Services, Inc., Jose Gabriel Ortiz, M.D., and Palm Springs General Hospital, Inc. of Hialeah. This case was filed in November 2006 in the Circuit Court of the 11^th Judicial Circuit in and for Dade County, Florida. The complaint alleges vicarious liability for medical malpractice. The Company intends to defend itself against this case vigorously, but its outcome cannot be predicted. The Company’s ultimate liability, if any, with respect to the lawsuit is presently not determinable.

     We are also involved in other legal proceedings incidental to our 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. We record an accrual for claims related to legal proceedings, which includes amounts for insurance deductibles and projected exposure, based on our estimate of the ultimate outcome of such claims.

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

     Our common stock is traded on the American Stock Exchange (“AMEX”) under the symbol “CNU”. The following table sets forth the high and low sale prices of our common stock as reported by the composite tape of AMEX for each of the quarters indicated.

		HIGH				LOW
Fiscal Year 2007
Quarter Ended June 30, 2007		$	3.62			$	2.97
Quarter Ended March 31, 2007			3.69				2.56
Quarter Ended December 31, 2006			2.99				2.29
Quarter Ended September 30, 2006			3.05				2.46
Fiscal Year 2006:
Quarter Ended June 30, 2006		$	3.15			$	2.62
Quarter Ended March 31, 2006			2.87				2.35
Quarter Ended December 31, 2005			2.76				2.25
Quarter Ended September 30, 2005			2.89				2.15

     As of the close of business on August 31, 2007, there were approximately 157 record holders of our common stock. We have not paid dividends on our common stock and do not contemplate paying dividends in the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

     The following table provides information as of June 30, 2007, with respect to all of our compensation plans under which equity securities are authorized for issuance:

Number of securities to

Weighted average

be issued upon exercise

exercise price of

Number of securities

of outstanding options,

outstanding options,

remaining available

Plan Category

warrants and rights

warrants and rights

for future issuance

Plans approved by stockholders

4,844,220

$

1.87

2,838,001

Plans not approved by stockholders

—

—

—

4,844,220

2,838,001

Performance Graph

     Set forth below is a line graph comparing the cumulative total shareholder return on Continucare’s common stock against the cumulative total return of the AMEX Composite Index and the NASDAQ Health Services Index for the period of June 30, 2002 to June 30, 2007.

		Cumulative Total Return
		6/02				6/03				6/04				6/05				6/06				6/07
Continucare Corporation			100.00				221.05				1010.53				1289.47				1552.63				1626.32
Amex Composite			100.00				108.49				141.09				179.55				221.32				273.59
NASDAQ Health Services			100.00				95.81				123.82				162.08				151.26				168.04

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

     In May 2005, we announced that we had increased our previously announced stock repurchase program to authorize the buy back of up to 2,500,000 shares of our common stock. Any such repurchases will be made from time to time at the discretion of our management in the open market or in privately negotiated transactions subject to market conditions and other factors. We anticipate that any such repurchases of shares will be funded through cash from operations. There is no expiration date specified for this program. The following table provides information with respect to our stock repurchases during the fourth quarter of Fiscal 2007:

Total Number of

Shares Purchased as

Maximum Number of

Total Number of

Average Price Paid

Part of Publicly

Shares that May Yet Be

Period

Shares Purchased

per Share

Announced Plan

Purchased Under the Plan

April 1 to April 30, 2007

—

N/A

—

1,342,533

May 1 to May 31, 2007

—

N/A

—

1,342,533

June 1 to June 30, 2007

—

N/A

—

1,342,533

Totals

—

N/A

—

ITEM 6. SELECTED FINANCIAL DATA

     Set forth below is our selected historical consolidated financial data as of and for Fiscal 2007, 2006, 2005, 2004 and 2003 that has been derived from our audited consolidated financial statements. The selected historical consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes included elsewhere herein.

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			$	97,164,834
Management 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				97,164,834
Operating expenses:
Medical services:
Medical claims			161,153,828				97,781,447				81,104,665				76,333,580				74,046,265
Other direct costs			22,919,746				13,137,396				12,648,297				11,665,894				10,696,997
Total medical services			184,073,574				110,918,843				93,752,962				87,999,474				84,743,262
Administrative payroll and employee benefits			9,192,670				6,538,295				5,107,672				3,822,949				3,681,446
General and administrative			13,990,439				7,584,205				7,059,602				5,821,871				6,252,347
Gain on extinguishment of debt			—				—				(3,000,000	)			(850,000	)			—
Total operating expenses			207,256,683				125,041,343				102,920,236				96,794,294				94,677,055
Income from operations			9,889,604				7,949,569				9,310,877				5,029,808				2,487,779
Other income (expense):
Interest income			356,192				331,001				108,000				4,793				6,568
Interest 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				1,538,020
Income 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				1,538,020
Income (loss) from discontinued operations:
Home health operations			—				—				—				(1,666,934	)			(1,830,118	)
Terminated IPAs			—				—				—				73,091				350,696
Total loss from discontinued operations			—				—				—				(1,593,843	)			(1,479,422	)
Net income		$	6,303,445			$	5,337,539			$	15,891,492			$	4,652,954			$	58,598
Basic net income per common share:
Income from continuing operations		$	.10			$	.11			$	.32			$	.14			$	.04
Loss 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			$	.04
Loss 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			$	20,999,976
Long-term obligations, including current portion		$	331,319			$	195,819			$	107,710			$	337,186			$	9,597,063

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

     The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this annual report. We are a provider of primary care physician services. Through our network of 18 medical centers and 15 IPAs located in Miami-Dade, Broward and Hillsborough Counties, Florida, we were responsible for providing primary care medical services or overseeing the provision of primary care services by affiliated physicians to approximately 27,900 patients on a risk basis and approximately 11,700 patients on a limited or non-risk basis as of June 30, 2007. In Fiscal 2007, approximately 89% and 8% of our revenue was generated by providing services to Medicare-eligible and Medicaid-eligible members, respectively, under risk agreements that require us to assume responsibility to provide and pay for all of our patients’ medical needs in exchange for a capitated fee, typically a percentage of the premium received by an HMO from various payor sources.

     Effective October 1, 2006, we completed the Acquisition of the MDHC Companies. Accordingly, the revenues, expenses and results of operations of the MDHC Companies have been included in our consolidated statements of income from the date of acquisition. See Note 3 to the consolidated financial statements included herein for unaudited pro forma financial information for Fiscal 2007, 2006 and 2005 presenting our operating results as though the Acquisition occurred at the beginning of the respective periods.

     Effective March 1, 2007, one of the Physician Provider Agreements with Wellcare was amended from a non-risk arrangement to a risk arrangement under which we receive for our services fixed monthly payments per patient at a rate established by the contract. Under the risk arrangement we assume full financial responsibility for the provision of all necessary medical care to our patients. Under this Physician Provider Agreement, as of June 30, 2007, we provided services to approximately 900 Medicare Advantage patients enrolled in Wellcare managed care plans.

     Effective January 1, 2006, we entered into the Risk IPA Agreement with Humana under which we agreed to assume certain management responsibilities on a risk basis for Humana’s Medicare and Medicaid members assigned to certain IPAs practicing in Miami-Dade and Broward Counties, Florida. Under the Risk IPA Agreement, we receive a capitation fee established as a percentage of premium that Humana receives for its members who have selected the IPAs as their primary care physicians and assume responsibility for the cost of all medical services provided to these members, even those we do not provide directly. Medical service revenue and medical services expenses related to the Risk IPA Agreement approximated $15.7 million and $14.5 million in Fiscal 2007, respectively, and $8.7 million and $8.5 million in Fiscal 2006, respectively. As of June 30, 2007, the IPAs provided services to or for approximately 1,700 Medicare and Medicaid patients enrolled in Humana managed care plans. The Risk IPA Agreement replaces the Humana PGP Agreement that was terminated effective December 31, 2005. Under the Humana PGP Agreement, we assumed certain management responsibilities on a non-risk basis for Humana’s Medicare, Medicaid and commercial members assigned to selected primary care physicians in Miami-Dade and Broward Counties, Florida. Revenue from this contract consisted of a monthly management fee intended to cover the costs of providing these services and amounted to approximately $0.2 million and $0.5 million during Fiscal 2006 and 2005, respectively.

     In an effort to streamline and stem operating losses, we implemented a plan to dispose of our home health operations in December 2003. The home health disposition occurred in three separate transactions and was concluded in February 2004. As a result of these transactions, the home health operations are shown as discontinued operations in the Consolidated Statements of Cash Flows.

Medicare and Medicaid Considerations

     Substantially all of our medical services revenue from continuing operations is based upon Medicare and Medicaid funded programs. The federal government and state governments, including Florida, from time to time explore ways to reduce medical care costs through Medicare and Medicaid reform, specifically, and through health care reform generally. Any changes that would limit, reduce or delay receipt of Medicare or Medicaid funding or mandate increased benefit levels or any developments that would disqualify us from receiving Medicare or Medicaid funding could have a material adverse effect on our business, results of operations, prospects, financial results, financial condition and cash flows. Due to the diverse range of proposals put forth and the uncertainty of any proposal’s adoption, we cannot predict what impact any Medicare or Medicaid reform proposal ultimately adopted may have on our business, financial position or results of operations.

     On January 1, 2006, the Medicare Prescription Drug Plan created by the Medicare Modernization Act became effective. As a result, our HMO affiliates have established or expanded prescription drug benefit plans for their Medicare Advantage members. Under the terms of our risk arrangements, we are financially responsible for a substantial portion of the cost of the prescription drugs our patients receive, and, in exchange, our HMO affiliates have agreed to provide us with an additional per member capitated fee related to prescription drug coverage. However, there can be no assurance that the additional fee that we receive will be sufficient to reimburse us for the additional costs that we may incur under the Medicare Prescription Drug Plan.

     In addition, the premiums our HMO affiliates receive from CMS for their Medicare Prescription Drug Plans is subject to periodic adjustment, positive or negative, based upon the application of risk corridors that compare their plans’ revenues estimated in their bids to actual prescription drug costs. Variances exceeding certain thresholds may result in CMS making additional payments to the HMOs or require the HMOs to refund to CMS a portion of the payments they received. Our HMO affiliates estimate and periodically adjust premium revenues related to the risk corridor payment adjustment, and a portion of the HMO’s estimated premium revenue adjustment is allocated to us. As a result, revenue recognized under our risk arrangements with our HMO affiliates are net of the portion of the estimated risk corridor adjustment allocated to us. The portion of any such risk corridor adjustment that the HMOs allocate to us may not directly correlate to the historical utilization patterns of our patients or the costs that we may incur in future periods. During Fiscal 2007 and 2006, our HMO affiliates allocated to us an adjustment related to their risk corridor payment which had the effect of reducing our operating income by approximately $2.3 million and $1.7 million, respectively. No amount was recorded in Fiscal 2005 as the Medicare Prescription Drug Plan program was not then effective.

     The Medicare Prescription Drug Plan has also been subject to significant public criticism and controversy, and members of Congress have discussed possible changes to the program as well as ways to reduce the program’s cost to the federal government. We cannot predict what impact, if any, these developments may have on the Medicare Prescription Drug Plan or on our future financial results.

Critical Accounting Policies and Estimates

     The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements and accompanying notes, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements and accompanying notes requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Certain of the amounts recorded on our financial statements could change materially under different, yet still reasonable, estimates and assumptions. We base our estimates and assumptions on historical experience, knowledge of current events and expectations of future events, and we continuously evaluate and update our estimates and assumptions. However, our estimates and assumptions may ultimately prove to be incorrect or incomplete and, as a result, our actual results may differ materially from those previously reported. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.

     Revenue Recognition

     Under our risk contracts with HMOs, we receive a percentage of premium or other capitated fee for each patient that chooses one of our physicians as their primary care physician. Revenue under these agreements is generally recorded in the period we assume responsibility to provide services at the rates then in effect as determined by the respective contract. As part of the Medicare Advantage program, CMS periodically recomputes the premiums to be paid to the HMOs based on updated health status of participants and updated demographic factors. We record any adjustments to this revenue at the time that the information necessary to make the determination of the adjustment is received from the HMO.

     Under our risk agreements, we assume responsibility for the cost of all medical services provided to the patient, even those we do not provide directly, in exchange for a percentage of premium or other capitated fee. To the extent that patients require more frequent or expensive care, our revenue under a contract may be insufficient to cover the costs of care provided. When it is probable that expected future health care costs and maintenance costs under a contract or group of existing contracts will exceed anticipated capitated revenue on those contracts, we recognize losses on our prepaid health care services with HMOs. No contracts were considered loss contracts at June 30, 2007 because we have the right to terminate unprofitable physicians and close unprofitable centers under our managed care contracts.

     Under our limited risk and non-risk contracts with HMOs, we receive a capitation fee or management fee based on the number of patients for which we are providing services on a monthly basis. The capitation fee or management fee is recorded as revenue in the period in which services are provided as determined by the respective contract.

     Payments under both our risk contracts and our non-risk contracts (for both the Medicare Advantage program as well as Medicaid) are also subject to reconciliation based upon historical patient enrollment data. We record any adjustments to this revenue at the time that the information necessary to make the determination of the adjustment is received from the HMO or the applicable governmental body.

     Medical Claims Expense Recognition

     The cost of health care services provided or contracted for is accrued in the period in which the services are provided. This cost includes our estimate of the related liability for medical claims incurred in the period but not yet reported, or IBNR. IBNR represents a material portion of our medical claims liability which is presented in the balance sheet net of amounts due from HMOs. Changes in this estimate can materially affect, either favorably or unfavorably, our results from operations and overall financial position.

     We develop our estimate of IBNR primarily based on historical claims incurred per member per month. We adjust our estimate if we have unusually high or low inpatient utilization or if benefit changes provided under the HMO plans are expected to significantly increase or reduce our claims exposure. We also adjust our estimate for differences between the estimated claims expense recorded in prior months to actual claims expense as claims are paid by the HMO and reported to us.

     To further corroborate our estimate of medical claims, an independent actuarial calculation is performed for us on a quarterly basis. This independent actuarial calculation indicates that IBNR as of June 30, 2007 was between approximately $22.7 million and $26.1 million. Based on our internal analysis and the independent actuarial calculation, as of June 30, 2007, we recorded a liability of approximately $23.6 million for IBNR. The increase in the liability for IBNR of $9.4 million or 66.2% to $23.6 million as of June 30, 2007 from $14.2 million as of June 30, 2006 was primarily due to the additional liability recorded for IBNR related to the operations of the MDHC Companies. The increase in the liability for IBNR of $2.5 million or 21.4% to $14.2 million as of June 30, 2006 from $11.7 million as of June 30, 2005 was primarily due to the additional liability recorded for IBNR related to the IPAs converted to a risk arrangement in January 2006.

     Consideration of Impairment Related to Goodwill and Other Intangible Assets

     Our balance sheet includes intangible assets, including goodwill and other separately identifiable intangible assets, which represented approximately 70% of our total assets at June 30, 2007. The most significant component of the intangible assets consists of the intangible assets recorded in connection with the MDHC Acquisition. The purchase price, including acquisition costs, of approximately $66.2 million was allocated, on a preliminary basis, to the estimated fair value of acquired tangible assets of $13.6 million, identifiable intangible assets of $8.7 million and assumed liabilities of $15.4 million as of October 1, 2006, resulting in goodwill totaling $59.3 million.

     Under Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” goodwill and intangible assets with indefinite useful lives are no longer amortized, but are reviewed for impairment on an annual basis or more frequently if certain indicators of permanent impairment arise. Intangible assets with definite useful lives are amortized over their respective useful lives to their estimated residual values and also reviewed for impairment annually, or more frequently if certain indicators of permanent impairment arise. Indicators of a permanent impairment include, among other things, 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, and the loss of key personnel or allocation of goodwill to a portion of business that is to be sold.

     Because we operate in a single segment of business, we have determined that we have a single reporting unit and we perform our impairment test for goodwill on an enterprise level. In performing the impairment test, we compare the total current market value of all of our outstanding common stock, to the current carrying value of our total net assets, including goodwill and intangible assets. Depending on the market value of our common stock at the time that an impairment test is required, there is a risk that a portion of our intangible assets would be considered impaired and must be written-off during that period. We completed our annual impairment test as of May 1, 2007, and determined that no indicators of impairment existed. Accordingly, no impairment charges were required at June 30, 2007. Should we later determine that an indicator of impairment exists, we would be required to perform an additional impairment test.

     Realization of Deferred Tax Assets

     We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”) which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. SFAS No. 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

     As part of the process of preparing our consolidated financial statements, we estimate our income taxes based on our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. We also recognize as deferred tax assets the future tax benefits from net operating loss carryforwards. We evaluate the realizability of these deferred tax assets by assessing their valuation allowances and by adjusting the amount of such allowances, if necessary. Among the factors used to assess the likelihood of realization are our projections of future taxable income streams, the expected timing of the reversals of existing temporary differences, and the impact of tax planning strategies that could be implemented to avoid the potential loss of future tax benefits. However, changes in tax codes, statutory tax rates or future taxable income levels could materially impact our valuation of tax accruals and assets and could cause our provision for income taxes to vary significantly from period to period.

     At June 30, 2007, we had deferred tax liabilities in excess of deferred tax assets of approximately $3.2 million. During Fiscal 2007, we determined that it is more likely than not that the deferred tax assets will be realized (although realization is not assured), resulting in no valuation allowance at June 30, 2007.

     Stock-Based Compensation Expense

     Effective July 1, 2005, we adopted SFAS 123(R) using the modified prospective transition method. Prior to the adoption of SFAS 123(R) we followed Accounting Principles Board Opinion No. 25, (“APB No. 25”), “Accounting for Stock Issued to Employees,” and related Interpretations in accounting for employee stock options. For Fiscal 2007, the Company recognized excess tax benefits of approximately $0.5 million resulting from the exercise of stock options. The excess tax benefits had a positive effect on cash flow from financing activities with a corresponding reduction in cash flow from operating activities in Fiscal 2007 of $0.5 million. For Fiscal 2006, the Company had net operating loss carryforwards and did not recognize any tax benefits resulting from the exercise of stock options because the related tax deductions would not have resulted in a reduction of income taxes payable.

     SFAS 123(R) requires us to recognize compensation costs in our financial statements related to our share-based payment transactions with employees and directors. SFAS 123(R) requires us to calculate this cost based on the grant date fair value of the equity instrument. As a result of adopting SFAS No. 123(R) on July 1, 2005, we recognized share-based compensation expense of $1.7 million and $1.3 million for Fiscal 2007 and Fiscal 2006, respectively. As of June 30, 2007, there was $1.5 million of total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of 1.9 years.

     Consistent with our practices prior to adopting SFAS 123(R), we have elected to calculate the fair value of our employee stock options using the Black-Scholes option pricing model. Using this model we calculated the fair value for employee stock options granted during Fiscal 2007 based on the following assumptions: risk-free interest rate ranging from 4.81% to 5.18%; dividend yield of 0%; weighted-average volatility factor of the expected market price of our common stock of 63.7%; and weighted-average expected life of the options ranging from 3 to 6 years depending on the vesting provisions of each option. The fair value for employee stock options granted during Fiscal 2006 was calculated based on the following assumptions: risk-free interest rate ranging from 4.21% to 5.16%; dividend yield of 0%; volatility factor of the expected market price of our common stock of 71.1%; and weighted-average expected life of the options ranging from 3 to 6 years depending on the vesting provisions of each option. The expected life of the options is based on the historical exercise behavior of our employees. The expected volatility factor is based on the historical volatility of the market price of our common stock as adjusted for certain events that management deemed to be non-recurring and non-indicative of future events.

     SFAS 123(R) does not require the use of any particular option valuation model. Because our stock options have characteristics significantly different from traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, it is possible that existing models may not necessarily provide a reliable measure of the fair value of our employee stock options. We selected the Black-Scholes model based on our prior experience with it, its wide use by issuers comparable to us, and our review of alternate option valuation models. Based on these factors, we believe that the Black-Scholes model and the assumptions we made in applying it provide a reasonable estimate of the fair value of our employee stock options.

     The effect of applying the fair value method of accounting for stock options on reported net income for any period may not be representative of the effects for future periods because our outstanding options typically vest over a period of several years and additional awards may be made in future periods.

Results of Operations

     The following tables set forth, for the periods indicated, selected operating data as a percentage of total revenue.

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

     Medical services revenue increased by $84.3 million, or 63.5%, to $216.9 million for Fiscal 2007 from $132.6 million for Fiscal 2006 due primarily to revenue related to the operations of the MDHC Companies.

     The most significant component of our medical services revenue is the revenue we generate from Medicare patients under risk arrangements which increased by $66.2 million or 51.9%, during Fiscal 2007. During Fiscal 2007, revenue generated by our Medicare risk arrangements increased approximately 12.0% on a per patient per month basis and Medicare patient months increased by approximately 35.6% over Fiscal 2006. The increase in Medicare patient months was primarily due to the Acquisition of the MDHC Companies effective October 1, 2006 and the conversion of the IPAs from a non-risk arrangement to a risk arrangement effective January 1, 2006. The increase in the per member per month Medicare revenue was primarily due to a rate increase in the Medicare premiums and the increased phase-in of the Medicare risk adjustment program. The increase in the per member per month Medicare revenue effective January 1, 2007 for the operations associated with the MDHC Companies, however, was lower than anticipated due primarily to a decline in their Medicare risk adjustment scores. We believe that the current Medicare risk adjustment scores of the patient population associated with the operations of the MDHC Companies may not fully reflect the current health status of the patients and, as a result, we are working to update and provide more complete information regarding the health status of these patients which we believe will result in a favorable revenue adjustment during our fiscal year ending June 30, 2008. However, there is no assurance that the updated health status information for this patient population will result in any favorable revenue adjustment in future periods. Based on information received from our HMO affiliates and CMS, we believe that our Medicare premiums on a per patient per month basis will increase by approximately 3% effective January 1, 2008 without taking into account any adjustments resulting from changes in our Medicare risk adjustment scores. There is, however, no assurance that our premiums will increase by this amount, if at all, or that the effect of any CMS risk adjustment will not result in a negative adjustment.

     Under the Medicare risk adjustment program, the health status and demographic factors of Medicare Advantage participants are taken into account in determining premiums paid for each participant. CMS periodically recomputes the premiums to be paid to the HMOs based on updated health status, demographic factors and, in the case of Medicare Prescription Drug Plan benefits, CMS’s risk corridor adjustment methodology. The net results of these adjustments included in medical services revenue for the three-month periods ended June 30, 2007 and 2006 were favorable retroactive Medicare adjustments of $1.5 million and $0.3 million, respectively. The net results of these adjustments included in medical services revenue for Fiscal 2007 and 2006 were unfavorable retroactive Medicare adjustments of $0.1 million and favorable retroactive Medicare adjustments of $0.9 million, respectively. Future Medicare risk adjustments may result in reductions of revenue depending on the future health status and demographic factors of our patients as well as the application of CMS’s risk corridor methodology to the HMOs Medicare Prescription Drug Programs.

     During the three-month period ended June 30, 2007 and Fiscal 2007, we received payments and recorded amounts due from our HMO affiliates of approximately $0.4 million and $3.6 million, respectively, related primarily to Medicare risk adjustments and pharmacy rebates relating to the operations of the MDHC Companies for periods prior to completion of the Acquisition. While these transactions ordinarily are reflected in our results of operations, since they related to periods prior to our acquisition of the MDHC Companies, they were instead recorded as purchase accounting adjustments which decreased the amount of goodwill we recorded for the Acquisition.

     Management fee revenue and other income were $0.3 million and $0.4 million for Fiscal 2007 and Fiscal 2006, respectively. The decrease of $0.1 million was related primarily to a decrease in revenue generated under our non-risk contracts with Humana under the PGP Agreement.

     Revenue generated by our managed care entities under contracts with Humana accounted for approximately 74% and 80% of our medical services revenue for Fiscal 2007 and Fiscal 2006, respectively. Revenue generated by our managed care entities under contracts with Vista accounted for approximately 20% of our medical services revenue for Fiscal 2007 and Fiscal 2006.

Operating Expenses

     Medical services expenses are comprised of medical claims expense and other direct costs related to the provision of medical services to our patients including a portion of our stock-based compensation expense. Because our risk contracts with HMOs provide that we are financially responsible for the cost of substantially all medical services provided to our patients under those contracts, our medical claims expense includes the costs of prescription drugs our patients receive as well as medical services provided to patients under our risk contracts by providers other than us. Other direct costs include the salaries, taxes and benefits of our health professionals providing primary care and specialty services, medical malpractice insurance costs, capitation payments to our IPA physicians and other costs related to the provision of medical services to our patients.

     Medical services expenses for Fiscal 2007 increased by $73.2 million, or 66.0%, to $184.1 million from $110.9 million for Fiscal 2006 primarily due to the medical expenses related to the operations of the MDHC Companies. Medical claims expense, which is the largest component of medical services expense, increased by $63.4 million, or 64.8%, to $161.2 million for Fiscal 2007 from $97.8 million for Fiscal 2006 primarily due to an increase in Medicare claims expense of $51.4 million or 54.3% resulting from a 13.7% increase on a per patient per month basis in medical claims expenses related to our Medicare patients and a 35.6% increase in Medicare patient months. The increase in Medicare per patient per month medical claims expense is primarily attributable to enhanced benefits offered by our HMO affiliates and inflationary trends in the health care industry. The increase in Medicare patient months is primarily attributable to the acquisition of the MDHC Companies and the conversion of the IPAs to a risk arrangement effective January 1, 2006.

     Medical services expenses increased to 84.8% of total revenue for Fiscal 2007 as compared to 83.4% for Fiscal 2006. Our claims loss ratio (medical claims expense as a percentage of medical services revenue) increased to 74.3% for Fiscal 2007 from 73.7% for Fiscal 2006. These increases were primarily due to an increase in Medicare claims expense at a greater rate than increases in Medicare revenue on a per patient per month basis caused by enhanced benefits offered by our HMO affiliates and inflationary trends in the health care industry. HMOs are under continuing competitive pressure to offer enhanced, and possibly more expensive, benefits to their Medicare Advantage members. However, the premiums CMS pays to HMOs for Medicare Advantage members are generally not increased as a result of those benefit enhancements. This could increase our claims loss ratio in future periods which could reduce our profitability and cash flows.

     Other direct costs increased by $9.8 million, or 74.5%, to $22.9 million for Fiscal 2007 from $13.1 million for Fiscal 2006. As a percentage of total revenue, other direct costs increased to 10.6% for Fiscal 2007 from 9.9% for Fiscal 2006. The increase in the amount of other direct costs was primarily due to the expenses related to the operations of the MDHC Companies.

     Administrative payroll and employee benefits expense increased by $2.7 million, or 40.6%, to $9.2 million for Fiscal 2007 from $6.5 million for Fiscal 2006. As a percentage of total revenue, administrative payroll and employee benefits expense decreased to 4.2% for Fiscal 2007 from 4.9% for Fiscal 2006. The increase in administrative payroll and employee benefits expense was primarily due to an increase in personnel in connection with the acquisition of the MDHC Companies.

     General and administrative expenses increased by $6.4 million or 84.5%, to $14.0 million for Fiscal 2007 from $7.6 million for Fiscal 2006. As a percentage of total revenue, general and administrative expenses increased to 6.4% for Fiscal 2007 from 5.7% for Fiscal 2006. The increase in general and administrative expenses was primarily due to expenses related to the operations of the MDHC Companies, an increase in professional fees and an increase in amortization expense resulting from the intangible assets recorded in connection with the acquisition of the MDHC Companies.

Income from Operations

     Income from operations for Fiscal 2007 increased by $2.0 million to $9.9 million from $7.9 million for Fiscal 2006.

Taxes

     An income tax provision of $3.9 million and $2.9 million was recorded for Fiscal 2007 and Fiscal 2006, respectively. The effective tax rates for Fiscal 2007 and Fiscal 2006 were 38.2% and 35.4%, respectively. The increase in the effective tax rate was primarily due to certain adjustments recorded in Fiscal 2006 related to non-deductible items.

Net Income

     Net income for Fiscal 2007 increased by $1.0 million to $6.3 million from $5.3 million for Fiscal 2006.

COMPARISON OF FISCAL YEAR ENDED JUNE 30, 2006 TO FISCAL YEAR ENDED JUNE 30, 2005

Revenue

     Medical services revenue increased by $21.3 million, or 19.1%, to $132.6 million for Fiscal 2006 from $111.3 million for Fiscal 2005. The increase in our medical services revenue was primarily the result of increases in our Medicare revenue, partially offset by a decrease in commercial revenue of approximately $1.0 million which resulted primarily from the conversion of certain commercial members of an HMO from a risk arrangement to a non-risk arrangement during Fiscal 2006.

     The most significant component of our medical services revenue is the revenue we generate from Medicare patients under risk arrangements which increased by $20.8 million, or 19.5%, during Fiscal 2006. During Fiscal 2006 revenue generated by our Medicare risk arrangements increased approximately 13.5% on a per patient per month basis and Medicare patient months increased by approximately 5.2% over Fiscal 2005. The increase in Medicare revenue was primarily due to revenue associated with the IPAs that were converted from a non-risk arrangement to a risk arrangement effective January 1, 2006, higher per patient per month premiums and the increased phase-in of the Medicare risk adjustment program. The increase in Medicare patient months was primarily due to the conversion of the IPAs from a non-risk arrangement to a risk arrangement effective January 1, 2006.

     Management fee revenue and other income of $0.4 million and $0.9 million for Fiscal 2006 and 2005, respectively, related primarily to revenue generated under our limited risk and non-risk contracts under the Humana PGP Agreement.

     Revenue generated under contracts with Humana accounted for approximately 80% and 78% of our medical services revenue for Fiscal 2006 and 2005, respectively. Revenue generated under contracts with Vista accounted for approximately 20% and 22% of our medical services revenue for Fiscal 2006 and 2005, respectively.

Operating Expenses

     Medical services expenses for Fiscal 2006 increased by $17.2 million, or 18.3%, to $110.9 million from $93.8 million for Fiscal 2005. This increase is primarily due to an increase in medical claims expense which is the largest component of medical services expense. Medical claims expense increased by $16.7 million, or 20.6%, to $97.8 million for Fiscal 2006 from $81.1 million for Fiscal 2005 primarily as a result of a 14.3% increase on a per patient per month basis in medical claims expenses related to our Medicare patients and a 5.2% increase in Medicare patient months. The increase in per patient per month medical claims expense is primarily attributable to enhanced benefits offered by our HMO affiliates and inflationary trends in the health care industry. The increase in Medicare patient months is primarily attributable to the conversion of the IPAs to a risk arrangement effective January 1, 2006.

     Notwithstanding the increase in the amount of our medical services expenses during Fiscal 2006, the increase in our medical services revenue more than offset the increase in our medical services expenses. Medical services expenses decreased to 83.4% of total revenue for Fiscal 2006 as compared to 83.5% for Fiscal 2005. Our claims loss ratio (medical claims expense as a percentage of medical services revenue), however, increased to 73.7% in Fiscal 2006 from 72.9% in Fiscal 2005. This increase was primarily due to the higher historical claims loss ratio experienced by the IPAs that were converted from a non-risk arrangement to a risk arrangement effective January 1, 2006. In addition, our HMO affiliates enhanced certain benefits offered to Medicare patients for calendar 2006.

     Other direct costs increased by $0.5 million, or 3.9%, to $13.1 million for Fiscal 2006 from $12.6 million for Fiscal 2005. As a percentage of total revenue, other direct costs decreased to 9.9% for Fiscal 2006 from 11.3% for Fiscal 2005. The increase in the amount of other direct costs was primarily due to an increase in capitation fees paid to the IPAs.

     Administrative payroll and employee benefits expense increased by $1.4 million, or 28.0%, to $6.5 million for Fiscal 2006 from $5.1 million for Fiscal 2005. As a percentage of total revenue, administrative payroll and employee benefits expense increased to 4.9% for Fiscal 2006 from 4.6% for Fiscal 2005. The increase in administrative payroll and employee benefits expense was due to the recognition of stock-based employee compensation expense, which was not required to be recognized in Fiscal 2005, and an increase in incentive plan accruals.

     General and administrative expenses increased by $0.5 million, or 7.4%, to $7.6 million for Fiscal 2006 from $7.1 million for Fiscal 2005. As a percentage of total revenue, general and administrative expenses decreased to 5.7% for Fiscal 2006 from 6.3% for Fiscal 2005. The increase in general and administrative expenses was primarily due to an increase in professional fees and depreciation expense.

Income from Operations

     Income from operations for Fiscal 2006 decreased by $1.4 million, or 14.6%, to $7.9 million from $9.3 million for Fiscal 2005 due primarily to a $3.0 million gain on extinguishment of debt recognized in Fiscal 2005.

Interest Income

     Interest income increased by $0.2 million, or 206.5%, to $0.3 million for Fiscal 2006 from $0.1 million for Fiscal 2005. The increase in interest income was primarily due to an increase in cash and cash equivalents and an increase in interest rates earned on such investments.

Interest Expense

     Interest expense decreased by $0.7 million, or 98.2%, to $13,000 for Fiscal 2006 from $0.7 million for Fiscal 2005. The decrease in interest expense was related to the amortization of deferred financing costs during Fiscal 2005. The deferred financing costs were fully amortized as of March 31, 2005 and, accordingly, no related interest expense was recorded during Fiscal 2006.

Taxes

     An income tax provision of $2.9 million and an income tax benefit of $7.2 million were recorded for Fiscal 2006 and 2005, respectively. As of June 30, 2005, we determined that no valuation allowance for deferred tax assets was necessary and we decreased our valuation allowance by $10.2 million for Fiscal 2005. This decision eliminated our valuation allowance and represented a one-time gain.

Net Income

     Net income for Fiscal 2006 decreased by $10.6 million to $5.3 million from $15.9 million for Fiscal 2005 due primarily to the $3.0 million gain on extinguishment of debt recognized in Fiscal 2005 and the $10.1 million increase in the income tax provision resulting from the recognition of an income tax provision of $2.9 million in Fiscal 2006 compared to a $7.2 million income tax benefit recorded in Fiscal 2005.

Liquidity and Capital Resources

     At June 30, 2007, working capital was $16.6 million, an increase of $1.0 million from working capital of $15.6 million at June 30, 2006. The increase in working capital was primarily due to an increase in amounts due from HMOs of $7.2 million resulting primarily from amounts due from our HMO affiliates for favorable Medicare premium adjustments, partially offset by a decrease in cash and cash equivalents of $3.4 million primarily due to the cash used to pay the cash consideration in the Acquisition of the MDHC Companies and an increase in current liabilities of $3.5 million. As a result of the collection of the favorable Medicare premium adjustments in August 2007, our cash and cash equivalents increased to approximately $13.5 million as of August 31, 2007.

     Net cash of $10.9 million was provided by operating activities from continuing operations during Fiscal 2007 compared to $6.9 million in Fiscal 2006 and $7.9 million in Fiscal 2005. The $4.0 million increase in cash provided by operating activities for Fiscal 2007 compared to Fiscal 2006 was primarily due to an increase in net income of $1.0 million, a net increase in depreciation and amortization expense of $1.3 million and a net increase in income taxes payable of $1.0 million. The decrease of $1.0 million in cash provided by operating activities from continuing operations for Fiscal 2006 compared to Fiscal 2005 was primarily due to an increase in amounts due from HMOs of $2.1 million.

     Net cash of $7.0 million was used for investing activities from continuing operations in Fiscal 2007 compared to $1.2 million in Fiscal 2006 and $0.8 million in Fiscal 2005. The $5.8 million increase in net cash used for investing activities for Fiscal 2007 primarily related to the Acquisition of the MDHC Companies and the purchase of equipment. The increase of $0.4 million in cash used for investing activities from continuing operations for Fiscal 2006 was primarily due to an increase in other assets of $0.4 million related to capitalized acquisition costs.

     Net cash of $7.3 million was used in financing activities from continuing operations in Fiscal 2007 compared to net cash used of $0.7 million in Fiscal 2006 and $1.8 million in Fiscal 2005. The $6.6 million increase in cash used for financing activities for Fiscal 2007 was primarily due to the repayment of long-term debt. The decrease of $1.1 million in cash used in financing activities from continuing operations for Fiscal 2006 was primarily due to a decrease of $1.6 million in cash used for the repurchase of common stock.

     Pursuant to the terms under our managed care agreements with certain of our HMO affiliates, we posted irrevocable standby letters of credit amounting to $1.1 million to secure our payment obligations to those HMOs. We are required to maintain these letters of credit throughout the term of the managed care agreements.

     In May 2005, our Board of Directors increased our previously announced program to repurchase shares of our common stock to a total of 2,500,000 shares. Any such repurchases will be made from time to time at the discretion of our management in the open market or in privately negotiated transactions subject to market conditions and other factors. We anticipate that any such repurchases of shares will be funded through cash from operations. As of August 31, 2007, we had repurchased 1,157,467 shares of our common stock for approximately $3.0 million. We did not repurchase any shares of our common stock during Fiscal 2007.

     In connection with the completion of the Acquisition of the MDHC Companies and in consideration for the assets acquired pursuant to the Acquisition, we paid the MDHC Companies approximately $5.7 million in cash, issued to the MDHC Companies 20.0 million shares of our common stock and assumed or repaid certain indebtedness and liabilities of the MDHC Companies, and, in Fiscal 2007, 264,142 of such shares were cancelled in connection with post-closing purchase price adjustments. Pursuant to the terms of the Acquisition, we are also obligated to pay the principal owners of the MDHC Companies an additional $1.0 million in cash on October 1, 2007, the first anniversary date of the closing. We will also make certain other payments to the principal owners of the MDHC Companies not expected to exceed $0.1 million depending on the collection of certain receivables that were fully reserved on the books of the MDHC Companies as of December 31, 2005.

     On September 26, 2006, we entered into two term loan facilities funded out of lines of credit (the “Term Loans”) with maximum loan amounts of $4.8 million and $1.0 million, respectively. Each of the Term Loans requires us to make mandatory monthly payments that reduce the lines of credit under the Term Loans. Subject to the terms and conditions of the Term Loans, any prepayments made to the Term Loans may be re-borrowed on a revolving basis so long as the line of credit applicable to such Term Loan, as reduced by the mandatory monthly payment, is not exceeded. The $4.8 million and $1.0 million Term loans mature on October 31, 2011 and October 31, 2010, respectively. Each of the Term Loans (a) has variable interest rates at a per annum rate equal to the sum of 2.4% and the One-Month LIBOR rate (5.32% at June 30, 2007), (b) requires us, on a consolidated basis, to maintain a tangible net worth of $12.0 million and a debt coverage ratio of 1.25 to 1 and (c) are secured by substantially all of our assets, including those assets acquired pursuant to the Acquisition. Effective October 1, 2006, we fully drew on these Term Loans to fund portions of the cash payable upon the closing of the Acquisition.

     Also effective September 26, 2006, we amended the terms of our existing $5,000,000 Credit Facility to eliminate the financial covenant which previously required our EBITDA to exceed $1,500,000 on a trailing 12-month basis any time during which amounts are outstanding under the Credit Facility and replace such covenant with covenants requiring us, on a consolidated business, to maintain a tangible net worth of $12.0 million and a debt coverage ratio of 1.25 to 1. Effective October 1, 2006, we drew approximately $1.8 million under the Credit Facility to fund portions of the cash payable upon the closing of the Acquisition.

     As a result of the Acquisition, our consolidated net indebtedness increased by approximately $7.6 million. However, as of June 30, 2007, we had repaid all of that increased indebtedness and had no outstanding principal balance on our Term Loans and Credit Facility. At June 30, 2007, approximately $10.5 million was available for future borrowing under those facilities.

     We believe that we will be able to fund our capital commitments and our anticipated operating cash requirements for the foreseeable future and satisfy any remaining obligations from our working capital, anticipated cash flows from operations, our Credit Facility, and our Term Loans.

Off-Balance Sheet Arrangements

     We had no off-balance sheet arrangements as of June 30, 2007, and have not entered into any transactions involving unconsolidated, limited purpose entities or commodity contracts.

Contractual Obligations

     The following is a summary of our long-term debt, capital and operating lease obligations, and contractual obligations as of June 30, 2007:

		Payment due by Period
		Total				Less than 1 Year				1-2 Years				3-5 Years
Capital Lease Obligations (1)		$	336,213			$	136,005			$	168,973			$	31,235
Operating Lease Obligations (1)			6,845,774				2,204,146				3,316,954				1,324,674
Total		$	7,181,987			$	2,340,151			$	3,485,927			$	1,355,909

     Other factors that could affect our liquidity and cash flow are discussed elsewhere in this Annual Report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     At June 30, 2007, we had only certificates of deposit and cash equivalents invested in high grade, short-term securities, which are not typically subject to material market risk. At June 30, 2007, we had capital lease obligations outstanding at fixed rates. For loans with fixed interest rates, a hypothetical 10% change in interest rates would have no material impact on our future earnings and cash flows related to these instruments and would have an immaterial impact on the fair value of these instruments. Our Term Loans and Credit Facility have variable interest rates and are interest rate sensitive, however, we had no amount outstanding under these facilities at June 30, 2007. We have no material risk associated with foreign currency exchange rates or commodity prices.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our consolidated financial statements and independent registered public accounting firm’s report thereon appear beginning on page F-2. See index to such consolidated financial statements and reports on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

     Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) or Rule 15d-15(e)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2007, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

     Our Chief Executive Officer’s and Chief Financial Officer’s conclusion regarding the effectiveness of our disclosure controls and procedures should be considered in light of the following limitations on the effectiveness of our disclosure controls and procedures, some of which pertain to most, if not all, business enterprises, and some of which arise as a result of the nature of our business. Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors or improper conduct. A control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of the control system will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of improper conduct, if any, will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. Further, the design of any control system is based, in part, upon assumptions about the likelihood of future events, and there can be no assurance that any control system design will succeed in achieving its stated goals under all potential future conditions.

     Additionally, over time, controls may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. In addition, we depend on our HMO affiliates for certain financial and other information that we receive concerning the medical services revenue and expenses that we earn and incur. Because our HMO affiliates generate that information for us, we have less control over the manner in which that information is generated.

Management’s Annual Report on Internal Control Over Financial Reporting

     Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules Rule 13a-15(f) or Rule 15d-15(f)). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of the end of the period covered by this report based on the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As permitted, we have excluded from our evaluation the internal controls over significant processes of the MDHC Companies which we acquired effective October 1, 2006 and which constituted approximately 64% of Continucare Corporation’s consolidated total assets (which amounts include goodwill and intangible assets of $67.1 million recorded as a result of the Acquisition), 66% of consolidated shareholders’ equity as of June 30, 2007 and 30% of consolidated revenues and 24% of consolidated net income for Fiscal 2007. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of June 30, 2007. Ernst & Young LLP, our independent registered public accounting firm, which audited our financial statements included in this report, has audited the effectiveness of our internal control over financial reporting as of June 30, 2007. Their report is included herein. In our Annual Report on Form 10-K for the fiscal year ending June 30, 2008, we will be required to provide an assessment of our compliance that takes into account an evaluation of the internal controls over significant processes of the MDHC Companies.

Changes in Internal Control over Financial Reporting

     In connection with its evaluation of the effectiveness of our internal control over financial reporting, our management did not identify any changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Section 302 Certifications

     Provided with this report are certifications of our Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and the SEC’s implementing regulations. This Item 9A contains the information concerning the evaluations referred to in those certifications, and you should read this information in conjunction with those certifications for a more complete understanding of the topics presented.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Continucare Corporation:

     We have audited Continucare Corporation’s internal control over financial reporting as of June 30, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Continucare Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

     A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Miami Dade Health Centers, Inc. and its affiliated companies, which constituted 64% and 66% of Continucare Corporation’s total and net assets, respectively, as of June 30, 2007 and 30% and 24% of its revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of Continucare Corporation also did not include an evaluation of the internal control over financial reporting of Miami Dade Health Centers, Inc. and its affiliated companies.

     In our opinion, Continucare Corporation maintained, in all material respects, effective internal control over financial reporting as of June 30, 2007, based on the COSO criteria.

     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Continucare Corporation as of June 30, 2007 and 2006, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended June 30, 2007 of Continucare Corporation and our report dated September 10, 2007 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP
Certified Public Accountants

Fort Lauderdale, Florida
September 10, 2007

ITEM 9B. OTHER INFORMATION

     Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by Item 10 is incorporated by reference to our Proxy Statement for our 2007 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission no later than 120 days after the end of the fiscal year covered by this Form 10-K, or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120 day period.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by Item 11 is incorporated by reference to our Proxy Statement for our 2007 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission no later than 120 days after the end of the fiscal year covered by this Form 10-K, or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120 day period.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

     The information required by Item 12 is incorporated by reference to our Proxy Statement for our 2007 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission no later than 120 days after the end of the fiscal year covered by this Form 10-K, or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120 day period.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by Item 13 is incorporated by reference to our Proxy Statement for our 2007 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission no later than 120 days after the end of the fiscal year covered by this Form 10-K, or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120 day period.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

     The information required by Item 14 is incorporated by reference to our Proxy Statement for our 2007 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission no later than 120 days after the end of the fiscal year covered by this Form 10-K, or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later than the end of such 120 day period.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

     (a)(1) Financial Statements

          Reference is made to the Index set forth on Page F-1 of this Annual Report on Form 10-K.

     (a)(2) Financial Statement Schedules

     All schedules have been omitted because they are inapplicable or the information is provided in the consolidated financial statements, including the notes hereto.

     (a)(3) Exhibits

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)

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 *

 

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: September 12, 2007

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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

INDEX TO FINANCIAL STATEMENTS

		PAGE
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of June 30, 2007 and 2006		F-3
Consolidated Statements of Income for the years ended June 30, 2007, 2006 and 2005		F-4
Consolidated Statements of Shareholders’ Equity for the years ended June 30, 2007, 2006 and 2005		F-5
Consolidated Statements of Cash Flows for the years ended June 30, 2007, 2006 and 2005		F-6
Notes to Consolidated Financial Statements		F-8

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of
Continucare Corporation

We have audited the accompanying consolidated balance sheets of Continucare Corporation as of June 30, 2007 and 2006, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended June 30, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Continucare Corporation at June 30, 2007 and 2006, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 2007, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 7 to the consolidated financial statements, the Company adopted SFAS No. 123(R), “Share-Based Payment,” applying the modified prospective method as of July 1, 2005.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Continucare Corporation’s internal control over financial reporting as of June 30, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 10, 2007 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP
Certified Public Accountants

Fort Lauderdale, Florida
September 10, 2007

CONTINUCARE CORPORATION
CONSOLIDATED BALANCE SHEETS

		June 30,
		2007				2006
ASSETS
Current assets:
Cash and cash equivalents		$	7,262,247			$	10,681,685
Other receivables, net			308,111				231,832
Due 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				6,339,526
Prepaid expenses and other current assets			1,273,593				689,096
Deferred tax assets			740,264				658,768
Total current assets			23,109,307				18,600,907
Certificates of deposit, restricted			1,176,635				1,126,987
Property and equipment, net			8,509,454				824,220
Goodwill, net of accumulated amortization of approximately $7,610,000			73,670,225				14,342,510
Intangible 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				737,234
Deferred tax assets			2,289,811				5,810,562
Other assets, net			66,694				551,927
Total assets		$	116,937,548			$	41,994,347
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	1,007,869			$	575,925
Accrued expenses and other current liabilities			4,542,097				2,377,505
Income taxes payable			910,739				24,428
Total current liabilities			6,460,705				2,977,858
Capital lease obligations, less current portion			165,191				112,068
Deferred tax liabilities			6,215,483				1,929,501
Other liability			37,784				—
Total liabilities			12,879,163				5,019,427
Commitments and contingencies
Shareholders’ 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				5,024
Additional paid-in capital			124,616,091				63,838,051
Accumulated deficit			(20,564,710	)			(26,868,155	)
Total shareholders’ equity			104,058,385				36,974,920
Total liabilities and shareholders’ equity		$	116,937,548			$	41,994,347

The accompanying notes are an integral part of these consolidated financial statements.

CONTINUCARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME

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

The accompanying notes are an integral part of these consolidated financial statements.

CONTINUCARE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

										Additional												Total
		Common Stock								Paid-In				Accumulated				Treasury				Shareholders'
		Shares				Amount				Capital				Deficit				Stock				Equity
Balance at June 30, 2004			50,300,186			$	5,031			$	69,907,973			$	(48,097,186	)		$	(5,424,701	)		$	16,391,117
Recognition of compensation expense related to issuance of stock options			—				—				264,802				—				—				264,802
Issuance of stock upon exercise of stock options			156,666				16				91,683				—				—				91,699
Fees related to private placement transactions			—				—				(98,244	)			—				—				(98,244	)
Issuance of stock upon conversion of related party note payable			14,550				1				14,549				—				—				14,550
Repurchase 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				—				15,891,492
Balance at June 30, 2005			49,595,702				4,960				67,924,068				(32,205,694	)			(5,424,701	)			30,298,633
Recognition of compensation expense related to issuance of stock options			—				—				1,292,234				—				—				1,292,234
Issuance of stock upon exercise of stock options			826,363				82				640,386				—				—				640,468
Issuance of stock upon conversion of related party note payable			102,180				10				102,170				—				—				102,180
Repurchase 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				—				5,337,539
Balance at June 30, 2006			50,242,478				5,024				63,838,051				(26,868,155	)			—				36,974,920
Recognition of compensation expense related to issuance of stock options			—				—				1,692,190				—				—				1,692,190
Excess tax benefits related to exercise of stock options			—				—				523,964				—				—				523,964
Issuance of stock related to acquisition of MDHC Companies			19,735,858				1,974				58,502,594				—				—				58,504,568
Fees related to issuance of stock			—				—				(44,402	)			—				—				(44,402	)
Issuance of stock upon exercise of stock options			64,750				6				103,694				—				—				103,700
Net income			—				—				—				6,303,445				—				6,303,445
Balance 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.

CONTINUCARE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

		For the Year Ended June 30,
		2007				2006				2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	6,303,445			$	5,337,539			$	15,891,492
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			2,013,486				695,095				1,258,289
Loss on disposal of fixed assets			35,924				—				—
Provision for bad debts			165,181				163,105				15,787
Compensation expense related to issuance of stock options			1,692,190				1,292,234				264,802
Excess 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	)			262,455
Due from HMOs, net			(1,803,016	)			(2,853,996	)			(783,652	)
Prepaid expenses and other current assets			(629,497	)			30,481				171,230
Other assets			151,360				(125,964	)			33,667
Accounts payable			369,688				(84,214	)			155,988
Accrued expenses and other current liabilities			(275,196	)			8,354				763,347
Income taxes payable			1,419,894				(106,934	)			131,363
Net cash provided by continuing operations			10,850,653				6,872,831				7,857,844
Net cash used in discontinued operations			—				(32,512	)			(151,399	)
Net cash provided by operating activities			10,850,653				6,840,319				7,706,445
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of certificate of deposit			(49,648	)			(596,637	)			(500,000	)
Proceeds from maturity of certificates of deposit			—				—				101,165
Proceeds 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	)