##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 _______________
 FORM 10-K
 (Mark One)x
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended: June 30, 2007ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from ___________________ to __________________
  CONTINUCARE CORPORATION
  Florida
(State or other jurisdiction of 
incorporation or organization)
    
    59-2716023
(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 x
    
    Non-accelerated filer o
 o x




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##### 



CONTINUCARE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2007
 TABLE OF CONTENTS
 PAGEGeneral
    
    
    3PART IItem 1.
    
    Business
    
    
    4Item 1A.
    
    Risk Factors
    
    
    14Item 2.
    
    Properties
    
    
    20Item 3.
    
    Legal Proceedings
    
    
    20Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    21PART IIItem 5.
    
    Market for Registrants Common Equity and Issuer Purchases of Equity Securities and Related
Stockholder Matters
    
    
    21Item 6.
    
    Selected Financial Data
    
    
    23Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    34Item 8.
    
    Financial Statements and Supplementary Data
    
    
    34Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    34Item 9A.
    
    Controls and Procedures
    
    
    34Item 9B.
    
    Other Information
    
    
    36PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    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
    
    
    37Item 14.
    
    Principal Accounting Fees and Services
    
    
    37PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    37Signatures
    
    
    40
 2




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GENERAL
  CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    Our ability to make capital expenditures and respond to capital needs;
    
    Our ability to enhance the services we provide to our patients;
    
    Our ability to strengthen our medical management capabilities;
    
    Our ability to improve our physician network;
    
    Our ability to enter into or renew our managed care agreements and negotiate terms
which are favorable to us and affiliated physicians;
    
    The estimated increase in, or fair value of, our intangible assets as a result of our
acquisition of the MDHC Companies (the Acquisition) and its impact on us;
    
    Our ability to respond to future changes in Medicare and Medicaid reimbursement
levels and reimbursement rates from other third parties;
    
    Our compliance with applicable laws and regulations;
    
    Our ability to establish relationships and expand into new geographic markets;
    
    Our ability to timely open our Continucare ValuClinic health centers;
    
    Our ability to expand our network through additional medical centers or other
facilities;
    
    The potential impact on our claims loss ratio as a result of the Medicare Risk
Adjustments (MRA), the Medicare Prescription Drug, Improvement and Modernization Act
of 2003 (the Medicare Modernization Act) and the enhanced benefits our health
maintenance organizations (HMOs) affiliates offer under their Medicare Advantage
Plans;
    
    Changes in the component of our medical claims expense attributable to the Medicare
Prescription Drug program;
    
    The ability of our stop-loss insurance coverage to limit the financial risk to us of
our risk arrangements with our HMO affiliates;
    
    The application and impact of Statement of Financial Accounting Standards No. 123(R)
(SFAS 123(R)) on our future results of operations;
    
    Our ability to utilize our net operating losses for Federal income tax purposes;
    
    The impact of the newly effective Medicare prescription drug plan on our results of
operations; and
    
    Our intent to repurchase our common stock under our stock repurchase program.
  
    
    Our dependence on three HMOs for substantially all of our revenues;
    
    Our ability to respond to capital needs;
    
    Our ability to achieve expected levels of patient volumes and control the costs of
providing services;
    
    Pricing pressures exerted on us by managed care organizations;
    
    The level of payments we receive from governmental programs and other third party
payors;
    
    Our and our HMO affiliates ability to improve efficiencies in utilization with
respect to the Medicare Prescription Drug program;
    
    Our ability to successfully integrate the MDHC Companies operations and personnel;
    
    The realization of the expected synergies and benefits of the MDHC Acquisition;
 3




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
    
    Our ability to maintain compliance with Section 404 of the Sarbanes-Oxley Act of 2002;
    
    Our ability to serve a significantly larger patient base;
    
    Trends in patient enrollment;
    
    Our ability to successfully recruit and retain qualified medical professionals;
    
    Future legislative or regulatory changes, including possible changes in Medicare and
Medicaid programs that may impact reimbursements to health care providers and insurers
or the benefits we expect to realize from the MDHC Acquisition;
    
    Our ability to comply with applicable laws and regulations;
    
    The impact of the Medicare Modernization Act and MRA on payments we receive for our
respective managed care operations, including the risk that any additional premiums we
may receive as a result of the newly effective Medicare prescription drug plan will not
be sufficient to compensate us for the expenses that we incur as a result of that plan;
    
    Technological and pharmaceutical improvements that increase the cost of providing, or
reduce the demand for, health care;
    
    Changes in our revenue mix and claims loss ratio;
    
    Changes in the range of medical services we or the MDHC Companies provide or for
which our HMO affiliates offer coverage;
    
    Our ability to enter into and renew managed care provider agreements on acceptable
terms;
    
    Loss of significant contracts with HMOs;
    
    The ability of our compliance program to detect and prevent regulatory compliance
problems;
    
    Delays in receiving payments;
    
    Increases in the cost of insurance coverage, including our stop-loss coverage, or the
loss of insurance coverage;
    
    The collectibility of our uninsured accounts and deductible and co-pay amounts;
    
    Federal and state investigations;
    
    Lawsuits for medical malpractice and the outcome of any such litigation;
    
    Our estimate of the proportion of our total assets comprised of intangible assets and
the fair value thereof following the MDHC Acquisition;
    
    Our liability for medical claims incurred but not reported in a period exceeding our
estimates;
    
    Changes in estimates and judgments associated with our critical accounting policies;
    
    Our dependence on our information processing systems and the management information
systems of our HMO affiliates;
    
    Impairment charges that could be required in future periods, including with respect
to the goodwill resulting from the MDHC Acquisition;
    
    The impact on our liquidity of any repurchases of our common stock that we may
effect;
    
    The inherent uncertainty in financial forecasts which are based upon assumptions
which may prove incorrect or inaccurate;
    
    General economic conditions; and
    
    Uncertainties generally associated with the health care business.
  
 PART I
 
 ITEM 1. BUSINESS
 General
   4




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Acquisition
   5




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##### 



Industry Overview
    6




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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
 7




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
    
    further develop our IPA management activities.
  Increasing Patient Volume
  Selectively Expanding Our Network
  
    
    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
  8




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##### 



Our IPAs
  Medicare and Medicaid Considerations
     Our HMO Affiliates
  Humana
  9




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Vista
   10




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##### 



Wellcare
    Compliance Program
  Competition
  Government Regulation
 General.
  Present and Prospective Federal and State Reimbursement Regulation
 Federal Fraud and Abuse Laws and Regulations.
 11




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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.
 12




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##### 



Occupational Safety and Health Administration (OSHA)
 Medicare Marketing Restrictions.
 Sanctioned Parties
 Healthcare Reform.
 Health Care Professional Licensure and Supervision.
 Employees
  Insurance
   Available Information
  13




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##### 



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 fixed 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.
  We compete with many health care providers for patients and HMO affiliations.
  14




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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.
  15




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A significant portion of our voting power is concentrated.
  We are dependent on our executive officers and other key employees.
  We depend on the management information systems of our affiliated HMOs.
  We depend on our information processing systems.
  
    
    we fail to adequately identify or are unsuccessful in implementing solutions for all of
our information and processing needs;
    
    our processing or information systems fail; or
    
    we fail to upgrade systems as necessary.
 16




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Volatility of our stock price could adversely affect you.
  
    
    state and federal budget decreases;
    
    adverse publicity regarding HMOs and other managed care organizations;
    
    government action regarding eligibility;
    
    changes in government payment levels;
    
    changes in state mandatory programs;
    
    changes in expectations of our future financial performance or changes in financial
estimates, if any, of public market analysts;
    
    announcements relating to our business or the business of our competitors;
    
    conditions generally affecting the managed care industry or our provider networks;
    
    the success of our operating strategy;
    
    the operating and stock price performance of other comparable companies;
    
    the termination of any of our contracts;
    
    regulatory or legislative changes;
    
    acts of war or terrorism or an increase in hostilities in the world; and
    
    general economic conditions, including inflation and unemployment rates.
 Substantial sales of our common stock could adversely affect its market price.
  We may not realize the anticipated benefits from the MDHC Acquisition.
  The indemnification obligations under the MDHC Acquisition Agreement are limited.
  The Internal Revenue Service may disagree with the parties description of the federal income tax
consequences.
  17




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##### 



If we are unable to successfully complete the integration of the MDHC Companies business
operations into our business operations, we may not realize the anticipated benefits from the
Acquisition and our business could be adversely affected.
  Our intangible assets substantially increased as a result of the Acquisition of the MDHC Companies.
   
    
    a significant adverse change in legal factors or the business climate;
    
    the loss of a key HMO contract;
    
    an adverse action by a regulator;
    
    unanticipated competition;
    
    loss of key personnel; or
    
    allocation of goodwill to a portion of business that is to be sold.
  Competition for acquisition targets and acquisition financing and other factors may impede our
ability to acquire other businesses and may inhibit our growth.
  Our acquisitions could result in integration difficulties, unexpected expenses, diversion of
managements attention and other negative consequences.
  18




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
    
    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.
  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.
  19




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##### 



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.
  Medicare premiums have generally risen more slowly than the cost of providing health care services.
  
 ITEM 2. PROPERTIES
   
 ITEM 3. LEGAL PROCEEDINGS
 Curtis Williams and Tangee Williams
vs. Tomas A. Cabrera, M.D., Tomas A. Cabrera, M.D., P.A., Rafael L. Nogues, M.D., Rafael L. Nogues,
M.D., P.A., Miami Dade Health & Rehabilitation
 20




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##### 



Services, Inc., Jose Gabriel Ortiz, M.D., and Palm
Springs General Hospital, Inc. of Hialeah. th
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 Not applicable.
 
 PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY AND ISSUER PURCHASES OF EQUITY SECURITIES AND RELATED STOCKHOLDER MATTERS
  HIGH
    
    
    LOWFiscal Year 2007Quarter 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
    
    
    
    2.46Fiscal Year 2006:Quarter Ended June 30, 2006
    
    $
    3.15
    
    
    $
    2.62Quarter Ended March 31, 2006
    
    
    2.87
    
    
    
    2.35Quarter Ended December 31, 2005
    
    
    2.76
    
    
    
    2.25Quarter Ended September 30, 2005
    
    
    2.89
    
    
    
    2.15
  Securities Authorized for Issuance Under Equity Compensation Plans
  Number of securities to
    
    
    Weighted averagebe issued upon exercise
    
    
    exercise price of
    
    
    Number of securitiesof outstanding options,
    
    
    outstanding options,
    
    
    remaining availablePlan Category
    
    warrants and rights
    
    
    warrants and rights
    
    
    for future issuancePlans approved by stockholders
    
    
    4,844,220
    
    
    $
    1.87
    
    
    
    2,838,001Plans not approved by
stockholders
    
    
    
    
    
    
    
    
    
    
    4,844,220
    
    
    
    
    
    
    
    2,838,001
 21




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##### 



Performance Graph
  
 Cumulative Total Return6/02
    
    
    6/03
    
    
    6/04
    
    
    6/05
    
    
    6/06
    
    
    6/07Continucare Corporation
    
    
    100.00
    
    
    
    221.05
    
    
    
    1010.53
    
    
    
    1289.47
    
    
    
    1552.63
    
    
    
    1626.32Amex Composite
    
    
    100.00
    
    
    
    108.49
    
    
    
    141.09
    
    
    
    179.55
    
    
    
    221.32
    
    
    
    273.59NASDAQ Health Services
    
    
    100.00
    
    
    
    95.81
    
    
    
    123.82
    
    
    
    162.08
    
    
    
    151.26
    
    
    
    168.04
 
 *
    
    $100 invested on 6/30/02 in stock or index-including reinvestment of dividends. Fiscal year
ending June 30. 22




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##### 



Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  Total Number ofShares Purchased as
    
    
    Maximum Number ofTotal Number of
    
    
    Average Price Paid
    
    
    Part of Publicly
    
    
    Shares that May Yet BePeriod
    
    Shares Purchased
    
    
    per Share
    
    
    Announced Plan
    
    
    Purchased Under the PlanApril 1 to April 30, 2007
    
    
    
    
    
    
    N/A
    
    
    
    
    
    
    
    1,342,533May 1 to May 31, 2007
    
    
    
    
    
    
    N/A
    
    
    
    
    
    
    
    1,342,533June 1 to June 30, 2007
    
    
    
    
    
    
    N/A
    
    
    
    
    
    
    
    1,342,533Totals
    
    
    
    
    
    
    N/A
    
    
    
    
 
 ITEM 6. SELECTED FINANCIAL DATA
  23




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##### 



CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
 For the Year Ended June 30,2007
    
    
    2006
    
    
    2005
    
    

2004 (1)
    
    
    2003 (1)Revenue:Medical services revenue
    
    $
    216,878,488
    
    
    $
    132,629,665
    
    
    $
    111,316,174
    
    
    $
    101,123,346
    
    
    $
    97,164,834Management fee revenue and other income
    
    
    267,799
    
    
    
    361,247
    
    
    
    914,939
    
    
    
    700,756
    
    
    
    Total revenue
    
    
    217,146,287
    
    
    
    132,990,912
    
    
    
    112,231,113
    
    
    
    101,824,102
    
    
    
    97,164,834Operating expenses:Medical services:Medical claims
    
    
    161,153,828
    
    
    
    97,781,447
    
    
    
    81,104,665
    
    
    
    76,333,580
    
    
    
    74,046,265Other direct costs
    
    
    22,919,746
    
    
    
    13,137,396
    
    
    
    12,648,297
    
    
    
    11,665,894
    
    
    
    10,696,997Total medical services
    
    
    184,073,574
    
    
    
    110,918,843
    
    
    
    93,752,962
    
    
    
    87,999,474
    
    
    
    84,743,262Administrative payroll and employee benefits
    
    
    9,192,670
    
    
    
    6,538,295
    
    
    
    5,107,672
    
    
    
    3,822,949
    
    
    
    3,681,446General and administrative
    
    
    13,990,439
    
    
    
    7,584,205
    
    
    
    7,059,602
    
    
    
    5,821,871
    
    
    
    6,252,347Gain on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (3,000,000
    )
    
    
    (850,000
    )
    
    
    Total operating expenses
    
    
    207,256,683
    
    
    
    125,041,343
    
    
    
    102,920,236
    
    
    
    96,794,294
    
    
    
    94,677,055Income from operations
    
    
    9,889,604
    
    
    
    7,949,569
    
    
    
    9,310,877
    
    
    
    5,029,808
    
    
    
    2,487,779Other income (expense):Interest income
    
    
    356,192
    
    
    
    331,001
    
    
    
    108,000
    
    
    
    4,793
    
    
    
    6,568Interest expense
    
    
    (49,746
    )
    
    
    (12,870
    )
    
    
    (702,946
    )
    
    
    (1,006,082
    )
    
    
    (956,327
    )Medicare settlement related to terminated operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,218,278
    
    
    
    Income from continuing operations before income tax
provision (benefit)
    
    
    10,196,050
    
    
    
    8,267,700
    
    
    
    8,715,931
    
    
    
    6,246,797
    
    
    
    1,538,020Income tax provision (benefit)
    
    
    3,892,605
    
    
    
    2,930,161
    
    
    
    (7,175,561
    )
    
    
    
    
    
    
    Income from continuing operations
    
    
    6,303,445
    
    
    
    5,337,539
    
    
    
    15,891,492
    
    
    
    6,246,797
    
    
    
    1,538,020Income (loss) from discontinued operations:Home health operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,666,934
    )
    
    
    (1,830,118
    )Terminated IPAs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,091
    
    
    
    350,696Total loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,593,843
    )
    
    
    (1,479,422
    )Net income
    
    $
    6,303,445
    
    
    $
    5,337,539
    
    
    $
    15,891,492
    
    
    $
    4,652,954
    
    
    $
    58,598Basic net income per common share:Income from continuing operations
    
    $
    .10
    
    
    $
    .11
    
    
    $
    .32
    
    
    $
    .14
    
    
    $
    .04Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (.03
    )
    
    
    (.04
    )Net income per common share
    
    $
    .10
    
    
    $
    .11
    
    
    $
    .32
    
    
    $
    .11
    
    
    $
    Diluted net income per common share:Income from continuing operations
    
    $
    .10
    
    
    $
    .10
    
    
    $
    .31
    
    
    $
    .12
    
    
    $
    .04Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (.03
    )
    
    
    (.04
    )Net income per common share
    
    $
    .10
    
    
    $
    .10
    
    
    $
    .31
    
    
    $
    .09
    
    
    $
    Cash dividends declared
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 CONSOLIDATED BALANCE SHEET DATA:
 As of June 30,2007
    
    
    2006
    
    
    2005
    
    
    2004 (1)
    
    
    2003 (1)Total assets
    
    $
    116,937,548
    
    
    $
    41,994,347
    
    
    $
    34,137,935
    
    
    $
    21,908,181
    
    
    $
    20,999,976Long-term obligations, including current portion
    
    $
    331,319
    
    
    $
    195,819
    
    
    $
    107,710
    
    
    $
    337,186
    
    
    $
    9,597,063
 
 (1)
    
    These amounts have been adjusted to reflect the termination of certain lines of business, discussed in Note 1 in the accompanying Consolidated Financial Statements, as discontinued operations. 24




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General
      Medicare and Medicaid Considerations
   25




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##### 



Critical Accounting Policies and Estimates
  Revenue Recognition
     26




---



##### 



Medical Claims Expense Recognition
    Consideration of Impairment Related to Goodwill and Other Intangible Assets
    Realization of Deferred Tax Assets
   27




---



##### 



Stock-Based Compensation Expense
      28




---



##### 



Results of Operations
  Year ended June 30,2007
    
    
    2006
    
    
    2005Revenue:Medical services revenue
    
    
    99.9
    %
    
    
    99.7
    %
    
    
    99.2
    %Management fee revenue and other income
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.8Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Operating expenses:Medical services:Medical claims
    
    
    74.2
    
    
    
    73.5
    
    
    
    72.3Other direct costs
    
    
    10.6
    
    
    
    9.9
    
    
    
    11.2Total medical services
    
    
    84.8
    
    
    
    83.4
    
    
    
    83.5Administrative payroll and employee benefits
    
    
    4.2
    
    
    
    4.9
    
    
    
    4.6General and administrative
    
    
    6.4
    
    
    
    5.7
    
    
    
    6.3Gain on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (2.7
    )Total operating expenses
    
    
    95.4
    
    
    
    94.0
    
    
    
    91.7Income from operations
    
    
    4.6
    
    
    
    6.0
    
    
    
    8.3Other income (expense):Interest income
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.1Interest expense
    
    
    
    
    
    
    
    
    
    
    (0.6
    )Income before income tax provision (benefit)
    
    
    4.7
    
    
    
    6.2
    
    
    
    7.8Income tax provision (benefit)
    
    
    1.8
    
    
    
    2.2
    
    
    
    (6.4
    )Net income
    
    
    2.9
    %
    
    
    4.0
    %
    
    
    14.2
    %
 COMPARISON OF FISCAL YEAR ENDED JUNE 30, 2007 TO FISCAL YEAR ENDED JUNE 30, 2006
 Revenue
    29




---



##### 



Operating Expenses
       Income from Operations
  30




---



##### 



Taxes
  Net Income
  COMPARISON OF FISCAL YEAR ENDED JUNE 30, 2006 TO FISCAL YEAR ENDED JUNE 30, 2005
 Revenue
     Operating Expenses
     31




---



##### 



Income from Operations
  Interest Income
  Interest Expense
  Taxes
  Net Income
  Liquidity and Capital Resources
    32




---



##### 



Off-Balance Sheet Arrangements
  33




---



##### 



Contractual Obligations
  Payment due by PeriodTotal
    
    
    Less than 1 Year
    
    
    1-2 Years
    
    
    3-5 YearsCapital Lease Obligations (1)
    
    $
    336,213
    
    
    $
    136,005
    
    
    $
    168,973
    
    
    $
    31,235Operating Lease Obligations (1)
    
    
    6,845,774
    
    
    
    2,204,146
    
    
    
    3,316,954
    
    
    
    1,324,674Total
    
    $
    7,181,987
    
    
    $
    2,340,151
    
    
    $
    3,485,927
    
    
    $
    1,355,909
 
 (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 to reconcile the payments
shown above to the capital lease obligations recorded in our Consolidated
Balance Sheets.  
 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
   34




---



##### 



Managements Annual Report on Internal Control Over Financial Reporting
  Changes in Internal Control over Financial Reporting
  Section 302 Certifications
  Report of Independent Registered Public Accounting Firm
  -
  35




---



##### 



.
  
 
 
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  
 ITEM 11. EXECUTIVE COMPENSATION
  36




---



##### 



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  
 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)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 ***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)
 37




---



##### 



10.6
    
    Agreement, dated March 31, 2003, between Continucare Corporation and
Carret & Company (7)10.7
    
    WCMA Loan and Security Agreement dated March 9, 2000 between Merrill
Lynch Business Financial Services, Inc. and Continucare Corporation (12)10.8
    
    Letter Agreement dated March 18, 2005 between Merrill Lynch Business
Financial Services, Inc. and Continucare Corporation (13)10.9
    
    Form of Promissory Note dated December 29, 2004 (14)10.10
    
    Letter Agreement between Continucare Corporation and Merrill Lynch
Business Financial Services, Inc. regarding amendment and extension of
Credit Facility (15)10.11
    
    Asset Purchase Agreement, dated as of May 10, 2006, among Continucare
Corporation, a Florida corporation, CNU Blue 1, Inc., a Florida
corporation and a wholly-owned subsidiary of CNU, CNU Blue2, LLC, a
Florida limited liability company and a wholly-owed subsidiary of Buyer,
Miami Dade Health and Rehabilitation Services, Inc., a Florida
corporation, Miami Dade Health Centers, Inc., a Florida corporation, West
Gables Open MRI Services, Inc., a Florida corporation, Kent Management
Systems, Inc., Pelu Properties, Inc., a Florida corporation, Peluca
Investments, LLC, a Florida limited liability company owned by the
Owners, and Miami Dade Health Centers One, Inc., a Florida corporation,
MDHC Red, Inc., a Florida corporation, and each of the shareholders of
each Seller identified therein. (16)10.12
    
    Integrated Delivery System Participation Agreement effective as of April
1, 1999 between MDHRS and Humana Medical Plan, Inc., as amended (17)10.13
    
    Management Services Agreement dated as of September 1, 2004 between MDHC
and Vista Healthplan, Inc., as amended (17)10.14
    
    WCMA Reducing Revolver Loan and Security Agreement dated September 26,
2006, between Continucare MDHC LLC and Merrill Lynch Business Financial
Services, Inc. (17)10.15
    
    Amendment of Credit Facility dated September 26, 2006, between
Continucare Corporation and Merrill Lynch Business Financial Services,
Inc. (17)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 *
 38




---



##### 





(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





|   |  |                                                        
|-- |  | -------------------------------------------------------
|*  |  | Filed herewith                                         
|  
|** |  | Management contract or compensatory plan or arrangement

39



---



##### 



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 12, 2007/s/ Fernando L. Fernandez

Fernando L. Fernandez
    
    Senior Vice President  Finance, Chief
Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)
    
    September 12, 2007/s/ Luis Cruz, M.D.

Luis Cruz, M.D.
    
    Vice Chairman of the Board and Director
    
    September 12, 2007/s/ Robert J. Cresci

Robert J. Cresci
    
    Director
    
    September 12, 2007/s/ Neil Flanzraich

Neil Flanzraich
    
    Director
    
    September 12, 2007/s/ Phillip Frost, M.D.

Phillip Frost, M.D.
    
    Director
    
    September 12, 2007/s/ Jacob Nudel, M.D.

Jacob Nudel, M.D.
    
    Director
    
    September 12, 2007/s/ A. Marvin Strait

A. Marvin Strait
    
    Director
    
    September 12, 2007
 40




---



##### 



INDEX TO FINANCIAL STATEMENTS
 PAGEReport of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets as of June 30, 2007 and 2006
    
    F-3Consolidated Statements of Income for the years ended June 30, 2007, 2006 and 2005
    
    F-4Consolidated Statements of Shareholders Equity for the years ended
June 30, 2007, 2006 and 2005
    
    F-5Consolidated Statements of Cash Flows for the years ended June 30, 2007, 2006 and
2005
    
    F-6Notes to Consolidated Financial Statements
    
    F-8
 F-1




---



##### 



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




---



##### 



CONTINUCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
 June 30,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    7,262,247
    
    
    $
    10,681,685Other receivables, net
    
    
    308,111
    
    
    
    231,832Due from HMOs, net of a liability for incurred but not reported
medical claims expense of approximately $23,618,000 and
$14,207,000 at June 30, 2007 and 2006, respectively
    
    
    13,525,092
    
    
    
    6,339,526Prepaid expenses and other current assets
    
    
    1,273,593
    
    
    
    689,096Deferred tax assets
    
    
    740,264
    
    
    
    658,768Total current assets
    
    
    23,109,307
    
    
    
    18,600,907Certificates of deposit, restricted
    
    
    1,176,635
    
    
    
    1,126,987Property and equipment, net
    
    
    8,509,454
    
    
    
    824,220Goodwill, net of accumulated amortization of approximately $7,610,000
    
    
    73,670,225
    
    
    
    14,342,510Intangible assets, net of accumulated amortization of $929,000
    
    
    7,731,000
    
    
    
    Managed care contracts, net of accumulated amortization of
approximately $3,126,000 and $2,773,000 at June 30, 2007 and 2006,
respectively
    
    
    384,422
    
    
    
    737,234Deferred tax assets
    
    
    2,289,811
    
    
    
    5,810,562Other assets, net
    
    
    66,694
    
    
    
    551,927Total assets
    
    $
    116,937,548
    
    
    $
    41,994,347LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,007,869
    
    
    $
    575,925Accrued expenses and other current liabilities
    
    
    4,542,097
    
    
    
    2,377,505Income taxes payable
    
    
    910,739
    
    
    
    24,428Total current liabilities
    
    
    6,460,705
    
    
    
    2,977,858Capital lease obligations, less current portion
    
    
    165,191
    
    
    
    112,068Deferred tax liabilities
    
    
    6,215,483
    
    
    
    1,929,501Other liability
    
    
    37,784
    
    
    
    Total liabilities
    
    
    12,879,163
    
    
    
    5,019,427Commitments and contingenciesShareholders equity:Common stock, $0.0001 par value: 100,000,000 shares authorized;
70,043,086 shares issued and outstanding at June 30, 2007 and
50,242,478 shares issued and outstanding at June 30, 2006
    
    
    7,004
    
    
    
    5,024Additional paid-in capital
    
    
    124,616,091
    
    
    
    63,838,051Accumulated deficit
    
    
    (20,564,710
    )
    
    
    (26,868,155
    )Total shareholders equity
    
    
    104,058,385
    
    
    
    36,974,920Total liabilities and shareholders equity
    
    $
    116,937,548
    
    
    $
    41,994,347
 The accompanying notes are an integral part of these consolidated financial statements.
 F-3




---



##### 



CONTINUCARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
 For the Year Ended June 30,2007
    
    
    2006
    
    
    2005Revenue:Medical services revenue
    
    $
    216,878,488
    
    
    $
    132,629,665
    
    
    $
    111,316,174Management fee revenue and other income
    
    
    267,799
    
    
    
    361,247
    
    
    
    914,939Total revenue
    
    
    217,146,287
    
    
    
    132,990,912
    
    
    
    112,231,113Operating expenses:Medical services:Medical claims
    
    
    161,153,828
    
    
    
    97,781,447
    
    
    
    81,104,665Other direct costs
    
    
    22,919,746
    
    
    
    13,137,396
    
    
    
    12,648,297Total medical services
    
    
    184,073,574
    
    
    
    110,918,843
    
    
    
    93,752,962Administrative payroll and employee benefits
    
    
    9,192,670
    
    
    
    6,538,295
    
    
    
    5,107,672General and administrative
    
    
    13,990,439
    
    
    
    7,584,205
    
    
    
    7,059,602Gain on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (3,000,000
    )Total operating expenses
    
    
    207,256,683
    
    
    
    125,041,343
    
    
    
    102,920,236Income from operations
    
    
    9,889,604
    
    
    
    7,949,569
    
    
    
    9,310,877Other income (expense):Interest income
    
    
    356,192
    
    
    
    331,001
    
    
    
    108,000Interest expense
    
    
    (49,746
    )
    
    
    (12,870
    )
    
    
    (702,946
    )Income before income tax provision (benefit)
    
    
    10,196,050
    
    
    
    8,267,700
    
    
    
    8,715,931Income tax provision (benefit)
    
    
    3,892,605
    
    
    
    2,930,161
    
    
    
    (7,175,561
    )Net income
    
    $
    6,303,445
    
    
    $
    5,337,539
    
    
    $
    15,891,492Net income per common share:Basic
    
    $
    .10
    
    
    $
    .11
    
    
    $
    .32Diluted
    
    $
    .10
    
    
    $
    .10
    
    
    $
    .31Weighted average common shares outstanding:Basic
    
    
    65,044,319
    
    
    
    49,907,898
    
    
    
    50,231,870Diluted
    
    
    66,324,613
    
    
    
    51,230,435
    
    
    
    52,006,064
 The accompanying notes are an integral part of these consolidated financial statements.
 F-4




---



##### 



CONTINUCARE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 Additional
    
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Treasury
    
    
    Shareholders'Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    EquityBalance at June 30, 2004
    
    
    50,300,186
    
    
    $
    5,031
    
    
    $
    69,907,973
    
    
    $
    (48,097,186
    )
    
    $
    (5,424,701
    )
    
    $
    16,391,117Recognition of compensation expense related to
issuance of stock options
    
    
    
    
    
    
    
    
    
    
    264,802
    
    
    
    
    
    
    
    
    
    
    
    264,802Issuance of stock upon exercise of stock options
    
    
    156,666
    
    
    
    16
    
    
    
    91,683
    
    
    
    
    
    
    
    
    
    
    
    91,699Fees related to private placement transactions
    
    
    
    
    
    
    
    
    
    
    (98,244
    )
    
    
    
    
    
    
    
    
    
    
    (98,244
    )Issuance of stock upon conversion of related
party note payable
    
    
    14,550
    
    
    
    1
    
    
    
    14,549
    
    
    
    
    
    
    
    
    
    
    
    14,550Repurchase of common stock
    
    
    (875,700
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,256,783
    )
    
    
    (2,256,783
    )Retirement of treasury stock
    
    
    
    
    
    
    (88
    )
    
    
    (2,256,695
    )
    
    
    
    
    
    
    2,256,783
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,891,492
    
    
    
    
    
    
    
    15,891,492Balance 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
    )
    
    $
    
    
    
    $
    104,058,385
 The accompanying notes are an integral part of these consolidated financial statements.
 F-5




---



##### 



CONTINUCARE CORPORATION
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Year Ended June 30,2007
    
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    6,303,445
    
    
    $
    5,337,539
    
    
    $
    15,891,492Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    2,013,486
    
    
    
    695,095
    
    
    
    1,258,289Loss on disposal of fixed assets
    
    
    35,924
    
    
    
    
    
    
    
    Provision for bad debts
    
    
    165,181
    
    
    
    163,105
    
    
    
    15,787Compensation expense related to issuance of stock options
    
    
    1,692,190
    
    
    
    1,292,234
    
    
    
    264,802Excess tax
benefits related to exercise of stock options
    
    
    (523,964
    )
    
    
    
    
    
    
    Gain on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (3,000,000
    )Deferred tax expense (benefit)
    
    
    2,172,618
    
    
    
    2,767,095
    
    
    
    (7,306,924
    )Changes in operating assets and liabilities, excluding the
effect of disposals:Other receivables
    
    
    (241,460
    )
    
    
    (249,964
    )
    
    
    262,455Due from HMOs, net
    
    
    (1,803,016
    )
    
    
    (2,853,996
    )
    
    
    (783,652
    )Prepaid expenses and other current assets
    
    
    (629,497
    )
    
    
    30,481
    
    
    
    171,230Other assets
    
    
    151,360
    
    
    
    (125,964
    )
    
    
    33,667Accounts payable
    
    
    369,688
    
    
    
    (84,214
    )
    
    
    155,988Accrued expenses and other current liabilities
    
    
    (275,196
    )
    
    
    8,354
    
    
    
    763,347Income taxes payable
    
    
    1,419,894
    
    
    
    (106,934
    )
    
    
    131,363Net cash provided by continuing operations
    
    
    10,850,653
    
    
    
    6,872,831
    
    
    
    7,857,844Net cash used in discontinued operations
    
    
    
    
    
    
    (32,512
    )
    
    
    (151,399
    )Net cash provided by operating activities
    
    
    10,850,653
    
    
    
    6,840,319
    
    
    
    7,706,445CASH FLOWS FROM INVESTING ACTIVITIESPurchase of certificate of deposit
    
    
    (49,648
    )
    
    
    (596,637
    )
    
    
    (500,000
    )Proceeds from maturity of certificates of deposit
    
    
    
    
    
    
    
    
    
    
    101,165Proceeds from sales of fixed assets
    
    
    70,000
    
    
    
    
    
    
    
    Acquisition of MDHC Companies, net of cash acquired
    
    
    (6,109,980
    )
    
    
    
    
    
    
    Purchase of property and equipment
    
    
    (894,325
    )
    
    
    (280,675
    )
    
    
    (421,586
    )Other assets
    
    
    
    
    
    
    (359,147
    )
    
    
    Net cash used in investing activities
    
    
    (6,983,953
    )
    
    
    (1,236,459
    )
    
    
    (820,421
    )
 Continued on next page.
 F-6




---



##### 



CONTINUCARE CORPORATION
 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 For the Year Ended June 30,2007
    
    
    2006
    
    
    2005CASH FLOWS FROM FINANCING ACTIVITIESProceeds from note payable
    
    $
    1,813,317
    
    
    $
    
    
    
    $
    1,040,000Repayments on note payable
    
    
    (1,813,317
    )
    
    
    (520,000
    )
    
    
    (520,000
    )Proceeds from long-term debt
    
    
    6,917,808
    
    
    
    
    
    
    
    Repayment on long-term debt
    
    
    (14,690,960
    )
    
    
    
    
    
    
    Payment of fees related to private placement transactions
    
    
    
    
    
    
    
    
    
    
    (98,244
    )Payments on related party notes
    
    
    
    
    
    
    
    
    
    
    (7,882
    )Principal repayments under capital lease obligations
    
    
    (96,248
    )
    
    
    (127,053
    )
    
    
    (74,630
    )Proceeds from exercise of stock options
    
    
    103,700
    
    
    
    640,468
    
    
    
    91,699Excess tax benefits related to exercise of stock options
    
    
    523,964
    
    
    
    
    
    
    
    Payment of fees related to issuance of stock
    
    
    (44,402
    )
    
    
    
    
    
    
    Repurchase and retirement of common stock
    
    
    
    
    
    
    (696,134
    )
    
    
    (2,256,783
    )Net cash used in financing activities
    
    
    (7,286,138
    )
    
    
    (702,719
    )
    
    
    (1,825,840
    )Net (decrease) increase in cash and cash equivalents
    
    
    (3,419,438
    )
    
    
    4,901,141
    
    
    
    5,060,184Cash and cash equivalents at beginning of fiscal year
    
    
    10,681,685
    
    
    
    5,780,544
    
    
    
    720,360Cash and cash equivalents at end of fiscal year
    
    $
    7,262,247
    
    
    $
    10,681,685
    
    
    $
    5,780,544SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
TRANSACTIONS:Purchase of equipment, furniture and fixtures with proceeds
of capital lease obligations
    
    $
    171,135
    
    
    $
    215,162
    
    
    $
    Retirement of treasury stock
    
    $
    
    
    
    $
    5,424,701
    
    
    $
    2,256,783Stock issued upon conversion of related party notes payable
    
    $
    
    
    
    $
    102,180
    
    
    $
    14,550Information with respect to MDHC acquisition accounted for
under the purchase method of accounting is summarized as
follows:Fair value of assets acquired
    
    $
    22,244,088
    
    
    $
    
    
    
    $
    Liabilities assumed
    
    
    (15,375,217
    )
    
    
    
    
    
    
    Net assets acquired
    
    
    6,868,871
    
    
    
    
    
    
    
    Purchase price:Cash paid to principal owners of MDHC
    
    
    5,709,937
    
    
    
    
    
    
    
    Acquisition costs
    
    
    982,081
    
    
    
    
    
    
    
    Cash to be paid related to acquisition
    
    
    1,000,000
    
    
    
    
    
    
    
    Fair market value of stock issued
    
    
    58,504,568
    
    
    
    
    
    
    
    Total
    
    
    66,196,586
    
    
    
    
    
    
    
    Goodwill
    
    $
    59,327,715
    
    
    $
    
    
    
    $
    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for taxes
    
    $
    306,000
    
    
    $
    270,000
    
    
    $
    Cash paid for interest
    
    $
    49,746
    
    
    $
    12,870
    
    
    $
    40,229
 The accompanying notes are an integral part of these consolidated financial statements.
 F-7




---



##### 



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




---



##### 



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




---



##### 



st
  Deferred Financing Costs
  Deferred Revenue
   Accounting for Stock-Based Compensation
  F-10




---



##### 



Earnings Per Share
  Revenue Recognition
      Medical Service Expense
  F-11




---



##### 



Stop-loss Insurance
  Recent Accounting Pronouncements
    F-12




---



##### 



Other Comprehensive Income
  Reclassifications
  NOTE 3  ACQUISITION
   F-13




---



##### 



F-14




---



##### 



Year Ended June 30,2007
    
    
    2006
    
    
    2005Revenue
    
    $
    240,389,071
    
    
    $
    222,599,520
    
    
    $
    187,034,203Net income
    
    
    277,454
    
    
    
    6,125,247
    
    
    
    17,649,692Diluted earnings per share
    
    
    
    
    
    
    .09
    
    
    
    .25
  NOTE 4  PROPERTY AND EQUIPMENT
  EstimatedJune 30,
    
    
    Useful Lives2007
    
    
    2006
    
    
    (in years)Land
    
    $
    2,153,525
    
    
    $
    
    
    
    
    Building and improvements
    
    
    3,862,088
    
    
    
    
    
    
    
    40Construction in progress
    
    
    714,280
    
    
    
    
    
    
    
    Vehicles
    
    
    845,324
    
    
    
    
    
    
    
    5Furniture, fixtures and equipment
    
    
    4,530,178
    
    
    
    2,705,674
    
    
    
    3-5Furniture and equipment under capital lease
    
    
    756,005
    
    
    
    737,271
    
    
    
    3-5Leasehold improvements
    
    
    304,399
    
    
    
    163,900
    
    
    
    513,165,799
    
    
    
    3,606,845Less accumulated depreciation
    
    
    (4,656,345
    )
    
    
    (2,782,625
    )$
    8,509,454
    
    
    $
    824,220
    For the year ending June 30,2008
    
    $
    136,0052009
    
    
    99,0862010
    
    
    69,8872011
    
    
    31,235336,213Less amount representing imputed interest
    
    
    65,507Present value of obligations under capital lease
    
    
    270,706Less current portion
    
    
    105,515Long-term capital lease obligations
    
    $
    165,191
 F-15




---



##### 



NOTE 5  DEBT
  NOTE 6  EARNINGS PER SHARE
  Year Ended June 30,2007
    
    
    2006
    
    
    2005Basic weighted average number of shares outstanding
    
    
    65,044,319
    
    
    
    49,907,898
    
    
    
    50,231,870Dilutive effect of stock options
    
    
    1,280,294
    
    
    
    1,303,126
    
    
    
    1,689,274Dilutive effect of convertible debt
    
    
    
    
    
    
    19,411
    
    
    
    84,920Diluted weighted average number of shares outstanding
    
    
    66,324,613
    
    
    
    51,230,435
    
    
    
    52,006,064Not included in calculation of dilutive earnings per
shareas impact is antidilutive:Stock options outstanding
    
    
    18,000
    
    
    
    20,000
    
    
    
    255,000Warrants
    
    
    760,000
    
    
    
    760,000
    
    
    
    760,000
 NOTE 7  STOCK-BASED COMPENSATION
   F-16




---



##### 



Year EndedJune 30, 2005Net income as reported
    
    $
    15,891,492Add:Total stock-based employee compensation expense
reported in net income
    
    
    254,000Deduct:Total stock-based employee compensation expense
determined under SFAS No. 123 for all awards
    
    
    (1,372,348
    )Pro forma net income
    
    $
    14,773,144Basic net income per common share:As reported
    
    $
    .32Pro forma
    
    $
    .29Diluted net income per common share:As reported
    
    $
    .31Pro forma
    
    $
    .28
 F-17




---



##### 



Number
    
    
    Weighted Averageof Shares
    
    
    Exercise PriceOutstanding at beginning of the year
    
    
    3,659,304
    
    
    $
    1.56Granted
    
    
    1,408,000
    
    
    
    2.70Exercised
    
    
    (64,750
    )
    
    
    1.60Forfeited
    
    
    (137,084
    )
    
    
    2.34Expired
    
    
    (21,250
    )
    
    
    1.69Outstanding at end of the year
    
    
    4,844,220
    
    
    $
    1.87Exercisable at end of the year
    
    
    2,888,385Weighted average fair value per
share of options granted during the
year
    
    $
    1.42
   Options Outstanding
    
    
    Options ExercisableRange of
    
    
    
    
    
    Weighted
    
    
    Weighted Average
    
    
    
    
    
    
    
    
    
    
    Weighted AverageExercise
    
    Number
    
    
    Average
    
    
    Remaining
    
    
    Number
    
    
    Weighted Average
    
    
    RemainingPrices
    
    Outstanding
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    Exercisable
    
    
    Exercise Price
    
    
    Contractual Life$2.25-$3.57
    
    
    2,388,250
    
    
    $
    2.63
    
    
    
    8.8
    
    
    
    610,250
    
    
    $
    2.67
    
    
    
    8.2$0.66-$1.98
    
    
    2,455,970
    
    
    $
    1.13
    
    
    
    6.0
    
    
    
    2,278,135
    
    
    $
    1.09
    
    
    
    5.9
 F-18




---



##### 



Warrants
    
    
    760,000Stock options
    
    
    7,682,221Total
    
    
    8,442,221
 NOTE 8  INCOME TAXES
   Year Ended June 30,2007
    
    
    2006
    
    
    2005Current:Federal
    
    $
    1,425,993
    
    
    $
    163,066
    
    
    $
    131,363State
    
    
    293,994
    
    
    
    
    
    
    
    Total
    
    
    1,719,987
    
    
    
    163,066
    
    
    
    131,363Deferred:Federal
    
    
    1,897,669
    
    
    
    2,339,256
    
    
    
    2,411,423State
    
    
    274,949
    
    
    
    427,839
    
    
    
    435,273Total
    
    
    2,172,618
    
    
    
    2,767,095
    
    
    
    2,846,696Change in valuation allowance
    
    
    
    
    
    
    
    
    
    
    (10,153,620
    )Total income tax provision (benefit)
    
    $
    3,892,605
    
    
    $
    2,930,161
    
    
    $
    (7,175,561
    )
 F-19




---



##### 



June 30,2007
    
    
    2006
    
    
    2005Deferred tax assets:Bad debt and notes receivable reserve
    
    $
    296,420
    
    
    $
    294,922
    
    
    $
    294,922Alternative minimum tax credit
    
    
    
    
    
    
    291,467
    
    
    
    131,363Other
    
    
    434,225
    
    
    
    363,847
    
    
    
    160,296Impairment charge
    
    
    1,476,110
    
    
    
    1,726,600
    
    
    
    1,746,800Share-based compensation
    
    
    823,320
    
    
    
    395,246
    
    
    
    Net operating loss carryforward
    
    
    
    
    
    
    3,397,248
    
    
    
    6,340,985Deferred tax assets
    
    
    3,030,075
    
    
    
    6,469,330
    
    
    
    8,674,366Deferred tax liabilities:Depreciable/amortizable assets
    
    
    (5,342,721
    )
    
    
    (1,929,501
    )
    
    
    (1,367,442
    )Basis difference in tangible assets
    
    
    (872,762
    )
    
    
    
    
    
    
    Deferred tax liabilities
    
    
    (6,215,483
    )
    
    
    (1,929,501
    )
    
    
    (1,367,442
    )Net deferred tax (liability) asset
    
    $
    (3,185,408
    )
    
    $
    4,539,829
    
    
    $
    7,306,924
  F-20




---



##### 



Year Ended June 30,2007
    
    
    2006
    
    
    2005Statutory federal rate
    
    
    34.00
    %
    
    
    34.00
    %
    
    
    34.00
    %State income taxes, net of federal income tax benefit
    
    
    3.63
    
    
    
    3.63
    
    
    
    3.63Goodwill and other non-deductible items
    
    
    0.55
    
    
    
    (2.22
    )
    
    
    (3.46
    )Change in valuation allowance
    
    
    
    
    
    
    
    
    
    
    (116.49
    )Other
    
    
    
    
    
    
    0.03
    
    
    
    Effective tax rate
    
    
    38.18
    %
    
    
    35.44
    %
    
    
    (82.32
    )%
 NOTE 9  SHARE REPURCHASE PROGRAM
  NOTE 10  EMPLOYEE BENEFIT PLAN
 
  NOTE 11  COMMITMENTS AND CONTINGENCIES
 Legal Proceedings
 Curtis Williams and Tangee Williams vs.
Tomas A. Cabrera, M.D., Tomas A. Cabrera, M.D., P.A., Rafael L. Nogues, M.D., Rafael L. Nogues,
M.D., P.A., Miami Dade Health & Rehabilitation Services, Inc., Jose Gabriel Ortiz, M.D., and Palm
Springs General Hospital, Inc. of Hialeah. th
  F-21




---



##### 



Leases
  For the fiscal year ending June 30,2008
    
    $
    2,204,1462009
    
    
    1,887,8162010
    
    
    1,429,1382011
    
    
    891,9592012 and thereafter
    
    
    432,715Total
    
    $
    6,845,774
 NOTE 12  VALUATION AND QUALIFYING ACCOUNTS
  Year ended June 30,2007
    
    
    2006
    
    
    2005Allowance for doubtful accounts related to
other receivables and accounts receivable:Balance at beginning of period
    
    $
    798,257
    
    
    $
    842,751
    
    
    $
    826,964Provision for doubtful accounts
    
    
    165,181
    
    
    
    163,105
    
    
    
    15,787Write-offs of uncollectible accounts receivable
    
    
    (161,199
    )
    
    
    (207,599
    )
    
    
    Balance at end of period
    
    $
    802,239
    
    
    $
    798,257
    
    
    $
    842,751Valuation allowance for deferred tax assets:Balance at beginning of period
    
    $
    
    
    
    $
    
    
    
    $
    10,153,620Additions
    
    
    
    
    
    
    
    
    
    
    Deductions
    
    
    
    
    
    
    
    
    
    
    (10,153,620
    )Balance at end of period
    
    $
    
    
    
    $
    
    
    
    $
    
 NOTE 13  QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
 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
 For the Year Ended June 30, 2006First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    FullQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    YearTotal revenue
    
    $
    29,871,150
    
    
    $
    29,382,706
    
    
    $
    37,524,804
    
    
    $
    36,212,252
    
    
    $
    132,990,912Net income
    
    $
    1,438,752
    
    
    $
    1,457,850
    
    
    $
    1,332,765
    
    
    $
    1,108,172
    
    
    $
    5,337,539Basic net income per common share
    
    $
    .03
    
    
    $
    .03
    
    
    $
    .03
    
    
    $
    .02
    
    
    $
    .11Diluted net income per common share
    
    $
    .03
    
    
    $
    .03
    
    
    $
    .03
    
    
    $
    .02
    
    
    $
    .10
 F-22




---



##### 



EXHIBIT INDEX
 Description
    
    Exhibit NumberAmended and Restated 2000 Stock Option Plan
    
    
    4.4Subsidiaries 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