<PAGE>   1

================================================================================
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 ---------------

                                   FORM 10-K/A
                                 AMENDMENT NO. 1

(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, 2001

                                       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,                    AMERICAN STOCK EXCHANGE
           $.0001 PAR VALUE

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. [X]

     Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant at September 17, 2001 (computed by reference to
the last reported sale price of the registrant's Common Stock on the American
Stock Exchange on such date): $26,437,933.

     Number of shares outstanding of each of the registrant's classes of Common
Stock at September 17, 2001: 39,459,601 shares of Common Stock, $.0001 par value
per share.

================================================================================


<PAGE>   2

                                EXPLANATORY NOTE

         Item 8 of the Annual Report on Form 10-K of Continucare Corporation for
the fiscal year ended June 30, 2001 is amended and restated in its entirety
solely to include the addition of footnote 15 Quarterly Consolidated Financial
Information (unaudited).

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


                                       1
<PAGE>   3

                                   SIGNATURE

         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: October 1, 2001



                                       2
<PAGE>   4

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        ----

<S>                                                                                     <C>
Report of Independent Certified Public Accountants..................................     F-2
Consolidated Balance Sheets as of June 30, 2001 and 2000............................     F-3
Consolidated Statements of Operations for the years ended June 30, 2001, 2000
     and 1999.......................................................................     F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the years ended
   June 30, 2001, 2000 and 1999.....................................................     F-5
Consolidated Statements of Cash Flows for the years ended June 30, 2001, 2000
     and 1999.......................................................................     F-6
Notes to Consolidated Financial Statements..........................................     F-8
</TABLE>


                                      F-1
<PAGE>   5

               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, 2001 and 2000, 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, 2001.
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, 2001 and 2000 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 2001, 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.


                                                           /s/ ERNST & YOUNG LLP

Miami, Florida
September 21, 2001


                                      F-2
<PAGE>   6

                             CONTINUCARE CORPORATION

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                           JUNE 30,
                                                                                                    2001              2000
                                                                                                ------------      ------------

<S>                                                                                             <C>               <C>
                                          ASSETS
Current assets
   Cash and cash equivalents .............................................................      $    525,482      $  2,535,540
   Accounts receivable, net of allowance for doubtful accounts of $5,802,000 and
     $5,752,000, respectively ............................................................            81,132            94,966
   Other receivables .....................................................................           763,637           697,977
   Prepaid expenses and other current assets .............................................           306,261           368,431
                                                                                                ------------      ------------
     Total current assets ................................................................         1,676,512         3,696,914
Equipment, furniture and leasehold improvements, net .....................................           703,494           880,873
Cost in excess of net tangible assets acquired, net of accumulated amortization of
   $8,346,000 and $5,929,000 respectively ................................................        17,516,751        19,932,891
Deferred financing costs, net of accumulated amortization of $1,706,000 and
   $426,000, respectively ................................................................         1,698,750         2,964,375
Other assets, net ........................................................................            74,731            70,127
                                                                                                ------------      ------------
     Total assets ........................................................................      $ 21,670,238      $ 27,545,180
                                                                                                ============      ============
                           LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
   Accounts payable ......................................................................      $    739,506      $    687,703
   Accrued expenses ......................................................................         2,270,695         2,517,985
   Accrued salaries and benefits .........................................................           579,805           742,069
   Due (from) to HMOs, net ...............................................................          (622,666)          985,835
   Credit Facility .......................................................................           500,000                --
   Advances from HMO .....................................................................           450,000
   Due to Medicare, net ..................................................................           500,045            73,527
   Current portion of convertible subordinated notes payable .............................           273,896           700,000
   Current portion of long-term debt .....................................................         4,952,076         2,276,635
   Current portion of related party note payable .........................................            53,211                --
   Accrued interest payable ..............................................................            17,703             6,044
   Current portion of capital lease obligations ..........................................           149,915           115,685
                                                                                                ------------      ------------
     Total current liabilities ...........................................................         9,864,186         8,105,483
Capital lease obligations, less current portion ..........................................            99,774           103,682
Convertible subordinated notes payable ...................................................         4,630,364        11,050,000
Long-term debt, less current portion .....................................................         1,011,704         5,023,244
Related party note payable, less current portion .........................................         1,135,683                --
                                                                                                ------------      ------------
     Total liabilities ...................................................................        16,741,711        24,282,409
Commitments and contingencies
Shareholders' equity
   Common stock, $0.0001 par value: 100,000,000 shares authorized; 42,455,794 shares
     issued and 39,459,601 shares outstanding at June 30, 2001; and 36,236,283 shares
     issued and 33,240,090 shares outstanding at June 30, 2000 ...........................             3,946             3,325
   Additional paid-in capital ............................................................        59,511,632        57,708,595
   Accumulated deficit ...................................................................       (49,162,350)      (49,024,448)
   Treasury stock (2,996,192 shares at June 30, 2000 and 1999) ...........................        (5,424,701)       (5,424,701)
                                                                                                ------------      ------------
     Total shareholders' equity ..........................................................         4,928,527         3,262,771
                                                                                                ------------      ------------
     Total liabilities and shareholders' equity ..........................................      $ 21,670,238      $ 27,545,180
                                                                                                ============      ============
</TABLE>

        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
                             FINANCIAL STATEMENTS.


                                      F-3
<PAGE>   7

                             CONTINUCARE CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                      FOR THE YEAR ENDED JUNE 30,
                                                                             2001                2000                1999
                                                                        --------------      --------------      --------------

<S>                                                                     <C>                 <C>                 <C>
   Medical services revenue, net .................................      $  112,607,916      $  116,582,895      $  182,526,752

   Expenses
     Medical services:
       Medical claims ............................................          88,341,212          82,480,144         117,826,175
       Contractual revision of previously recorded medical
           claims and other ......................................          (4,638,205)         (3,053,853)                 --
       Other .....................................................          16,060,798          18,197,211          45,411,645
     Payroll and employee benefits ...............................           5,689,206           5,687,030          13,797,555
     Provision for bad debts .....................................              50,000                  --           6,196,384
     Professional fees ...........................................           1,180,438             895,716           1,886,661
     General and administrative ..................................           5,466,496           5,777,317          10,198,385
     Gain on disposal of property and equipment ..................            (383,375)                 --                  --
     Write down of long-lived assets .............................                  --                  --          11,717,073
     Loss on disposal of subsidiaries ............................                  --                  --          15,361,292
     Depreciation and amortization ...............................           2,883,287           2,918,534           5,791,982
                                                                        --------------      --------------      --------------
       Subtotal ..................................................         114,649,857         112,902,099         228,187,152
                                                                        --------------      --------------      --------------

(Loss) income from operations ....................................          (2,041,941)          3,680,796         (45,660,400)

Other income (expense)
   Interest income ...............................................              32,358              43,147             138,963
   Interest expense-convertible subordinated notes payable .......                  --          (2,054,710)         (3,639,433)
   Interest expense-other ........................................          (1,632,932)         (1,182,794)         (1,505,779)
   Other .........................................................               1,425             383,623              24,906
                                                                        --------------      --------------      --------------

(Loss) income before income taxes and extraordinary items ........          (3,641,090)            870,062         (50,641,743)
Benefit for income taxes .........................................                  --                  --                  --
                                                                        --------------      --------------      --------------
(Loss) income before extraordinary items .........................          (3,641,090)            870,062         (50,641,743)
Extraordinary gain on extinguishment of debt .....................           3,503,188          13,247,907             130,977
                                                                        --------------      --------------      --------------
Net (loss) income ................................................      $     (137,902)     $   14,117,969      $  (50,510,766)
                                                                        ==============      ==============      ==============

Basic and diluted (loss) earnings per common share:
   (Loss) income before extraordinary item........................      $         (.11)     $          .04      $        (3.50)

   Extraordinary gain on extinguishment of debt ..................                 .11                 .61                 .01
                                                                        --------------      --------------      --------------

   Net (loss) income .............................................      $           --      $          .65      $        (3.49)
                                                                        ==============      ==============      ==============
</TABLE>

              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-4
<PAGE>   8

                             CONTINUCARE CORPORATION

            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                                                                  TOTAL
                                                              ADDITIONAL                                       SHAREHOLDERS'
                                                 COMMON        PAID-IN        ACCUMULATED        TREASURY         EQUITY
                                                  STOCK        CAPITAL          DEFICIT           STOCK          (DEFICIT)
                                                 -------     ------------     ------------     ------------    -------------

<S>                                              <C>         <C>              <C>              <C>             <C>
Balance at June 30, 1998 ...................     $ 1,374     $ 31,099,303     $(12,631,651)    $ (5,242,680)    $ 13,226,346

Receipt of stock in settlement of receivable          (7)              --               --         (182,021)        (182,028)

Issuance of stock for settlement of former
   shareholder claim .......................          30              (30)              --               --               --

Issuance of stock related to ZAG acquisition          58        1,811,192               --               --        1,811,250

Net loss ...................................          --               --      (50,510,766)              --      (50,510,766)
                                                 -------     ------------     ------------     ------------     ------------

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
                                                 =======     ============     ============     ============     ============
</TABLE>

              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-5
<PAGE>   9

                             CONTINUCARE CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                             FOR THE YEAR ENDED JUNE 30,
                                                                                         2001            2000            1999
                                                                                     ------------    ------------    ------------

<S>                                                                                  <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net (loss) income .............................................................   $   (137,902)   $ 14,117,969    $(50,510,766)
   Adjustments to reconcile net (loss) income to cash (used in)
         provided by operating activities:
      Depreciation and amortization, including amortization of deferred
         loan costs ..............................................................      4,163,913       3,752,653       6,705,221
      Provision for bad debts ....................................................         50,000              --       4,656,384
      Write down of long-lived assets ............................................             --              --      11,717,073
      Provision for notes receivable .............................................             --              --       1,540,000
      Loss on disposal of subsidiaries ...........................................             --              --      15,361,292
      Amortization of discount on notes payable ..................................        109,983         258,349         254,531
      Contractual revision of previously recorded medical claims liability .......     (4,638,205)     (3,053,853)             --
      Gain on disposal of property and equipment .................................       (383,375)        (23,123)             --
      Gain on early extinguishment of debt .......................................     (3,503,188)    (13,247,907)       (130,977)
    Changes in assets and liabilities, excluding the effect of acquisitions and
         disposals:
      (Increase) decrease in accounts receivable .................................        (36,166)        509,558         290,226
      Decrease (increase) in prepaid expenses and other current assets ...........         62,170         (69,532)        191,644
      Increase in other receivables ..............................................        (65,660)       (431,920)       (221,092)
      Decrease in income tax receivable ..........................................             --              --       1,800,000
      Increase in intangible assets ..............................................             --              --          75,674
      (Increase) decrease in other assets ........................................         (4,604)           (962)         24,141
      Decrease in accounts payable and accrued expenses ..........................       (357,751)     (1,109,171)     (1,516,093)
      Increase (decrease) in Due to/from HMOs, net ...............................      2,029,704      (1,135,939)      3,858,831
      Increase in due to Medicare, net ...........................................        797,140         413,174       2,754,764
      Increase in accrued interest payable .......................................         11,659       2,029,043       1,776,466
                                                                                     ------------    ------------    ------------
Net cash (used in) provided by operating activities ..............................     (1,902,282)      2,008,339      (1,372,681)
                                                                                     ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Cash proceeds from disposal of subsidiaries ...................................             --              --       5,642,216
   Cash proceeds from disposal of property and equipment .........................        451,500              --              --
   Cash paid for acquisitions ....................................................             --              --      (4,640,000)
   Property and equipment additions ..............................................       (231,339)       (227,137)       (751,708)
                                                                                     ------------    ------------    ------------
Net cash provided by (used in) investing activities ..............................        220,161        (227,137)        250,508
                                                                                     ------------    ------------    ------------
</TABLE>

Continued on next page.


                                      F-6
<PAGE>   10

                             CONTINUCARE CORPORATION

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>
                                                                                            FOR THE YEAR ENDED JUNE 30,
                                                                                        2001            2000            1999
                                                                                    ------------    ------------    ------------

<S>                                                                                 <C>             <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES
   Payments on Convertible Subordinated Notes ..................................        (350,000)       (560,000)       (720,000)
   Principal repayments under capital lease obligation .........................         (96,233)        (40,319)       (247,619)
   Payments on acquisition notes ...............................................              --              --      (1,475,000)
   Payment of deferred financing costs .........................................         (15,000)        (15,000)       (161,051)
   Payment of restructuring costs ..............................................              --        (310,792)             --
   Proceeds from Term and Revolving Notes ......................................              --              --       5,000,000
   Repayment of Term and Revolving Notes .......................................        (150,000)     (1,064,255)     (3,935,745)
   Net increase in Credit Facility .............................................         500,000              --              --
   Advances from HMOs ..........................................................       1,450,000              --              --
   Payments on advances from HMOs ..............................................      (1,000,000)             --              --
   Repayments to Medicare per agreement ........................................        (666,704)       (440,373)     (1,736,579)
   Proceeds from note repayment ................................................              --              --         147,520
                                                                                    ------------    ------------    ------------
Net cash used in financing activities ..........................................        (327,937)     (2,430,739)     (3,128,474)
                                                                                    ------------    ------------    ------------
Net decrease in cash and cash equivalents ......................................      (2,010,058)       (649,537)     (4,250,647)
Cash and cash equivalents at beginning of fiscal year ..........................       2,535,540       3,185,077       7,435,724
                                                                                    ------------    ------------    ------------
Cash and cash equivalents at end of fiscal year ................................    $    525,482    $  2,535,540    $  3,185,077
                                                                                    ============    ============    ============

SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Notes payable issued for acquisitions ..........................................    $         --    $         --    $  5,819,411
                                                                                    ============    ============    ============

Receipt of stock in settlement of receivable ...................................    $         --    $         --    $    182,028
                                                                                    ============    ============    ============

Stock issued in ZAG acquisition ................................................    $         --    $         --    $  1,811,250
                                                                                    ============    ============    ============

Stock issued for deferred financing costs ......................................    $         --    $  3,375,000    $         --
                                                                                    ============    ============    ============

Stock issued for extinguishment of debt ........................................    $  1,803,658    $ 21,312,500    $         --
                                                                                    ============    ============    ============

Note payable issued for refunds due to Medicare for overpayments ...............    $    370,622    $    642,005    $         --
                                                                                    ============    ============    ============

Purchase of furniture and fixtures with proceeds of capital lease obligations ..    $    127,428    $    181,484    $         --
                                                                                    ============    ============    ============

Cash paid for interest .........................................................    $    580,665    $    106,534    $  2,125,895
                                                                                    ============    ============    ============
</TABLE>

              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-7
<PAGE>   11

                             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, 2001 the Company operated, owned and/or
managed: (i) fifteen staff model clinics in South and Central Florida; an
Independent Practice Association with 28 physicians; and four Home Health
agencies. For Fiscal 2001 approximately 60% of net medical services revenue was
derived from managed care contracts with Humana Medical Plans, Inc. ("Humana")
and 36% of net medical services revenue was derived from managed care contracts
with Foundation Health Corporation ("Foundation"). (Foundation and Humana may
hereinafter be collectively referred to as "the HMOs".) 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. For Fiscal 1999 approximately 34% of net
medical services revenue was derived from managed care contracts with Humana and
51% of net medical services revenue was derived from managed care contracts with
Foundation.

Throughout Fiscal 1999 the Company experienced adverse business operations,
recurring operating losses, negative cash flow from operations, and significant
working capital deficiencies. Furthermore, as discussed below and further in
Note 6, the Company was unable to make the interest payments due April 30, 1999
and October 31, 1999 on the Company's Convertible Subordinated Notes Payable due
2002 (the "Notes"). The Company's operating difficulties were in large part due
to the underperformance of various entities which were acquired in fiscal years
1999, 1998 and 1997, the inability to effectively integrate and realize
increased profitability through anticipated economies of scale with these
acquisitions, as well as reductions in reimbursement rates under the Balanced
Budget Act of 1997.

To strengthen the Company financially, during Fiscal 1999 the Company began a
business rationalization program (the "Business Rationalization Program") to
divest itself of certain unprofitable operations and to close other
underperforming subsidiary divisions, and a financial restructuring program (the
"Financial Restructuring Program") to strengthen its financial condition and
performance. In connection with the implementation of its Business
Rationalization Program, the Company sold or closed its Outpatient
Rehabilitation subsidiary, its Diagnostic Imaging subsidiary and Specialty
Physician Practice subsidiary. These divestitures generated net cash proceeds of
approximately $5,642,000 (after the payment of transaction costs and other
employee-related costs). The rationalization liability associated with these
divestitures was approximately $749,000 at June 30, 2001. Other than payments
totally approximately $2,100, there were no changes in the rationalization
liability during Fiscal 2001. The Business Rationalization Program has assisted
management with the commencement and implementation of its Financial
Restructuring Program and has allowed the Company to focus its resources on a
core business model.

As a result of the Financial Restructuring Program, in Fiscal 2000, the Company
instituted a series of measures intended to reduce losses and to operate the
remaining acquired businesses profitably. Furthermore, as discussed in Note 6,
in Fiscal 2000, the Company completed a restructuring of its Notes.

During Fiscal 2001, the Company began to experience a deterioration in its claim
loss ratio, resulting in operating losses, negative cash flow from operations
and a significant working capital deficiency. Changes in the claims loss ratio
are due to fluctuations in utilization, the timing of claims paid by the HMOs on
the Company's behalf, as well as increases in medical costs without
counterbalancing increases in premium revenues from the HMOs. Furthermore, and
as discussed in Note 6, the Company did not make the April 30, 2001 interest
payment on the


                                      F-8
<PAGE>   12

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 - GENERAL (CONTINUED)

Notes and began negotiations with the noteholders to restructure the outstanding
Notes. On June 30, 2001, the Company completed a second restructuring of the
Notes.

The financial statements of the Company have been prepared assuming that it will
continue as a going concern. The Company believes that it will be able to fund
its capital commitments, operating cash requirements and satisfy its obligations
as they become due from a combination of cash on hand, expected operating cash
flow improvements through HMO premium increases and advantageous HMO benefit
changes and the Company's credit facility (see Note 9). However, there can be no
assurances that theses sources of funds will be sufficient to fund operations
and satisfy its obligations as they become due.

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, 2001,
2000, and 1999, 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.

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.

Costs In Excess Of Net Tangible Assets Acquired--Costs in excess of net tangible
assets acquired are stated net of accumulated amortization and are amortized on
a straight-line basis over periods ranging from 3 to 20 years. The Company
periodically evaluates the recovery of the carrying amount of costs in excess of
net tangible assets acquired by determining if a permanent impairment has
occurred. Indicators of a permanent impairment include duplication of resources
resulting from acquisitions, instances in which the estimated undiscounted cash
flows of the entity are less than the remaining unamortized balance of the
underlying intangible assets and other factors. At June 30, 1999, the Company
believed that certain of its costs in excess of net tangible assets acquired -
primarily those related to its Independent Practice Association ("IPA") and one
of its Home Health divisions, $9,200,000 and $2,200,000 respectively - were
impaired based upon recent and anticipated significant cash flow deficiencies.
As the net present value of expected future cash flows for these operating
entities were negative, the following intangible assets were written off during
Fiscal 1999:


                                      F-9
<PAGE>   13

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
         <S>                                                        <C>
         Goodwill                                                   $  7,724,000
         Identifiable intangibles:
              Contract rights                                          3,159,000
              Other, including assembled workforce and tradenames        564,000
         Other                                                           270,000
                                                                    ------------
                                                                    $ 11,717,000
                                                                    ============
</TABLE>

No such adjustment was required at June 30, 2001 or 2000.

Deferred Financing Costs--Expenses incurred in connection with the credit
facility and the guarantee related to the New Credit Facility have been deferred
and are being amortized using the interest method over the life of the facility
and the guarantee. (See Note 7.)

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 market
assumptions and/or estimation methods may have a material effect on the
estimated fair value amounts. The Company has used the following market
assumptions and/or estimation methods:

         Cash and cash equivalents, accounts receivable, accounts payable and
         accrued expenses--The carrying values approximate fair value due to the
         relatively short maturity of the respective instruments.

         Convertible subordinated notes payable--The fair value was
         approximately $1,135,000 and $948,000 at June 30, 2001 and 2000,
         respectively, based on the market value of the Company's common stock.

         Related party note payable--The fair value was approximately $265,000
         at June 30, 2001 based on the market value of the Company's common
         stock.

         Long-term debt and capital lease obligations--The carrying value at
         June 30, 2001 and 2000 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%.

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 11).

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 adopted SFAS 131, "Disclosures about Segments of
an Enterprise and Related Information" during Fiscal 1999. The Company has
concluded that it operates in one segment of business, that of managing the
provision of outpatient health care and health care related services in the
State of Florida.

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



                                      F-10
<PAGE>   14

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

No such adjustment was required at June 30, 2001 or 2000.

Deferred Financing Costs--Expenses incurred in connection with the credit
facility and the guarantee related to the New Credit Facility have been deferred
and are being amortized using the interest method over the life of the facility
and the guarantee. (See Note 7.)

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 market
assumptions and/or estimation methods may have a material effect on the
estimated fair value amounts. The Company has used the following market
assumptions and/or estimation methods:

         Cash and cash equivalents, accounts receivable, accounts payable and
         accrued expenses--The carrying values approximate fair value due to the
         relatively short maturity of the respective instruments.

         Convertible subordinated notes payable--The fair value was
         approximately $1,135,000 and $948,000 at June 30, 2001 and 2000,
         respectively, based on the market value of the Company's common stock.

         Related party note payable--The fair value was approximately $265,000
         at June 30, 2001 based on the market value of the Company's common
         stock.

         Long-term debt and capital lease obligations--The carrying value at
         June 30, 2001 and 2000 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%.

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 11).

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 adopted SFAS 131, "Disclosures about Segments of
an Enterprise and Related Information" during Fiscal 1999. The Company has
concluded that it operates in one segment of business, that of managing the
provision of outpatient health care and health care related services in the
State of Florida.

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


                                      F-11
<PAGE>   15

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fee for service arrangements, which accounted for 11% of medical services net
revenue in Fiscal 1999, required the Company to assume the financial risks
relating to payor mix and reimbursement rates. The Company received
reimbursement for these services under either the Medicare or Medicaid programs
or payments from the individual, insurers, self-funded benefit plans or
third-party payors. The Company was paid based upon established charges, the
cost of providing services, predetermined rates per diagnosis, or discounts from
established charges. Revenue was recorded as an estimated amount, net of
contractual allowances. These accounts, which were unsecured, have longer
collection periods than capitated fee contracts and required the Company to bear
the credit risk of uninsured individuals. The contribution from fee for service
revenue for Fiscal 2001 and 2000 was insignificant, primarily as a result of the
closing and sale of certain subsidiaries in Fiscal 1999.

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 36%, 39% and 51% for Fiscal 2001,
2000 and 1999, respectively. Total medical services net revenue relating to
Humana approximated 60%, 57% and 34% for Fiscal 2001, 2000 and 1999,
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, 2001 because the Company has the right to terminate
unprofitable physicians and close unprofitable centers under its managed care
contracts.

Approximately 4% of the Company's medical services net revenue in Fiscal 1999
was earned through contracts, which are directly between the payor (i.e.,
hospital), and the Company. These contracts provide for payments to the Company
based upon a fixed percentage of the hospital's charges related to the services
provided by the Company to patients of the hospital. The contribution from
contracts in Fiscal 2001 and 2000 was insignificant, primarily as a result of
the Business Rationalization Program and the divestiture of the Outpatient
Rehabilitation Subsidiary in Fiscal 1999.

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%,
4% and 6% of the Company's net medical service revenue for the years ended June
30, 2001, 2000, and 1999, respectively. Laws and regulations governing the
Medicare and Medicaid programs are complex and subject to interpretation. The
Company believes that it is in compliance with all applicable laws and
regulations and is not aware of any pending or threatened investigations
involving allegations of potential wrongdoing. While no such regulatory
inquiries have


                                      F-11
<PAGE>   16

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 together with current
factors. 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.

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

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

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

Recent Accounting Pronouncements--In July, 2001, the Financial Accounting
Standards Board issued 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"). SFAS
No. 141 requires 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.
The requirements of SFAS No. 141 are effective for any business combination
accounted for by the purchase method that is completed after June 30, 2001.


                                      F-12
<PAGE>   17

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Under SFAS No. 142, goodwill and intangible assets with indefinite useful lives
are no longer amortized, but are reviewed annually, or more frequently if
impairment indicators arise, for impairment. SFAS No. 142 will require that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The amortization
provisions of SFAS No. 142 apply to goodwill and intangible assets acquired
after June 30, 2001. With respect to goodwill and intangible assets acquired
prior to July 1, 2001, the amortization provisions of SFAS No. 142 will be
effective upon adoption of SFAS No. 142. Companies are required to adopt SFAS
No. 142 in fiscal years beginning after December 15, 2001 but may elect to early
adopt.

The Company will apply the new rules for accounting for goodwill and other
intangible assets beginning July 1, 2001. Application of the non-amortization
provisions of SFAS No. 142 is expected to result in an increase in pretax income
of approximately $944,000 per year. During Fiscal 2002, the Company will perform
the first of the required impairment tests of goodwill as of September 30, 2001
and has not yet determined what the effect of this test will be on the results
of operations or the financial position of the Company.

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

NOTE 3 - BUSINESS COMBINATIONS AND DISPOSALS

Physician Practices

On April 10, 1997, the Company, through Continucare Physician Practice
Management, Inc., ("CPPM") a wholly-owned subsidiary, acquired all of the
outstanding stock of certain arthritis rehabilitation centers and affiliated
physician practices. The acquisitions included the purchase of AARDS, INC., a
Florida corporation formerly known as Norman B. Gaylis, M.D., Inc., of
Rosenbaum, Weitz & Ritter, Inc., a Florida corporation, and of Arthritis &
Rheumatic Disease Specialties, Inc., a Florida corporation, from Sheridan
Healthcare, Inc. (collectively "AARDS") The aggregate purchase price was
approximately $3,300,000. Tangible assets recorded consisted primarily of
receivables and equipment. As a result of the acquisitions, purchase price in
excess of the fair value of the net tangible assets acquired was approximately
$2,149,000 and included approximately $1,173,000 in separately identifiable
intangible assets. Goodwill was being amortized over 20 years and separately
identifiable assets were being amortized over periods ranging from 7 to 10
years. The consolidated financial statements include the accounts of these
acquisitions from the date of the acquisitions.

In connection with the purchase of AARDS, the Company entered into a management
agreement with ZAG Group, Inc. ("ZAG"), an entity controlled by Jay Ziskind, Ken
Arvin and Dr. Norman Gaylis. The management agreement, among other things,
provided for ZAG to perform certain services in exchange for specified
compensation. In addition, the Company entered into a put/call agreement with
ZAG, which allowed each of the parties to require the other party, after a
two-year period, to either sell or purchase all the issued and outstanding
capital stock of ZAG for a specified price to be paid in a combination of cash
and common stock of the Company. In September 1998, the Company paid
approximately $2,000,000 to ZAG in connection with an Agreement and Plan of
Merger executed between the Company and ZAG which effectively canceled the
put/call agreement. Cash of $115,000 was paid and the remaining $1,885,000 was
paid by issuing 575,000 unregistered shares of the Company's common stock with a
fair market value of approximately $1,600,000 on the date of issuance. However,
because the common stock issued did not have an aggregate fair market value of
approximately $1,885,000 on October 15, 1999, the agreement and plan of merger
provided that the Company would pay additional cash consideration or issue
additional shares of its


                                      F-13
<PAGE>   18

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3 - BUSINESS COMBINATIONS AND DISPOSALS (CONTINUED)

common stock so that the aggregate value of the stock issued is approximately
$1,885,000. Additional consideration of approximately $1,600,000 in cash or
approximately 2,388,000 shares of the Company's common stock (based on the
September 17, 2001 market price) would have to be issued. At this time no
additional payment has been made to ZAG.

On November 15, 1999, the Company commenced litigation against ZAG and its
affiliated parties alleging breach of fiduciary duties, improper billing, and
seeking return of all consideration previously paid by the Company to ZAG, and
damages, as well as seeking rescission of the Agreement and Plan of Merger and
the Registration Rights Agreement. A counterclaim was filed against the Company
on December 20, 1999 in the Circuit Court of the 11th Judicial District in and
for Miami-Dade County, Florida. The counterclaim alleged breach of contract,
tortious interference and conversion. The Company may be required to pay in
excess of $1,600,000 of additional consideration, in the form of either cash or
stock, representing the difference between $1,885,000 and the fair market value
of the 575,000 unregistered shares of the Company's common stock previously
issued to ZAG in connection with the agreement and plan of merger.

On March 12, 1999, the Company closed CPPM by selling assets totaling
approximately $3,675,000 and closing offices that represented assets totaling
approximately $1,069,000. As a result of closing CPPM, the Company recorded a
loss on disposal of approximately $4,200,000 which consisted of the following:

<TABLE>
<S>                                                                        <C>
Equipment, furniture and leasehold improvements                            $  405,000
Goodwill                                                                    3,131,000
Identifiable intangibles, including contracts and assembled work force        670,000
Other, including deposits and prepaid expenses                                 61,000
Liabilities assumed                                                           (67,000)
                                                                           ----------
                                                                           $4,200,000
                                                                           ==========
</TABLE>

Net patient revenue and net operating loss for CPPM (prior to recording the loss
on disposal) was approximately $6,096,000 and $2,133,000, respectively, for the
year ended June 30, 1999. Approximately 60 employees were terminated as a result
of the closure of this division. Neither severance nor any other significant
exit costs were incurred as a result of this closure.

Home Health Services

On September 19, 1997, the Company acquired the stock of Maxicare, Inc.
("Maxicare"), a Florida based home health agency for $4,200,000 including
approximately $900,000 of liabilities assumed. In addition, $300,000 of
additional purchase price was contingent upon maintaining various performance
criteria. No amounts have been paid to the former owner of Maxicare, Inc.
pursuant to the contingent purchase price from the acquisition. The acquisition
is being accounted for under the purchase method of accounting. Tangible assets
recorded consisted primarily of cash, receivables and equipment. The purchase
price in excess of the fair value of the net tangible assets acquired was
approximately $3,048,000 and included approximately $1,189,000 in separately
identifiable intangible assets. Goodwill was being amortized over 20 years and
separately identifiable intangible assets were being amortized over periods
ranging from 3 to 20 years. The consolidated financial statements include the
accounts of Maxicare since the date of acquisition. As discussed in Note 2,
during Fiscal 1999 management determined that the intangible assets associated
with Maxicare were impaired.


                                      F-14
<PAGE>   19

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3 - BUSINESS COMBINATIONS AND DISPOSALS (CONTINUED)

Radiology Services

On December 1, 1997, the Company acquired the assets of Beacon Healthcare Group
(principally medical supplies and equipment) for $2,200,000 in cash and 83,000
shares of the Company's common stock with a value of $490,000. The purchase
price in excess of the fair value of the net tangible assets acquired was
approximately $2,000,000 and included approximately $1,142,000 in separately
identifiable intangible assets. Goodwill was being amortized over 20 years and
separately identifiable assets were being amortized over periods ranging from 6
to 15 years.

On December 27, 1998, the Company sold the stock of the Diagnostic Imaging
Services Subsidiary (the "Subsidiary") for a cash purchase price of $120,000 to
Diagnostic Results, Inc. Prior to the sale, the Subsidiary conveyed through
dividends all of the accounts receivable of the Subsidiary to the Company. All
obligations for trade payables existing on the date of sale remained the
obligations of the Company. As a result of this transaction, the Company
recorded a loss on disposal of approximately $4,152,000, which consisted of the
following:

<TABLE>
                  <S>                                         <C>
                  Operating lease accrual                     $1,000,000
                  Equipment, furniture and leasehold
                      improvements                             1,512,000
                  Goodwill                                       750,000
                  Contractual rights                           1,043,000
                  Liabilities assumed                            (33,000)
                  Consideration received                        (120,000)
                                                              ----------
                                                              $4,152,000
                                                              ==========
</TABLE>

Net patient revenue and net operating loss (prior to recording the loss on
disposal) were approximately $1,900,000 and $2,000,000, respectively, for the
year ended June 30, 1999. Approximately 60 employees were terminated as a result
of the sale. Neither severance nor any other significant exit costs were
incurred as a result of the sale. The operating lease accrual includes several
leases requiring monthly payments through 2007. Through June 30, 2001
approximately $43,600 of this liability had been paid.

Rehabilitation Management Services

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", for a total purchase price of approximately $10,500,000,
including acquisition costs of approximately $500,000. 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
rehabilitation services. The acquisition was accounted for under the purchase
method of accounting. Tangible assets recorded consisted principally of
receivables and equipment. The purchase price in excess of the fair value of the
net tangible assets acquired of approximately $6,160,000 was recorded as
goodwill and was being amortized using the straight-line method over a weighted
average life of 15 years.

On April 8, 1999, the Company sold substantially all the assets of RMS to
Kessler Rehabilitation of Florida, Inc. ("Kessler") for $5,500,000 in cash and
the assumption of certain liabilities. The Company recorded a loss on sale of
approximately $6,800,000, which consisted of the following:


                                      F-15
<PAGE>   20

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3 - BUSINESS COMBINATIONS AND DISPOSALS (CONTINUED)

<TABLE>
                  <S>                                                  <C>
                  Net working capital                                  $4,838,000
                  Equipment, furniture and leasehold improvements       1,739,000
                  Goodwill                                              5,723,000
                  Consideration received                               (5,500,000)
                                                                       ----------
                                                                       $6,800,000
                                                                       ==========
</TABLE>

The consolidated financial statements included the accounts of RMS from the date
of purchase to the date of sale. Net patient revenue and net operating loss
(prior to recording the loss on disposal) were approximately $13,272,000 and
$2,053,000, respectively, for the year ended June 30, 1999. Approximately 600
employees were terminated as a result of the sale and severance costs of
approximately $50,000 was accrued and paid prior to June 30, 1999. No other
significant exit costs were incurred as a result of the sale. A member of the
Company's Board of Directors at the time of the sale was also a director of
Kessler.

Managed Care Services

On October 31, 1997, the Company purchased the assets of DHG Enterprises, Inc.
and Doctors Health Partnership, Inc. (collectively, "Doctors Health Group"), a
company that provides healthcare services at outpatient centers through managed
care contracts. The total purchase price for the acquisition was approximately
$16,000,000, including acquisition costs of approximately $1,052,000. Of this
amount, $1,700,000 was paid in common stock of the Company (242,098 shares),
approximately $13,700,000 was paid in cash and warrants to purchase 200,000
shares of the Company's common stock with an estimated fair market value of
$600,000 were issued. The warrants have an exercise price of $7.25 per share for
a period of 5 years. The acquisition is being accounted for under the purchase
method of accounting. Tangible assets acquired consisted principally of medical
equipment and deposits. The purchase price in excess of the fair value of the
net tangible assets acquired was approximately $15,478,000 and included
approximately $5,636,000 in separately identifiable intangible assets. Goodwill
is being amortized over 20 years and separately identifiable intangible assets
are being amortized over periods ranging from 4 to 20 years. The consolidated
financial statements include the accounts of Doctors Health Group from the
purchase date.

On January 1, 1998, the Company acquired certain of the assets of Medical
Services Organization, Inc. ("MSO") for a total purchase price of $4,260,000.
MSO provides healthcare services at outpatient centers through capitated managed
care contracts. The Company paid $2,560,000 in cash and entered into a note
payable totaling $1,700,000. The acquisition is being accounted for under the
purchase method of accounting. The entire purchase price was in excess of the
net tangible assets acquired and was recorded as contract costs. These costs
were being amortized using the straight-line method over 10 years. The
amortization period is based on the remaining life of the contract acquired. The
note was payable in six equal monthly installments beginning May 1, 1998. At
June 30, 1999 the note had been paid in full. In addition, the Company is
obligated to pay the owners of MSO an additional purchase price up to a maximum
amount of $25,000,000 based on the annualized net revenues of the acquired
contract for the twelve month period ended December 31, 1998, as adjusted under
the terms of the acquisition agreement with the former owner of MSO, times a
multiple of 4.25. The additional purchase price, if any, may be paid entirely in
Common Stock of the Company; however the Company may, at its discretion, pay 50%
of the additional purchase price in cash. Based on the performance of the
contract for that period, the Company has not paid or accrued for any additional
purchase price. Furthermore, as discussed in Note 2, in Fiscal 1999 management
determined that the intangible assets of MSO were impaired. The consolidated
financial statements include the accounts of MSO since the date of purchase.

On April 14, 1998, the Company purchased the assets of SPI Managed Care, Inc.,
SPI Managed Care of Hillsborough County, Inc., SPI Managed Care of Broward,
Inc., and Broward Managed Care, Inc., (collectively


                                      F-16
<PAGE>   21

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3 - BUSINESS COMBINATIONS AND DISPOSALS (CONTINUED)

"SPI"), which consisted principally of office and medical equipment. SPI
provides healthcare services at outpatient centers through capitated managed
care contracts. The total purchase price for the acquisition was approximately
$6,750,000. The acquisition is being accounted for under the purchase method of
accounting. The purchase price in excess of the fair value of the net tangible
assets acquired of approximately $6,416,000 was recorded as goodwill and is
being amortized using the straight-line method over a weighted average life of
15 years. The consolidated financial statements include the accounts of SPI from
the purchase date.

In August 1998, the Company purchased the contracts of CareMed Inc. ("CareMed"),
a managed care healthcare company which owns or has agreements with
approximately 30 physician practices. The total purchase price was approximately
$6,700,000, of which $4,200,000 was paid at closing and the remaining balance is
payable in equal monthly installments over the ensuing 24 months. The entire
purchase price was in excess of the net tangible assets acquired and was
recorded as contract costs. These costs were being amortized over 10 years. As
discussed in Note 2, management has determined that the intangible assets
associated with this operation were impaired. The consolidated financial
statements included the accounts of CareMed since the acquisition date.

The following unaudited pro forma data summarize the results of operations for
the periods indicated as if the above transactions had been completed at the
beginning of the year preceding the respective transaction dates. The pro forma
data gives effect to actual operating results prior to the transactions and
adjustments to depreciation, interest expense, goodwill amortization and income
taxes. These pro forma amounts do not purport to be indicative of the results
that would have actually been obtained if the transactions had occurred at an
earlier date or that may be obtained in the future. Included in expenses for the
year ended June 30, 1999, are impairment charges of $11,717,073 due to the
write-down of certain intangible assets related to continuing subsidiaries,
while the losses on disposals of $15,361,289 has been excluded in the pro forma
amounts below.

<TABLE>
<CAPTION>
                                                              YEAR ENDED JUNE 30,
                                              ---------------------------------------------------
                                                   2001               2000               1999
                                              -------------      -------------      -------------
                                                                  (Unaudited)

<S>                                           <C>                <C>                <C>
Total revenues .........................      $ 112,607,916      $ 116,582,895      $ 161,039,157
                                              =============      =============      =============

Net income (loss) ......................      $    (137,902)     $  14,117,969      $ (27,571,235)
                                              =============      =============      =============

Basic and diluted income (loss) per
  common share .........................      $          --      $         .65      $       (1.91)
</TABLE>

NOTE 4 - NOTES RECEIVABLE

In the first quarter of Fiscal 1998, the Company assigned the accounts
receivable related to its behavioral health programs and assigned its behavioral
health management contracts to third parties in exchange for notes receivable in
the aggregate amount of $7,800,000. The Company recorded no gain or loss on the
assignment since the amount received approximated the net book value of the
assets assigned. The notes receivable were to be paid over a five year term with
interest to accrue at 9% per annum. The notes receivable are secured by all the
assets of the behavioral health business.


                                      F-17
<PAGE>   22

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4 - NOTES RECEIVABLE (CONTINUED)

While the Company had determined that these notes receivable were impaired and
had recorded an allowance in prior years, during Fiscal 1999, the Company
increased its reserve on these notes for the remaining balance of $1,600,000.
This was determined to be necessary because, despite collecting payments of
$104,000 on one note in early Fiscal 1999 and the issuance of demand notices to
seek reimbursement, the Company has been unsuccessful in its collection efforts.
The Company did not receive any payments during Fiscal 2001 or 2000. The balance
of the notes at June 30, 2000 and 2001, net of the allowance, is $0. The Company
will apply all future payments, if any, to principal with interest being
recognized on a cash basis after all principal has been paid.

During Fiscal 1999 the Company accepted $29,700 in cash and 66,192 shares of the
Company's common stock in full satisfaction of a $340,000 receivable from a
former employee of the Company and a promissory note due from the same former
employee of $46,750. The shares were valued at $2.75 per share and are included
in treasury stock at June 30, 2001 and 2000.

NOTE 5 - EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS

Equipment, furniture and leasehold improvements are summarized as follows:

<TABLE>
<CAPTION>

                                                                   JUNE 30,                ESTIMATED
                                                        ------------------------------    USEFUL LIVES
                                                            2001              2000         (IN YEARS)
                                                        ------------      ------------    ------------

<S>                                                     <C>               <C>             <C>
Furniture, fixtures and equipment ................      $  2,329,241      $  2,178,457         3-5
Furniture and equipment under capital lease ......           316,470           189,173          5
Vehicles .........................................             2,184             2,184          5
Leasehold improvements ...........................            94,627           178,897          5
                                                        ------------      ------------
                                                           2,742,522         2,548,711
Less accumulated depreciation ....................        (2,039,028)       (1,667,838)
                                                        ------------      ------------
                                                        $    703,494      $    880,873
                                                        ============      ============
</TABLE>

Depreciation expense for the years ended June 30, 2001, 2000 and 1999 was
$467,148, $491,276 and $1,481,439, respectively. Accumulated amortization for
assets recorded under capital lease agreements was approximately $116,000 at
June 30, 2001. Amortization of assets recorded under capital lease agreements
was approximately $91,000 at June 30, 2001, and is included in depreciation
expense.

In connection with its acquisitions, the Company entered into various
noncancellable leases for certain furniture and equipment that are classified as
capital leases. The leases are payable over 5 years and the Company has used
incremental borrowing rates ranging from 9% to 35% per annum. In addition, the
Company had entered into capital leases which, in conjunction with its various
business disposals (see Note 3) in Fiscal 1999, were canceled or transferred to
the purchasers of those businesses.

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


                                      F-18
<PAGE>   23

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 - EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS (CONTINUED)

<TABLE>
<S>                                                     <C>
For the year ending June 30,
   2002..............................................   $ 165,542
   2003..............................................      87,352
   2004..............................................      14,316
   2005..............................................       1,060
                                                        ---------
                                                          268,270
   Less amount representing imputed interest.........      18,581
                                                        ---------
   Present value of obligations under capital lease..     249,689
   Less current portion..............................     149,915
                                                        ---------
   Long-term capital lease obligations...............   $  99,774
                                                        =========
</TABLE>

NOTE 6 - 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, 2001 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
an extraordinary 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 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)


                                      F-19
<PAGE>   24

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6 - CONVERTIBLE SUBORDINATED NOTES PAYABLE AND RELATED PARTY NOTE PAYABLE
(CONTINUED)

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
will be $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 7 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 will be 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, 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 "Related Party Note") in the principal
amount of $912,195. The Related Party 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 have agreed to restructure 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-20
<PAGE>   25

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6 - 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 Related
Party Note in the amount of $912,195 and the recording of approximately $277,000
of interest which will accrue on the Related Party Note.

In accordance with SFAS No. 15, the balance of the outstanding Notes on the
balance sheet of $4,904,260 at June 30, 2001, includes interest accrued through
June 30, 2001 of $45,649 and the remaining interest of $945,805 which will be
payable in quarterly payments through October 31, 2005. The balance of the
Related Party Note on the balance sheet of $1,188,894 at June 30, 2001, also
recorded in accordance with SFAS No. 15, includes interest of $276,699 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 Note are as follows:

<TABLE>
<CAPTION>
                PRINCIPAL       INTEREST         TOTAL
               -----------     ----------     ----------

<S>            <C>             <C>            <C>
Fiscal 2002                    $  327,107     $  327,107
Fiscal 2003                       337,750        337,750
Fiscal 2004    $ 1,148,000        297,570      1,445,570
Fiscal 2005      1,148,000        222,531      1,370,531
Fiscal 2006      2,529,001         83,195      2,612,196
               -----------     ----------     ----------

               $ 4,825,001     $1,268,153     $6,093,154
               ===========     ==========     ==========
</TABLE>

NOTE 7 - CREDIT FACILITY AND LONG-TERM DEBT

The following long-term debt was outstanding as of June 30, 2001 and 2000.

<TABLE>
<CAPTION>
                                               2001             2000
                                            ---------------------------

         <S>                                <C>              <C>
         Contract Modification Note....     $3,816,728       $3,856,745
         Acquisition Liability.........        500,000        1,500,000
         Credit Facility...............        500,000               --
         Other Outstanding Notes.......      1,647,052        1,943,134
                                            ---------------------------
                                             6,463,780        7,299,879
         Less Current Portion..........      5,452,076        2,276,635
                                            ---------------------------

         Long-Term.....................     $1,011,704       $5,023,244
                                            ===========================
</TABLE>

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-21
<PAGE>   26

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 - CREDIT FACILITY AND LONG-TERM DEBT (CONTINUED)

On September 27, 2000, the Company entered into an agreement to amend the
repayment terms. This agreement modified the repayment terms as follows: (a)
commencing on October 1, 2000 and through September 1, 2001, the Company would
make monthly payments of $30,000; (b) on October 1, 2001, the Company would make
a single payment of $640,000; and (c) commencing on November 1, 2001 through
October 1, 2002, the Company would make monthly payments of $250,000.
Accordingly, at June 30, 2000 approximately $270,000 was classified as a current
obligation in the accompanying consolidated balance sheet. At June 30, 2001, the
Company is currently not in compliance with the amended repayment terms, and the
outstanding balance of approximately $3,817,000 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 Continucare
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 is payable in equal monthly installments over the
ensuing 24 months. The liability is non-interest bearing. The Company imputed
interest at 8%. The Company has repaid $625,000. The purchase price was included
in other intangible assets on the accompanying consolidated balance sheet and
was being amortized over 10 years, the term of the contracts. However, later in
Fiscal 1999 management determined that these assets were impaired, as discussed
in Note 2, and the unamortized balance was written-off.

Effective December 31, 1999, the Company negotiated an amendment to its contract
with an 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 an 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.

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
its Rehabilitation Subsidiary 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.


                                      F-22
<PAGE>   27

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 - CREDIT FACILITY AND LONG-TERM DEBT (CONTINUED)

In conjunction with the Fiscal 2000 Restructuring, the Company executed a credit
facility agreement (the "Credit Facility"). The Credit Facility provides a
revolving loan of $3,000,000. The Credit Facility is due March 31, 2002 with
annual renewable options, with interest payable monthly at 2.9% plus the 30-day
Dealer Commercial Paper Rate which is 3.75% at June 30, 2001. All assets of the
Company serve as collateral for the Credit Facility. In addition, the Credit
Facility has been guaranteed by a board member and an entity controlled by a
board member. 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
deferred financing cost which is being amortized over the term of the guarantee,
which expires October 31, 2002. At June 30, 2001, the outstanding balance of the
Credit Facility was $500,000.

Other Outstanding Notes--In conjunction with the operation of its Home Health
Division, the Company has entered into twelve (12) 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. Five of the twelve Repayment Agreements are non-interest bearing and
have maturity dates in Fiscal 2003 and Fiscal 2004. Seven of the twelve
Repayment Agreements have interest rates ranging from 13.250% to 13.875% and
have maturity dates ranging from Fiscal 2003 to Fiscal 2005.

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

<TABLE>
                  <S>               <C>
                  Fiscal 2002       $ 5,452,076
                  Fiscal 2003           640,622
                  Fiscal 2004           350,379
                  Fiscal 2005            20,703
                                    -----------

                                    $ 6,463,780
                                    ===========
</TABLE>

NOTE 8 - EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                                           YEAR ENDED JUNE 30,
                                                                 2001              2000              1999
                                                             ------------      ------------      ------------

<S>                                                          <C>               <C>               <C>
Numerator for basic and dilutive earnings per share
  (Loss) income before extraordinary items ............      $ (3,641,090)     $    870,062      $(50,641,743)
  Extraordinary gain or extinguishment of debt ........         3,503,188        13,247,907           130,977
                                                             ------------      ------------      ------------
  Net (loss) income ...................................      $   (137,902)     $ 14,117,969      $(50,510,766)
                                                             ============      ============      ============

Denominator for basic and diluted earnings (loss)
  Per share-weighted average shares ...................        33,257,130        21,587,086        14,451,493
                                                             ============      ============      ============
</TABLE>


                                      F-23
<PAGE>   28

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8 - EARNINGS PER SHARE (CONTINUED)

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 11.

NOTE 9 - RELATED PARTY TRANSACTIONS

During the fiscal year ended June 30, 1998, the Company incurred expenses of
$200,000 for consulting services provided by a corporation in which one of its
shareholders was an executive officer of the Company. On September 18, 1998, the
Company purchased the corporation for $115,000 in cash and 575,000 shares with a
fair market value of approximately $1,600,000 of the Company's restricted common
stock. Additional consideration is contingently due to the former owners based
on the price of the Company's common stock at October 15, 1999 as described
further in Note 3. The Company has commenced litigation and is seeking return of
consideration and rescission of the contract.

During Fiscal 1999, the Company rented various medical facilities and equipment
from corporations owned by physician employees of the Company. General and
administrative expense for year ended June 30, 1999 included approximately
$186,000 under these lease agreements. The subsidiaries which leased these
facilities and equipment were disposed of in Fiscal 1999, and, therefore, there
were no such expenses during Fiscal 2001 or 2000.

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 a board member and an entity
controlled by a board member. In consideration for providing the guarantees, the
Company issued an aggregate of 3,000,000 shares of the Company's common stock to
the guarantors. These shares were valued at $3,375,000 based on the closing
price of the Company's stock on February 11, 2000 when the original guarantees
were granted.

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

In connection with the Fiscal 2001 Restructuring of the Notes which occurred in
June 2001, the Company issued 6,219,511 shares of the Company's common stock to
Frost Nevada, an entity controlled by Dr. Phillip Frost, a director of the
Company, 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 Related Party 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.


                                      F-24
<PAGE>   29

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 - 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
FASB 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,
2000 and 1999, respectively: risk-free interest rates of 5.61%, 5.85% and 5.25%;
dividend yields of 0%; volatility factors of the expected market price of the
Company's common stock of 90.8%, 82.5% and 66.4%, and a weighted-average
expected life of the options of 10, 10 and 10.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

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:

<TABLE>
<CAPTION>
                                                              YEAR ENDED JUNE 30,
                                                     2001          2000           1999
                                                  ----------    -----------   ------------

<S>                                               <C>           <C>           <C>
Pro forma net (loss) income.....................  $ (137,902)   $13,326,315   $(52,046,336)
Basic and diluted pro forma net income (loss)
  per share....................................   $       --    $       .62   $      (3.60)
</TABLE>

The following table summarizes information related to the Company's stock option
activity for the years ended June 30, 2001, 2000 and 1999:


                                      F-25
<PAGE>   30

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 - STOCK OPTION PLAN AND WARRANTS (CONTINUED)

<TABLE>
<CAPTION>
                                                                             YEAR ENDED JUNE 30,
                                                 ----------------------------------------------------------------------------
                                                          2001                       2000                       1999
                                                 ----------------------     ----------------------     ----------------------
                                                               WEIGHTED                   WEIGHTED                   WEIGHTED
                                                               AVERAGE                    AVERAGE                    AVERAGE
                                                   NUMBER      EXERCISE       NUMBER      EXERCISE       NUMBER      EXERCISE
                                                 OF SHARES       PRICE      OF SHARES       PRICE      OF SHARES       PRICE
                                                 ----------    --------     ----------    --------     ----------    --------

<S>                                              <C>           <C>          <C>           <C>          <C>           <C>
Outstanding at beginning of the year ......         494,000      $5.44       1,138,500      $5.58       1,388,500      $5.45
Granted ...................................       2,611,000        .69          25,000       2.00         562,500       5.90
Forfeited .................................        (108,250)      5.48        (669,500)      5.54        (812,500)      5.58
                                                 ----------                 ----------                 ----------
Outstanding at end of the year ............       2,996,750                    494,000                  1,138,500
                                                 ==========                 ==========                 ==========

Exercisable at end of the year ............       1,595,000                    464,000                    847,085
                                                 ==========                 ==========                 ==========
Weighted average fair value of options
  granted during the year .................      $      .61                 $      .30                 $     4.18
                                                 ==========                 ==========                 ==========
</TABLE>

The following table summarizes information about the options outstanding at June
30, 2001:

<TABLE>
<CAPTION>
                              OPTIONS OUTSTANDING                        OPTIONS EXERCISABLE
    RANGE      -----------------------------------------------------------------------------------
     OF                        WEIGHTED AVERAGE
  EXERCISE     OUTSTANDING AT      REMAINING     WEIGHTED AVERAGE     NUMBER      WEIGHTED AVERAGE
   PRICES      JUNE 30, 2001   CONTRACTUAL LIFE   EXERCISE PRICE    EXERCISABLE    EXERCISE PRICE
--------------------------------------------------------------------------------------------------

<S>            <C>             <C>               <C>                <C>           <C>
$5.125-$7.25       369,000           6.21             $5.56            369,000          $5.56
   $2.00            25,000           8.18              2.00             25,000           2.00
 $.32-$.69       2,602,750           9.01               .69          1,200,000            .69
</TABLE>

In connection with the sale of the Notes in Fiscal 1998 (see Note 6), 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 extraordinary gain
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, 2001 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, 2001
as follows:

<TABLE>
                  <S>                                        <C>
                  Convertible subordinated notes.......       3,780,489
                  Convertible related party note.......         912,195
                  Warrants.............................         760,000
                  Stock Options........................       2,996,750
                                                             ----------
                  Total................................       8,449,434
                                                             ==========
</TABLE>

NOTE 11 - 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.


                                      F-26
<PAGE>   31

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11 - INCOME TAXES (CONTINUED)

There is no provision or benefit for income taxes for the years ended June 30,
2001, 2000 and 1999 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:

<TABLE>
<CAPTION>
                                                                                    JUNE 30,
                                                                  2001                2000                1999
                                                              ----------------------------------------------------
         <S>                                                  <C>                 <C>                 <C>
         Deferred tax assets:
            Bad debt and notes receivable reserve ....        $  4,579,119        $  4,817,719        $  4,065,794
            Depreciable/amortizable assets ...........             386,686             577,136             762,486
            Alternative minimum tax credit ...........             111,973             111,973             111,973
            Other ....................................           1,013,159           1,127,065             454,379
            Impairment charge ........................           2,660,663           3,285,430           3,540,577
            Capital loss carryover ...................             200,261             200,261
            Net operating loss carryforward ..........           2,195,114           2,522,780           8,036,027
                                                              ----------------------------------------------------
            Deferred tax assets ......................          11,146,975          12,642,364          16,971,236
         Deferred tax liabilities:
            Other ....................................             (40,211)            (23,126)            (23,126)
            Valuation allowance ......................         (11,106,764)        (12,619,238)        (16,948,110)
                                                              ----------------------------------------------------
            Deferred tax liabilities .................         (11,146,975)        (12,642,364)        (16,971,236)
                                                              ----------------------------------------------------

         Net deferred tax (liability) asset ..........        $         --        $         --        $         --
                                                              ====================================================
</TABLE>

SFAS No. 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management
determined that a valuation allowance of $11,106,764, $12,619,238 and
$16,948,110 is necessary at June 30, 2001, 2000 and 1999, 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 $1,512,000 for the year ended June 30, 2001. At June 30, 2001, the
Company had available net operating loss carryforwards of $5,833,414, which
expire in 2013 through 2020.

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 ended June 30, 2001, 2000 and 1999 is as
follows:

<TABLE>
<CAPTION>
                                                                     2001         2000         1999
                                                                    --------------------------------

<S>                                                                 <C>           <C>          <C>
Statutory federal rate .....................................         (34.0)%       34.0%       (34.0)%
State income taxes, net of federal income tax benefit ......          7.37        (0.89)        (2.6)
Goodwill and other non-deductible items ....................        103.04         0.84         10.1
Change in valuation allowance ..............................        (76.41)      (30.66)        24.2
Other ......................................................            --        (3.29)         2.3
                                                                    --------------------------------
Effective (benefit) tax rate ...............................             0%           0%           0%
                                                                    ================================
</TABLE>

NOTE 12 - 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 16% (subject to IRS limits) and have that
amount contributed to the 401(k) Plan. On February 1, 1999, 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 16%
of their annual compensation or the statutorily prescribed annual limit of
$10,500 (for calendar year ending December 31, 2001) 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, 2001, 2000 or 1999.
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.

                                      F-27
<PAGE>   32

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11 - INCOME TAXES (CONTINUED)

SFAS No. 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management
determined that a valuation allowance of $11,106,764, $12,619,238 and
$16,948,110 is necessary at June 30, 2001, 2000 and 1999, 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 $1,512,000 for the year ended June 30, 2001. At June 30, 2001, the
Company had available net operating loss carryforwards of $5,833,414, which
expire in 2013 through 2020.

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 ended June 30, 2001, 2000 and 1999 is as
follows:

<TABLE>
<CAPTION>
                                                                     2001         2000         1999
                                                                    --------------------------------

<S>                                                                 <C>           <C>          <C>
Statutory federal rate .....................................         (34.0)%       34.0%       (34.0)%
State income taxes, net of federal income tax benefit ......          7.37        (0.89)        (2.6)
Goodwill and other non-deductible items ....................        103.04         0.84         10.1
Change in valuation allowance ..............................        (76.41)      (30.66)        24.2
Other ......................................................            --        (3.29)         2.3
                                                                    --------------------------------
Effective (benefit) tax rate ...............................             0%           0%           0%
                                                                    ================================
</TABLE>

NOTE 12 - 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 16% (subject to IRS limits) and have that
amount contributed to the 401(k) Plan. On February 1, 1999, 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 16%
of their annual compensation or the statutorily prescribed annual limit of
$10,500 (for calendar year ending December 31, 2001) 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, 2001, 2000 or 1999.
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.


                                      F-28
<PAGE>   33

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12 - EMPLOYEE BENEFIT PLAN (CONTINUED)

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 13 - COMMITMENTS AND CONTINGENCIES

Employment Agreements--The Company maintains employment agreements with certain
officers and key executives expiring at various dates through September 11,
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 $300,000, annual
increases, bonuses and stock option grants. The employment agreements with
certain officers also provide that in the event of a change in control of the
Company, as defined therein, each officer is entitled to an acceleration of the
remainder of the officer's term and the automatic vesting of any unvested stock
options.

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

Leases--The Company leases office space and equipment under various
non-cancelable operating leases. Rent expense under such operating leases was
$2,081,428, $2,304,299 and $4,520,866 for the years ended June 30, 2001, 2000
and 1999, respectively. Future annual minimum payments under such leases as of
June 30, 2001 are as follows:

<TABLE>
                  <S>                                       <C>
                  For the fiscal year ending June 30,
                  2002....................................  $   833,093
                  2003....................................      689,680
                  2004....................................      452,083
                  2005....................................      198,748
                  2006....................................       32,856
                                                            -----------
                     Total................................  $ 2,206,460
                                                            ===========
</TABLE>


Concentrations of Revenues - For the years ended June 30, 2001, 2000 and 1999,
the Company generated approximately 36%, 39% and 51%, respectively, of total
revenues from Foundation Health Corporation. Humana Medical Plans, Inc.
accounted for 60%, 57% and 34%, respectively, of total revenues in Fiscal 2001,
2000 and 1999.

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, was filed on November 15, 1999 in the
Circuit Court of the 11th Judicial District in and for Miami-Dade County,
alleging breach of fiduciary duties, improper billing, and seeking the return of
all consideration previously paid by the Company to ZAG, and damages, as well as
seeking rescission of the Agreement and Plan of Merger and the Registration
Rights Agreement. On July 13, 2001, the counterplaintiffs filed their Third
Amended Counterclaim against the Company and included Mr. Charles Fernandez as a
defendant in the action. The Third Amended Counterclaim alleges counts for (i)
breach of contract against the Company and CPPM


                                      F-29
<PAGE>   34

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

based on the alleged failure to register stock pursuant to the Registration
Rights Agreement, the alleged failure to pay contingent merger consideration and
the alleged failure to fulfill obligations pursuant to Rule 144 of the
Securities Act of 1933; (ii) fraud in the inducement against the Company, CPPM
and Mr. Fernandez in connection with the execution of the Registration Rights
Agreement and the Agreement and Plan of Merger; (iii) violation of Florida Blue
Sky Laws against the Company, CPPM and Mr. Fernandez; and (iv) conversion
against the Company and CPPM. The Third Amended Counterclaim seeks an amount in
excess of $4,000,000 in damages. On August 31, 2001, the Company, CPPM and Mr.
Fernandez filed their Answer and Affirmative Defenses to the Third Amended
Counterclaim. The matter has been taken off the trial calendar and is not
currently scheduled for trial. Discovery is ongoing. The Company believes that
there is little merit to the counterclaim and intends to vigorously defend the
claims.

The Company is a party to 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. This case was filed in May 1999 in the Circuit Court
for Broward County, Florida. The complaint alleges breach of employment
contracts based on the early termination of the Plaintiffs' employment and seeks
damages in excess of $250,000. On January 5, 2000, the Company filed a
counterclaim alleging breach of contract in connection with the Plaintiff's
failure to return certain computer equipment, as well as a breach of the
non-compete covenant. On February 18, 2000, the Company filed a Motion for
Summary Judgment as to all Plaintiffs. On April 28, 2000, the Plaintiffs filed a
Motion for Summary Judgment as to the issue of liability. On June 5, 2000, the
Company filed a Motion for Judgment on the Pleadings as to all Plaintiffs. All
of the aforementioned motions were heard on June 15, 2000. On November 14, 2000,
the court granted the Company's motion as to one of the Plaintiffs' claims for
deferred and incentive compensation, but reserved as to his claim for post
termination compensation related to follow-up patient care, if any. The court
denied the Company's motion as to the other two Plaintiffs. Also on November 14,
2000, the court denied the Plaintiffs motion for summary judgment in all
respects. The trial started on February 13, 2001. As of the date of this filing,
the trial is still in progress and is scheduled to continue in October, 2001.
The Company believes the action has little merit and intends to vigorously
defend the claims.

The Company settled the case of GE MEDICAL SYSTEMS, AN UNINCORPORATED DIVISION
OF GENERAL ELECTRIC COMPANY v. CONTINUCARE OUTPATIENT SERVICES, INC. n/k/a
OUTPATIENT RADIOLOGY SERVICES, INC., A FLORIDA CORPORATION AND CONTINUCARE
CORPORATION, A FLORIDA CORPORATION with GE Medical Systems ("GE") on April 5,
2001 with no admission of liability. As part of the settlement, GE assigned to
the Company all of its claims associated with the litigation. The Company
intends to continue to litigate its claims of indemnification through its
pending cross-claims and/or third party claims.

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.; SHERIDEN 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 and seeks damages in excess of $15,000. The Company
filed its answer on May 3, 2000. Discovery is still proceeding at a slow pace.
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 carriers for
Kahn & Riskin, M.D. have been discussing apportionment of responsibilities. The
Company believes it has meritorious defenses and intends to vigorously pursue
them.


                                      F-30
<PAGE>   35

                             CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

In Fiscal 1999, the Company closed or dissolved certain subsidiaries, some of
which had pending claims against them. 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 employed and contracted medical
professionals, workers' compensation claims and other employee-related matters,
and minor disputes with equipment lessors and other vendors.

No liability has been recorded on the above matters as it is not possible to
estimate the liability, if any.

NOTE 14 - VALUATION AND QUALIFYING ACCOUNTS

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

<TABLE>
<CAPTION>
                                                                                              YEAR ENDED JUNE 30,
                                                                                  2001                 2000               1999
                                                                              ----------------------------------------------------
<S>                                                                           <C>                 <C>                 <C>
Allowance for doubtful accounts related to accounts receivable:
Balance at beginning of period .......................................        $  5,752,000        $  5,752,000        $  2,071,000
Provision for doubtful accounts ......................................              50,000                  --           4,655,000
Write-offs of uncollectible accounts receivable ......................                  --                  --            (974,000)
                                                                              ----------------------------------------------------
Balance at end of period .............................................        $  5,802,000        $  5,752,000        $  5,752,000
                                                                              ====================================================

Allowance for doubtful accounts related to notes receivable:
Balance at beginning of period .......................................        $  7,051,000        $  7,051,000        $  5,510,000
Provision for doubtful accounts ......................................                  --                  --           1,541,000
Write-offs of uncollectible notes receivable .........................            (684,000)                 --                  --
                                                                              ----------------------------------------------------
Balance at end of period .............................................        $  6,367,000        $  7,051,000        $  7,051,000
                                                                              ====================================================

Tax valuation allowance for deferred tax assets:
Balance at beginning of period .......................................        $ 12,619,238        $ 16,948,110        $  4,718,600
Additions, charged to cost and expenses ..............................                  --                  --          12,229,510
Deductions ...........................................................          (1,512,474)         (4,328,872)                 --
                                                                              ----------------------------------------------------
Balance at end of period .............................................        $ 11,106,764        $ 12,619,238        $ 16,948,110
                                                                              ====================================================
</TABLE>



                                      F-31
<PAGE>   36
                            CONTINUCARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)

<Table>
<Caption>
                                                            FOR THE YEAR ENDED JUNE 30, 2001

                                                 FIRST           SECOND           THIRD          FOURTH
                                               -----------     -----------     -----------     -----------
<S>                                            <C>             <C>             <C>             <C>

Medical services revenue, net                  $29,636,491     $29,923,561     $29,589,882     $23,457,982

(Loss) income before income taxes
  and extraordinary items                       (2,043,779)     (3,707,872)      2,393,911     $  (283,350)

Extraordinary gain on extinguishment
  of debt (a)                                                                                    3,503,188

Net (loss) income                              $(2,043,779)    $(3,707,872)    $ 2,393,911     $ 3,219,838

Basic and diluted (loss) earnings
  per share:

    (Loss) income before extraordinary items   $      (.06)    $      (.11)    $       .07     $      (.01)

    Extraordinary gain on extinguishment of
      debt                                                                                     $       .11

    Net (loss) income                          $      (.06)    $      (.11)    $       .07     $       .10

</Table>

(a) Effective March 31, 2001, the Company negotiated a reduction in a
    contractual liability to an HMO of $1,000,000 as further described in
    Note 7. This transaction was initially considered to be an extraordinary
    gain on extinguishment of debt. In connection with the preparation of this
    Annual Report (Form 10-K), it was determined that this transaction did not
    qualify as an extraordinary item. Therefore, the gain has been reclassified
    and included in the line item "Contractual revision of previously recorded
    medical claims and other" in the audited consolidated financial statements
    included in this annual Report (Form 10-K). This reclassification has no
    effect on the previously reported net income or net income per share for the
    third quarter of Fiscal 2001.


                                      F-32