##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-K
  x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 001-12115
 CONTINUCARE CORPORATION
  Florida
    
    59-2716023(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 7200 Corporate Center DriveSuite 600Miami, Florida
    
    33126(Address of Principal Executive Offices)
    
    (Zip Code)
 (305) 500-2000
  Title of Each Class
    
    Name of Each Exchange On Which RegisteredCOMMON STOCK
    
    NYSE AMEX$.0001 PAR VALUE
 None
 o x
 o x
 x o
 o o
 x
  Large accelerated filer o
    
    Accelerated filer x
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o x




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##### 



CONTINUCARE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2010
 TABLE OF CONTENTS
 PAGEGeneral
    
    
    3PART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    12Item 1B.
    
    Unresolved Staff Comments
    
    
    18Item 2.
    
    Properties
    
    
    18Item 3.
    
    Legal Proceedings
    
    
    18Item 4.
    
    (Removed and Reserved)
    
    
    18PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    18Item 6.
    
    Selected Financial Data
    
    
    20Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 8.
    
    Financial Statements and Supplementary Data
    
    
    30Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    30Item 9A.
    
    Controls and Procedures
    
    
    30Item 9B.
    
    Other Information
    
    
    32PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    32Item 11.
    
    Executive Compensation
    
    
    32Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    32Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    32Item 14.
    
    Principal Accounting Fees and Services
    
    
    32PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    33Signatures
    
    
    35EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



GENERAL
  
 PART I
 
 ITEM 1.
    
    BUSINESS
  Company Overview
   Acquisitions
   3




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Industry Overview
       4




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Our Market and Business Strategy
   
    
    increase patient volume at our existing medical centers;
    
    selectively expand our network to include additional medical centers or other medical
facilities and to penetrate new geographic markets;
    
    further develop our IPA management activities; and
    
    selectively expand our operations into other areas in which we believe we can leverage
our expertise in order to establish additional sources of revenue.
 Increasing Patient Volume
  5




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Selectively Expanding Our Network
  
    
    staffed with highly qualified medical professionals;
    
    a history of profitable operations or a predictable synergy such as opportunities for
economies of scale through a consolidation of management functions;
    
    a competitive environment with respect to a high concentration of hospitals and
physicians; and
    
    a geographic proximity to our current operations.
 Developing Our IPA Management Activities
  Selectively Expanding Our Operations Into Other Areas
  Our Medical Centers
  Our IPAs
   6




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Medicare and Medicaid Considerations
   Our HMO Affiliates
  Humana
   7




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Vista
    Wellcare
   8




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Compliance Program
  Competition
  Government Regulation
 General.
  Present and Prospective Federal and State Reimbursement Regulation
 Federal Fraud and Abuse Laws and Regulations.
 State Fraud and Abuse Regulations
 9




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Federal Restrictions on Physician Referrals
 State Restrictions on Physician Referrals.
 Privacy Laws.
 Corporate Practice of Medicine Doctrine.
 Clinic and Facility Regulation and Licensure.
 Limitations on Contractual Joint Ventures.
 Occupational Safety and Health Administration (OSHA)
 10




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Environmental Regulations.
 Medicare Marketing Restrictions.
 Sanctioned Parties
 Healthcare Reform.
 Health Care Professional Licensure and Supervision.
 Employees
  Insurance
   Available Information
   11




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##### Table of Contents



ITEM 1A.
    
    RISK FACTORS
  Risks related to our business
 Our operations are dependent on three health maintenance organizations.
  Under our most important contracts we are responsible for the cost of medical services to our
patients in return for a capitated fee.
  Our revenues will be affected by the Medicare Risk Adjustment program.
    12




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If we are unable to manage medical benefits expense effectively, our profitability will likely be
reduced.
  A failure to estimate incurred but not reported medical benefits expense accurately will affect our
profitability.
  We compete with many health care providers for patients and HMO affiliations.
  We may not be able to successfully recruit or retain existing relationships with qualified
physicians and medical professionals.
  Our business exposes us to the risk of medical malpractice lawsuits.
  We primarily operate in Florida.
  13




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A significant portion of our voting power is concentrated.
  We are dependent on our executive officers and other key employees.
  We depend on the management information systems of our affiliated HMOs.
  We depend on our information processing systems.
  
    
    we fail to adequately identify or are unsuccessful in implementing solutions for our
information and processing needs;
    
    our processing or information systems fail; or
    
    we fail to upgrade systems as necessary.
 14




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Volatility of our stock price could adversely affect you.
  
    
    state and federal budget decreases;
    
    adverse publicity regarding HMOs and other managed care organizations;
    
    government action regarding eligibility;
    
    changes in government payment levels;
    
    changes in state mandatory programs;
    
    changes in expectations of our future financial performance or changes in financial
estimates, if any, of public market analysts;
    
    announcements relating to our business or the business of our competitors;
    
    conditions generally affecting the managed care industry or our provider networks;
    
    the success of our operating strategy;
    
    the operating and stock price performance of other comparable companies;
    
    the termination of any of our contracts;
    
    regulatory or legislative changes;
    
    acts of war or terrorism or an increase in hostilities in the world; and
    
    general economic conditions, including inflation and unemployment rates.
 A failure to successfully implement our business strategy could materially and adversely affect our
operations and growth opportunities.
  Our intangible assets represent a substantial portion of our total assets.
   
    
    a significant adverse change in legal factors or the business climate;
    
    the loss of a key HMO contract;
    
    an adverse action by a regulator;
    
    unanticipated competition;
    
    loss of key personnel; or
    
    allocation of goodwill to a portion of business that is to be sold.
  15




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Competition for acquisition targets and acquisition financing and other factors may impede our
ability to acquire other businesses and may inhibit our growth.
  Our acquisitions could result in integration difficulties, unexpected expenses, diversion of
managements attention and other negative consequences.
  
    
    we may be unable to centralize and consolidate our financial, operational and
administrative functions with those of the businesses we acquire;
    
    our managements attention may be diverted from other business concerns;
    
    we may be unable to retain and motivate key employees of an acquired company;
    
    litigation, indemnification claims and other unforeseen claims and liabilities
may arise from the acquisition or operation of acquired businesses;
    
    the costs necessary to complete integration may exceed our expectations or
outweigh some of the intended benefits of the transactions we complete;
    
    we may be unable to maintain the patients or goodwill of an acquired business;
and
    
    the costs necessary to improve the operating systems and services of an acquired
business may exceed our expectations.
 Risks related to our industry
 Recently enacted health care reform, including The Patient Protection and Affordable Care Act
and The Health Care and Education Reconciliation Act of 2010, could have a material adverse effect
on our business.
  A decrease to our Medicare capitation payments may have a material adverse effect on our results of
operations, financial position and cash flows.
  16




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We are subject to government regulation.
  
    
    forfeiture of amounts we have been paid;
    
    imposition of civil or criminal penalties, fines or other sanctions on us;
    
    loss of our right to participate in government-sponsored programs, including Medicare
and Medicaid;
    
    damage to our reputation in various markets;
    
    increased difficulty in hiring or retaining qualified medical personnel or marketing our
products and services; and
    
    loss of one or more of our licenses to provide health care services.
  The health care industry is subject to continued scrutiny.
  Our insurance coverage may not be adequate, and rising insurance premiums could negatively affect
our profitability.
  Deficit spending and economic downturns could negatively impact our results of operations.
  Many factors that increase health care costs are largely beyond our ability to control.
  
    
    increased use of medical facilities and services, including prescription drugs
and doctors office visits;
    
    increased cost of such services;
    
    new benefits to patients added by the HMOs to their covered services, whether as
a result of the Medicare Modernization Act or otherwise;
    
    changes or reductions of our utilization management functions such as
preauthorization of services, concurrent review or requirements for physician
referrals;
    
    catastrophes (including hurricanes), epidemics or terrorist attacks;
    
    the introduction of new or costly treatments, including new technologies;
    
    new government mandated benefits or other regulatory changes; and
    
    increases in the cost of stop loss or other insurance.
  17




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ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
   
 ITEM 3.
    
    LEGAL PROCEEDINGS
  
 ITEM 4.
    
    (REMOVED AND RESERVED)
 
 PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
  HIGH
    
    
    LOWFiscal Year 2010:Quarter Ended June 30, 2010
    
    $
    4.25
    
    
    $
    3.28Quarter Ended March 31, 2010
    
    
    5.25
    
    
    
    3.66Quarter Ended December 31, 2009
    
    
    4.50
    
    
    
    2.57Quarter Ended September 30, 2009
    
    
    3.29
    
    
    
    2.31Fiscal Year 2009Quarter Ended June 30, 2009
    
    $
    2.55
    
    
    $
    1.71Quarter Ended March 31, 2009
    
    
    2.12
    
    
    
    1.57Quarter Ended December 31, 2008
    
    
    2.63
    
    
    
    1.53Quarter Ended September 30, 2008
    
    
    2.67
    
    
    
    2.06
  18




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Securities Authorized for Issuance Under Equity Compensation Plans
  Number ofsecurities to beissued upon
    
    
    Weighted averageexercise of
    
    
    exercise price of
    
    
    Number ofoutstanding
    
    
    outstanding
    
    
    securitiesoptions, warrants
    
    
    options, warrants
    
    
    remaining availablePlan Category
    
    and rights
    
    
    and rights
    
    
    for future issuanceEquity compensation
plans approved by
stockholders
    
    
    5,849,334
    
    
    $
    2.50
    
    
    
    4,287,167Equity compensation
plans not approved
by stockholders
    
    
    
    
    
    
    
    
    
    
    5,849,334
    
    
    
    
    
    
    
    4,287,167
 Performance Graph
  
 19




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Cumulative Total Return6/05
    
    
    6/06
    
    
    6/07
    
    
    6/08
    
    
    6/09
    
    
    6/10Continucare Corporation
    
    
    100.00
    
    
    
    120.41
    
    
    
    126.12
    
    
    
    95.10
    
    
    
    95.10
    
    
    
    136.73NYSE Amex Composite
    
    
    100.00
    
    
    
    124.35
    
    
    
    155.26
    
    
    
    152.04
    
    
    
    112.30
    
    
    
    133.12NASDAQ Health Services
    
    
    100.00
    
    
    
    115.51
    
    
    
    144.32
    
    
    
    141.83
    
    
    
    134.71
    
    
    
    171.20
 Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  
 ITEM 6.
    
    SELECTED FINANCIAL DATA
  CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
 For the Year Ended June 30,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Revenue
    
    $
    310,791,463
    
    
    $
    281,270,360
    
    
    $
    254,440,048
    
    
    $
    217,146,287
    
    
    $
    132,990,912Operating expenses:Medical services:Medical claims
    
    
    208,857,229
    
    
    
    199,167,856
    
    
    
    181,097,183
    
    
    
    161,153,828
    
    
    
    97,781,447Other direct costs
    
    
    31,484,513
    
    
    
    28,456,121
    
    
    
    26,942,472
    
    
    
    22,919,746
    
    
    
    13,137,396Total medical services
    
    
    240,341,742
    
    
    
    227,623,977
    
    
    
    208,039,655
    
    
    
    184,073,574
    
    
    
    110,918,843Administrative payroll and employee benefits
    
    
    16,308,854
    
    
    
    12,655,975
    
    
    
    12,119,139
    
    
    
    9,192,670
    
    
    
    6,538,295General and administrative
    
    
    18,021,123
    
    
    
    16,261,750
    
    
    
    16,413,801
    
    
    
    13,990,439
    
    
    
    7,584,205Total operating expenses
    
    
    274,671,719
    
    
    
    256,541,702
    
    
    
    236,572,595
    
    
    
    207,256,683
    
    
    
    125,041,343Income from operations
    
    
    36,119,744
    
    
    
    24,728,658
    
    
    
    17,867,453
    
    
    
    9,889,604
    
    
    
    7,949,569Other income (expense):Interest income
    
    
    65,957
    
    
    
    174,039
    
    
    
    602,826
    
    
    
    356,192
    
    
    
    331,001Interest expense
    
    
    (116,041
    )
    
    
    (21,255
    )
    
    
    (67,898
    )
    
    
    (49,746
    )
    
    
    (12,870
    )Income before income tax provision
    
    
    36,069,660
    
    
    
    24,881,442
    
    
    
    18,402,381
    
    
    
    10,196,050
    
    
    
    8,267,700Income tax provision
    
    
    13,893,353
    
    
    
    9,600,321
    
    
    
    7,132,727
    
    
    
    3,892,605
    
    
    
    2,930,161Net income
    
    $
    22,176,307
    
    
    $
    15,281,121
    
    
    $
    11,269,654
    
    
    $
    6,303,445
    
    
    $
    5,337,539Net income per common share:Basic
    
    $
    .37
    
    
    $
    .25
    
    
    $
    .16
    
    
    $
    .10
    
    
    $
    .11Diluted
    
    $
    .36
    
    
    $
    .24
    
    
    $
    .16
    
    
    $
    .10
    
    
    $
    .10
 As of June 30,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006CONSOLIDATED BALANCE SHEET DATA:Total assets
    
    $
    153,865,592
    
    
    $
    125,303,386
    
    
    $
    118,490,304
    
    
    $
    116,937,548
    
    
    $
    41,994,347Long-term obligations, including current portion
    
    $
    326,309
    
    
    $
    204,985
    
    
    $
    196,379
    
    
    $
    331,319
    
    
    $
    195,819
 20




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General
   Medicare and Medicaid Considerations
     21




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Critical Accounting Policies and Estimates
  Revenue Recognition
     Medical Claims Expense Recognition
  22




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Consideration of Impairment Related to Goodwill and Other Intangible Assets
    23




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Realization of Deferred Income Tax Assets
   Stock-Based Payment
      24




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Results of Operations
  Year ended June 30,2010
    
    
    2009
    
    
    2008Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Medical services:Medical claims
    
    
    67.2
    
    
    
    70.8
    
    
    
    71.2Other direct costs
    
    
    10.1
    
    
    
    10.1
    
    
    
    10.6Total medical services
    
    
    77.3
    
    
    
    80.9
    
    
    
    81.8Administrative payroll and employee benefits
    
    
    5.3
    
    
    
    4.5
    
    
    
    4.7General and administrative
    
    
    5.8
    
    
    
    5.8
    
    
    
    6.5Total operating expenses
    
    
    88.4
    
    
    
    91.2
    
    
    
    93.0Income from operations
    
    
    11.6
    
    
    
    8.8
    
    
    
    7.0Other income (expense):Interest income
    
    
    
    
    
    
    
    
    
    
    0.2Income before income tax provision
    
    
    11.6
    
    
    
    8.8
    
    
    
    7.2Income tax provision
    
    
    4.5
    
    
    
    3.4
    
    
    
    2.8Net income
    
    
    7.1
    %
    
    
    5.4
    %
    
    
    4.4
    %
 COMPARISON OF FISCAL YEAR ENDED JUNE 30, 2010 TO FISCAL YEAR ENDED JUNE 30, 2009
 Revenue
      25




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Operating Expenses
       Income from Operations
  Taxes
  Net Income
  26




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COMPARISON OF FISCAL YEAR ENDED JUNE 30, 2009 TO FISCAL YEAR ENDED JUNE 30, 2008
 Revenue
     Operating Expenses
      27




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Income from Operations
  Taxes
  Net Income
  Liquidity and Capital Resources
        28




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Off-Balance Sheet Arrangements
  Contractual Obligations
  Payment due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsCapital Lease Obligations (1)
    
    $
    346,201
    
    
    $
    188,838
    
    
    $
    157,363
    
    
    $
    
    
    
    $
    Operating Lease Obligations (1)
    
    
    7,473,360
    
    
    
    2,566,085
    
    
    
    2,642,704
    
    
    
    2,029,050
    
    
    
    235,521Total
    
    $
    7,819,561
    
    
    $
    2,754,923
    
    
    $
    2,800,067
    
    
    $
    2,029,050
    
    
    $
    235,521
 
 (1)
    
    The payments shown above for Capital Lease Obligations and Operating Lease
Obligations reflect all payments due under the terms of the respective leases. See
Note 4 to our Consolidated Financial Statements appearing elsewhere in this Annual
Report on Form 10-K to reconcile the payments shown above to the capital lease
obligations recorded in our Consolidated Balance Sheets. FORWARD-LOOKING STATEMENTS
  
    
    Our operations are dependent on three health maintenance organizations;
    
    Under our most important contracts we are responsible for the cost of medical
services to our patients in return for a capitated fee;
    
    Our revenues will be affected by the Medicare Risk Adjustment program;
    
    If we are unable to manage medical benefits expense effectively, our profitability
will likely be reduced;
    
    A failure to estimate incurred but not reported medical benefits expense accurately
will affect our profitability;
    
    We compete with many health care providers for patients and HMO affiliations;
    
    We may not be able to successfully recruit or retain existing relationships with
qualified physicians and medical professionals;
    
    Our business exposes us to the risk of medical malpractice lawsuits;
    
    We primarily operate in Florida;
    
    A significant portion of our voting power is concentrated;
    
    We are dependent on our executive officers and other key employees;
    
    We depend on the management information systems of our affiliated HMOs;
    
    We depend on our information processing systems;
    
    Volatility of our stock price could adversely affect you;
    
    A failure to successfully implement our business strategy could materially and
adversely affect our operations and growth opportunities;
 29




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
    
    Our intangible assets represent a substantial portion of our total assets;
    
    Competition for acquisition targets and acquisition financing and other factors may
impede our ability to acquire other businesses and may inhibit our growth;
    
    Our acquisitions could result in integration difficulties, unexpected expenses,
diversion of managements attention and other negative consequences;
    
    Recently enacted health care reform, including The Patient Protection and Affordable
Care Act and The Health Care and Education Reconciliation Act of 2010, could have a
material adverse effect on our business;
    
    A decrease to our Medicare capitation payments may have a material adverse effect on
our results of operations, financial position and cash flows;
    
    We are subject to government regulation;
    
    The health care industry is subject to continued scrutiny;
    
    Our insurance coverage may not be adequate, and rising insurance premiums could
negatively affect our profitability;
    
    Deficit spending and economic downturns could negatively impact our results of
operations; and
    
    Many factors that increase health care costs are largely beyond our ability to
control.
 
 ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   30




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Managements Annual Report on Internal Control Over Financial Reporting
  Changes in Internal Control over Financial Reporting
  Section 302 Certifications
  Report of Independent Registered Public Accounting Firm
     31




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.
  
 
 
 ITEM 9B.
    
    OTHER INFORMATION
  
 PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES
  32




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PART IV
 
 ITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES
      3.1
    
    
    Restated Articles of Incorporation, as amended. (1)3.2
    
    
    Amended and Restated Bylaws. (2)3.3
    
    
    First Amendment to the Amended and Restated Bylaws. (3)4.1
    
    
    Form of certificate evidencing shares of Common Stock. (4)4.2
    
    
    Registration Rights Agreement, dated as of October 30, 1997, by and
between Continucare Corporation and Loewenbaum & Company Incorporated.
(5)10.1
    
    
    Continucare Corporation Amended and Restated 1995 Stock Option Plan.** (6)10.2
    
    
    Amended and Restated 2000 Stock Option Plan (as amended and restated on
November 4, 2009). ** (7)10.3
    
    
    Form of Stock Option Agreement.**(8)10.4
    
    
    Physician Practice Management Participation Agreement between Continucare
Medical Management, Inc., and Humana Medical Plan, Inc. entered into as
of the 1st day of August, 1998. (9)10.5
    
    
    Amended and Restated Primary Care Provider Services dated November 12,
2004, by and between Vista Healthplan of South Florida, Inc., Vista
Insurance Plan, Inc. and Continucare Medical Management, Inc. (10)10.6
    
    
    WCMA Loan and Security Agreement dated March 9, 2000 between Merrill
Lynch Business Financial Services, Inc. and Continucare Corporation. (11)10.7
    
    
    Letter Agreement dated March 18, 2005 between Merrill Lynch Business
Financial Services, Inc. and Continucare Corporation. (12)10.8
    
    
    Form of Promissory Note dated December 29, 2004. (13)10.9
    
    
    Letter Agreement between Continucare Corporation and Merrill Lynch
Business Financial Services, Inc. regarding amendment and extension of
Credit Facility. (14)10.10
    
    
    Asset Purchase Agreement, dated as of May 10, 2006, among Continucare
Corporation, a Florida corporation, CNU Blue 1, Inc., a Florida
corporation and a wholly-owned subsidiary of CNU, CNU Blue2, LLC, a
Florida limited liability company and a wholly-owed subsidiary of Buyer,
Miami Dade Health and Rehabilitation Services, Inc., a Florida
corporation, Miami Dade Health Centers, Inc., a Florida corporation, West
Gables Open MRI Services, Inc., a Florida corporation, Kent Management
Systems, Inc., Pelu Properties, Inc., a Florida corporation, Peluca
Investments, LLC, a Florida limited liability company owned by the
Owners, and Miami Dade Health Centers One, Inc., a Florida corporation,
MDHC Red, Inc., a Florida corporation, and each of the shareholders of
each Seller identified therein. (15)10.11
    
    
    Integrated Delivery System Participation Agreement effective as of April
1, 1999 between MDHRS and Humana Medical Plan, Inc., as amended. (16)10.12
    
    
    Management Services Agreement dated as of September 1, 2004 between MDHC
and Vista Healthplan, Inc., as amended. (17)10.13
    
    
    WCMA Reducing Revolver Loan and Security Agreement dated September 26,
2006, between Continucare MDHC LLC and Merrill Lynch Business Financial
Services, Inc. (18)
 33




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##### Table of Contents



10.14
    
    
    WCMA Reducing Revolver Loan and Security Agreement dated September 26,
2006, between Continucare MDHC LLC and Merrill Lynch Business Financial
Services, Inc. (19)10.15
    
    
    Amendment of Credit Facility dated September 26, 2006, between
Continucare Corporation and Merrill Lynch Business Financial Services,
Inc. (20)10.16
    
    
    Independent Practice Association Participation Agreement dated as of
October 11, 2007 by and among Continucare Medical Management, Inc. and
Humana Insurance Company, Humana Health Insurance Company of Florida,
Inc., Humana Medical Plan, Inc. and their affiliates that underwrite or
administer health plans. (21)10.17
    
    
    Independent Practice Association Participation Agreement dated as of
October 11, 2007 by and among Continucare Medical Management, Inc. and
Humana Insurance Company, Humana Health Insurance Company of Florida,
Inc., Humana Medical Plan, Inc. and their affiliates that underwrite or
administer health plans. (22)10.18
    
    
    Independent Practice Association Participation Agreement dated as of
October 11, 2007 by and among Continucare Medical Management, Inc. and
Humana Insurance Company, Humana Health Insurance Company of Florida,
Inc., Humana Medical Plan, Inc. and their affiliates that underwrite or
administer health plans. (23)10.19
    
    
    Credit Facility Agreement, dated as of December 18, 2009, among
Continucare Corporation, as a Borrower, Continucare MDHC, LLC, as a
Borrower, and Bank of America, N.A., as Bank. (24)21.1
    
    
    Subsidiaries of the Company.*23.1
    
    
    Consent of Independent Registered Public Accounting Firm. *31.1
    
    
    Section 302 Certification of Chief Executive Officer. *31.2
    
    
    Section 302 Certification of Chief Financial Officer. *32.1
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.***32.2
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.***
  (1
    )
    
    Exhibit 3.1 to the Post Effective Amendment No. 1 to the Registration
Statement on SB-2 on Form S-3 Registration Statement filed on October 30, 1996.(2
    )
    
    Exhibit 3.1 to the Form 8-K dated September 12, 2006, filed September
13, 2006.(3
    )
    
    Exhibit 3.2 to the Form 8-K dated November 6, 2007, filed November 7,
2007.(4
    )
    
    Exhibit 4.1 to the Post Effective Amendment No. 1 to the Registration
Statement on SB-2 on Form S-3 Registration Statement filed on October 30, 1996.(5
    )
    
    Exhibit 4.2 to the Form 8-K dated October 30, 1997, filed November 13,
1997.(6
    )
    
    Schedule 14A dated December 26, 1997 and filed with the Commission on
December 30, 1997.(7
    )
    
    Exhibit 10.1 to the Form 8-K dated February 9, 2010, filed February 12,
2010.(8
    )
    
    Exhibit 10.1 to the Form 10-Q for the quarterly period ended September
30, 2004.(9
    )
    
    Exhibit 10.11 to the Form 10-K for the fiscal year ended June 30, 2000.(10
    )
    
    Exhibit 10.1 to the Form 10-Q for the quarterly period ended December
31, 2004.(11
    )
    
    Exhibit 4.1 to the Form 10-Q for the quarterly period ended March 31,
2000.(12
    )
    
    Exhibit 10.1 to the Form 10-Q for the quarterly period ended March 31,
2005.(13
    )
    
    Exhibit 10.1 to the Form 8-K dated December 30, 2004, filed January 5,
2005.(14
    )
    
    Exhibit 10.1 to the Form 8-K dated March 8, 2006, filed on March 10,
2006.(15
    )
    
    Exhibit 10.1 to the Form 8-K dated May 10, 2006, filed on May 11, 2006.(16
    )
    
    Exhibit 10.1 to the Form 10-Q for the quarterly period ended September
30, 2006.(17
    )
    
    Exhibit 10.2 to the Form 10-Q for the quarterly period ended September
30, 2006.(18
    )
    
    Exhibit 10.3 to the Form 10-Q for the quarterly period ended September
30, 2006.(19
    )
    
    Exhibit 10.4 to the Form 10-Q for the quarterly period ended September
30, 2006.(20
    )
    
    Exhibit 10.5 to the Form 10-Q for the quarterly period ended September
30, 2006.(21
    )
    
    Exhibit 10.1 to the Form 8-K dated October 11, 2007, filed on October
15, 2007.(22
    )
    
    Exhibit 10.2 to the Form 8-K dated October 11, 2007, filed on October
15, 2007.(23
    )
    
    Exhibit 10.3 to the Form 8-K dated October 11, 2007, filed on October
15, 2007.(24
    )
    
    Exhibit 4.1 to the Form 8-K dated December 18, 2009, filed December 23,
2009.
 
 *
    
    Filed herewith**
    
    Management contract or compensatory plan or arrangement***
    
    Furnished herewith 34




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##### Table of Contents



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

Richard C. Pfenniger, Jr.
    
    Chairman of the Board, Chief Executive
Officer, President and Director
(Principal Executive Officer)
    
    September 9, 2010/s/ Fernando L. Fernandez

Fernando L. Fernandez
    
    Senior Vice President  Finance, Chief
Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
    
    September 9, 2010/s/ Robert J. Cresci

Robert J. Cresci
    
    Director
    
    September 9, 2010/s/ Neil Flanzraich

Neil Flanzraich
    
    Director
    
    September 9, 2010/s/ Phillip Frost, M.D.

Phillip Frost, M.D.
    
    Director
    
    September 9, 2010/s/ Jacob Nudel, M.D.

Jacob Nudel, M.D.
    
    Director
    
    September 9, 2010/s/ Marvin Sackner, M.D.

Marvin Sackner, M.D.
    
    Director
    
    September 9, 2010/s/ Jacqueline Simkin

Jacqueline Simkin
    
    Director
    
    September 9, 2010/s/ A. Marvin Strait

A. Marvin Strait
    
    Director
    
    September 9, 2010
 35




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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS
 PAGEReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of June 30, 2010 and 2009
    
    
    F-3Consolidated Statements of Income for the years ended June 30, 2010, 2009 and 2008
    
    
    F-4Consolidated Statements of Shareholders Equity for the years ended June 30, 2010, 2009 and 2008
    
    
    F-5Consolidated Statements of Cash Flows for the years ended June 30, 2010, 2009 and 2008
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-8
 F-1




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Report of Independent Registered Public Accounting Firm
      
 
 F-2




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##### Table of Contents



CONTINUCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
 June 30,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    37,542,445
    
    
    $
    13,895,823Certificate of deposit
    
    
    668,755
    
    
    
    Due from HMOs, net of a liability for
incurred but not reported medical claims
expense of approximately $23,394,000 and
$23,719,000 at June 30, 2010 and 2009,
respectively
    
    
    18,920,388
    
    
    
    17,323,599Prepaid expenses and other current assets
    
    
    2,631,136
    
    
    
    812,970Deferred income tax assets
    
    
    140,057
    
    
    
    141,420Total current assets
    
    
    59,902,781
    
    
    
    32,173,812Certificates of deposit, restricted
    
    
    
    
    
    
    1,233,653Property and equipment, net
    
    
    12,728,184
    
    
    
    10,489,383Goodwill
    
    
    73,994,444
    
    
    
    73,204,582Intangible assets, net of accumulated
amortization of approximately $4,705,000 and
$3,406,000 at June 30, 2010 and 2009,
respectively
    
    
    4,296,507
    
    
    
    5,253,666Deferred income tax assets
    
    
    2,830,929
    
    
    
    2,795,588Other assets, net
    
    
    112,747
    
    
    
    152,702Total assets
    
    $
    153,865,592
    
    
    $
    125,303,386LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    810,376
    
    
    $
    652,305Accrued expenses and other current liabilities
    
    
    9,041,162
    
    
    
    4,455,675Income taxes payable
    
    
    590,673
    
    
    
    1,575,511Total current liabilities
    
    
    10,442,211
    
    
    
    6,683,491Deferred income tax liabilities
    
    
    7,145,507
    
    
    
    6,435,732Other liabilities
    
    
    249,248
    
    
    
    981,640Total liabilities
    
    
    17,836,966
    
    
    
    14,100,863Commitments and contingenciesShareholders equity:Common stock, $0.0001 par value: 100,000,000 shares authorized; 60,504,012 shares issued
and outstanding at June 30, 2010 and
59,391,049 shares issued and outstanding at
June 30, 2009
    
    
    6,050
    
    
    
    5,939Additional paid-in capital
    
    
    107,860,204
    
    
    
    105,210,519Accumulated earnings
    
    
    28,162,372
    
    
    
    5,986,065Total shareholders equity
    
    
    136,028,626
    
    
    
    111,202,523Total liabilities and shareholders equity.
    
    $
    153,865,592
    
    
    $
    125,303,386
 The accompanying notes are an integral part of these consolidated financial statements.
 F-3




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##### Table of Contents



CONTINUCARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
 For the Year Ended June 30,2010
    
    
    2009
    
    
    2008Revenue
    
    $
    310,791,463
    
    
    $
    281,270,360
    
    
    $
    254,440,048Operating expenses:Medical services:Medical claims
    
    
    208,857,229
    
    
    
    199,167,856
    
    
    
    181,097,183Other direct costs
    
    
    31,484,513
    
    
    
    28,456,121
    
    
    
    26,942,472Total medical services
    
    
    240,341,742
    
    
    
    227,623,977
    
    
    
    208,039,655Administrative payroll and employee benefits
    
    
    16,308,854
    
    
    
    12,655,975
    
    
    
    12,119,139General and administrative
    
    
    18,021,123
    
    
    
    16,261,750
    
    
    
    16,413,801Total operating expenses
    
    
    274,671,719
    
    
    
    256,541,702
    
    
    
    236,572,595Income from operations
    
    
    36,119,744
    
    
    
    24,728,658
    
    
    
    17,867,453Other income (expense):Interest income
    
    
    65,957
    
    
    
    174,039
    
    
    
    602,826Interest expense
    
    
    (116,041
    )
    
    
    (21,255
    )
    
    
    (67,898
    )Income before income tax provision
    
    
    36,069,660
    
    
    
    24,881,442
    
    
    
    18,402,381Income tax provision
    
    
    13,893,353
    
    
    
    9,600,321
    
    
    
    7,132,727Net income
    
    $
    22,176,307
    
    
    $
    15,281,121
    
    
    $
    11,269,654Net income per common share:Basic
    
    $
    .37
    
    
    $
    .25
    
    
    $
    .16Diluted
    
    $
    .36
    
    
    $
    .24
    
    
    $
    .16Weighted average common shares outstanding:Basic
    
    
    59,777,789
    
    
    
    61,405,620
    
    
    
    68,862,836Diluted
    
    
    61,565,397
    
    
    
    62,488,340
    
    
    
    70,007,760
 The accompanying notes are an integral part of these consolidated financial statements.
 F-4




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##### Table of Contents



CONTINUCARE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 Additional
    
    
    Accumulated
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Earnings
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    (Deficit)
    
    
    EquityBalance at June 30, 2007
    
    
    70,043,086
    
    
    $
    7,004
    
    
    $
    124,616,091
    
    
    $
    (20,564,710
    )
    
    $
    104,058,385Recognition of compensation expense related to
issuance of stock options
    
    
    
    
    
    
    
    
    
    
    1,332,786
    
    
    
    
    
    
    
    1,332,786Tax deficiency related to exercise of stock options
    
    
    
    
    
    
    
    
    
    
    (1,776
    )
    
    
    
    
    
    
    (1,776
    )Issuance of stock upon exercise of stock options
    
    
    83,750
    
    
    
    9
    
    
    
    64,366
    
    
    
    
    
    
    
    64,375Repurchase and retirement of common stock
    
    
    (5,330,533
    )
    
    
    (533
    )
    
    
    (11,451,614
    )
    
    
    
    
    
    
    (11,452,147
    )Fees related to issuance of stock
    
    
    
    
    
    
    
    
    
    
    (45,000
    )
    
    
    
    
    
    
    (45,000
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,269,654
    
    
    
    11,269,654Balance at June 30, 2008
    
    
    64,796,303
    
    
    
    6,480
    
    
    
    114,514,853
    
    
    
    (9,295,056
    )
    
    
    105,226,277Recognition of compensation expense related to
issuance of stock options
    
    
    
    
    
    
    
    
    
    
    1,163,472
    
    
    
    
    
    
    
    1,163,472Excess tax benefits related to exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    116,593
    
    
    
    
    
    
    
    116,593Issuance of stock upon exercise of stock options
    
    
    13,750
    
    
    
    1
    
    
    
    23,374
    
    
    
    
    
    
    
    23,375Repurchase and retirement of common stock
    
    
    (5,419,004
    )
    
    
    (542
    )
    
    
    (10,607,773
    )
    
    
    
    
    
    
    (10,608,315
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,281,121
    
    
    
    15,281,121Balance at June 30, 2009
    
    
    59,391,049
    
    
    
    5,939
    
    
    
    105,210,519
    
    
    
    5,986,065
    
    
    
    111,202,523Recognition of compensation expense related to
issuance of stock options
    
    
    
    
    
    
    
    
    
    
    1,391,768
    
    
    
    
    
    
    
    1,391,768Excess tax benefits related to exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    1,374,921
    
    
    
    
    
    
    
    1,374,921Issuance of stock upon exercise of stock options
    
    
    1,112,963
    
    
    
    111
    
    
    
    1,417,176
    
    
    
    
    
    
    
    1,417,287Shares withheld in connection
with exercise of stock options
    
    
    
    
    
    
    
    
    
    
    (1,408,079
    )
    
    
    
    
    
    
    (1,408,079
    )Purchase of noncontrolling interest in sleep
diagnostic centers
    
    
    
    
    
    
    
    
    
    
    (126,101
    )
    
    
    
    
    
    
    (126,101
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,176,307
    
    
    
    22,176,307Balance at June 30, 2010
    
    
    60,504,012
    
    
    $
    6,050
    
    
    $
    107,860,204
    
    
    $
    28,162,372
    
    
    $
    136,028,626
 The accompanying notes are an integral part of these consolidated financial statements.
 F-5




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##### Table of Contents



CONTINUCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Year Ended June 30,2010
    
    
    2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    22,176,307
    
    
    $
    15,281,121
    
    
    $
    11,269,654Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    2,895,621
    
    
    
    2,303,327
    
    
    
    2,507,535Loss on impairment of fixed assets
    
    
    96,000
    
    
    
    
    
    
    
    171,515Loss on disposal of fixed assets
    
    
    18,668
    
    
    
    65,760
    
    
    
    Provision for bad debts
    
    
    118,895
    
    
    
    
    
    
    
    181,081Compensation expense related to issuance of stock options
    
    
    1,391,768
    
    
    
    1,163,472
    
    
    
    1,332,786Excess tax benefits related to exercise of stock options
    
    
    (1,374,921
    )
    
    
    (116,593
    )
    
    
    Deferred income tax expense
    
    
    675,796
    
    
    
    230,923
    
    
    
    (198,598
    )Changes in operating assets and liabilities:Due from HMOs, net
    
    
    (1,596,789
    )
    
    
    (1,997,816
    )
    
    
    (1,251,657
    )Prepaid expenses and other current assets
    
    
    88,596
    
    
    
    (104,129
    )
    
    
    676,782Other assets, net
    
    
    56,365
    
    
    
    42,735
    
    
    
    (128,743
    )Accounts payable
    
    
    137,270
    
    
    
    249,587
    
    
    
    (605,151
    )Accrued expenses and other current liabilities
    
    
    3,270,660
    
    
    
    (33,689
    )
    
    
    145,851Income taxes payable
    
    
    (984,838
    )
    
    
    549,398
    
    
    
    1,131,324Net cash provided by operating activities
    
    
    26,969,398
    
    
    
    17,634,096
    
    
    
    15,232,379CASH FLOWS FROM INVESTING ACTIVITIESPurchases of certificates of deposit
    
    
    (10,705
    )
    
    
    (682,948
    )
    
    
    (112,512
    )Proceeds from maturities of certificates of deposit
    
    
    575,603
    
    
    
    723,442
    
    
    
    15,000Acquisition of sleep diagnostic centers, net of cash acquired
    
    
    (1,507,858
    )
    
    
    
    
    
    
    Purchase of property and equipment
    
    
    (3,337,260
    )
    
    
    (3,100,935
    )
    
    
    (939,270
    )Net cash used in investing activities
    
    
    (4,280,220
    )
    
    
    (3,060,441
    )
    
    
    (1,036,782
    )CASH FLOWS FROM FINANCING ACTIVITIESPrincipal repayments under capital lease obligations
    
    
    (300,584
    )
    
    
    (115,225
    )
    
    
    (113,249
    )Repayment on long-term debt
    
    
    
    
    
    
    
    
    
    
    (6,083
    )Proceeds from exercise of stock options
    
    
    1,417,287
    
    
    
    23,375
    
    
    
    64,375Shares withheld in connection with exercise of stock options
    
    
    (1,408,079
    )
    
    
    
    
    
    
    Excess tax benefits related to exercise of stock options
    
    
    1,374,921
    
    
    
    116,593
    
    
    
    Payment of fees related to issuance of stock
    
    
    
    
    
    
    
    
    
    
    (45,000
    )Purchase of noncontrolling interest in sleep diagnostic centers
    
    
    (126,101
    )
    
    
    
    
    
    
    Repurchase of common stock
    
    
    
    
    
    
    (10,608,315
    )
    
    
    (11,452,147
    )Net cash provided by (used in) financing activities
    
    
    957,444
    
    
    
    (10,583,572
    )
    
    
    (11,552,104
    )Net increase in cash and cash equivalents
    
    
    23,646,622
    
    
    
    3,990,083
    
    
    
    2,643,493Cash and cash equivalents at beginning of fiscal year
    
    
    13,895,823
    
    
    
    9,905,740
    
    
    
    7,262,247Cash and cash equivalents at end of fiscal year
    
    $
    37,542,445
    
    
    $
    13,895,823
    
    
    $
    9,905,740
 F-6




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CONTINUCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 For the Year Ended June 30,2010
    
    
    2009
    
    
    2008SUPPLEMENTAL DISCLOSURE OF
NONCASH INVESTING AND
FINANCING TRANSACTIONS:Purchase of equipment,
furniture and fixtures with
proceeds of capital lease
obligations
    
    $
    228,413
    
    
    $
    123,831
    
    
    $
    38,922Retirement of treasury stock
    
    $
    
    
    
    $
    10,608,315
    
    
    $
    11,452,147SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:Cash paid for taxes
    
    $
    13,870,000
    
    
    $
    8,820,000
    
    
    $
    6,200,000Cash paid for interest
    
    $
    19,041
    
    
    $
    16,255
    
    
    $
    20,898
 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
  Business
  NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Principles of Consolidation
 Accounting Estimates
 Fair Value of Financial Instruments
 Cash and Cash Equivalents
 Certificates of Deposit
 F-8




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##### Table of Contents



Due from HMOs
  Property and Equipment
 Goodwill and Other Intangible Assets
 st
 Share-Based Payment
 Earnings Per Share
 F-9




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##### Table of Contents



Revenue Recognition
      Medical Service Expense
  F-10




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##### Table of Contents



Stop-loss Insurance
 Recent Accounting Pronouncements
 Other Comprehensive Income
 Subsequent Events
 NOTE 3  GOODWILL AND OTHER INTANGIBLE ASSETS
    F-11




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##### Table of Contents



NOTE 4  PROPERTY AND EQUIPMENT
  EstimatedJune 30,
    
    
    Useful Lives2010
    
    
    2009
    
    
    (in years)Land
    
    $
    1,919,746
    
    
    $
    1,919,746
    
    
    
    Building and improvements
    
    
    5,328,851
    
    
    
    4,754,375
    
    
    
    40Construction in progress
    
    
    313,411
    
    
    
    1,175,462
    
    
    
    Vehicles
    
    
    1,012,677
    
    
    
    724,479
    
    
    
    5Furniture, fixtures and equipment
    
    
    5,638,814
    
    
    
    5,028,440
    
    
    
    3-5Furniture and equipment under capital lease
    
    
    762,293
    
    
    
    474,389
    
    
    
    3-5Leasehold improvements
    
    
    2,920,223
    
    
    
    1,160,692
    
    
    
    517,896,015
    
    
    
    15,237,583Less accumulated depreciation and amortization
    
    
    (5,167,831
    )
    
    
    (4,748,200
    )$
    12,728,184
    
    
    $
    10,489,383
    For the year ending June 30,2011
    
    $
    188,8382012
    
    
    103,5842013
    
    
    53,779346,201Less amount representing imputed interest
    
    
    19,892Present value of obligations under capital lease
    
    
    326,309Less current portion
    
    
    169,665Long-term capital lease obligations
    
    $
    156,644
  NOTE 5  DEBT
  F-12




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##### Table of Contents



NOTE 6  EARNINGS PER SHARE
  Year Ended June 30,2010
    
    
    2009
    
    
    2008Basic weighted average number of shares outstanding
    
    
    59,777,789
    
    
    
    61,405,620
    
    
    
    68,862,836Dilutive effect of stock options
    
    
    1,787,608
    
    
    
    1,082,720
    
    
    
    1,144,924Diluted weighted average number of shares outstanding
    
    
    61,565,397
    
    
    
    62,488,340
    
    
    
    70,007,760Not included in calculation of dilutive earnings per
share as impact is antidilutive:Stock options outstanding
    
    
    267,500
    
    
    
    3,775,750
    
    
    
    2,998,250
 NOTE 7  SHARE-BASED PAYMENT
     F-13




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##### Table of Contents



WeightedNumber
    
    
    Averageof Shares
    
    
    Exercise PriceOutstanding at beginning of the year
    
    
    6,296,304
    
    
    $
    2.00Granted
    
    
    1,282,500
    
    
    
    3.27Exercised
    
    
    (1,448,220
    )
    
    
    0.98Forfeited
    
    
    (240,000
    )
    
    
    2.51Expired
    
    
    (41,250
    )
    
    
    2.49Outstanding at end of the year
    
    
    5,849,334
    
    
    $
    2.50Exercisable at end of the year
    
    
    3,760,149Weighted average fair value per
share of options granted during the
year
    
    $
    1.59
   Options Outstanding
    
    Options ExercisableWeighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageRange of
    
    
    
    Weighted
    
    Remaining
    
    
    
    Weighted
    
    RemainingExercise
    
    Number
    
    Average
    
    Contractual
    
    Number
    
    Average
    
    ContractualPrices
    
    Outstanding
    
    Exercise Price
    
    Life
    
    Exercisable
    
    Exercise Price
    
    Life$0.69-$2.51
    
    3,482,584
    
    $2.14
    
    6.0
    
    2,581,649
    
    $2.04
    
    5.4$2.59-$4.06
    
    2,366,750
    
    $3.04
    
    7.5
    
    1,178,500
    
    $2.96
    
    6.4
   NOTE 8  INCOME TAXES
   F-14




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##### Table of Contents



Year Ended June 30,2010
    
    
    2009
    
    
    2008Current:Federal
    
    $
    10,847,528
    
    
    $
    8,199,853
    
    
    $
    6,408,183State
    
    
    2,370,029
    
    
    
    1,158,154
    
    
    
    923,142Total
    
    
    13,217,557
    
    
    
    9,358,007
    
    
    
    7,331,325Deferred:Federal
    
    
    543,787
    
    
    
    181,483
    
    
    
    (171,415
    )State
    
    
    132,009
    
    
    
    60,831
    
    
    
    (27,183
    )Total
    
    
    675,796
    
    
    
    242,314
    
    
    
    (198,598
    )Total income tax provision
    
    $
    13,893,353
    
    
    $
    9,600,321
    
    
    $
    7,132,727
  June 30,2010
    
    
    2009
    
    
    2008Deferred income tax assets:Bad debt and notes receivable reserve
    
    $
    17,023
    
    
    $
    
    
    
    $
    303,871Other
    
    
    56,873
    
    
    
    75,573
    
    
    
    110,062Impairment charge
    
    
    742,836
    
    
    
    999,617
    
    
    
    1,256,398Share-based compensation
    
    
    2,154,254
    
    
    
    1,861,818
    
    
    
    1,318,073Deferred income tax assets
    
    
    2,970,986
    
    
    
    2,937,008
    
    
    
    2,988,404Deferred income tax liabilities:Depreciable/amortizable assets
    
    
    (6,527,954
    )
    
    
    (5,818,179
    )
    
    
    (5,638,652
    )Basis difference in tangible assets
    
    
    (617,553
    )
    
    
    (617,553
    )
    
    
    (617,553
    )Deferred income tax liabilities
    
    
    (7,145,507
    )
    
    
    (6,435,732
    )
    
    
    (6,256,205
    )Net deferred income tax liabilities
    
    $
    (4,174,521
    )
    
    $
    (3,498,724
    )
    
    $
    (3,267,801
    )
   Year Ended June 30,2010
    
    
    2009
    
    
    2008Statutory federal rate
    
    
    35.00
    %
    
    
    35.00
    %
    
    
    35.00
    %State income taxes, net of federal income tax benefit
    
    
    3.58
    
    
    
    3.58
    
    
    
    3.58Goodwill and other non-deductible items
    
    
    (0.06
    )
    
    
    0.01
    
    
    
    0.18Effective tax rate
    
    
    38.52
    %
    
    
    38.59
    %
    
    
    38.76
    %
 F-15




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##### Table of Contents



NOTE 9  SHARE REPURCHASE PROGRAM
  NOTE 10  EMPLOYEE BENEFIT PLAN
   NOTE 11  COMMITMENTS AND CONTINGENCIES
 Legal Proceedings
  Contingencies
  F-16




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##### Table of Contents



Leases
 For the fiscal year ending June 30,2011
    
    $
    2,566,0852012
    
    
    1,466,5252013
    
    
    1,176,1792014
    
    
    1,101,9672015 and thereafter
    
    
    1,162,604Total
    
    $
    7,473,360
 NOTE 12  VALUATION AND QUALIFYING ACCOUNTS
  Year ended June 30,2010
    
    
    2009
    
    
    2008Allowance for doubtful accounts related to
accounts and other receivables:Balance at beginning of period
    
    $
    
    
    
    $
    783,741
    
    
    $
    802,239Provision for doubtful accounts
    
    
    118,895
    
    
    
    
    
    
    
    181,081Write-offs of uncollectible accounts receivable
    
    
    (74,766
    )
    
    
    (783,741
    )
    
    
    (199,579
    )Balance at end of period
    
    $
    44,129
    
    
    $
    
    
    
    $
    783,741
 NOTE 13  RELATED PARTY TRANSACTIONS
     F-17




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##### Table of Contents



NOTE 14  QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
 For the Year Ended June 30, 2010First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    FullQuarter
    
    
    Quarter
    
    
    
    Quarter
    
    
    Quarter
    
    
    YearTotal revenue
    
    $
    75,972,366
    
    
    $
    75,256,100
    
    
    $
    80,274,545
    
    
    $
    79,288,452
    
    
    $
    310,791,463Net income
    
    $
    5,308,339
    
    
    $
    5,288,679
    
    
    $
    5,900,611
    
    
    $
    5,678,678
    
    
    $
    22,176,307Net income per common share:Basic
    
    $
    .09
    
    
    $
    .09
    
    
    $
    .10
    
    
    $
    .09
    
    
    $
    .37Diluted
    
    $
    .09
    
    
    $
    .09
    
    
    $
    .09
    
    
    $
    .09
    
    
    $
    .36
 For the Year Ended June 30, 2009First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    FullQuarter
    
    
    Quarter
    
    
    
    Quarter
    
    
    Quarter
    
    
    YearTotal revenue
    
    $
    65,064,634
    
    
    $
    65,539,894
    
    
    $
    75,395,799
    
    
    $
    75,270,033
    
    
    $
    281,270,360Net income
    
    $
    2,496,132
    
    
    $
    3,659,810
    
    
    $
    4,326,503
    
    
    $
    4,798,676
    
    
    $
    15,281,121Net income per common share:Basic
    
    $
    .04
    
    
    $
    .06
    
    
    $
    .07
    
    
    $
    .08
    
    
    $
    .25Diluted
    
    $
    .04
    
    
    $
    .06
    
    
    $
    .07
    
    
    $
    .08
    
    
    $
    .24
  F-18




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##### Table of Contents



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