related to
terminated operations |                                            |                                                                      | (2,440,971  | )                           |             |           |            |            |             |            |            |            
|                                                     | Other                                                              |                                            |                                                                      |            |                             |             |           | 1,425       |            |             |            | 383,623     |            
|                                                     |                                                                    |                                            |                                                                      |             |                             |             |           |             |            |             |            |            
|Net (loss) income                                    |                                                                    | $                                          | (3,646,388                                                           | )           |                             | $           | (137,902  | )           |            | $           | 14,117,969 |            
|                                                     |                                                                    |                                            |                                                                      |             |                             |             |           |             |            |             |            |            
|Basic and diluted net (loss) income per common share |                                                                    | $                                          | (.09                                                                 | )           |                             | $           |          |             |            | $           | .65        |            
|                                                     |                                                                    |                                            |                                                                      |             |                             |             |           |             |            |             |            |            

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 (DEFICIT)

|                                                                          |  |        |       |         |  |             |            |          |  |           |             |   |  |   |            |               |  |       |             |  
|------------------------------------------------------------------------- |  | ------ | ----- | ------- |  | ----------- | ---------- | -------- |  | --------- | ----------- | - |  | - | ---------- | ------------- |  | ----- | ----------- | -
|                                                                          |  |        |       |         |  |             |            |          |  |           |             |   |  |   |            |               |  | Total
|                                                                          |  |        |       |         |  | Additional  |            |          |  |           |             |   |  |   |            | Shareholders'
|                                                                          |  | Common |       | Paid-In |  | Accumulated |            | Treasury |  | Equity   
|                                                                          |  | Stock  |       | Capital |  | Deficit     |            | Stock    |  | (Deficit)
|                                                                          |  |        |       |         |  |             |            |          |  |          
|Balance at June 30, 1999                                                  |  | $      | 1,455 |         |  | $           | 32,910,465 |          |  | $         | (63,142,417 | ) |  | $ | (5,424,701 | )             |  | $     | (35,655,198 | )
|Issuance of stock to Harter Financial,
Inc.                               |  |        | 20    |         |  |             | 112,480    |          |  |           |            |   |  |   |           |               |  |       | 112,500     |  
|Issuance of stock to guarantor of
credit facility                         |  |        | 300   |         |  |             | 3,374,700  |          |  |           |            |   |  |   |           |               |  |       | 3,375,000   |  
|Issuance of stock for debt restructuring                                  |  |        | 1,550 |         |  |             | 21,310,950 |          |  |           |            |   |  |   |           |               |  |       | 21,312,500  |  
|Net income                                                                |  |        |      |         |  |             |           |          |  |           | 14,117,969  |   |  |   |           |               |  |       | 14,117,969  |  
|                                                                          |  |        |       |         |  |             |            |          |  |           |             |   |  |   |            |               |  |       |             |  
|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   |  
|                                                                          |  |        |       |         |  |             |            |          |  |           |             |   |  |   |            |               |  |       |             |  

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

F-5



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##### 



CONTINUCARE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                    |                                                                                                |                                                                                        |                                                                                       |            |                             |           |            |          |      |            |           |            |   |             |  
|--------------------------------------------------- | ---------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ---------- | --------------------------- | --------- | ---------- | -------- | ---- | ---------- | --------- | ---------- | - | ----------- | -
|                                                    |                                                                                                |                                                                                        |                                                                                       |            | For the Year Ended June 30,
|                                                    |                                                                                                |                                                                                        |                                                                                       |            | 2002                        |           | 2001       |          | 2000
|                                                    |                                                                                                |                                                                                        |                                                                                       |            |                             |           |            |          |     
|CASH FLOWS FROM OPERATING ACTIVITIES                |                                                                                                |                                                                                        |                                                                                       |            |                             |           |            |          |      |            |           |           
|                                                    | Net (loss) income                                                                              |                                                                                        | $                                                                                     | (3,646,388 | )                           |           | $          | (137,902 | )    |            | $         | 14,117,969 |  
|                                                    | Adjustments to reconcile net (loss) income to cash provided by
(used in) operating activities: |                                                                                        |                                                                                       |            |                             |           |            |          |      |            |           |            |  
|                                                    |                                                                                                |                                                                                        | Depreciation and amortization, including amortization of
deferred
loan costs          |            |                             | 2,309,278 |            |          |      | 4,163,913  |           |            |   | 3,752,653   |  
|                                                    |                                                                                                |                                                                                        | Provision for bad debts                                                               |            |                             | 65,668    |            |          |      | 50,000     |           |            |   |            |  
|                                                    |                                                                                                |                                                                                        | Amortization of discount on notes payable                                             |            |                             | 12,309    |            |          |      | 109,983    |           |            |   | 258,349     |  
|                                                    |                                                                                                |                                                                                        | Contractual revision of previously recorded medical claims
liability                  |            |                             |          |            |          |      | (4,638,205 | )         |            |   | (3,053,853  | )
|                                                    |                                                                                                |                                                                                        | Gain on disposal of property and equipment and release from
asset related liabilities |            |                             | (28,642   | )          |          |      | (383,375   | )         |            |   | (23,123     | )
|                                                    |                                                                                                |                                                                                        | Gain on early extinguishment of debt                                                  |            |                             |          |            |          |      | (3,503,188 | )         |            |   | (13,247,907 | )
|                                                    |                                                                                                | Changes in assets and liabilities, excluding the effect of
acquisitions and disposals: |                                                                                       |            |                             |           |            |          |      |            |           |            |   |            
|                                                    |                                                                                                |                                                                                        | (Increase) decrease in accounts receivable                                            |            |                             | (79,503   | )          |          |      | (36,166    | )         |            |   | 509,558     |  
|                                                    |                                                                                                |                                                                                        | (Increase) decrease in prepaid expenses and other current assets                      |            |                             | (242,061  | )          |          |      | 62,170     |           |            |   | (69,532     | )
|                                                    |                                                                                                |                                                                                        | Increase in other receivables                                                         |            |                             | (70,590   | )          |          |      | (65,660    | )         |            |   | (431,920    | )
|                                                    |                                                                                                |                                                                                        | Increase in other assets                                                              |            |                             | (6,641    | )          |          |      | (4,604     | )         |            |   | (962        | )
|                                                    |                                                                                                |                                                                                        | Decrease in accounts payable and accrued expenses                                     |            |                             | (328,142  | )          |          |      | (357,751   | )         |            |   | (1,109,171  | )
|                                                    |                                                                                                |                                                                                        | (Increase) decrease in Due from HMOs, net                                             |            |                             | (808,713  | )          |          |      | 2,029,704  |           |            |   | (1,135,939  | )
|                                                    |                                                                                                |                                                                                        | Increase in due to Medicare, net                                                      |            |                             | 3,118,054 |            |          |      | 797,140    |           |            |   | 413,174     |  
|                                                    |                                                                                                |                                                                                        | (Decrease) increase in accrued interest payable                                       |            |                             | (6,995    | )          |          |      | 11,659     |           |            |   | 2,029,043   |  
|                                                    |                                                                                                |                                                                                        |                                                                                       |            |                             |           |            |          |      |            |           |           
|Net cash provided by (used in) operating activities |                                                                                                |                                                                                        | 287,634                                                                               |            |                             |           | (1,902,282 | )        |      |            | 2,008,339 |           
|                                                    |                                                                                                |                                                                                        |                                                                                       |            |                             |           |            |          |      |            |           |           
|CASH FLOWS FROM INVESTING ACTIVITIES                |                                                                                                |                                                                                        |                                                                                       |            |                             |           |            |          |      |            |           |           
|                                                    | Cash proceeds from disposal of property and equipment                                          |                                                                                        |                                                                                       |           |                             |           |            | 451,500  |      |            |           |           |  
|                                                    | Property and equipment additions                                                               |                                                                                        |                                                                                       | (185,599   | )                           |           |            | (231,339 | )    |            |           | (227,137   | )
|                                                    |                                                                                                |                                                                                        |                                                                                       |            |                             |           |            |          |      |            |           |           
|Net cash (used in) provided by investing activities |                                                                                                |                                                                                        | (185,599                                                                              | )          |                             |           | 220,161    |          |      |            | (227,137  | )         
|                                                    |                                                                                                |                                                                                        |                                                                                       |            |                             |           |            |          |      |            |           |           

Continued on next page.

F-6



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##### 



CONTINUCARE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

|                                                                              |                                                     |   |                             |           |      |   |            |            |   |   |            |            |  
|----------------------------------------------------------------------------- | --------------------------------------------------- | - | --------------------------- | --------- | ---- | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                                                              |                                                     |   | For the Year Ended June 30,
|                                                                              |                                                     |   | 2002                        |           | 2001 |   | 2000      
|                                                                              |                                                     |   |                             |           |      |   |           
|CASH FLOWS FROM FINANCING ACTIVITIES                                          |                                                     |   |                             |           |      |   |            |            |   |   |            |           
|                                                                              | Payments on Convertible Subordinated Notes          |   |                             | (273,896  | )    |   |            | (350,000   | ) |   |            | (560,000   | )
|                                                                              | Payments on Related Party Notes                     |   |                             | (63,854   | )    |   |            |           |   |   |            |           |  
|                                                                              | Principal repayments under capital lease obligation |   |                             | (106,251  | )    |   |            | (96,233    | ) |   |            | (40,319    | )
|                                                                              | Payment of deferred financing costs                 |   |                             | (15,000   | )    |   |            | (15,000    | ) |   |            | (15,000    | )
|                                                                              | Payment of restructuring costs                      |   |                             |          |      |   |            |           |   |   |            | (310,792   | )
|                                                                              | Repayment of Term and Revolving Notes               |   |                             |          |      |   |            | (150,000   | ) |   |            |           |  
|                                                                              | Net increase (decrease) in Credit Facility          |   |                             | 1,815,000 |      |   |            | 500,000    |   |   |            | (1,064,255 | )
|                                                                              | Advances from HMOs                                  |   |                             |          |      |   |            | 1,450,000  |   |   |            |           |  
|                                                                              | Payments on advances from HMOs                      |   |                             | (450,000  | )    |   |            | (1,000,000 | ) |   |            |           |  
|                                                                              | Repayments on acquisition liability                 |   |                             | (418,494  | )    |   |            |           |   |   |            |           |  
|                                                                              | Repayments to Medicare per agreement                |   |                             | (770,746  | )    |   |            | (666,704   | ) |   |            | (440,373   | )
|                                                                              |                                                     |   |                             |           |      |   |            |            |   |   |            |           
|Net cash used in financing activities                                         |                                                     |   | (283,241                    | )         |      |   | (327,937   | )          |   |   | (2,430,739 | )         
|                                                                              |                                                     |   |                             |           |      |   |            |            |   |   |            |           
|Net decrease in cash and cash equivalents                                     |                                                     |   | (181,206                    | )         |      |   | (2,010,058 | )          |   |   | (649,537   | )         
|Cash and cash equivalents at beginning of fiscal year                         |                                                     |   | 525,482                     |           |      |   | 2,535,540  |            |   |   | 3,185,077  |           
|                                                                              |                                                     |   |                             |           |      |   |            |            |   |   |            |           
|Cash and cash equivalents at end of fiscal year                               |                                                     | $ | 344,276                     |           |      | $ | 525,482    |            |   | $ | 2,535,540  |           
|                                                                              |                                                     |   |                             |           |      |   |            |            |   |   |            |           
|SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:                       |                                                     |   |                             |           |      |   |            |            |   |   |            |           
|Stock issued for deferred financing costs                                     |                                                     | $ |                            |           |      | $ |           |            |   | $ | 3,375,000  |           
|                                                                              |                                                     |   |                             |           |      |   |            |            |   |   |            |           
|Stock issued as final consideration for a prior business combination          |                                                     | $ | 18                          |           |      | $ |           |            |   | $ |           |           
|                                                                              |                                                     |   |                             |           |      |   |            |            |   |   |            |           
|Stock issued for extinguishment of debt                                       |                                                     | $ |                            |           |      | $ | 1,803,658  |            |   | $ | 21,312,500 |           
|                                                                              |                                                     |   |                             |           |      |   |            |            |   |   |            |           
|Repayment plans issued for refunds due to Medicare for overpayments           |                                                     | $ | 3,267,108                   |           |      | $ | 370,622    |            |   | $ | 642,005    |           
|                                                                              |                                                     |   |                             |           |      |   |            |            |   |   |            |           
|Purchase of furniture and fixtures with proceeds of capital lease
obligations |                                                     | $ | 48,784                      |           |      | $ | 127,428    |            |   | $ | 181,484    |           
|                                                                              |                                                     |   |                             |           |      |   |            |            |   |   |            |           
|Cash paid for interest                                                        |                                                     | $ | 266,945                     |           |      | $ | 580,665    |            |   | $ | 106,534    |           
|                                                                              |                                                     |   |                             |           |      |   |            |            |   |   |            |           

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

F-7



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##### 



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.
Continucares predecessor, Zanart Entertainment, Incorporated (Zanart) was
incorporated in 1986. On August 9, 1996, a subsidiary of Zanart merged into
Continucare Corporation (the Merger). As a result of the Merger, the
shareholders of Continucare became shareholders of Zanart, and Zanart changed
its name to Continucare Corporation. As of June 30, 2002 the Company operated,
owned and/or managed: (i) fifteen staff model clinics in South and Central
Florida; an Independent Practice Association with 41 physicians; and four Home
Health agencies. For Fiscal 2002 approximately 67% of net medical services
revenue was derived from managed care contracts with Humana Medical Plans, Inc.
(Humana) and 29% of net medical services revenue was derived from managed
care contracts with Foundation Health Corporation Affiliates (Foundation).
(Foundation and Humana may hereinafter be collectively referred to as the
HMOs.) For Fiscal 2001 approximately 60% of net medical services revenue was
derived from managed care contracts with Humana and 36% of net medical services
revenue was derived from managed care contracts with Foundation. For Fiscal
2000 approximately 57% of net medical services revenue was derived from managed
care contracts with Humana and 39% of net medical services revenue was derived
from managed care contracts with Foundation.

In Fiscal 2000, the Company instituted a series of measures intended to reduce
losses incurred in prior years and to operate its core business model
profitably. In spite of the measures instituted in Fiscal 2000, the Company
began to experience a deterioration in its claims loss ratio in the first and
second quarters of Fiscal 2001 and again in the first and second quarters of
Fiscal 2002, which resulted in operating losses and negative cash flow from
operations. Additionally, the impact of the deterioration of the claims loss
ratio did not allow the Company to reverse a significant working capital
deficiency which originated in prior years. Negative changes in the claims loss
ratio, such as were experienced in Fiscal 2001 and 2002, are due to increases
in the utilization of health services as well as increases in medical costs
without counterbalancing increases in premium revenues from the HMOs. If the
Company should experience a deterioration in the claims loss ratio in the first
two quarters of Fiscal 2003 that, 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 2003, the Company will experience a severe strain on
its cash flow. Historically, the Company has been able to realize advantageous
HMO benefit changes and premium increases in the third quarter of the fiscal
year. However, there can be no assurance that any benefit changes will occur
or be realized in the third quarter of Fiscal 2003 or that premium increases,
if any, will be able to offset negative health cost trends.

The financial statements have been prepared assuming that the Company will
continue as a going concern. At June 30, 2002, the working capital deficit was
approximately $7,587,000, total indebtedness accounted for approximately 91% of
the Companys total capitalization and the Company had approximately $2.3
million outstanding under the credit facility. The Companys cash flow from
operations in Fiscal 2002 was not sufficient to satisfy its debt obligations as
they became due, including payments on various notes payable, and fund its
capital expenditures. The Company funded the cash deficit in Fiscal 2002 from
the credit facility. (See Note 5.) However, on August 7, 2002, the Company
drew down the remaining available balance under the credit facility. The
credit facility matures on March 31, 2003. The Company obtained this credit
facility in Fiscal 2000 based on the personal guarantee of Dr. Phillip Frost
and an entity controlled by Charles Fernandez, former members of the board of
directors (collectively, the Guarantors). Their guarantee is effective
through the March 31, 2003 maturity date. Based on the Companys current cash
flow projections, it appears unlikely that the Company will have sufficient
funds available to fully repay the credit facility by March 31, 2003. While
the Company intends to either extend or replace the credit facility, either in
whole or in part, uncertainty exists as to whether the Company will be able to
extend or replace the credit facility without either the Guarantors extending
their guarantee or other individuals providing a personal guarantee. If
personal guarantees are required, there can be no assurance that we will be
able to obtain such guarantees. There

F-8



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1  GENERAL (CONTINUED)

can be no assurance that the Company will be successful in its 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. The Company continues to focus
on strengthening its core business unit 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. There can be no assurances that such measures will provide
sufficient cash flow to fund the Companys cash requirements in Fiscal 2003.

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.

Accounts ReceivableAccounts receivable result primarily from medical services
provided to patients on a fee-for-service basis and on a capitated 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 result from differences between
the rates charged for the service performed and amounts reimbursed under
government sponsored health care programs and insurance contracts. Charity and
other adjustments, which were immaterial for the years ended June 30, 2002,
2001, and 2000, 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 from HMOsThe HMOs pay most medical claims on behalf of the Company and
reduce amounts otherwise due to the Company by the amount of medical claims
paid and estimated to be paid. 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 rather reviewed for
impairment annually, or more frequently if certain indicators arise. Other
indicators of a permanent impairment include, among other things, significant
adverse change in legal factors or the business climate, 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. Intangible assets with
definite useful lives are amortized over their respective estimated useful
lives to

F-9



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

their estimated residual values, and also reviewed for impairment annually, or
more frequently if certain indicators arise, in accordance with SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived

Assets to be Disposed Of (SFAS No. 121). In performing the annual
impairment test, the Company compares the fair value of the Company, as
determined by the current market value of the common stock, to the carrying
value of the total assets, including goodwill and intangible assets. The
Company completed the transitional impairment analysis and determined that no
impairment existed at the time of the adoption of SFAS No. 142. Any subsequent
impairment losses will be reflected in operating income in the income statement
in the period in which the impairment is determined. The Company completed its
annual impairment test on May 1, 2002 and determined that no impairment
existed. Accordingly, no impairment charges were required at June 30, 2002,
2001 or 2000.

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 $691,000 and
$2,416,000 during Fiscal 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,     |           |             |  |  
|                       |  |            |           |              |  |              |           |             |  |  
|                       |  |            |           |              |  | 2002         |           | 2001        |  |   |           | 
|                       |  |            |           |              |  |              |           |             |  |   |           | 
|                       |  |            |           |              |  |              |           |             |  |   |           |  |  | Estimated
|                       |  | Intangible |           | Accumulated  |  | Accumulated  |           | Useful Life
|                       |  | Asset      |           | Amortization |  | Amortization |           | (in years) 
|                       |  |            |           |              |  |              |           |            
|Managed Care Contracts |  | $          | 3,509,985 |              |  | $            | 1,363,742 |             |  | $ | 1,010,930 |  |  |           | 9.6 | 
|Patient Lists          |  |            | 3,981,000 |              |  |              | 3,981,000 |             |  |   | 3,649,250 |  |  |           | 4   | 
|Other                  |  |            | 47,363    |              |  |              | 31,575    |             |  |   | 24,809    |  |  |           | 7   | 
|                       |  |            |           |              |  |              |           |             |  |   |           |  |  |           |     | 
|                       |  | $          | 7,538,348 |              |  | $            | 5,376,317 |             |  | $ | 4,684,989 |  |  |           |     | 
|                       |  |            |           |              |  |              |           |             |  |   |           |  |  |           |     | 

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,
|                                      |                                                                              |   |                    
|                                      |                                                                              |   | 2002                |            | 2001 |   | 2000    
|                                      |                                                                              |   |                     |            |      |   |         
|Reported Net (Loss) Income            |                                                                              | $ | (3,646,388          | )          |      | $ | (137,902 | )         |  | $ | 14,117,969 |           
|                                      | Add back amortization of intangible
assets no longer subject to
amortization |   |                     |           |      |   |          | 1,061,315 |  |   |            | 1,061,315  | 
|                                      |                                                                              |   |                     |            |      |   |          |           |  |   |            |           
|                                      | Adjusted net (loss) income                                                   |   | $                   | (3,646,388 | )    |   | $        | 923,413   |  |   | $          | 15,179,284 | 
|                                      |                                                                              |   |                     |            |      |   |          |           |  |   |            |           
|Basic and diluted earnings per share: |                                                                              |   |                     |            |      |   |          |           |  |   |            |           
|                                      | Reported net (loss) income                                                   |   | $                   | (.09       | )    |   | $        |          |  |   | $          | .65        | 
|                                      | Goodwill amortization                                                        |   |                     |           |      |   |          | .03       |  |   |            | .05        | 
|                                      |                                                                              |   |                     |            |      |   |          |           |  |   |            |           
|                                      | Adjusted net (loss) earnings per share                                       |   | $                   | (.09       | )    |   | $        | .03       |  |   | $          | .70        | 
|                                      |                                                                              |   |                     |            |      |   |          |           |  |   |            |           

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 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

F-10



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 $743,000 and $1,135,000 at June 30, 2002 and 2001,
respectively, based on the market value of the Companys common
stock.                                                                
|
| | Related party notes payableThe fair value was approximately
$173,000 and $265,000 at June 30, 2002 and 2001, 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, 2002 and 2001 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 are required to adopt SFAS No. 145 in fiscal years
beginning after May 15, 2002 but may 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 Statement 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 8).

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.

F-11



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 contracts with Humana and Foundation, 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 related to Foundation approximated 29%, 36% and 39% for
Fiscal 2002, 2001 and 2000, respectively. Total medical services net revenue
relating to Humana approximated 67%, 60% and 57% for Fiscal 2002, 2001 and
2000, 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, 2002 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 have been paid under
a prospective payment system administered by the Medicare program (PPS).
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 4%
of the Companys net medical service revenue for each of the years ended June
30, 2002, 2001, and 2000. 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.

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 capitated 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 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
statements of operations, and reinsurance recoveries are reported as a
reduction of related health care costs.

F-12



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

F-13



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 2002 and 2001,
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In August, 2001, the Financial Accounting
Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets (SFAS No. 144). SFAS No. 144 supersedes SFAS No. 121
and the accounting and reporting provisions of Opinion No. 30 as they relate to
the disposal of a segment of a business (as previously defined in that
Opinion). SFAS No. 144 retains the requirements of SFAS No. 121 to (a)
recognize an impairment loss if the carrying amount of a long-lived asset is
not recoverable from its undiscounted cash flows and (b) measure an impairment
loss as the difference between the carrying amount and fair value of the asset.
However, SFAS No. 144 addresses various implementation issues not addressed by

SFAS No. 121 or Opinion No. 30. This statement is effective for years
beginning after December 15, 2001. The adoption of this new accounting
standard is not expected to have a material impact on the Companys
consolidated financial position or results of operation.

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
|                                            |  | 2002     |            | 2001         |  | (in years)
|                                            |  |          |            |              |  |           
|Furniture, fixtures and equipment           |  | $        | 2,477,566  |              |  | $          | 2,329,241  |   |  |  | 3-5 | 
|Furniture and equipment under capital lease |  |          | 365,129    |              |  |            | 316,470    |   |  |  | 5   | 
|Vehicles                                    |  |          | 2,184      |              |  |            | 2,184      |   |  |  | 5   | 
|Leasehold improvements                      |  |          | 107,398    |              |  |            | 94,627     |   |  |  | 5   | 
|                                            |  |          |            |              |  |            |            |   |  |  |     | 
|                                            |  |          | 2,952,277  |              |  |            | 2,742,522  |   |  |  |     | 
|Less accumulated depreciation               |  |          | (2,367,905 | )            |  |            | (2,039,028 | ) |  |  |     | 
|                                            |  |          |            |              |  |            |            |   |  |  |     | 
|                                            |  | $        | 584,372    |              |  | $          | 703,494    |   |  |  |     | 
|                                            |  |          |            |              |  |            |            |   |  |  |     | 

Depreciation expense for the years ended June 30, 2002, 2001 and 2000 was
$339,575, $467,148 and $491,276, 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

F-14



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3  EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS (CONTINUED)

ranging from 9% to 35% per annum. Accumulated amortization for assets recorded
under capital lease agreements was approximately $214,000 at June 30, 2002.
Amortization of assets recorded under capital lease agreements was
approximately $98,000 for the year ended June 30, 2002, 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, |                                                  |  |         |        
|                             | 2003                                             |  | $       | 114,877 | 
|                             | 2004                                             |  |         | 32,404  | 
|                             | 2005                                             |  |         | 14,129  | 
|                             | 2006                                             |  |         | 1,191   | 
|                             |                                                  |  |         |        
|                             |                                                  |  | 162,601 |        
|                             | Less amount representing imputed interest        |  |         | 12,951  | 
|                             |                                                  |  |         |        
|                             | Present value of obligations under capital lease |  |         | 149,650 | 
|                             | Less current portion                             |  |         | 107,479 | 
|                             |                                                  |  |         |        
|                             | Long-term capital lease obligations              |  | $       | 42,171  | 
|                             |                                                  |  |         |        

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 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 of the Notes at June 30, 2002 was
approximately $3,913,000.

At the time the Notes were issued, interest on the Notes accrued at 8% and was
payable semiannually beginning April 30, 1998. The 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 Notes were
redeemable, in whole or in part, at the option of the Company 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 Notes and
recorded a gain on retirement of debt of $130,197. The Company used cash from
operations to redeem the Notes.

On April 30, 1999 (the April 1999 Default Date), the Company defaulted on its
semi-annual payment of interest on the outstanding Notes. On the April 1999
Default Date, the outstanding principal balance of the 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 Notes for $210,000
and recorded a gain on extinguishment of debt of approximately $3,776,000. The
Company funded the purchase of the 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 Notes. On the October
1999 Default Date, the outstanding principal balance of the Notes was
$41,000,000 and the related accrued interest was approximately $3,300,000.

The Company completed a restructuring of the 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

F-15



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4  CONVERTIBLE SUBORDINATED NOTES PAYABLE AND RELATED PARTY NOTE
PAYABLE (CONTINUED)

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
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 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 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 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 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 Notes. On the April 2001
Default Date, the outstanding principal balance of the 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
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 Notes in the
principal amount of $6,219,511 (the Purchased 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, holders of the remaining
$3,800,000 of outstanding Notes restructured various terms of the Notes, 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 under the Notes.

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

F-16



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4  CONVERTIBLE SUBORDINATED NOTES PAYABLE AND RELATED PARTY NOTE
PAYABLE (CONTINUED)

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 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.

In accordance with SFAS No. 15, the balance of the outstanding Notes on the
balance sheet of $4,630,364 at June 30, 2002, includes interest accrued through
June 30, 2002 of $45,649 and the remaining interest of $671,909 which will be
payable in quarterly payments through October 31, 2005. The balance of the
Related Party Notes on the balance sheet of $1,125,040 at June 30, 2002, also
recorded in accordance with SFAS No. 15, includes interest of $212,845 which
will be payable in semi-annual payments through the maturity date of October
31, 2005. Scheduled payments on the Notes and the Related Party Notes are as
follows:

|            |  |           |           |          |  |       |         |  |  |   |           | 
|----------- |  | --------- | --------- | -------- |  | ----- | ------- |  |  | - | --------- | 
|            |  | Principal |           | Interest |  | Total
|            |  |           |           |          |  |      
|Fiscal 2003 |  | $         |          |          |  | $     | 337,750 |  |  | $ | 337,750   | 
|Fiscal 2004 |  |           | 1,148,000 |          |  |       | 297,570 |  |  |   | 1,445,570 | 
|Fiscal 2005 |  |           | 1,148,000 |          |  |       | 217,210 |  |  |   | 1,365,210 | 
|Fiscal 2006 |  |           | 2,529,001 |          |  |       | 77,873  |  |  |   | 2,606,874 | 
|            |  |           |           |          |  |       |         |  |  |   |           | 
|            |  | $         | 4,825,001 |          |  | $     | 930,403 |  |  | $ | 5,755,404 | 
|            |  |           |           |          |  |       |         |  |  |   |           | 

NOTE 5  CREDIT FACILITY AND LONG-TERM DEBT

The following long-term debt was outstanding as of June 30, 2002 and 2001.

|                           |  |      |            |      |  |   |           | 
|-------------------------- |  | ---- | ---------- | ---- |  | - | --------- | 
|                           |  | 2002 |            | 2001
|                           |  |      |            |     
|Contract Modification Note |  | $    | 3,829,037  |      |  | $ | 3,816,728 | 
|Acquisition Liability      |  |      | 81,506     |      |  |   | 500,000   | 
|Credit Facility            |  |      | 2,315,000  |      |  |   | 500,000   | 
|Other Outstanding Notes    |  |      | 4,143,414  |      |  |   | 1,647,052 | 
|                           |  |      |            |      |  |   |           | 
|                           |  |      | 10,368,957 |      |  |   | 6,463,780 | 
|Less Current Portion       |  |      | 6,771,835  |      |  |   | 5,452,076 | 
|                           |  |      |            |      |  |   |           | 
|Long-Term                  |  | $    | 3,597,122  |      |  | $ | 1,011,704 | 
|                           |  |      |            |      |  |   |           | 

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.

F-17



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5  CREDIT FACILITY AND LONG-TERM DEBT (CONTINUED)

On September 27, 2000, the Company entered into an agreement to amend the
repayment terms. However at June 30, 2002 and 2001, the Company was not in
compliance with the amended repayment terms and the outstanding balance has
been classified as a current liability in the accompanying consolidated balance
sheet. The Company is currently in the process of renegotiating the terms of
this contract modification note. However, there can be no assurances that an
agreement can be reached.

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. While the liability is non-interest bearing, the Company has imputed
interest at 8%. During Fiscal 1999, the Company ceased making payments on the
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 long-term debt liabilities 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
long-term debt by approximately $351,000. Under the 2000 Amendment, the
outstanding balance 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
long-term debt 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. At June 30, 2002, the outstanding balance of the
acquisition liability was $81,506.

Credit FacilityIn August 1998, the Company entered into a credit facility with
First Union Bank (the 1998 Credit Facility). The 1998 Credit Facility
provided for a $5,000,000 acquisition facility and a $5,000,000 revolving loan.
The Company borrowed the entire $5,000,000 acquisition facility to fund
acquisitions. The Company never utilized the revolving loan. During April
1999, the Company used approximately $4,000,000 of the net proceeds from the
sale of one of its subsidiaries to reduce the outstanding balance of the 1998
Credit Facility. In connection with the payment, the Company entered into an
amendment to the 1998 Credit Facility, which provided, among other things, for
the repayment of the remaining outstanding principal balance by December 31,
1999. The Company obtained a waiver which extended the due date on the
remaining balance to February 1, 2000 and repaid the remaining outstanding
balance on January 31, 2000.

In conjunction with the Fiscal 2000 Restructuring, the Company executed a new
credit facility agreement (the Credit Facility). The Credit Facility
provides a revolving loan of $3,000,000. The Credit Facility is due and
expires on March 31, 2003. The Credit Facility may be renewed annually at the
option of the lender. Interest is payable monthly at 2.9% plus the 30-day
Dealer Commercial Paper Rate which was 1.76% at June 30, 2002. All assets of
the Company serve as collateral for the Credit Facility. In addition, the
Credit Facility has been guaranteed by Dr. Phillip Frost and an entity
controlled by Charles Fernandez, both of whom were board members at the time of
the Fiscal 2000 Restructuring. In consideration for providing the guarantees,
the Company issued 3,000,000 shares of the Companys common stock. These
shares, which were valued at $3,375,000 based on the closing price of the
Companys common stock on February 11, 2000 when the guarantees were granted,
have been recorded as a

F-18



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5  CREDIT FACILITY AND LONG-TERM DEBT (CONTINUED)

deferred financing cost which is being amortized over the term of the
guarantee, which expires March 31, 2003. At June 30, 2002, the outstanding
balance of the Credit Facility was $2,315,000. As of August 7, 2002, the
Company had drawn down the remaining available balance on the Credit Facility.

Other Outstanding NotesIn conjunction with the operation of its Home Health
Division, the Company has entered into fourteen (14) repayment agreements (the
Repayment Agreements) with a governmental agency. 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 fourteen Repayment Agreements are non-interest bearing.
The interest rates on the remaining twelve Repayment Agreements range from
12.625% to 13.875%. These Repayment Agreements originally had maturity dates
ranging from Fiscal 2003 to Fiscal 2007. In August 2002, the Company obtained
a modification from the governmental agency to extend the maturity dates for
all the Repayment Agreements. The maturity dates for the Repayment Agreements,
as revised by this modification, now range from Fiscal 2003 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 the Centers for
Medicare and Medicaid Services (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. When the Company purchased RMS, the purchase agreement included
indemnification from IHS for any overpayments prior to calendar year 1997.
Subsequent to the Companys 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 CMS was pursuing the Company as the primary obligor for all of the Alleged
Overpayments, including the 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 has entered into a memorandum of understanding for the 1996 cost report
year (the Memorandum) and has recorded an approximately $2,441,000 Provision
for Medicare Settlement Related to Terminated Operations during the quarter
ended March 31, 2002. Under this Memorandum, the Company will make monthly
payments of $10,000 for 24 months with the balance of the Memorandum due at the
end of the term. The Company has retained the right to dispute the Alleged
Overpayments and continues to review and evaluate all information available to
determine the validity of CMS claims. During September 2002, the Company
requested a reopening of the cost reports and supplied various documentation
for cost report years 1996 and 1997 to demonstrate that the Alleged
Overpayments are incorrect. The accrual for all Alleged Overpayments is
approximately $2,773,000 as of June 30, 2002, of which approximately $251,000
is reflected in current liabilities. (See Note 11Commitments and
Contingencies)

F-19



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5  CREDIT FACILITY AND LONG-TERM DEBT (CONTINUED)

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

|            |  |   |            | 
|----------- |  | - | ---------- | 
|Fiscal 2003 |  | $ | 6,771,835  | 
|Fiscal 2004 |  |   | 2,758,871  | 
|Fiscal 2005 |  |   | 265,975    | 
|Fiscal 2006 |  |   | 260,501    | 
|Fiscal 2007 |  |   | 270,993    | 
|Thereafter  |  |   | 40,782     | 
|            |  |   |            | 
|            |  | $ | 10,368,957 | 
|            |  |   |            | 

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,
|                                                    |                                   |  | 2002                |            | 2001 |  | 2000
|                                                    |                                   |  |                     |            |      |  |     
|Numerator for basic and dilutive
earnings per share |                                   |  |                     |            |      |  |      |            |   |  |   |           
|                                                    | Net (loss) income                 |  | $                   | (3,646,388 | )    |  | $    | (137,902   | ) |  | $ | 14,117,969 | 
|                                                    |                                   |  |                     |            |      |  |      |            |   |  |   |           
|Denominator for basic and diluted
earnings (loss)   |                                   |  |                     |            |      |  |      |            |   |  |   |           
|                                                    | Per share-weighted average shares |  |                     | 39,634,601 |      |  |      | 33,257,130 |   |  |   | 21,587,086 | 
|                                                    |                                   |  |                     |            |      |  |      |            |   |  |   |           

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.

For additional disclosure regarding the employee stock options and warrants see
Note 8.

NOTE 7  RELATED PARTY TRANSACTIONS

In May 1999, the Company entered into an agreement with Harter Financial, Inc.
(Harter) to assist it with a financial reorganization and to represent the
Company in negotiating the restructuring of the Notes and a settlement with the
noteholders. As compensation for its services, Harter received an initial fee
of $50,000 on May 18, 1999. On October 18, 1999, the Board of Directors
approved a final compensation package to Harter consisting of a cash payment of
$150,000 and the issuance of 200,000 unregistered shares of the Companys
common stock, which were valued at $112,500 based on the closing price of the
Companys common stock on the date of grant. Mr. Angel, the Companys
president and chief executive officer is also the president and a 15%
shareholder of Harter. However, as of May 18, 1999, Mr. Angel was not an
officer or director of the Company.

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.

F-20



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7  RELATED PARTY TRANSACTIONS (CONTINUED)

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. Mr. Angel, the Companys president and chief
executive officer, and an entity controlled by Mr. Angel comprise 40% of this
investor group.

NOTE 8  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 2001 and 2000, respectively: risk-free interest rates of 5.61%
and 5.85%; dividend yields of 0%; volatility factors of the expected market
price of the Companys common stock of 90.8% and 82.5%, and a weighted-average
expected life of the options of 10 and 10. There were no grants of stock
options during Fiscal 2002.

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.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options vesting period. The Companys pro
forma information follows:

|                                                        |  |                     |            |      |  |      |          |   |  |   |            | 
|------------------------------------------------------- |  | ------------------- | ---------- | ---- |  | ---- | -------- | - |  | - | ---------- | 
|                                                        |  | Year Ended June 30,
|                                                        |  | 2002                |            | 2001 |  | 2000
|                                                        |  |                     |            |      |  |     
|Pro forma net (loss) income                             |  | $                   | (3,646,388 | )    |  | $    | (137,902 | ) |  | $ | 13,326,315 | 
|Basic and diluted pro
forma net income (loss)
per share |  | $                   | (.09       | )    |  | $    |         |   |  | $ | .62        | 

F-21



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8  STOCK OPTION PLAN AND WARRANTS (CONTINUED)

The following table summarizes information related to the Companys stock
option activity for the years ended June 30, 2002, 2001 and 2000:

|                                                               |  |                     |           |                  |  |           |      |                  |  |           |           |                  |  |   |      |  |  |   |           |   |  |   |      | 
|-------------------------------------------------------------- |  | ------------------- | --------- | ---------------- |  | --------- | ---- | ---------------- |  | --------- | --------- | ---------------- |  | - | ---- |  |  | - | --------- | - |  | - | ---- | 
|                                                               |  | Year Ended June 30,
|                                                               |  |                    
|                                                               |  | 2002                |           | 2001             |  | 2000     
|                                                               |  |                     |           |                  |  |          
|                                                               |  | Number              |           | Weighted Average |  | Number    |      | Weighted Average |  | Number    |           | Weighted Average
|                                                               |  | of Shares           |           | Exercise Price   |  | of Shares |      | Exercise Price   |  | of Shares |           | Exercise Price  
|                                                               |  |                     |           |                  |  |           |      |                  |  |           |           |                 
|Outstanding at beginning of the year                           |  |                     | 2,996,750 |                  |  | $         | 1.30 |                  |  |           | 494,000   |                  |  | $ | 5.44 |  |  |   | 1,138,500 |   |  | $ | 5.58 | 
|Granted                                                        |  |                     |          |                  |  |           |     |                  |  |           | 2,611,000 |                  |  |   | .69  |  |  |   | 25,000    |   |  |   | 2.00 | 
|Forfeited                                                      |  |                     | (680,750  | )                |  |           | 1.34 |                  |  |           | (108,250  | )                |  |   | 5.48 |  |  |   | (669,500  | ) |  |   | 5.54 | 
|                                                               |  |                     |           |                  |  |           |      |                  |  |           |           |                  |  |   |      |  |  |   |           |   |  |   |      | 
|Outstanding at end of the year                                 |  |                     | 2,316,000 |                  |  |           |      |                  |  |           | 2,996,750 |                  |  |   |      |  |  |   | 494,000   |   |  |   |      | 
|                                                               |  |                     |           |                  |  |           |      |                  |  |           |           |                  |  |   |      |  |  |   |           |   |  |   |      | 
|Exercisable at end of the year                                 |  |                     | 1,065,997 |                  |  |           |      |                  |  |           | 1,595,000 |                  |  |   |      |  |  |   | 464,000   |   |  |   |      | 
|                                                               |  |                     |           |                  |  |           |      |                  |  |           |           |                  |  |   |      |  |  |   |           |   |  |   |      | 
|Weighted average fair value of
options
granted during the year |  |                     |          |                  |  |           |      |                  |  | $         | .61       |                  |  |   |      |  |  | $ | .30       |   |  |   |      | 
|                                                               |  |                     |           |                  |  |           |      |                  |  |           |           |                  |  |   |      |  |  |   |           |   |  |   |      | 

The following table summarizes information about the options outstanding at
June 30, 2002:

|              |           |                     |         |                     |  |                  |      |             |  |                  |      |     |  |  |         |           |  |   |      |     | 
|------------- | --------- | ------------------- | ------- | ------------------- |  | ---------------- | ---- | ----------- |  | ---------------- | ---- | --- |  |  | ------- | --------- |  | - | ---- | --- | 
|Range         |           | Options Outstanding |         | Options Exercisable
|of            |           |                     |         |                    
|Exercise      |           |                     |         |                     |  | Weighted Average |      |             |  |                  |      |     |  |  |         |           |  |  
|Prices        |           | Outstanding at      |         | Remaining           |  | Weighted Average |      | Number      |  | Weighted Average
|              |           | June 30, 2002       |         | Contractual Life    |  | Exercise Price   |      | Exercisable |  | Exercise Price  
|              |           |                     |         |                     |  |                  |      |             |  |                 
|$5.125-$5.875 |           |                     | 300,000 |                     |  |                  | 5.28 |             |  | $                | 5.31 |     |  |  | 300,000 |           |  | $ | 5.31 |    
|              | $.32-$.69 |                     |         | 2,016,000           |  |                  |      | 8.15        |  |                  |      | .69 |  |  |         | 1,305,997 |  |   |      | .69 | 

In connection with the sale of the Notes in Fiscal 1998 (see Note 4), the
Company issued warrants to purchase 200,000 shares of the Companys common
stock with exercise prices ranging from $8.00 to $12.50 per share as a
placement fee. The fair market value of the warrants at date of issuance was
$775,000. This amount was being amortized, using the interest method, over the
life of the Notes. However, in connection with the Fiscal 2000 Restructuring,
the remaining unamortized balance was written off and is included in the gain
on extinguishment of debt for the year ended June 30, 2000. During Fiscal
1998, warrants to purchase 250,000 shares of common stock at $3.15 per share
were exercised. The Company has 760,000 warrants outstanding at June 30, 2002
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, 2002
as follows:

|                                |  |  |           | 
|------------------------------- |  |  | --------- | 
|Convertible subordinated notes  |  |  | 3,912,806 | 
|Convertible related party notes |  |  | 912,195   | 
|Warrants                        |  |  | 760,000   | 
|Stock Options                   |  |  | 2,316,000 | 
|                                |  |  |           | 
|Total                           |  |  | 7,901,001 | 
|                                |  |  |           | 

F-22



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9  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,
2002, 2001 and 2000 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,
|                                   |                                       |   | 2002     |             | 2001 |   | 2000
|                                   |                                       |   |          |             |      |   |     
|Deferred tax assets:               |                                       |   |          |             |      |   |      |             |   |   |   |            
|                                   | Bad debt and notes receivable reserve |   | $        | 4,603,954   |      |   | $    | 4,579,119   |   |   | $ | 4,817,719   |  
|                                   | Depreciable/amortizable assets        |   |          |            |      |   |      | 386,686     |   |   |   | 577,136     |  
|                                   | Alternative minimum tax credit        |   |          |            |      |   |      | 111,973     |   |   |   | 111,973     |  
|                                   | Other                                 |   |          | 937,650     |      |   |      | 1,013,159   |   |   |   | 1,127,065   |  
|                                   | Impairment charge                     |   |          | 2,513,767   |      |   |      | 2,660,663   |   |   |   | 3,285,430   |  
|                                   | Capital loss carryover                |   |          | 200,261     |      |   |      | 200,261     |   |   |   | 200,261     |  
|                                   | Net operating loss carryforward       |   |          | 3,907,860   |      |   |      | 2,195,114   |   |   |   | 2,522,780   |  
|                                   |                                       |   |          |             |      |   |      |             |   |   |   |            
|                                   | Deferred tax assets                   |   |          | 12,163,492  |      |   |      | 11,146,975  |   |   |   | 12,642,364  |  
|Deferred tax liabilities:          |                                       |   |          |             |      |   |      |             |   |   |   |            
|                                   | Depreciable/amortizable assets        |   |          | (63,762     | )    |   |      |            |   |   |   |            |  
|                                   | Other                                 |   |          |            |      |   |      | (40,211     | ) |   |   | (23,126     | )
|                                   | Valuation allowance                   |   |          | (12,099,730 | )    |   |      | (11,106,764 | ) |   |   | (12,619,238 | )
|                                   |                                       |   |          |             |      |   |      |             |   |   |   |            
|                                   | Deferred tax liabilities              |   |          | (12,163,492 | )    |   |      | (11,146,975 | ) |   |   | (12,642,364 | )
|                                   |                                       |   |          |             |      |   |      |             |   |   |   |            
|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 $12,099,730, $11,106,764 and
$12,619,238 is necessary at June 30, 2002, 2001 and 2000, 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 $993,000 for the year ended June 30, 2002. At June 30, 2002, the
Company had available net operating loss carryforwards of approximately
$10,385,000, which expire in 2013 through 2021.

For financial reporting purposes, the Company reported a gain of $13,247,907
for the year ended June 30, 2000, resulting from the forgiveness of
indebtedness relating to debt restructuring. Pursuant to Section 108 of the
Internal Revenue Code, the Company believes that this gain is excluded from
income taxation and certain tax attributes (i.e. net operating losses) of the
Company are being reduced by the amount of such debt forgiveness. As a result,
the Companys net operating loss carryforwards have been reduced by an amount
representing the Companys discharge of indebtedness income.

A reconciliation of the statutory federal income tax rate with the Companys
effective income tax rate for the years

F-23



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9  INCOME TAXES (CONTINUED)

ended June 30, 2002, 2001 and 2000 is as follows:

|                                                      |  |                     |       |      |  |      |        |    |  |  |        |  
|----------------------------------------------------- |  | ------------------- | ----- | ---- |  | ---- | ------ | -- |  |  | ------ | -
|                                                      |  | Year Ended June 30,
|                                                      |  |                    
|                                                      |  | 2002                |       | 2001 |  | 2000
|                                                      |  |                     |       |      |  |     
|Statutory federal rate                                |  |                     | (34.0 | )%   |  |      | (34.0  | )% |  |  | 34.0   | %
|State income taxes, net of federal income tax benefit |  |                     | (3.63 | )    |  |      | 7.37   |    |  |  | (0.89  | )
|Goodwill and other non-deductible items               |  |                     | 4.50  |      |  |      | 103.04 |    |  |  | 0.84   |  
|Change in valuation allowance                         |  |                     | 30.30 |      |  |      | (76.41 | )  |  |  | (30.66 | )
|Other                                                 |  |                     | 2.83  |      |  |      |       |    |  |  | (3.29  | )
|                                                      |  |                     |       |      |  |      |        |    |  |  |        |  
|Effective (benefit) tax rate                          |  |                     | 0     | %    |  |      | 0      | %  |  |  | 0      | %
|                                                      |  |                     |       |      |  |      |        |    |  |  |        |  

NOTE 10  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 eighteen (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
$11,000 (for calendar year ending December 31, 2002) 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, 2002, 2001
or 2000. 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 11  COMMITMENTS AND CONTINGENCIES

Employment Agreements:

The Company maintains employment agreements with certain officers and key
executives expiring at various dates through October 1, 2002. 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.

F-24



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11  COMMITMENTS AND CONTINGENCIES (CONTINUED)

Leases:

The Company leases office space and equipment under various non-cancelable
operating leases. Rent expense under such operating leases was $2,040,696,
$2,081,428 and $2,304,299 for the years ended June 30, 2002, 2001 and 2000,
respectively. Future annual minimum payments under such leases as of June 30,
2002 are as follows:

|                                    |       |   |         |           | 
|----------------------------------- | ----- | - | ------- | --------- | 
|For the fiscal year ending June 30, |       |   |         |          
|2003                                |       | $ | 640,147 |          
|2004                                |       |   | 466,769 |          
|2005                                |       |   | 194,030 |          
|2006                                |       |   | 15,829  |          
|                                    |       |   |         |          
|                                    | Total |   | $       | 1,316,775 | 
|                                    |       |   |         |          

Concentrations of Revenues:

For the years ended June 30, 2002, 2001 and 2000, the Company generated
approximately 29%, 36% and 39%, respectively, of total revenues from Foundation
Health Corporation. Humana Medical Plans, Inc. accounted for 67%, 60% and 57%,
respectively, of total revenues in Fiscal 2002, 2001 and 2000.

Other Commitments:

One of the HMO contracts requires that we fund a claims reserve out of
operating profits of certain of the staff model clinics. As of June 30, 2002,
the unfunded portion of this required reserve was approximately $200,000.

Legal Proceedings:

We settled the case of CONTINUCARE CORPORATION, A FLORIDA CORPORATION,
CONTINUCARE PHYSICIAN PRACTICE MANAGEMENT, INC. (CPPM), v. JAY A. ZISKIND, AN
INDIVIDUAL, KENNETH I. ARVIN, AN INDIVIDUAL, TRACY ARVIN, AN INDIVIDUAL,
ZISKIND & ARVIN, P.A., A PROFESSIONAL ASSOCIATION, NORMAN B. GAYLIS, M.D., AN
INDIVIDUAL AND ZAG GROUP, INC., A FLORIDA CORPORATION (COLLECTIVELY ZAG). As
part of the settlement, we released all existing restrictions on 575,000 shares
of common stock previously delivered in accordance with the Agreement and Plan
of Merger and Registration Rights Agreement, dated September 18, 1998 and
issued an additional 175,000 shares of our common stock to the shareholders of
ZAG. Additionally, all parties executed mutual general releases.

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 the Company 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. The Company has 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 have also asserted a right to reimbursement of certain
attorneys fees. As of the date of this filing, the court has not scheduled a
date for a hearing to address these matters.

Two subsidiaries of the Company are 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. The
complaint alleges vicarious liability for medical malpractice and seeks damages
in excess of $15,000. The Company filed its answer on May 3, 2000. Discovery
is still proceeding. The Company has made a demand for assumption of defense
and indemnification from Kahn and Riskin, M.D., P.A. and Wayne Riskin, M.D.
The demand was initially rejected, but is currently being re-evaluated. The
Company and the insurance carriers for Kahn and Riskin, M.D. have been
discussing apportionment of responsibilities. The Company intends to defend
this case vigorously.

F-25



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11  COMMITMENTS AND CONTINGENCIES (CONTINUED)

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. The Company intends
to defend this case vigorously.

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. (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 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. When the
Company purchased RMS, the purchase agreement included indemnification from IHS
for any overpayments prior to calendar year 1997. Subsequent to the Companys
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 CMS was pursuing the
Company as the primary obligor for all of the Alleged Overpayments, including
the 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 has entered into a
memorandum of understanding for the 1996 cost report year and has recorded an
approximately $2,441,000 Provision for Medicare Settlement Related to
Terminated Operations during the quarter ended March 31, 2002. Under this
Memorandum, the Company will make monthly payments of $10,000 for 24 months
with the balance of the Memorandum due at the end of the term. The Company has
retained the right to dispute the Alleged Overpayments and continues to review
and evaluate all information available to determine the validity of CMS
claims. During September 2002, the Company requested a reopening of the cost
reports and supplied various documentation for cost report years 1996 and 1997
to demonstrate that the Alleged Overpayments are incorrect. The accrual for
all Alleged Overpayments is approximately $2,773,000 as of June 30, 2002, of
which approximately $251,000 is reflected in current liabilities.

In fiscal year 1999, the Company closed or dissolved certain subsidiaries, some
of which had pending claims against them. The liability associated with these
closed or dissolved subsidiaries was approximately $749,000 at June 30, 2001.
In January 2002, the Company settled the majority of this liability for
$25,000. Approximately $684,000 of the liability was reversed and was included
as a reduction of General and Administrative Expenses during the quarter ended
December 31, 2001. In March 2002, it was determined that the remaining balance
of the rationalization liability had been resolved in a prior year.
Accordingly, the remaining balance of the rationalization liability of
approximately $40,000 was reversed and included as a reduction of General and
Administrative Expenses during the quarter ended March 31, 2002.

The Company is also involved in various 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

F-26



---



##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11  COMMITMENTS AND CONTINGENCIES (CONTINUED)

employed and contracted medical professionals, workers compensation claims and
other employee-related matters, and minor disputes with equipment lessors and
other vendors.

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.

NOTE 12  SUBSEQUENT EVENT

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 all 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 will be recorded as director compensation in the
first quarter of Fiscal 2003 based upon the closing price of the Companys
common stock on the date of their election.

NOTE 13  VALUATION AND QUALIFYING ACCOUNTS

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

|                                                                |  |                     |            |      |  |      |            |   |  |   |            |  
|--------------------------------------------------------------- |  | ------------------- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                                                |  | Year ended June 30,
|                                                                |  | 2002                |            | 2001 |  | 2000
|                                                                |  |                     |            |      |  |     
|Allowance for doubtful accounts related to accounts
receivable: |  |                     |            |      |  |      |            |   |  |   |            |  
|Balance at beginning of period                                  |  | $                   | 4,741,000  |      |  | $    | 4,691,000  |   |  | $ | 4,691,000  |  
|Provision for doubtful accounts                                 |  |                     | 66,000     |      |  |      | 50,000     |   |  |   |           |  
|Write-offs of uncollectible accounts receivable                 |  |                     |           |      |  |      |           |   |  |   |           |  
|                                                                |  |                     |            |      |  |      |            |   |  |   |            |  
|Balance at end of period                                        |  | $                   | 4,807,000  |      |  | $    | 4,741,000  |   |  | $ | 4,691,000  |  
|                                                                |  |                     |            |      |  |      |            |   |  |   |            |  
|Allowance for doubtful accounts related to notes receivable:    |  |                     |            |      |  |      |            |   |  |   |            |  
|Balance at beginning of period                                  |  | $                   | 6,367,000  |      |  | $    | 7,051,000  |   |  | $ | 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  |   |  | $ | 7,051,000  |  
|                                                                |  |                     |            |      |  |      |            |   |  |   |            |  
|Tax valuation allowance for deferred tax assets:                |  |                     |            |      |  |      |            |   |  |   |            |  
|Balance at beginning of period                                  |  | $                   | 11,106,764 |      |  | $    | 12,619,238 |   |  | $ | 16,948,110 |  
|Additions                                                       |  |                     | 992,966    |      |  |      |           |   |  |   |           |  
|Deductions                                                      |  |                     |           |      |  |      | (1,512,474 | ) |  |   | (4,328,872 | )
|                                                                |  |                     |            |      |  |      |            |   |  |   |            |  
|Balance at end of period                                        |  | $                   | 12,099,730 |      |  | $    | 11,106,764 |   |  | $ | 12,619,238 |  
|                                                                |  |                     |            |      |  |      |            |   |  |   |            |  

F-27



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##### 



CONTINUCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)

|                                            |  |                                  |            |                |  |               |            |                |  |   |            |   |  |   |            | 
|------------------------------------------- |  | -------------------------------- | ---------- | -------------- |  | ------------- | ---------- | -------------- |  | - | ---------- | - |  | - | ---------- | 
|                                            |  | For the Year Ended June 30, 2002
|                                            |  |                                 
|                                            |  | First Quarter                    |            | Second Quarter |  | Third Quarter |            | Fourth Quarter
|Total revenue                               |  | $                                | 23,730,294 |                |  | $             | 26,263,009 |                |  | $ | 28,169,950 |   |  | $ | 27,526,035 | 
|Net (loss) income                           |  | $                                | (1,569,670 | )              |  | $             | (586,460   | )              |  | $ | (2,422,586 | ) |  | $ | 932,328    | 
|Basic and diluted (loss) earnings per share |  | $                                | (.04       | )              |  | $             | (.01       | )              |  | $ | (.06       | ) |  | $ | .02        | 

|                                            |  |                                      |            |                |  |               |            |                |  |   |            |  |  |   |            | 
|------------------------------------------- |  | ------------------------------------ | ---------- | -------------- |  | ------------- | ---------- | -------------- |  | - | ---------- |  |  | - | ---------- | 
|                                            |  | For the Year Ended June 30, 2001 (a)
|                                            |  |                                     
|                                            |  | First Quarter                        |            | Second Quarter |  | Third Quarter |            | Fourth Quarter
|Total
revenue                               |  | $                                    | 29,636,491 |                |  | $             | 29,923,561 |                |  | $ | 29,589,882 |  |  | $ | 23,457,982 | 
|Net (loss) income                           |  | $                                    | (2,043,779 | )              |  | $             | (3,707,872 | )              |  | $ | 2,393,911  |  |  | $ | 3,219,838  | 
|Basic and diluted (loss) earnings per share |  | $                                    | (.06       | )              |  | $             | (.11       | )              |  | $ | .07        |  |  | $ | .10        | 



|(a) |  | As discussed in Note 2, the Company adopted the provisions of SFAS No.
145 during the fourth quarter of Fiscal 2002 which requires all
extinguishments of debt in prior periods to be reclassified and included
in Loss/Income from Operations. Therefore, the above quarterly
information from Fiscal 2001 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 of Fiscal 2001.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-28



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##### 



EXHIBIT INDEX

|                                                                        |  |                |      | 
|----------------------------------------------------------------------- |  | -------------- | ---- | 
|Description                                                             |  | Exhibit Number
|                                                                        |  |               
|Subsidiaries of the Company                                             |  |                | 21.1 | 
|Consent of Ernst & Young LLP                                            |  |                | 23.1 | 
|Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |                | 99.2 |