Edgar Filing: CONTINUCARE CORP

Continucare Corporation

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


[X]		QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2001

		OR

[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-12115

CONTINUCARE CORPORATION
(Exact Name of Registrant as Specified in its Charter)


Florida (State or other jurisdiction of incorporation or organization)		59-2716023 (I.R.S. Employer Identification No.)

80 Southwest Eighth Street
Suite 2350
Miami, Florida 33130
(Address of principal executive offices)
(Zip Code)

(305) 350-7515
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

At February 7, 2002, the Registrant had 39,459,601 shares of $0.0001 par value common stock outstanding.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	ITEM 1. — FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 (UNAUDITED)
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
	SIGNATURES
Form of Convertible Promissory Note

CONTINUCARE CORPORATION

INDEX


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
	Condensed Consolidated Balance Sheets – December 31, 2001 (Unaudited) and June 30, 2001	3
	Condensed Consolidated Statements of Operations - Three Months Ended December 31, 2001 (Unaudited) and 2000 (Unaudited)	4
	Condensed Consolidated Statements of Operations – Six Months Ended December 31, 2001 (Unaudited) and 2000 (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows – Six Months Ended December 31, 2001 (Unaudited) and 2000 (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements – December 31, 2001 (Unaudited)	7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS		18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		18
ITEM 5. OTHER INFORMATION		19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K		19
SIGNATURE PAGE		20

PART I — FINANCIAL INFORMATION

ITEM 1. — FINANCIAL STATEMENTS

CONTINUCARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


ASSETS					December 31, 2001			June 30, 2001

					(Unaudited)
Current assets
	Cash and cash equivalents				$	581,925		$	525,482
	Accounts receivable, net of allowance for doubtful accounts of $5,839,000 at December 31, 2001 and $5,802,000 at June 30, 2001					137,534			81,132
	Other receivables					672,945			763,637
	Prepaid expenses and other current assets					255,515			306,261

			Total current assets			1,647,919			1,676,512
Equipment, furniture and leasehold improvements, net						634,076			703,494
Goodwill, net of accumulated amortization of approximately $3,661,000 at December 31, 2001 and June 30, 2001						14,663,392			14,663,392
Intangible assets, net of accumulated amortization of approximately $5,197,000 at December 31, 2001 and approximately $4,685,000 at June 30, 2001						2,341,820			2,853,359
Deferred financing costs, net of accumulated amortization of approximately $2,347,000 at December 31, 2001 and $1,706,000 at June 30, 2001						1,058,438			1,698,750
Other assets, net						76,247			74,731

			Total assets		$	20,421,892		$	21,670,238

				LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
	Accounts payable				$	674,633		$	739,506
	Accrued expenses					1,905,022			2,270,695
	Accrued salaries and benefits					591,077			579,805
	Due to (from) HMOs, net					780,121			(622,666	)
	Credit Facility					900,000			500,000
	Advances from HMO					150,000			450,000
	Due to Medicare, net					728,404			500,045
	Current portion of convertible subordinated notes payable					273,896			273,896
	Current portion of long term debt					5,036,180			4,952,076
	Current portion of related party notes payable					63,854			53,211
	Accrued interest payable					5,226			17,703
	Current portion of capital lease obligations					164,389			149,915

			Total current liabilities			11,272,802			9,864,186
Capital lease obligations, less current portion						67,326			99,774
Convertible subordinated notes payable, less current portion						4,493,416			4,630,364
Long term debt, less current portion						722,838			1,011,704
Related party notes payable, less current portion						1,093,113			1,135,683

			Total liabilities			17,649,495			16,741,711
Commitments and contingencies
Shareholders’ equity
	Common stock; $0.0001 par value; 100,000,000 shares authorized, 42,455,794 shares issued and 39,459,601 shares outstanding at December 31, 2001 and June 30, 2001					3,946			3,946
	Additional paid-in capital					59,511,632			59,511,632
	Accumulated deficit					(51,318,480	)		(49,162,350	)
	Treasury stock (2,996,193 shares)					(5,424,701	)		(5,424,701	)

		Total shareholders’ equity				2,772,397			4,928,527

		Total liabilities and shareholders’ equity			$	20,421,892		$	21,670,238

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

CONTINUCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


				Three Months Ended December 31,

				2001			2000

Medical services revenue, net				$	26,263,009		$	29,923,561
Expenses:
	Medical services:
			Medical claims		19,908,092			24,842,256
			Other		3,336,405			4,348,772
	Payroll and employee benefits				1,417,004			1,505,331
	Provision for bad debts				22,946			–
	Professional fees				281,141			316,747
	General and administrative				1,243,445			1,464,406
	Depreciation and amortization				225,473			729,376

		Subtotal			26,434,506			33,206,888
Loss from operations					(171,497	)		(3,283,327	)
Other income (expense):
	Interest income				9,032			10,542
	Interest expense				(423,995	)		(435,087	)

Net loss				$	(586,460	)	$	(3,707,872	)

Basic and diluted loss per common share				$	(.01	)	$	(.11	)

Basic and diluted weighted average number of common shares outstanding					39,459,601			33,240,090

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

CONTINUCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


				Six Months Ended December 31,

				2001			2000

Medical services revenue, net				$	49,993,303		$	59,560,052
Expenses:
	Medical services:
			Medical claims		38,405,705			48,188,399
			Other		6,521,989			8,541,186
	Payroll and employee benefits				2,702,661			2,907,691
	Provision for bad debts				36,449			–
	Professional fees				507,532			594,606
	General and administrative				2,505,220			2,819,493
	Depreciation and amortization				683,783			1,452,135

		Subtotal			51,363,339			64,503,510
Loss from operations					(1,370,036	)		(4,943,458	)
Other income (expense):
	Interest income				29,885			24,409
	Interest expense				(815,979	)		(832,906	)
	Other				–			304

Net loss				$	(2,156,130	)	$	(5,751,651	)

Basic and diluted loss per common share				$	(.05	)	$	(.17	)

Basic and diluted weighted average number of common shares outstanding					39,459,601			33,240,090

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

CONTINUCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


			Six Months Ended December 31,

			2001			2000

CASH FLOWS FROM OPERATING ACTIVITIES
	Net loss		$	(2,156,130	)	$	(5,751,651	)
	Adjustments to reconcile net loss to cash provided by (used in) operating activities:
		Depreciation and amortization, including amortization of deferred loan costs		1,336,403			2,180,954
		Provision for bad debts		36,449			–
	Changes in operating assets and liabilities, excluding the effect of acquisitions and disposals:
		(Increase) decrease in accounts receivable		(92,851	)		9,944
		Decrease in prepaid expenses and other current assets		50,746			222,078
		Decrease in other receivables		90,692			244,204
		Increase in other assets		(1,516	)		(19,008	)
		Increase in due to/from HMO’s, net		1,402,787			1,473,897
		Increase in due to Medicare		265,739			835,784
		Decrease in accounts payable and accrued expenses		(419,274	)		(62,578	)
		(Decrease) increase in accrued interest payable		(12,477	)		4,122

Net cash provided by (used in) operating activities				500,568			(862,254	)

CASH FLOWS FROM INVESTING ACTIVITIES
	Proceeds from disposal of equipment			–			1,500
	Property and equipment additions			(66,573	)		(165,086	)

Net cash used in investing activities				(66,573	)		(163,586	)

CASH FLOWS FROM FINANCING ACTIVITIES
	Payments on convertible subordinated notes			(136,948	)		(350,000	)
	Payments on related party notes			(31,927	)		–
	Principal repayments under capital lease obligation			(54,226	)		(42,629	)
	Net increase in Credit Facility			400,000			–
	Payment on advances from HMOs			(300,000	)		–
	Repayments to Medicare per agreement			(254,451	)		(293,596	)
	Repayments on notes payable			–			(120,000	)

Net cash used in financing activities				(377,552	)		(806,225	)

Net increase (decrease) in cash and cash equivalents				56,443			(1,832,065	)

Cash and cash equivalents at beginning of period				525,482			2,535,540

Cash and cash equivalents at end of period			$	581,925		$	703,475

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Note payable issued for refunds due to Medicare for overpayments			$	37,380		$	370,622

Purchase of furniture and fixtures with proceeds of capital lease obligations			$	36,252		$	166,621

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
(UNAUDITED)

NOTE 1 — UNAUDITED INTERIM INFORMATION

The accompanying unaudited condensed consolidated financial statements of Continucare Corporation (“Continucare” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended December 31, 2001 are not necessarily indicative of the results that may be expected for the year ended June 30, 2002.

The balance sheet at June 30, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

For further information, refer to the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended June 30, 2001.

Certain reclassifications have been made to the prior year amounts to conform to the current year presentation.

NOTE 2 — GENERAL

Continucare, which was incorporated on February 1, 1996 as a Florida corporation, is a provider of integrated outpatient healthcare and home healthcare services in Florida. Continucare’s predecessor, Zanart Entertainment, Incorporated (“Zanart”) was incorporated in 1986. On August 9, 1996, a subsidiary of Zanart merged into Continucare Corporation (the “Merger”). As a result of the Merger, the shareholders of Continucare became shareholders of Zanart, and Zanart changed its name to Continucare Corporation.

As of December 31, 2001, the Company operated, owned and/or managed: fifteen staff model clinics in south and central Florida; an Independent Practice Association (“IPA”) with 30 physicians; and four Home Health agencies. For the six months ended December 31, 2001, approximately 66% of net medical services revenue was derived from managed care contracts with Humana Medical Plans, Inc. (“Humana”) and 29% of net medical services revenue was derived from managed care contracts with Foundation Health, A Florida Health Plan, Inc. (“Foundation”). For the six months ended December 31, 2000 approximately 58% of net medical services revenue was derived from managed care contracts with Humana and 38% of net medical services revenue was derived from managed care contracts with Foundation.

During Fiscal 2001 and continuing into the first quarter of Fiscal 2002, the Company experienced a high claims loss ratio, resulting in operating losses and a significant working capital deficiency. Changes in the claims loss ratio are due to fluctuations in utilization, the timing of claims paid by the HMOs on the Company’s behalf, as well as increases in medical costs without counterbalancing increases in premium revenues from the HMOs.

The financial statements of the Company have been prepared assuming that it will continue as a going concern. The Company believes that it will be able to fund its capital commitments, operating cash requirements and satisfy its obligations as they become due from a combination of cash on hand, expected operating cash flow improvements through HMO premium increases and advantageous HMO benefit changes, the Company’s credit facility (see Note

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
(UNAUDITED)

5) and negotiated extensions of current obligations. However, there can be no assurances that these sources of funds will be sufficient to fund operations and satisfy its obligations as they become due.

NOTE 3 – ADOPTION OF NEW ACCOUNTING STANDARD

The Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”) effective July 1, 2001. Under SFAS No. 142, goodwill and certain other intangible assets are no longer amortized but rather reviewed for impairment annually, or more frequently if certain indicators arise. The Company has completed the initial step of the transitional impairment analysis and determined that no impairment existed at the time of the adoption of SAFS No. 142. Any subsequent impairment losses will be reflected in operating income in the income statement in the period in which the impairment is determined. Had the Company accounted for its goodwill and other intangible assets not subject to amortization under SFAS No. 142 for all periods presented, the Company’s net loss and loss per share would have been as follows:


		Three Months Ended December 31,						Six Months Ended December 31,

		2001			2000			2001			2000

Reported Net Loss		$	(586,460	)	$	(3,707,872	)	$	(2,156,130	)	$	(5,751,651	)
	Add back amortization of intangible assets no longer subject to amortization		–			265,329			–			530,658

		$	(586,460	)	$	(3,442,543	)	$	(2,156,130	)	$	(5,220,993	)

Basic and diluted earnings per share:
	Reported net loss	$	(.01	)	$	(.11	)	$	(.05	)	$	(.17	)
	Goodwill amortization		–			.01			–			.02

	Adjusted Net Loss	$	(.01	)	$	(.10	)	$	(.05	)	$	(.15	)

NOTE 4 – CONVERTIBLE SUBORDINATED NOTES PAYABLE AND RELATED PARTY NOTES PAYABLE

On October 30, 1997, the Company issued $46,000,000 of 8% Convertible Subordinated Notes Payable (the “Notes”) originally due on October 31, 2002. Through a series of repurchases and troubled debt restructurings in Fiscal 2001 and 2000, the outstanding principal balance of the Notes on the balance sheet at December 31, 2001 was reduced to approximately $3,913,000.

Effective June 30, 2001, the Company completed a restructuring of the Notes (the “Fiscal 2001 Restructuring”) which resulted in the conversion of Notes in the principal amount of approximately $6,220,000 to approximately 6,220,000 shares of the Company’s common stock and the issuance of a new convertible note (the “New Note”) to Frost Nevada Limited Partnership (“Frost Nevada”), an entity controlled by Dr. Phillip Frost, Vice Chairman of the Company’s Board of Directors, with a principal balance of $912,195.

Also as part of the Fiscal 2001 Restructuring, holders of approximately $3,780,000 of outstanding Notes remaining agreed to restructure various terms of the Notes, which included, among other things, the following: (i) adding interest of $132,317 which accrued through April 30, 2001 to the outstanding principal balance; (ii) extending the maturity date through October 2005; (iii) reducing the conversion rate from $2.00 to $1.00; (iv) providing for quarterly interest payments; (v) adding a call provision if the outstanding common stock trades at or above $2.50

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
(UNAUDITED)

per share for twenty trading days and if the common stock trades an average of at least 100,000 shares per week for a four week period; and (vi) curing all prior defaults under the Notes. The balance of the outstanding Notes on the balance sheet at December 31, 2001 of approximately $4,767,000, includes interest accrued through December 31, 2001 of approximately $46,000 and the remaining interest of approximately $808,000 which will be payable in quarterly payments through the current maturity date of October 31, 2005.

Subsequent to the Fiscal 2001 Restructuring, Frost Nevada transferred approximately 13% of the New Note in a private transaction to a group of six investors (the “Related Party Notes”). Mr. Angel, the Company’s president and chief executive officer, and an entity controlled by Mr. Angel comprise 40% of this investor group. The balance of the outstanding Related Party Notes on the balance sheet at December 31, 2001 of approximately $1,157,000, includes interest of approximately $245,000 which will be payable in semi-annual payments through October 31, 2005.

NOTE 5 –CREDIT FACILITY

The Company has entered into a credit facility agreement (“Credit Facility”). The Credit Facility provides a revolving loan of $3,000,000 which is due March 31, 2002. The Credit Facility may be renewed annually at the option of the lender. Interest is payable monthly at 2.9% plus the 30-day Dealer Commercial Paper Rate which is 1.85% at December 31, 2001. All assets of the Company serve as collateral for the Credit Facility. In addition, the Credit Facility has been guaranteed by a board member and an entity controlled by a board member. At December 31, 2001, the outstanding balance of the Credit Facility was $900,000.

NOTE 6 – EARNINGS PER SHARE

Options and warrants to purchase the Company’s common stock were not included in the computation of diluted earnings (loss) per share because the effect would be antidilutive.

NOTE 7 — CONTINGENCIES

The case of CONTINUCARE CORPORATION, A FLORIDA CORPORATION, CONTINUCARE PHYSICIAN PRACTICE MANAGEMENT, INC. (“CPPM”), v. JAY A. ZISKIND, AN INDIVIDUAL, KENNETH I. ARVIN, AN INDIVIDUAL, TRACY ARVIN, AN INDIVIDUAL, ZISKIND & ARVIN, P.A., A PROFESSIONAL ASSOCIATION, NORMAN B. GAYLIS, M.D., AN INDIVIDUAL AND ZAG GROUP, INC., A FLORIDA CORPORATION, was filed on November 15, 1999 in the Circuit Court of the 11th Judicial District in and for Miami-Dade County, alleging breach of fiduciary duties, improper billing, and seeking the return of all consideration previously paid by the Company to ZAG, and damages, as well as seeking rescission of the Agreement and Plan of Merger and the Registration Rights Agreement. On July 13, 2001, the counterplaintiffs filed their Third Amended Counterclaim against the Company and included Mr. Charles Fernandez as a defendant in the action. The Third Amended Counterclaim alleges counts for (i) breach of contract against the Company and CPPM based on the alleged failure to register stock pursuant to the Registration Rights Agreement, the alleged failure to pay contingent merger consideration and the alleged failure to fulfill obligations pursuant to Rule 144 of the Securities Act of 1933; (ii) fraud in the inducement against the Company, CPPM and Mr. Fernandez in connection with the execution of the Registration Rights Agreement and the Agreement and Plan of Merger; (iii) violation of Florida Blue Sky Laws against the Company, CPPM and Mr. Fernandez; and (iv) conversion against the Company and CPPM. The Third Amended Counterclaim seeks an amount in excess of $4,000,000 in damages. On August 31, 2001, the Company, CPPM and Mr. Fernandez filed their Answer and Affirmative Defenses to the Third Amended Counterclaim. Discovery is ongoing. The trial is currently scheduled to begin during the two-week

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
(UNAUDITED)

period commencing April 29, 2002. The Company believes that there is little merit to the counterclaim and intends to vigorously defend the claims.

The Company is a party to the case of WARREN GROSSMAN, M.D., ALAN REICH, M.D., AND RICHARD STRAIN, M.D. v. CONTINUCARE PHYSICIAN PRACTICE MANAGEMENT, INC. AND CONTINUCARE CORPORATION. This case was filed in May 1999 in the Circuit Court for Broward County, Florida. The complaint alleges breach of employment contracts based on the early termination of the Plaintiffs’ employment and seeks damages in excess of $250,000. On January 5, 2000, the Company filed a counterclaim alleging breach of contract in connection with the Plaintiff’s failure to return certain computer equipment, as well as a breach of the non-compete covenant. On February 18, 2000, the Company filed a Motion for Summary Judgment as to all Plaintiffs. On April 28, 2000, the Plaintiffs filed a Motion for Summary Judgment as to the issue of liability. On June 5, 2000, the Company filed a Motion for Judgment on the Pleadings as to all Plaintiffs. All of the aforementioned motions were heard on June 15, 2000. On November 14, 2000, the court granted the Company’s motion as to one of the Plaintiffs’ claims for deferred and incentive compensation, but reserved as to his claim for post termination compensation related to follow-up patient care, if any. The court denied the Company’s motion as to the other two Plaintiffs. Also on November 14, 2000, the court denied the Plaintiffs motion for summary judgment in all respects. The trial started on February 13, 2001. As of the date of this filing, the trial has been continued and is scheduled to resume on or after February, 2002. The Company believes the action has little merit and intends to vigorously defend the claims.

Two subsidiaries of the Company are parties to the case of NANCY FEIT ET AL. v. KENNETH BLAZE, D.O. KENNETH BLAZE., D.O., P.A.; SHERIDEN HEALTHCORP, INC.; WAYNE RISKIN, M.D.; KAHN AND RISKIN, M.D., P.A.; CONTINUCARE PHYSICIAN PRACTICE MANAGEMENT, INC., D/B/A ARTHRITIS AND RHEUMATIC DISEASE SPECIALTIES, INC.; JAMES JOHNSON, D.C. AND JOHNSON & FALK, D.C., P.A. The case was filed in December, 1999 in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida and served on the companies in April, 2000. The complaint alleges vicarious liability and seeks damages in excess of $15,000. The Company filed its answer on May 3, 2000. Discovery is still proceeding at a slow pace. The Company has made a demand for assumption of defense and indemnification from Kahn and Riskin, M.D., P.A. and Wayne Riskin, M.D. The demand was initially rejected, but is currently being re-evaluated. The Company and the carriers for Kahn & Riskin, M.D. have been discussing apportionment of responsibilities. The Company believes it has meritorious defenses and intends to vigorously pursue them.

On February 13, 1998, the Company acquired the stock of Rehab Management Systems, Inc., Integracare, Inc. and J.R. Rehab Associates, Inc. (collectively referred to as “RMS”) from Integrated Health Services, Inc. (“IHS”). RMS operated numerous rehabilitation clinics in the States of Florida, Georgia, Alabama, North Carolina and South Carolina as a Medicare and Medicaid provider of outpatient services. On April 8, 1999, the Company sold substantially all the assets of RMS and the assumption of certain liabilities to Kessler Rehabilitation of Florida, Inc. (“Kessler”). On August 13, 1999, RMS was formally dissolved as a corporation with the state of Florida. In November 2001, the Company became aware that the Centers for Medicare and Medicaid Services (“CMS”) are pursuing collection from IHS, Kessler and the Company for alleged over payments and interest for certain Medicare providers purchased from IHS for services rendered during calendar years 1996 and 1997 of approximately $2.8 million. The Company disputes the validity of these claims and intends to vigorously pursue this matter.

In Fiscal 1999, the Company closed or dissolved certain subsidiaries, some of which had pending claims against them. The liability associated with these closed or dissolved subsidiaries was approximately $749,000 at June 30, 2001. In January 2002, the Company settled the majority of this liability for $25,000. Approximately $684,000 of the liability was reversed and is included as a reduction of General and Administrative Expenses during the quarter

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
(UNAUDITED)

ended December 31, 2001. As a result of this settlement, the liability associated with these subsidiaries was approximately $65,000 at December 31, 2001.

The Company is also involved in various other legal proceedings incidental to its business that arise from time to time out of the ordinary course of business – including, but not limited to, claims related to the alleged malpractice of employed and contracted medical professionals, workers’ compensation claims and other employee-related matters, and minor disputes with equipment lessors and other vendors.

Other than the liability associated with closed or dissolved subsidiaries discussed above and amounts previously recorded for anticipated cost report settlement matters, no liability has been recorded for the above matters as it is not possible to estimate the liability, if any, that will result from the resolution of these matters.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

GENERAL

Unless otherwise indicated or the context otherwise requires, all references in this Form 10-Q to “we,” “us,” “our,” “Continucare” or the “Company” refers to Continucare Corporation and its consolidated subsidiaries.

CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS

This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this Form 10-Q, the words “believe,” “anticipate,” “think,” “intend,” “plan,” “will be,” and similar expressions, identify such forward-looking statements. Such statements regarding future events and/or the future financial performance of Continucare are subject to certain risks and uncertainties, which could cause actual events or our actual future results to differ materially from any forward-looking statement. Certain factors that might cause such a difference are set forth in our Form 10-K for the period ended June 30, 2001, including the following: our success or failure in implementing our current business and operational strategies; the availability, terms and access to capital and customary trade credit; general economic and business conditions; competition; changes in our business strategy; availability, location and terms of new business development; availability and terms of necessary or desirable financing or refinancing; labor relations; the outcome of pending or yet-to-be instituted legal proceedings; and labor and employee benefit costs.

GENERAL

We are a provider of integrated outpatient healthcare and home healthcare services in Florida. As of December 31, 2001, we operated, owned and/or managed fifteen staff model clinics in south and central Florida; an Independent Practice Association (the “IPA”) with 30 physicians; and four home health agencies.

Medicare and Medicaid Reimbursement Considerations

Our home health agencies (“HHAs”) receive reimbursement from the Medicare and Medicaid programs or payments from insurers, self-funded benefit plans or other third-party payors. The Medicare and Medicaid programs are subject to statutory and regulatory changes, retroactive and prospective rate adjustments, administrative rulings and funding restrictions, any of which could have the effect of limiting or reducing reimbursement levels. Although we only derived approximately 4% of our net medical services revenue directly from the Medicare and Medicaid programs during the six months ended December 31, 2001, a substantial portion of our managed care revenues are based upon Medicare reimbursable rates. Therefore, any changes that limit or reduce Medicare reimbursement levels could have a material adverse effect on our business. Further, significant changes have or may be made in the Medicare program, which could have a material adverse effect on our business, results of operations, prospects, financial results, financial condition or cash flows. In addition, the Congress of the United States may enact unfavorable legislation, which could adversely affect operations by, for example, decreasing Medicare reimbursement rates.

The Medicare program

Historically, Medicare has reimbursed HHAs for the “reasonable costs” for services provided to Medicare beneficiaries. Medicare-reimbursed costs are subject to audit, which may result in a decrease in payments we have previously received. The Balanced Budget Act of 1997 (the “BBA”) enacted in August 1997 contains numerous provisions related to Medicare and Medicaid reimbursement. The BBA resulted in deep cuts to provider reimbursements. Congress enacted the Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999 (“BBRA”) to provide necessary relief to various facets of the health care delivery system through remedies to both problematic policy and excessive payment reductions. Prior to the BBA, Medicare reimbursed HHAs through a

cost-based reimbursement system that was criticized for providing few incentives to HHAs to maximize efficiency or control volume. The BBA, as amended by the Omnibus Consolidated and Emergency Supplemental Appropriations Act of 1999 (“OCESAA”), called for the development and implementation of a prospective payment system (“PPS”) for Medicare HHA services. The BBA established an interim payment system (“IPS”) until PPS could be implemented. IPS lowered reimbursement limits for home health visits. The IPS cost limits apply to us for the cost reporting periods beginning after October 1997 and ending with the implementation of PPS on October 1, 2000.

The BBA established a 15% reduction (the “Reduction”) to the cost limits and per-patient limits in place as of September 30, 1999. The BBRA delayed implementation of the Reduction until one year after the implementation of PPS. The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (“BIPA”) amends the BBRA to further delay the Reduction for an additional year. BIPA also provides for restoration of the full home health market basket update for home health services for the Centers for Medicare and Medicaid Services (“CMS”) fiscal year 2001 and establishes a special rule for payment under the PPS for HHA services for CMS’ fiscal year 2001 based on adjusted prospective payment amounts. Pursuant to this special rule, BIPA provides that for purposes of making payments for HHA services for CMS’ fiscal year 2001, CMS is required to (i) with respect to episodes and visits ending on or after October 1, 2000, and before April 1, 2001, use the final standardized and budget neutral prospective payment amounts for 60-day episodes and standardized average per visit amounts for CMS’ fiscal year 2001 as published in the final regulations establishing PPS on July 3, 2000; and (ii) with respect to episodes and visits ending on or after April 1, 2001, and before October 1, 2001, use such amounts increased by 2.2 percent. Once in effect, the Reduction may impact both Medicare and managed care reimbursement negatively.

For cost reporting periods beginning on or after October 1, 1997, the BBA requires HHAs to submit claims for payment for HHA services only on the basis of the geographic location at which the service was furnished. In the regulation issued in July 2000, CMS estimates that the re-distributional effects on HHAs would range from a positive $428 million for freestanding non-profit agencies to a negative $363 million for freestanding for-profit agencies in Fiscal 2001. Any resultant reduction in our cost limits could have a material adverse effect on our business, financial condition or results of operation. However, as our HHAs only operate in a single county, we have not been impacted by these requirements.

The BBA has also created a consolidated billing requirement pursuant to which most services provided by a HHA must be billed by the HHA and outside suppliers may no longer bill the Medicare program directly for services provided by the supplier under arrangements with the HHA. Instead, the HHA will have to provide most home health services either directly or pursuant to an arrangement with an outside supplier where the HHA bills Medicare directly. CMS clarifies that the law is silent regarding the specific terms of HHA payments to outside suppliers and does not authorize Medicare to impose any such requirements. To the extent that our HHAs utilize outside providers for the provision of applicable home health services, we believe we are in compliance with the consolidated billing requirements. Additionally, to the extent that we use outside providers, our cost to obtain such services may be greater than the reimbursement provided to by the Medicare program, especially if Medicare reimbursement decreases but the cost of such services to us increases or stays consistent.

The Medicaid program

Pursuant to the Medicaid program, the Federal government supplements funds provided by the various states for medical assistance to the medically indigent. Payment for such medical and health services is made to providers in an amount determined in accordance with procedures and standards established by state law under federal guidelines. Significant changes have been and may continue to be made in the Medicaid program, which may have an adverse effect on our financial condition, results of operations and cash flows. During certain fiscal years, the amounts appropriated by state legislatures for payment of Medicaid claims have not been sufficient to reimburse providers for services rendered to Medicaid patients. Failure of a state to pay Medicaid claims on a timely basis may have an adverse effect on our cash flow, results of operations and financial condition.

Managed Care Organizations

Payments per visit from managed care organizations typically have been lower than cost-based reimbursement from Medicare and reimbursement from other payors for nursing and related patient services. In addition, payors and employer groups are exerting pricing pressure on home health care providers, resulting in reduced profitability. Such pricing pressures could have a material adverse effect on our business, results of operations, prospects, financial results, financial condition or cash flows.

Additional Payor Considerations

Congress and the State Legislature may propose legislation altering the financing and delivery of healthcare services provided by us (beyond the changes made by the BBA). It is difficult to predict the ultimate effect that any future legislation will have on us.

Medicare retrospectively audits all reimbursements paid to participating providers, including those now or previously managed and/or owned by us, including without limitation, hospital outpatient departments, CORFs, ORFs, and HHAs. Accordingly, at any time, we could be subject to overpayment notices for Medicare reimbursements the Company has previously received and refund obligations for prior period cost reports that have not been audited and settled as of the date hereof.

RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q.

THE FINANCIAL RESULTS DISCUSSED BELOW RELATE TO THE OPERATION OF CONTINUCARE FOR THE THREE MONTHS ENDED DECEMBER 31, 2001 AS COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2000.

Revenue

Medical services revenues decreased 12.2% from approximately $29,924,000 for the three months ended December 31, 2000 to approximately $26,263,000 for the three months ended December 31, 2001. We provided managed care services for approximately 56,000 and 68,000 member months (members per month multiplied by the months for which services were available) during the three months ended December 31, 2001 and 2000, respectively. The decrease in revenue and member months primarily resulted from an amendment to our IPA contract with Foundation (the “2001 Amendment”). Among other things, the 2001 Amendment terminated our association with certain physician practices effective May 31, 2001, which represented approximately 70% of the IPA’s membership at that time. During the three months ended December 31, 2001 and 2000, the IPA’s membership was approximately 4,500 and 13,700, respectively.

Revenue generated by our managed care entities under our contracts with HMOs as a percentage of medical services revenue was approximately 95% and 96% during the three months ended December 31, 2001 and 2000, respectively. Revenue generated by the Humana contract was 66% and 58% of medical services revenue for the three months ended December 31, 2001 and 2000, respectively. Revenue generated by Foundation contracts was 29% and 38% of medical services revenue for the three months ended December 31, 2001 and 2000, respectively.

Our home health agencies’ revenue was approximately 5% and 4% of medical services revenue during the three month periods ended December 31, 2001 and 2000, respectively, and consisted primarily of Medicare reimbursement.

Expenses

Medical services expenses for the three month period ended December 31, 2001 were approximately $23,244,000 or 88.5% of medical services revenue, compared to approximately $29,191,000 or 97.6% of medical services revenue for the three month period ended December 31, 2000.

Medical claims represent the costs of medical services provided by providers other than us but which are to be paid by us for individuals covered by our capitated risk contracts with HMOs. Claims expense was approximately $19,908,000 and $24,842,000 for the three months ended December 31, 2001 and 2000, respectively, or 79.7% and 86.0% of medical services revenues derived from our managed care entities. The annualized claims ratio for Fiscal 2001 was 81.8%. Our claims loss ratio varies from quarter to quarter due to fluctuations in utilization, the timing of claims paid by the HMOs on our behalf, as well as increases in medical costs without counterbalancing increases in premium revenues.

Other direct costs include the salaries and benefits of health professionals providing the services, capitation payments to our contracted IPA physicians, and other costs necessary to operate our facilities. Other direct costs were approximately $3,336,000 and $4,349,000 for the three months ended December 31, 2001 and 2000, respectively, or 12.7% and 14.5% of medical services revenues. The decrease in other direct costs is primarily due to the 2001 Amendment, which resulted in the termination of our association with certain physician practices effective May 31, 2001.

Payroll and employee benefits for administrative personnel was approximately $1,417,000 for the three months ended December 31, 2001, or 5.3% of revenues, compared to approximately $1,505,000 or 5.0% of revenue for the three months ended December 31, 2000. The decrease in payroll and employee benefits expense while increasing as a percentage of revenue resulted primarily from the 2001 Amendment, which resulted in revenues decreasing more significantly than payroll and employee benefits.

General and administrative expenses for the three months ended December 31, 2001 were approximately $1,243,000 or 4.7% of revenues compared to approximately $1,464,000 or 4.9% of revenues for the three months ended December 31, 2000.

Loss from Operations

Loss from operations for the three months ended December 31, 2001 was approximately $171,000 or 1% of total revenues, compared to a loss from operations of approximately $3,283,000 or 11.0% of total revenues for the three months ended December 31, 2000.

Net Loss

Net loss for the three months ended December 31, 2001 was approximately $586,000 compared to a net loss of approximately $3,708,000 for the three months ended December 31, 2000.

THE FINANCIAL RESULTS DISCUSSED BELOW RELATE TO THE OPERATION OF CONTINUCARE FOR THE SIX MONTHS ENDED DECEMBER 31, 2001 AS COMPARED TO THE SIX MONTHS ENDED DECEMBER 31, 2000.

Revenue

Medical services revenues decreased 16% from approximately $59,560,000 for the six months ended December 31, 2000 to approximately $49,993,000 for the six months ended December 31, 2001. We provided managed care services for approximately 106,000 and 136,000 member months (members per month multiplied by the months for which services were available) during the six months ended December 31, 2001 and 2000, respectively. The decrease in revenue and member months primarily resulted from the 2001 Amendment to our IPA contract with Foundation. During the six months ended December 31, 2001 and 2000, the IPA’s membership was approximately 8,000 and 27,000, respectively.

Revenue generated by our managed care entities under our contracts with HMOs as a percentage of medical services revenue was approximately 95% and 96% during the six months ended December 31, 2001 and 2000, respectively. Revenue generated by the Humana contract was 66% and 58% of medical services revenue for the six months ended December 31, 2001 and 2000, respectively. Revenue generated by Foundation contracts was 29% and 38% of medical services revenue for the six months ended December 31, 2001 and 2000, respectively.

Our home health agencies’ revenue was approximately 5% and 4% of medical services revenue during the six month periods ended December 31, 2001 and 2000, respectively, and consisted primarily of Medicare reimbursement.

Expenses

Medical services expenses for the six month period ended December 31, 2001 were approximately $44,928,000 or 89.9% of medical services revenue, compared to approximately $56,730,000 or 95.2% of medical services revenue for the six month period ended December 31, 2000.

Medical claims represent the costs of medical services provided by providers other than us but which are to be paid by us for individuals covered by our capitated risk contracts with HMOs. Claims expense was approximately $38,406,000 and $48,188,000 for the six months ended December 31, 2001 and 2000, respectively, or 80.9% and 84.0% of medical services revenues derived from our managed care entities. The annualized claims ratio for Fiscal 2001 was 81.8%. Our claims loss ratio varies from quarter to quarter due to fluctuations in utilization, the timing of claims paid by the HMOs on our behalf, as well as increases in medical costs without counterbalancing increases in premium revenues.

Payroll and employee benefits for administrative personnel was approximately $2,703,000 for the six months ended December 31, 2001, or 5.4% of revenues, compared to approximately $2,908,000 or 4.9% of revenue for the six months ended December 31, 2000. The decrease in payroll and employee benefits expense while increasing as a percentage of revenue resulted primarily from the 2001 Amendment, which resulted in revenues decreasing more significantly than payroll and employee benefits.

General and administrative expenses for the six months ended December 31, 2001 were approximately $2,505,000 or 5.0% of revenues compared to approximately $2,819,000 or 4.7% of revenues for the six months ended December 31, 2000. The decrease in general and administrative expenses while increasing as a percentage of revenue resulted primarily from the 2001 Amendment, which resulted in revenues decreasing more significantly than general and administrative expenses.

Loss from Operations

Loss from operations for the six months ended December 31, 2001 was approximately $1,370,000 or 2.7% of total revenues, compared to a loss from operations of approximately $4,943,000 or 8.3% of total revenues for the six months ended December 31, 2000.

Net Loss

Net loss for the six months ended December 31, 2001 was approximately $2,156,000 compared to a net loss of approximately $5,752,000 for the six months ended December 31, 2000.

LIQUIDITY AND CAPITAL RESOURCES

Effective June 30, 2001, we completed a restructuring of the Notes (the “Fiscal 2001 Restructuring”). The Fiscal 2001 Restructuring resulted in, among other things, the conversion of $6,219,511 of Notes into our common stock, the addition of interest of $132,317 which accrued through April 30, 2001 to the outstanding principal balance of the Notes, extending the maturity date of the Notes through October 31, 2005 and the issuance of a new note in the principal amount of approximately $912,000. The remaining outstanding principal balance of the Notes of approximately $3,913,000 was reinstated as a performing non-defaulted loan.

The credit facility (the “Credit Facility”) provides a revolving loan of $3,000,000 which is due March 31, 2002. Interest is payable monthly at 2.9% plus the 30-day Dealer Commercial Paper Rate which was 1.85% at December 31, 2001. The Credit Facility may be renewed annually at the option of the lender. The Credit Facility has been guaranteed by a board member and an entity controlled by a board member. At December 31, 2001, the balance outstanding under the Credit Facility was $900,000.

Our net loss was approximately $2,156,000 for the six months ended December 31, 2001. Net cash provided by operating activities for the six months ended December 31, 2001 was approximately $501,000 due primarily to our net operating loss being offset by an increase in due to HMO’s of approximately $1,403,000 and non-cash amortization and depreciation of approximately $1,336,000.

Net cash used in investing activities for the six months ended December 31, 2001 was approximately $67,000, primarily for the purchase of computer and office equipment. Net cash used in financing activities for the six months ended December 31, 2001 was approximately $378,000, which primarily resulted from a net increase in our Credit Facility of $400,000 and offset by scheduled payments for various notes payable of approximately $778,000.

Our working capital deficit was approximately $9,625,000 at December 31, 2001.

The financial statements have been prepared assuming we will continue as a going concern. We continue to take steps to improve our cash flow and profitability. We believe that we will be able to fund our capital commitments, operating cash requirements and satisfy our obligations as they become due from a combination of cash on hand, expected operating cash flow improvements through HMO premium increases and advantageous HMO benefit changes, the Credit Facility and negotiated extensions of current obligations. However, there can be no assurances that these sources of funds will be sufficient to fund our operations and satisfy our obligations as they become due. Also, an adverse determination of the matters disclosed on Note 7 — Contingencies could have a material adverse effect on our financial position.

If we are unable to satisfy our cash requirements, we may be required to take certain steps, such as borrowing additional funds, restructuring our indebtedness, selling assets, reducing costs, and reducing or delaying capital expenditures. If we need additional capital to fund our operations, there can be no assurances that such capital can be obtained or, if obtained, that it will be on terms acceptable to us. The incurring or assumption of additional indebtedness could result in the issuance of additional equity and/or debt which can have a dilutive effect on current shareholders and a significant effect on our operations.

On October 27, 2001, the American Stock Exchange (the “Exchange”) notified us of its decision to continue to list our common stock pending a review of our Form 10-Q for the period ending December 31, 2001. As of the date of this filing, we are still below the continued listing requirements of the Exchange with respect to the requirement to not sustain losses from continuing operations and/or net losses in two of our three most recent fiscal years. We are unable to guarantee that the Exchange will continue to list our common stock.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At December 31, 2001, we had only cash equivalents, invested in high grade, very short-term securities, which are not typically subject to material market risk. We have loans outstanding at fixed rates. For loans with

fixed interest rates, a hypothetical 10% change in interest rates would have no impact on our future earnings and cash flows related to these instruments. A hypothetical 10% change in interest rates would have an immaterial impact on the fair value of these instruments. Our Credit Facility is interest rate sensitive. A 100 basis point adverse movement (increase) in interest rates would have an immaterial impact in our net loss for the six months ended December 31, 2001. There would have been no impact on the net loss for the six months ended December 31, 2000 as there were no balances outstanding under the Credit Facility during that period. We have no material risk associated with foreign currency exchange rates or commodity prices.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The case of CONTINUCARE CORPORATION, A FLORIDA CORPORATION, CONTINUCARE PHYSICIAN PRACTICE MANAGEMENT, INC. ("CPPM"), v. JAY A. ZISKIND, AN INDIVIDUAL, KENNETH I. ARVIN, AN INDIVIDUAL, TRACY ARVIN, AN INDIVIDUAL, ZISKIND & ARVIN, P.A., A PROFESSIONAL ASSOCIATION, NORMAN B. GAYLIS, M.D., AN INDIVIDUAL AND ZAG GROUP, INC., A FLORIDA CORPORATION, was filed on November 15, 1999 in the Circuit Court of the 11th Judicial District in and for Miami-Dade County, alleging breach of fiduciary duties, improper billing, and seeking the return of all consideration previously paid by us to ZAG, and damages, as well as seeking rescission of the Agreement and Plan of Merger and the Registration Rights Agreement. On July 13, 2001, the counterplaintiffs filed their Third Amended Counterclaim against us and included Mr. Charles Fernandez as a defendant in the action. The Third Amended Counterclaim alleges counts for (i) breach of contract against us and CPPM based on the alleged failure to register stock pursuant to the Registration Rights Agreement, the alleged failure to pay contingent merger consideration and the alleged failure to fulfill obligations pursuant to Rule 144 of the Securities Act of 1933; (ii) fraud in the inducement against us, CPPM and Mr. Fernandez in connection with the execution of the Registration Rights Agreement and the Agreement and Plan of Merger; (iii) violation of Florida Blue Sky Laws against us, CPPM and Mr. Fernandez; and (iv) conversion against us and CPPM. The Third Amended Counterclaim seeks an amount in excess of $4,000,000 in damages. On August 31, 2001, an Answer and Affirmative Defenses to the Third Amended Counterclaim was filed by us, CPPM and Mr. Fernandez, Discovery is ongoing. The trial is currently scheduled to begin during the two-week period commencing April 29, 2002. We believe that there is little merit to the counterclaim and intend to vigorously defend the claims.

On February 13, 1998, we acquired the stock of Rehab Management Systems, Inc., Integracare, Inc. and J.R. Rehab Associates, Inc. (collectively referred to as “RMS”) from Integrated Health Services, Inc. (“IHS”). RMS operated numerous rehabilitation clinics in the States of Florida, Georgia, Alabama, North Carolina and South Carolina as a Medicare and Medicaid provider of outpatient services. On April 8, 1999, we sold substantially all the assets of RMS and the assumption of certain liabilities to Kessler Rehabilitation of Florida, Inc. (“Kessler”). On August 13, 1999, RMS was formally dissolved as a corporation with the state of Florida. In November 2001, we became aware that the Centers for Medicare and Medicaid Services (“CMS”) are pursuing collection from us, IHS and Kessler for alleged over payments and interest for certain Medicare providers purchased from IHS for services rendered during calendar years 1996 and 1997 of approximately $2.8 million. We dispute the validity of these claims and intend to vigorously pursue this matter.

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

Not Applicable

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

Not Applicable

Item 6. Exhibits and Reports on Form 8-K


(a)		Exhibits
		4.1 Form of Convertible Promissory Note
(b)		Reports on Form 8-K
		None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	CONTINUCARE CORPORATION



Dated: February 13, 2002	By:	/s/ Spencer J. Angel Spencer J. Angel Chief Executive Officer and President



	By:	/s/ Janet L. Holt Janet L. Holt Chief Financial Officer

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