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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended: June 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the transition period from  to
  CONTINUCARE CORPORATION
  Florida
    
    59-2716023(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 7200 Corporate Center Drive,
Suite 600
Miami, Florida 33126
 (305) 500-2000
  Title of each class
    
    Name of each exchange on which registeredCOMMON STOCK
    
    AMERICAN STOCK EXCHANGE$.0001 PAR VALUE
 None
 o x
 o x
 x o
 x
   Large accelerated filer o
    
    Accelerated
filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o x




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##### 



CONTINUCARE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2008
 TABLE OF CONTENTS
 PAGEGeneral
    
    
    3PART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    13Item 1B.
    
    Unresolved Staff Comments
    
    
    19Item 2.
    
    Properties
    
    
    19Item 3.
    
    Legal Proceedings
    
    
    19Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    19PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    20Item 6.
    
    Selected Financial Data
    
    
    23Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    33Item 8.
    
    Financial Statements and Supplementary Data
    
    
    33Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    33Item 9A.
    
    Controls and Procedures
    
    
    33Item 9B.
    
    Other Information
    
    
    36PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    36Item 11.
    
    Executive Compensation
    
    
    36Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    36Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    36Item 14.
    
    Principal Accountant Fees and Services
    
    
    36PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    37Signatures
    
    
    39EX-21.1 Subsidiaries of the CompanyEX-23.1 Consent of Ernst & Young LLPEX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO
  2




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GENERAL
  
 PART I
 
 ITEM 1. BUSINESS
  Company Overview
     3




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Acquisition
    4




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Industry Overview
       5




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Our Market and Business Strategy
   
    
    increase patient volume at our existing medical centers;
    
    selectively expand our network to include additional medical centers or other medical
facilities and to penetrate new geographic markets; and
    
    further develop our IPA management activities.
   6




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Increasing Patient Volume
  Selectively Expanding Our Network
  
    
    staffed with highly qualified medical professionals;
    
    a history of profitable operations or a predictable synergy such as opportunities for
economies of scale through a consolidation of management functions;
    
    a competitive environment with respect to a high concentration of hospitals and
physicians; and
    
    a geographic proximity to our current operations.
 Developing Our IPA Management Activities
  Our Medical Centers
  Our IPAs
  7




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Medicare and Medicaid Considerations
     Our HMO Affiliates
  Humana
  8




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Vista
    Wellcare
  9




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




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State Fraud and Abuse Regulations
 Restrictions on Physician Referrals
   Privacy Laws.
 Corporate Practice of Medicine Doctrine.
 Clinic Regulation and Licensure.
 Limitations on Contractual Joint Ventures.
 11




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Occupational Safety and Health Administration (OSHA)
 Environmental Regulations.
 Medicare Marketing Restrictions.
 Sanctioned Parties
 Healthcare Reform.
 Health Care Professional Licensure and Supervision.
 Employees
  Insurance
   Available Information
   12




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##### Table of Contents



ITEM 1A. RISK FACTORS
  Risks related to our business
 Our operations are dependent on three health maintenance organizations.
  Under our most important contracts we are responsible for the cost of medical services to our
patients in return for a capitated fee.
  If we are unable to manage medical benefits expense effectively, our profitability will likely be
reduced.
  A failure to estimate incurred but not reported medical benefits expense accurately will affect our
profitability.
  13




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We compete with many health care providers for patients and HMO affiliations.
  We may not be able to successfully recruit or retain existing relationships with qualified
physicians and medical professionals.
  Our business exposes us to the risk of medical malpractice lawsuits.
  Our revenues will be affected by the Medicare Risk Adjustment program.
   We presently operate only in Florida.
  14




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Failure to maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
  A significant portion of our voting power is concentrated.
  We are dependent on our executive officers and other key employees.
  We depend on the management information systems of our affiliated HMOs.
  15




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We depend on our information processing systems.
  
    
    we fail to adequately identify or are unsuccessful in implementing solutions for our
information and processing needs;
    
    our processing or information systems fail; or
    
    we fail to upgrade systems as necessary.
 Volatility of our stock price could adversely affect you.
  
    
    state and federal budget decreases;
    
    adverse publicity regarding HMOs and other managed care organizations;
    
    government action regarding eligibility;
    
    changes in government payment levels;
    
    changes in state mandatory programs;
    
    changes in expectations of our future financial performance or changes in financial
estimates, if any, of public market analysts;
    
    announcements relating to our business or the business of our competitors;
    
    conditions generally affecting the managed care industry or our provider networks;
    
    the success of our operating strategy;
    
    the operating and stock price performance of other comparable companies;
    
    the termination of any of our contracts;
    
    regulatory or legislative changes;
    
    acts of war or terrorism or an increase in hostilities in the world; and
    
    general economic conditions, including inflation and unemployment rates.
 The Internal Revenue Service may disagree with the parties description of the federal income tax consequences.
  Our intangible assets represent a substantial portion of our total assets.
   
    
    a significant adverse change in legal factors or the business climate;
    
    the loss of a key HMO contract;
    
    an adverse action by a regulator;
    
    unanticipated competition;
    
    loss of key personnel; or
    
    allocation of goodwill to a portion of business that is to be sold.
 16




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Competition for acquisition targets and acquisition financing and other factors may impede our
ability to acquire other businesses and may inhibit our growth.
  Our acquisitions could result in integration difficulties, unexpected expenses, diversion of
managements attention and other negative consequences.
  
    
    we may be unable to centralize and consolidate our financial, operational and
administrative functions with those of the businesses we acquire;
    
    our managements attention may be diverted from other business concerns;
    
    we may be unable to retain and motivate key employees of an acquired company;
    
    litigation, indemnification claims and other unforeseen claims and liabilities
may arise from the acquisition or operation of acquired businesses;
    
    the costs necessary to complete integration may exceed our expectations or
outweigh some of the intended benefits of the transactions we complete;
    
    we may be unable to maintain the patients or goodwill of an acquired business;
and
    
    the costs necessary to improve the operating systems and services of an acquired
business may exceed our expectations.
 Risks related to our industry
 We are subject to government regulation.
  
    
    forfeiture of amounts we have been paid;
    
    imposition of civil or criminal penalties, fines or other sanctions on us;
    
    loss of our right to participate in government-sponsored programs, including Medicare
and Medicaid;
    
    damage to our reputation in various markets;
    
    increased difficulty in hiring or retaining qualified medical personnel or marketing our
products and services; and
    
    loss of one or more of our licenses to provide health care services.
  17




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The health care industry is subject to continued scrutiny.
  Our insurance coverage may not be adequate, and rising insurance premiums could negatively affect
our profitability.
  Deficit spending and economic downturns could negatively impact our results of operations.
  Many factors that increase health care costs are largely beyond our ability to control.
  
    
    increased use of medical facilities and services, including prescription drugs
and doctors office visits;
    
    increased cost of such services;
    
    new benefits to patients added by the HMOs to their covered services, whether as
a result of the Medicare Modernization Act or otherwise;
    
    changes or reductions of our utilization management functions such as
preauthorization of services, concurrent review or requirements for physician
referrals;
    
    catastrophes (including hurricanes), epidemics or terrorist attacks;
    
    the introduction of new or costly treatments, including new technologies;
    
    new government mandated benefits or other regulatory changes; and
    
    increases in the cost of stop loss or other insurance.
  Health care reform initiatives, particularly changes to the Medicare system, could adversely affect
our operations.
  18




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Medicare premiums have generally risen more slowly than the cost of providing health care services.
  
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
   
 ITEM 3.
    
    LEGAL PROCEEDINGS
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  19




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PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
  HIGH
    
    
    LOWFiscal Year 2008:Quarter Ended June 30, 2008
    
    $
    2.79
    
    
    $
    1.04Quarter Ended March 31, 2008
    
    
    2.68
    
    
    
    1.70Quarter Ended December 31, 2007
    
    
    2.90
    
    
    
    2.16Quarter Ended September 30, 2007
    
    
    3.10
    
    
    
    2.08Fiscal Year 2007:Quarter Ended June 30, 2007
    
    $
    3.62
    
    
    $
    2.97Quarter Ended March 31, 2007
    
    
    3.69
    
    
    
    2.56Quarter Ended December 31, 2006
    
    
    2.99
    
    
    
    2.29Quarter Ended September 30, 2006
    
    
    3.05
    
    
    
    2.46
  Securities Authorized for Issuance Under Equity Compensation Plans
  Number ofsecurities to beissued upon
    
    
    Weighted averageexercise of
    
    
    exercise price ofoutstanding
    
    
    outstanding
    
    Number of securitiesoptions, warrants
    
    
    options, warrants
    
    remaining availablePlan Category
    
    and rights
    
    
    and rights
    
    for future issuanceEquity compensation
plans approved by
stockholders
    
    
    5,373,804
    
    
    $
    1.95
    
    
    
    2,224,667Equity compensation
plans not approved
by stockholders
    
    
    
    
    
    
    
    
    
    
    5,373,804
    
    
    
    
    
    
    
    2,224,667
 20




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Performance Graph
  
 Cumulative Total Return6/03
    
    6/04
    
    6/05
    
    6/06
    
    6/07
    
    6/08Continucare Corporation
    
    
    100.00
    
    
    
    457.14
    
    
    
    583.33
    
    
    
    702.38
    
    
    
    735.10
    
    
    
    554.76Amex Composite
    
    
    100.00
    
    
    
    128.79
    
    
    
    165.82
    
    
    
    204.19
    
    
    
    253.70
    
    
    
    243.41NASDAQ Health Services
    
    
    100.00
    
    
    
    130.39
    
    
    
    165.22
    
    
    
    158.60
    
    
    
    175.67
    
    
    
    133.92
 
 *
    
    $100 invested on 6/30/03 in stock or index including reinvestment of dividends. Fiscal year
ended June 30. 21




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Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  Total Number of
    
    
    Maximum Number ofShares Purchased as
    
    
    Shares that May YetTotal Number of
    
    
    Average Price Paid

    
    Part of Publicly
    
    
    Be Purchased UnderPeriod
    
    Shares Purchased
    
    
    per Share
    
    Announced Plan
    
    
    the Plan(1)April 1 to April 30, 2008
    
    
    
    
    
    
    N/A
    
    
    
    
    
    
    
    6,457,500May 1 to May 31, 2008
    
    
    48,100
    
    
    $
    2.28
    
    
    
    48,100
    
    
    
    6,409,400June 1 to June 30, 2008
    
    
    2,897,400
    
    
    $
    1.97
    
    
    
    2,897,400
    
    
    
    3,512,000Totals
    
    
    2,945,500
    
    
    $
    1.97
    
    
    
    2,945,500
 
 (1) Amounts in this column include the additional 1,000,000 shares and 3,500,000
shares of common stock authorized to be repurchased under the plan as a result of the
increases approved by the Board of Directors in May 2008 and June 2008, respectively. The
stock repurchase program was originally approved by the Board of Directors in February
2005. 22




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ITEM 6.  SELECTED FINANCIAL DATA
  CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
 For the Year Ended June 30,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004 (1)Revenue
    
    $
    254,440,048
    
    
    $
    217,146,287
    
    
    $
    132,990,912
    
    
    $
    112,231,113
    
    
    $
    101,824,102Operating expenses:Medical services:Medical claims
    
    
    181,097,183
    
    
    
    161,153,828
    
    
    
    97,781,447
    
    
    
    81,104,665
    
    
    
    76,333,580Other direct costs
    
    
    26,942,472
    
    
    
    22,919,746
    
    
    
    13,137,396
    
    
    
    12,648,297
    
    
    
    11,665,894Total medical services
    
    
    208,039,655
    
    
    
    184,073,574
    
    
    
    110,918,843
    
    
    
    93,752,962
    
    
    
    87,999,474Administrative payroll and employee benefits
    
    
    12,119,139
    
    
    
    9,192,670
    
    
    
    6,538,295
    
    
    
    5,107,672
    
    
    
    3,822,949General and administrative
    
    
    16,413,801
    
    
    
    13,990,439
    
    
    
    7,584,205
    
    
    
    7,059,602
    
    
    
    5,821,871Gain on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,000,000
    )
    
    
    (850,000
    )Total operating expenses
    
    
    236,572,595
    
    
    
    207,256,683
    
    
    
    125,041,343
    
    
    
    102,920,236
    
    
    
    96,794,294Income from operations
    
    
    17,867,453
    
    
    
    9,889,604
    
    
    
    7,949,569
    
    
    
    9,310,877
    
    
    
    5,029,808Other income (expense):Interest income
    
    
    602,826
    
    
    
    356,192
    
    
    
    331,001
    
    
    
    108,000
    
    
    
    4,793Interest expense
    
    
    (67,898
    )
    
    
    (49,746
    )
    
    
    (12,870
    )
    
    
    (702,946
    )
    
    
    (1,006,082
    )Medicare settlement related to terminated operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,218,278Income from continuing operations before income tax
provision (benefit)
    
    
    18,402,381
    
    
    
    10,196,050
    
    
    
    8,267,700
    
    
    
    8,715,931
    
    
    
    6,246,797Income tax provision (benefit)
    
    
    7,132,727
    
    
    
    3,892,605
    
    
    
    2,930,161
    
    
    
    (7,175,561
    )
    
    
    Income from continuing operations
    
    
    11,269,654
    
    
    
    6,303,445
    
    
    
    5,337,539
    
    
    
    15,891,492
    
    
    
    6,246,797Income (loss) from discontinued operations:Home health operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,666,934
    )Terminated IPAs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,091Total loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,593,843
    )Net income
    
    $
    11,269,654
    
    
    $
    6,303,445
    
    
    $
    5,337,539
    
    
    $
    15,891,492
    
    
    $
    4,652,954Basic net income per common share:Income from continuing operations
    
    $
    .16
    
    
    $
    .10
    
    
    $
    .11
    
    
    $
    .32
    
    
    $
    .14Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (.03
    )Net income per common share
    
    $
    .16
    
    
    $
    .10
    
    
    $
    .11
    
    
    $
    .32
    
    
    $
    .11Diluted net income per common share:Income from continuing operations
    
    $
    .16
    
    
    $
    .10
    
    
    $
    .10
    
    
    $
    .31
    
    
    $
    .12Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (.03
    )Net income per common share
    
    $
    .16
    
    
    $
    .10
    
    
    $
    .10
    
    
    $
    .31
    
    
    $
    .09Cash dividends declared
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 CONSOLIDATED BALANCE SHEET DATA:
 As of June 30,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004 (1)Total assets
    
    $
    118,490,304
    
    
    $
    116,937,548
    
    
    $
    41,994,347
    
    
    $
    34,137,935
    
    
    $
    21,908,181Long-term obligations, including current portion
    
    $
    196,379
    
    
    $
    331,319
    
    
    $
    195,819
    
    
    $
    107,710
    
    
    $
    337,186
 
 (1)
    
    These amounts have been adjusted to reflect the termination of certain lines of business. We implemented a plan to dispose of our home health operations in December 2003. The home health disposition
occurred in three separate transactions and was concluded in February 2004. 23




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General
      Medicare and Medicaid Considerations
   24




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Critical Accounting Policies and Estimates
  Revenue Recognition
     25




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Medical Claims Expense Recognition
    Consideration of Impairment Related to Goodwill and Other Intangible Assets
    Realization of Deferred Income Tax Assets
   26




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Share-Based Payment
      27




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Results of Operations
  Year ended June 30,2008
    
    
    2007
    
    
    2006Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Medical services:Medical claims
    
    
    71.2
    
    
    
    74.2
    
    
    
    73.5Other direct costs
    
    
    10.6
    
    
    
    10.6
    
    
    
    9.9Total medical services
    
    
    81.8
    
    
    
    84.8
    
    
    
    83.4Administrative payroll and employee benefits
    
    
    4.7
    
    
    
    4.2
    
    
    
    4.9General and administrative
    
    
    6.5
    
    
    
    6.4
    
    
    
    5.7Gain on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    93.0
    
    
    
    95.4
    
    
    
    94.0Income from operations
    
    
    7.0
    
    
    
    4.6
    
    
    
    6.0Other income (expense):Interest income
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.2Interest expense
    
    
    
    
    
    
    
    
    
    
    Income before income tax provision
    
    
    7.2
    
    
    
    4.7
    
    
    
    6.2Income tax provision
    
    
    2.8
    
    
    
    1.8
    
    
    
    2.2Net income
    
    
    4.4
    %
    
    
    2.9
    %
    
    
    4.0
    %
 COMPARISON OF FISCAL YEAR ENDED JUNE 30, 2008 TO FISCAL YEAR ENDED JUNE 30, 2007
 Revenue
      28




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Operating Expenses
       Income from Operations
  Taxes
  Net Income
  29




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COMPARISON OF FISCAL YEAR ENDED JUNE 30, 2007 TO FISCAL YEAR ENDED JUNE 30, 2006
 Revenue
     Operating Expenses
      30




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Income from Operations
  Taxes
  Net Income
  Liquidity and Capital Resources
        31




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Off-Balance Sheet Arrangements
  Contractual Obligations
  Payment due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsCapital Lease Obligations (1)
    
    $
    251,719
    
    
    $
    118,272
    
    
    $
    133,447
    
    
    $
    
    
    
    $
    Operating Lease Obligations (1)
    
    
    7,588,106
    
    
    
    2,256,533
    
    
    
    3,295,466
    
    
    
    1,168,384
    
    
    
    867,723Total
    
    $
    7,839,825
    
    
    $
    2,374,805
    
    
    $
    3,428,913
    
    
    $
    1,168,384
    
    
    $
    867,723
 
 (1)
    
    The payments shown above for Capital Lease Obligations and Operating Lease
Obligations reflect all payments due under the terms of the respective leases. See
Note 4 to our Consolidated Financial Statements appearing elsewhere in this Annual
Report on Form 10-K to reconcile the payments shown above to the capital lease
obligations recorded in our Consolidated Balance Sheets.  FORWARD-LOOKING STATEMENTS
  
    
    Our operations are dependent on three health maintenance organizations;
    
    Under our most important contracts we are responsible for the cost of medical
services to our patients in return for a capitated fee;
    
    If we are unable to manage medical benefits expense effectively, our profitability
will likely be reduced;
    
    A failure to estimate incurred but not reported benefits expense accurately will
affect our profitability;
    
    We compete with many health care providers for patients and HMO affiliations;
    
    We may not be able to successfully recruit or retain existing relationships with
qualified physicians and medical professionals;
    
    Our business exposes us to the risk of medical malpractice lawsuits;
    
    Our revenues will be affected by the Medicare Risk Adjustment program;
    
    We presently operate only in Florida;
    
    Failure to maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act could have a material adverse effect on our business and stock price;
    
    A significant portion of our voting power is concentrated;
    
    We are dependent on our executive officers and other key employees;
    
    We depend on the management information systems of our affiliated HMOs;
    
    We depend on our information processing systems;
    
    Volatility of our stock price could adversely affect you;
    
    The Internal Revenue Service may disagree with the parties description of the
federal income tax consequences;
    
    Our intangible assets represent a substantial portion of our total assets;
    
    Competition for acquisition targets and acquisition financing and other factors may
impede our ability to acquire other businesses and may inhibit our growth;
    
    Our acquisitions could result in integration difficulties, unexpected expenses,
diversion of managements attention and other negative consequences;
    
    We are subject to government regulation;
    
    The health care industry is subject to continued scrutiny;
    
    Our insurance coverage may not be adequate, and rising insurance premiums could
negatively affect our profitability;
    
    Deficit spending and economic downturns could negatively impact our results of
operations;
    
    Many factors that increase health care costs are largely beyond our ability to
control;
    
    Health care reform initiatives, particularly changes to the Medicare system, could
adversely affect our operations; and
    
    Medicare premiums have generally risen more slowly than the cost of providing health
care services.
 32




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##### Table of Contents



ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   33




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##### Table of Contents



Managements Annual Report on Internal Control Over Financial Reporting
  Changes in Internal Control over Financial Reporting
  Section 302 Certifications
  34




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     .
  /s/ Ernst & Young LLPCertified Public Accountants 
 35




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##### Table of Contents



ITEM 9B.  OTHER INFORMATION
  
 PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
  36




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##### Table of Contents



PART IV
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
      3.1
    
    
    Restated Articles of Incorporation, as amended (1)3.2
    
    
    Amended and Restated Bylaws (2)3.3
    
    
    First Amendment to the Amended and Restated Bylaws (18)4.1
    
    
    Form of certificate evidencing shares of Common Stock (1)4.2
    
    
    Registration Rights Agreement, dated as of October 30, 1997, by and
between Continucare Corporation and Loewenbaum & Company Incorporated (3)4.3
    
    
    Continucare Corporation Amended and Restated 1995 Stock Option Plan** (4)4.4
    
    
    Amended and Restated 2000 Stock Option Plan ** (19)4.5
    
    
    Convertible Subordinated Promissory Note (6)4.6
    
    
    Form of Convertible Promissory Note, dated June 30, 2001 (7)4.7
    
    
    Amendment to Convertible Promissory Note, dated March 31, 2003, between
Continucare Corporation and Frost Nevada Limited Partnership (7)4.8
    
    
    Form of Amendment to Convertible Promissory Note, dated March 31, 2003 (7)10.1
    
    
    Form of Stock Option Agreement**(8)10.2
    
    
    Physician Practice Management Participation Agreement between Continucare
Medical Management, Inc., and Humana Medical Plan, Inc. entered into as
of the 1st day of August, 1998 (9)10.3
    
    
    Amended and Restated Primary Care Provider Services dated November 12,
2004, by and between Vista Healthplan of South Florida, Inc., Vista
Insurance Plan, Inc. and Continucare Medical Management, Inc. (10)10.4
    
    
    Airport Corporate Center office lease dated June 3, 2004, by and between
Miami RPFIV Airport Corporate Center Associates Limited Liability Company
and Continucare Corporation (11)10.5
    
    
    Agreement, dated March 31, 2003, between the Company and Pecks Management
Partners, Ltd. (7)10.6
    
    
    Agreement, dated March 31, 2003, between Continucare Corporation and
Carret & Company (7)10.7
    
    
    WCMA Loan and Security Agreement dated March 9, 2000 between Merrill
Lynch Business Financial Services, Inc. and Continucare Corporation (12)10.8
    
    
    Letter Agreement dated March 18, 2005 between Merrill Lynch Business
Financial Services, Inc. and Continucare Corporation (13)10.9
    
    
    Form of Promissory Note dated December 29, 2004 (14)10.10
    
    
    Letter Agreement between Continucare Corporation and Merrill Lynch
Business Financial Services, Inc. regarding amendment and extension of
Credit Facility (15)
 37




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##### Table of Contents



10.11
    
    
    Asset Purchase Agreement, dated as of May 10, 2006, among Continucare
Corporation, a Florida corporation, CNU Blue 1, Inc., a Florida
corporation and a wholly-owned subsidiary of CNU, CNU Blue2, LLC, a
Florida limited liability company and a wholly-owed subsidiary of Buyer,
Miami Dade Health and Rehabilitation Services, Inc., a Florida
corporation, Miami Dade Health Centers, Inc., a Florida corporation, West
Gables Open MRI Services, Inc., a Florida corporation, Kent Management
Systems, Inc., Pelu Properties, Inc., a Florida corporation, Peluca
Investments, LLC, a Florida limited liability company owned by the
Owners, and Miami Dade Health Centers One, Inc., a Florida corporation,
MDHC Red, Inc., a Florida corporation, and each of the shareholders of
each Seller identified therein. (16)10.12
    
    
    Integrated Delivery System Participation Agreement effective as of April
1, 1999 between MDHRS and Humana Medical Plan, Inc., as amended (17)10.13
    
    
    Management Services Agreement dated as of September 1, 2004 between MDHC
and Vista Healthplan, Inc., as amended (17)10.14
    
    
    WCMA Reducing Revolver Loan and Security Agreement dated September 26,
2006, between Continucare MDHC LLC and Merrill Lynch Business Financial
Services, Inc. (17)10.15
    
    
    WCMA Reducing Revolver Loan and Security Agreement dated September 26,
2006, between Continucare MDHC LLC and Merrill Lynch Business Financial
Services, Inc. (17)10.16
    
    
    Amendment of Credit Facility dated September 26, 2006, between
Continucare Corporation and Merrill Lynch Business Financial Services,
Inc. (17)10.17
    
    
    Independent Practice Association Participation Agreement dated as of
October 11, 2007 by and among Continucare Medical Management, Inc. and
Humana Insurance Company, Humana Health Insurance Company of Florida,
Inc., Humana Medical Plan, Inc. and their affiliates that underwrite or
administer health plans. (20)10.18
    
    
    Independent Practice Association Participation Agreement dated as of
October 11, 2007 by and among Continucare Medical Management, Inc. and
Humana Insurance Company, Humana Health Insurance Company of Florida,
Inc., Humana Medical Plan, Inc. and their affiliates that underwrite or
administer health plans. (20)10.19
    
    
    Independent Practice Association Participation Agreement dated as of
October 11, 2007 by and among Continucare Medical Management, Inc. and
Humana Insurance Company, Humana Health Insurance Company of Florida,
Inc., Humana Medical Plan, Inc. and their affiliates that underwrite or
administer health plans. (20)21.1
    
    
    Subsidiaries of the Company*23.1
    
    
    Consent of Independent Registered Public Accounting Firm *31.1
    
    
    Section 302 Certification of Chief Executive Officer *31.2
    
    
    Section 302 Certification of Chief Financial Officer *32.1
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 *32.2
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 *
  (1)
    
    Post Effective Amendment No. 1 to the Registration Statement on SB-2
on Form S-3 Registration Statement filed on October 29, 1996.(2)
    
    Form 8-K dated September 12, 2006, filed September 13, 2006.(3)
    
    Form 8-K dated October 30, 1997 and filed with the Commission on
November 13, 1997.(4)
    
    Schedule 14A dated December 26, 1997 and filed with the Commission on
December 30, 1997.(5)
    
    Schedule 14A dated January 8, 2007, filed January 8, 2007.(6)
    
    Form 8-K dated August 3, 2001, filed August 15, 2001.(7)
    
    Form 10-Q for the quarterly period ended March 31, 2003.(8)
    
    Form 10-Q for the quarterly period ended September 30, 2004.(9)
    
    Form 10-K for the fiscal year ended June 30, 2000.(10)
    
    Form 10-Q for the quarterly period ended December 31, 2004.(11)
    
    Form 10-K for the fiscal year ended June 30, 2004.(12)
    
    Form 10-Q for the quarterly period ended March 31, 2000.(13)
    
    Form 10-Q for the quarterly period ended March 31, 2005.(14)
    
    Form 8-K dated December 30, 2004, filed January 5, 2005.(15)
    
    Form 8-K dated March 8, 2006, and filed on March 10, 2006.(16)
    
    Form 8-K dated May 10, 2006 and filed on May 11, 2006.(17)
    
    Form 10-Q for the quarterly period ended September 30, 2006.(18)
    
    Form 8-K dated November 6, 2007 and filed November 7, 2007.(19)
    
    Form 10-K for the fiscal year ended June 30, 2007.(20)
    
    Form 8-K dated October 11, 2007 and filed on October 15, 2007.
 
 *
    
    Filed herewith**
    
    Management contract or compensatory plan or arrangement 38




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##### Table of Contents



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

Richard C. Pfenniger, Jr.
    
    Chairman of the Board, Chief Executive
Officer, President and Director
(Principal Executive Officer)
    
    September 9, 2008/s/ Fernando L. Fernandez

Fernando L. Fernandez
    
    Senior Vice President  Finance, Chief
Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
    
    September 9, 2008/s/ Luis Cruz, M.D.

Luis Cruz, M.D.
    
    Vice Chairman of the Board and Director
    
    September 9, 2008/s/ Robert J. Cresci

Robert J. Cresci
    
    Director
    
    September 9, 2008/s/ Neil Flanzraich

Neil Flanzraich
    
    Director
    
    September 9, 2008/s/ Phillip Frost, M.D.

Phillip Frost, M.D.
    
    Director
    
    September 9, 2008/s/ Jacob Nudel, M.D.

Jacob Nudel, M.D.
    
    Director
    
    September 9, 2008/s/ A. Marvin Strait

A. Marvin Strait
    
    Director
    
    September 9, 2008
 39




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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS
 PAGEReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of June 30, 2008 and 2007
    
    
    F-3Consolidated Statements of Income for the years ended June 30, 2008, 2007 and 2006
    
    
    F-4Consolidated Statements of Shareholders Equity for the years ended June 30, 2008, 2007 and 2006
    
    
    F-5Consolidated Statements of Cash Flows for the years ended June 30, 2008, 2007 and 2006
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-8
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    Share-Based Payment
  
 
 F-2




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##### Table of Contents



CONTINUCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
 June 30,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,905,740
    
    
    $
    7,262,247Due from HMOs, net of a liability for
incurred but not reported medical claims
expense of approximately $23,900,000 and
$23,618,000 at June 30, 2008 and 2007,
respectively
    
    
    15,325,783
    
    
    
    13,525,092Prepaid expenses and other current assets
    
    
    708,841
    
    
    
    1,581,704Deferred income tax assets
    
    
    413,932
    
    
    
    740,264Total current assets
    
    
    26,354,296
    
    
    
    23,109,307Certificates of deposit, restricted
    
    
    1,274,147
    
    
    
    1,176,635Property and equipment, net
    
    
    8,363,427
    
    
    
    8,509,454Goodwill
    
    
    73,204,582
    
    
    
    73,670,225Intangible assets, net of accumulated
amortization of approximately $2,168,000 and
$929,000 at June 30, 2008 and 2007, respectively.
    
    
    6,492,333
    
    
    
    7,731,000Deferred income tax assets
    
    
    2,574,472
    
    
    
    2,289,811Other assets, net
    
    
    227,047
    
    
    
    451,116Total assets
    
    $
    118,490,304
    
    
    $
    116,937,548LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    402,718
    
    
    $
    1,007,869Accrued expenses and other current liabilities
    
    
    4,458,119
    
    
    
    4,542,097Income taxes payable
    
    
    1,198,722
    
    
    
    67,398Total current liabilities
    
    
    6,059,559
    
    
    
    5,617,364Deferred income tax liabilities
    
    
    6,256,205
    
    
    
    6,215,483Other liabilities
    
    
    948,263
    
    
    
    1,046,316Total liabilities
    
    
    13,264,027
    
    
    
    12,879,163Commitments and contingenciesShareholders equity:Common stock, $0.0001 par value: 100,000,000
shares authorized; 64,796,303 shares issued
and outstanding at June 30, 2008 and
70,043,086 shares issued and outstanding at
June 30, 2007
    
    
    6,480
    
    
    
    7,004Additional paid-in capital
    
    
    114,514,853
    
    
    
    124,616,091Accumulated deficit
    
    
    (9,295,056
    )
    
    
    (20,564,710
    )Total shareholders equity
    
    
    105,226,277
    
    
    
    104,058,385Total liabilities and shareholders equity
    
    $
    118,490,304
    
    
    $
    116,937,548
 The accompanying notes are an integral part of these consolidated financial statements.
 F-3




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##### Table of Contents



CONTINUCARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
 For the Year Ended June 30,2008
    
    
    2007
    
    
    2006Revenue
    
    $
    254,440,048
    
    
    $
    217,146,287
    
    
    $
    132,990,912Operating expenses:Medical services:Medical claims
    
    
    181,097,183
    
    
    
    161,153,828
    
    
    
    97,781,447Other direct costs
    
    
    26,942,472
    
    
    
    22,919,746
    
    
    
    13,137,396Total medical services
    
    
    208,039,655
    
    
    
    184,073,574
    
    
    
    110,918,843Administrative payroll and employee benefits
    
    
    12,119,139
    
    
    
    9,192,670
    
    
    
    6,538,295General and administrative
    
    
    16,413,801
    
    
    
    13,990,439
    
    
    
    7,584,205Total operating expenses
    
    
    236,572,595
    
    
    
    207,256,683
    
    
    
    125,041,343Income from operations
    
    
    17,867,453
    
    
    
    9,889,604
    
    
    
    7,949,569Other income (expense):Interest income
    
    
    602,826
    
    
    
    356,192
    
    
    
    331,001Interest expense
    
    
    (67,898
    )
    
    
    (49,746
    )
    
    
    (12,870
    )Income before income tax provision
    
    
    18,402,381
    
    
    
    10,196,050
    
    
    
    8,267,700Income tax provision
    
    
    7,132,727
    
    
    
    3,892,605
    
    
    
    2,930,161Net income
    
    $
    11,269,654
    
    
    $
    6,303,445
    
    
    $
    5,337,539Net income per common share:Basic
    
    $
    .16
    
    
    $
    .10
    
    
    $
    .11Diluted
    
    $
    .16
    
    
    $
    .10
    
    
    $
    .10Weighted average common shares outstanding:Basic
    
    
    68,862,836
    
    
    
    65,044,319
    
    
    
    49,907,898Diluted
    
    
    70,007,760
    
    
    
    66,324,613
    
    
    
    51,230,435
 The accompanying notes are an integral part of these consolidated financial statements.
 F-4




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##### Table of Contents



CONTINUCARE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 Additional
    
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Treasury
    
    
    Shareholders'Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    EquityBalance at June 30, 2005
    
    
    49,595,702
    
    
    $
    4,960
    
    
    $
    67,924,068
    
    
    $
    (32,205,694
    )
    
    $
    (5,424,701
    )
    
    $
    30,298,633Recognition of compensation expense related to
issuance of stock options
    
    
    
    
    
    
    
    
    
    
    1,292,234
    
    
    
    
    
    
    
    
    
    
    
    1,292,234Issuance of stock upon exercise of stock options
    
    
    826,363
    
    
    
    82
    
    
    
    640,386
    
    
    
    
    
    
    
    
    
    
    
    640,468Issuance of stock upon conversion of related party
note payable
    
    
    102,180
    
    
    
    10
    
    
    
    102,170
    
    
    
    
    
    
    
    
    
    
    
    102,180Repurchase of common stock
    
    
    (281,767
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (696,134
    )
    
    
    (696,134
    )Retirement of common stock
    
    
    
    
    
    
    (28
    )
    
    
    (6,120,807
    )
    
    
    
    
    
    
    6,120,835
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,337,539
    
    
    
    
    
    
    
    5,337,539Balance at June 30, 2006
    
    
    50,242,478
    
    
    
    5,024
    
    
    
    63,838,051
    
    
    
    (26,868,155
    )
    
    
    
    
    
    
    36,974,920Recognition of compensation expense related to
issuance of stock options
    
    
    
    
    
    
    
    
    
    
    1,692,190
    
    
    
    
    
    
    
    
    
    
    
    1,692,190Excess tax benefits related to exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    523,964
    
    
    
    
    
    
    
    
    
    
    
    523,964Issuance of stock related to acquisition of MDHC
Companies
    
    
    19,735,858
    
    
    
    1,974
    
    
    
    58,502,594
    
    
    
    
    
    
    
    
    
    
    
    58,504,568Fees related to issuance of stock
    
    
    
    
    
    
    
    
    
    
    (44,402
    )
    
    
    
    
    
    
    
    
    
    
    (44,402
    )Issuance of stock upon exercise of stock options
    
    
    64,750
    
    
    
    6
    
    
    
    103,694
    
    
    
    
    
    
    
    
    
    
    
    103,700Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,303,445
    
    
    
    
    
    
    
    6,303,445Balance at June 30, 2007
    
    
    70,043,086
    
    
    
    7,004
    
    
    
    124,616,091
    
    
    
    (20,564,710
    )
    
    
    
    
    
    
    104,058,385Recognition of compensation expense related to
issuance of stock options
    
    
    
    
    
    
    
    
    
    
    1,332,786
    
    
    
    
    
    
    
    
    
    
    
    1,332,786Tax deficiency related to exercise of stock options
    
    
    
    
    
    
    
    
    
    
    (1,776
    )
    
    
    
    
    
    
    
    
    
    
    (1,776
    )Issuance of stock upon exercise of stock options
    
    
    83,750
    
    
    
    9
    
    
    
    64,366
    
    
    
    
    
    
    
    
    
    
    
    64,375Repurchase and retirement of common stock
    
    
    (5,330,533
    )
    
    
    (533
    )
    
    
    (11,451,614
    )
    
    
    
    
    
    
    
    
    
    
    (11,452,147
    )Fees related to issuance of stock
    
    
    
    
    
    
    
    
    
    
    (45,000
    )
    
    
    
    
    
    
    
    
    
    
    (45,000
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,269,654
    
    
    
    
    
    
    
    11,269,654Balance at June 30, 2008
    
    
    64,796,303
    
    
    $
    6,480
    
    
    $
    114,514,853
    
    
    $
    (9,295,056
    )
    
    $
    
    
    
    $
    105,226,277
 The accompanying notes are an integral part of these consolidated financial statements.
 F-5




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##### Table of Contents



CONTINUCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Year Ended June 30,2008
    
    
    2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    11,269,654
    
    
    $
    6,303,445
    
    
    $
    5,337,539Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    2,507,535
    
    
    
    2,013,486
    
    
    
    695,095Loss on impairment of fixed assets
    
    
    171,515
    
    
    
    
    
    
    
    Loss on disposal of fixed assets
    
    
    
    
    
    
    35,924
    
    
    
    Provision for bad debts
    
    
    181,081
    
    
    
    165,181
    
    
    
    163,105Compensation expense related to issuance of stock options
    
    
    1,332,786
    
    
    
    1,692,190
    
    
    
    1,292,234Excess tax benefits related to exercise of stock options.
    
    
    
    
    
    
    (523,964
    )
    
    
    Deferred income tax expense
    
    
    (198,598
    )
    
    
    2,172,618
    
    
    
    2,767,095Changes in operating assets and liabilities, excluding the
effect of disposals:Due from HMOs, net
    
    
    (1,251,657
    )
    
    
    (1,803,016
    )
    
    
    (2,853,996
    )Prepaid expenses and other current assets
    
    
    676,782
    
    
    
    (870,957
    )
    
    
    (219,483
    )Other assets
    
    
    (128,743
    )
    
    
    151,360
    
    
    
    (125,964
    )Accounts payable
    
    
    (605,151
    )
    
    
    369,688
    
    
    
    (84,214
    )Accrued expenses and other current liabilities
    
    
    145,851
    
    
    
    (275,196
    )
    
    
    8,354Income taxes payable
    
    
    1,131,324
    
    
    
    1,419,894
    
    
    
    (106,934
    )Net cash provided by continuing operations
    
    
    15,232,379
    
    
    
    10,850,653
    
    
    
    6,872,831Net cash used in discontinued operations
    
    
    
    
    
    
    
    
    
    
    (32,512
    )Net cash provided by operating activities
    
    
    15,232,379
    
    
    
    10,850,653
    
    
    
    6,840,319CASH FLOWS FROM INVESTING ACTIVITIESPurchases of certificates of deposit
    
    
    (112,512
    )
    
    
    (49,648
    )
    
    
    (596,637
    )Proceeds from sales of certificates of deposit
    
    
    15,000
    
    
    
    
    
    
    
    Proceeds from sales of fixed assets
    
    
    
    
    
    
    70,000
    
    
    
    Acquisition of MDHC Companies, net of cash acquired
    
    
    
    
    
    
    (6,109,980
    )
    
    
    Purchase of property and equipment
    
    
    (939,270
    )
    
    
    (894,325
    )
    
    
    (280,675
    )Other assets
    
    
    
    
    
    
    
    
    
    
    (359,147
    )Net cash used in investing activities
    
    
    (1,036,782
    )
    
    
    (6,983,953
    )
    
    
    (1,236,459
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from note payable
    
    
    
    
    
    
    1,813,317
    
    
    
    Repayments on note payable
    
    
    
    
    
    
    (1,813,317
    )
    
    
    (520,000
    )Proceeds from long-term debt
    
    
    
    
    
    
    6,917,808
    
    
    
    Repayment on long-term debt
    
    
    (6,083
    )
    
    
    (14,690,960
    )
    
    
    Principal repayments under capital lease obligations
    
    
    (113,249
    )
    
    
    (96,248
    )
    
    
    (127,053
    )Proceeds from exercise of stock options
    
    
    64,375
    
    
    
    103,700
    
    
    
    640,468Excess tax benefits related to exercise of stock options
    
    
    
    
    
    
    523,964
    
    
    
    Payment of fees related to issuance of stock
    
    
    (45,000
    )
    
    
    (44,402
    )
    
    
    Repurchase of common stock
    
    
    (11,452,147
    )
    
    
    
    
    
    
    (696,134
    )Net cash used in financing activities
    
    
    (11,552,104
    )
    
    
    (7,286,138
    )
    
    
    (702,719
    )Net increase (decrease) in cash and cash equivalents
    
    
    2,643,493
    
    
    
    (3,419,438
    )
    
    
    4,901,141Cash and cash equivalents at beginning of fiscal year
    
    
    7,262,247
    
    
    
    10,681,685
    
    
    
    5,780,544Cash and cash equivalents at end of fiscal year
    
    $
    9,905,740
    
    
    $
    7,262,247
    
    
    $
    10,681,685
 F-6




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##### Table of Contents



CONTINUCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 For the Year Ended June 30,2008
    
    
    2007
    
    
    2006SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
TRANSACTIONS:Purchase of equipment, furniture and fixtures with
proceeds of capital lease obligations
    
    $
    38,922
    
    
    $
    171,135
    
    
    $
    215,162Retirement of treasury stock
    
    $
    11,452,147
    
    
    $
    
    
    
    $
    5,424,701Stock issued upon conversion of related party notes payable
    
    $
    
    
    
    $
    
    
    
    $
    102,180SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for taxes
    
    $
    6,200,000
    
    
    $
    306,000
    
    
    $
    270,000Cash paid for interest
    
    $
    20,898
    
    
    $
    49,746
    
    
    $
    12,870
 The accompanying notes are an integral part of these consolidated financial statements.
 F-7




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##### Table of Contents



CONTINUCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1
 General
  Business
   NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Principles of Consolidation
 Accounting Estimates
 F-8




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##### Table of Contents



Fair Value of Financial Instruments
 Cash and Cash Equivalents
 Certificates of Deposit
 Due from HMOs
 Property and Equipment
 Goodwill and Other Intangible Assets
 st
 F-9




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##### Table of Contents



Deferred Financing Costs
 Share-Based Payment
 Earnings Per Share
 Revenue Recognition
   F-10




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##### Table of Contents



Medical Service Expense
   Stop-loss Insurance
 Recent Accounting Pronouncements
  F-11




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##### Table of Contents



Other Comprehensive Income
 Reclassifications
 NOTE 3  ACQUISITION
  F-12




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F-13




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##### Table of Contents



Year Ended June 30,2007
    
    
    2006Revenue
    
    $
    240,389,071
    
    
    $
    222,599,520Net income
    
    
    277,454
    
    
    
    6,125,247Diluted earnings per share
    
    
    
    
    
    
    .09
  NOTE 4  PROPERTY AND EQUIPMENT
  EstimatedUsefulJune 30,
    
    
    Lives2008
    
    
    2007
    
    
    (in years)Land
    
    $
    1,919,746
    
    
    $
    2,153,525
    
    
    Building and improvements
    
    
    4,738,175
    
    
    
    3,862,088
    
    
    40Construction in progress
    
    
    119,829
    
    
    
    714,280
    
    
    Vehicles
    
    
    622,444
    
    
    
    845,324
    
    
    5Furniture, fixtures and equipment
    
    
    4,894,797
    
    
    
    4,530,178
    
    
    3-5Furniture and equipment under capital lease
    
    
    517,253
    
    
    
    756,005
    
    
    3-5Leasehold improvements
    
    
    267,526
    
    
    
    304,399
    
    
    513,079,770
    
    
    
    13,165,799Less accumulated depreciation and amortization
    
    
    (4,716,343
    )
    
    
    (4,656,345
    )$
    8,363,427
    
    
    $
    8,509,454
    F-14




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##### Table of Contents



For the year ending June 30,2009
    
    $
    118,2722010
    
    
    89,6952011
    
    
    43,752251,719Less amount representing imputed interest
    
    
    55,340Present value of obligations under capital lease
    
    
    196,379Less current portion
    
    
    91,457Long-term capital lease obligations
    
    $
    104,922
  NOTE 5  DEBT
  NOTE 6  EARNINGS PER SHARE
  Year Ended June 30,2008
    
    
    2007
    
    
    2006Basic weighted average number of shares outstanding
    
    
    68,862,836
    
    
    
    65,044,319
    
    
    
    49,907,898Dilutive effect of stock options
    
    
    1,144,924
    
    
    
    1,280,294
    
    
    
    1,303,126Dilutive effect of convertible debt
    
    
    
    
    
    
    
    
    
    
    19,411Diluted weighted average number of shares outstanding
    
    
    70,007,760
    
    
    
    66,324,613
    
    
    
    51,230,435Not included in calculation of dilutive earnings per
share as impact is antidilutive:Stock options outstanding
    
    
    2,998,250
    
    
    
    18,000
    
    
    
    20,000Warrants
    
    
    
    
    
    
    760,000
    
    
    
    760,000
 NOTE 7  SHARE-BASED PAYMENT
  F-15




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##### Table of Contents



WeightedNumber
    
    
    Averageof Shares
    
    
    Exercise PriceOutstanding at beginning of the year
    
    
    4,844,220
    
    
    $
    1.87Granted
    
    
    907,500
    
    
    
    2.49Exercised
    
    
    (83,750
    )
    
    
    0.77Forfeited
    
    
    (231,250
    )
    
    
    2.58Expired
    
    
    (62,916
    )
    
    
    2.42Outstanding at end of the year
    
    
    5,373,804
    
    
    $
    1.95Exercisable at end of the year
    
    
    3,495,554Weighted average fair value per
share of options granted during the
year
    
    $
    1.17
  F-16




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##### Table of Contents



Options Outstanding
    
    Options ExercisableRange of
    
    
    
    
    
    
    
    
    
    Weighted Average
    
    
    
    
    
    
    
    
    
    Weighted AverageExercise
    
    Number
    
    Weighted Average
    
    Remaining
    
    Number
    
    Weighted Average
    
    RemainingPrices
    
    Outstanding
    
    Exercise Price
    
    Contractual Life
    
    Exercisable
    
    Exercise Price
    
    Contractual Life$2.48-$3.57
    
    
    2,240,500
    
    
    $
    2.65
    
    
    
    8.4
    
    
    
    770,750
    
    
    $
    2.73
    
    
    
    7.9$0.66-$2.42
    
    
    3,133,304
    
    
    $
    1.45
    
    
    
    5.6
    
    
    
    2,724,804
    
    
    $
    1.33
    
    
    
    5.3
   NOTE 8  INCOME TAXES
    F-17




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##### Table of Contents



Year Ended June 30,2008
    
    
    2007
    
    
    2006Current:Federal
    
    $
    6,408,183
    
    
    $
    1,425,993
    
    
    $
    163,066State
    
    
    923,142
    
    
    
    293,994
    
    
    
    Total
    
    
    7,331,325
    
    
    
    1,719,987
    
    
    
    163,066Deferred:Federal
    
    
    (171,415
    )
    
    
    1,897,669
    
    
    
    2,339,256State
    
    
    (27,183
    )
    
    
    274,949
    
    
    
    427,839Total
    
    
    (198,598
    )
    
    
    2,172,618
    
    
    
    2,767,095Total income tax provision
    
    $
    7,132,727
    
    
    $
    3,892,605
    
    
    $
    2,930,161
  June 30,2008
    
    
    2007
    
    
    2006Deferred income tax assets:Bad debt and notes receivable reserve.
    
    $
    303,871
    
    
    $
    296,420
    
    
    $
    294,922Alternative minimum tax credit
    
    
    
    
    
    
    
    
    
    
    291,467Other
    
    
    110,062
    
    
    
    434,225
    
    
    
    363,847Impairment charge
    
    
    1,256,398
    
    
    
    1,476,110
    
    
    
    1,726,600Share-based compensation
    
    
    1,318,073
    
    
    
    823,320
    
    
    
    395,246Net operating loss carryforward
    
    
    
    
    
    
    
    
    
    
    3,397,248Deferred income tax assets
    
    
    2,988,404
    
    
    
    3,030,075
    
    
    
    6,469,330Deferred income tax liabilities:Depreciable/amortizable assets
    
    
    (5,638,652
    )
    
    
    (5,342,721
    )
    
    
    (1,929,501
    )Basis difference in tangible assets
    
    
    (617,553
    )
    
    
    (872,762
    )
    
    
    Deferred income tax liabilities
    
    
    (6,256,205
    )
    
    
    (6,215,483
    )
    
    
    (1,929,501
    )Net deferred income tax (liability) asset
    
    $
    (3,267,801
    )
    
    $
    (3,185,408
    )
    
    $
    4,539,829
  F-18




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##### Table of Contents



Year Ended June 30,2008
    
    
    2007
    
    
    2006Statutory federal rate
    
    
    35.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State income taxes, net of federal income tax benefit
    
    
    3.58
    
    
    
    3.63
    
    
    
    3.63Goodwill and other non-deductible items
    
    
    0.18
    
    
    
    0.55
    
    
    
    (2.22
    )Other
    
    
    
    
    
    
    
    
    
    
    0.03Effective tax rate
    
    
    38.76
    %
    
    
    38.18
    %
    
    
    35.44
    %
 NOTE 9  SHARE REPURCHASE PROGRAM
  NOTE 10  EMPLOYEE BENEFIT PLAN
   NOTE 11  COMMITMENTS AND CONTINGENCIES
 Legal Proceedings
  F-19




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##### Table of Contents



Leases
  For the fiscal year ending June 30,2009
    
    $
    2,256,5332010
    
    
    1,859,4682011
    
    
    1,435,9982012
    
    
    712,2512013 and thereafter
    
    
    1,323,856Total
    
    $
    7,588,106
 NOTE 12  VALUATION AND QUALIFYING ACCOUNTS
  Year ended June 30,2008
    
    
    2007
    
    
    2006Allowance for doubtful accounts related to
accounts and other receivables:Balance at beginning of period
    
    $
    802,239
    
    
    $
    798,257
    
    
    $
    842,751Provision for doubtful accounts
    
    
    181,081
    
    
    
    165,181
    
    
    
    163,105Write-offs of uncollectible accounts receivable
    
    
    (199,579
    )
    
    
    (161,199
    )
    
    
    (207,599
    )Balance at end of period
    
    $
    783,741
    
    
    $
    802,239
    
    
    $
    798,257
 NOTE 13  RELATED PARTY TRANSACTIONS
   NOTE 14  QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
 For the Year Ended June 30, 2008First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    FullQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    YearTotal revenue
    
    $
    60,922,664
    
    
    $
    61,485,447
    
    
    $
    65,936,165
    
    
    $
    66,095,772
    
    
    $
    254,440,048Net income
    
    $
    1,921,500
    
    
    $
    2,511,685
    
    
    $
    3,675,501
    
    
    $
    3,160,968
    
    
    $
    11,269,654Basic and
diluted net income per common share
    
    $
    .03
    
    
    $
    .04
    
    
    $
    .05
    
    
    $
    .05
    
    
    $
    .16
 F-20




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##### Table of Contents



For the Year Ended June 30, 2007First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    FullQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    YearTotal revenue
    
    $
    35,933,599
    
    
    $
    55,399,607
    
    
    $
    60,371,155
    
    
    $
    65,441,926
    
    
    $
    217,146,287Net income
    
    $
    1,397,119
    
    
    $
    1,380,675
    
    
    $
    1,148,439
    
    
    $
    2,377,212
    
    
    $
    6,303,445Basic and diluted
net income per
common share
    
    $
    .03
    
    
    $
    .02
    
    
    $
    .02
    
    
    $
    .03
    
    
    $
    .10
  F-21




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##### Table of Contents



EXHIBIT INDEX
 Description
    
    ExhibitNumberSubsidiaries of the Company
    
    
    21.1Consent of Independent Registered Public Accounting Firm
    
    
    23.1Section 302 Certification of Chief Executive Officer
    
    
    31.1Section 302 Certification of Chief Financial Officer
    
    
    31.2Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
    
    
    32.1Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
    
    
    32.2
 F-22