ZANART ENTERTAINMENT INC
10KSB, 1996-09-30
COMMERCIAL PRINTING
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                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                  FORM 10-KSB
 
<TABLE>
<C>             <S>
  (MARK ONE)
      [X]       ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
                SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

                       FOR THE FISCAL YEAR ENDED JUNE 30, 1996

     [  ]       TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
                SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
                FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
 
                          COMMISSION FILE NO. 0-21910
 
                       ZANART ENTERTAINMENT INCORPORATED
                 (Name of small business issuer in its charter)
 
<TABLE>
<S>                                             <C>
                    FLORIDA                                        59-2716063
        (State or other jurisdiction of                         (I.R.S. Employer
         incorporation or organization)                       Identification No.)

     3333 WEST COMMERCIAL BLVD., SUITE 105                           33309
    (Address of Principal Executive Offices)                       (Zip Code)
</TABLE>
 
                                 (954) 733-0707
                (Issuer's Telephone Number, Including Area Code)
 
         Securities registered under Section 12(b) of the Exchange Act:
     COMMON STOCK, PAR VALUE $.0001 PER SHARE, UNITS AND SERIES A WARRANTS
      Securities registered under Section 12(g) of the Exchange Act: None.
                                (Title of Class)
 
     Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes /X/ 
No / /
 
     Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. / /
 
     The aggregate market value of the voting stock held by non-affiliates of
the issuer based on the last sale price of $10.50 of such common stock, as of
September 27, 1996, is $112,029,830 based upon $10.00 multiplied by 11,202,983
shares of common stock outstanding as of September 26, 1996 held by
non-affiliates.
 
     As of September 26, 1996, the Company had outstanding a total of 11,202,983
shares (the "Shares") of Common Stock, par value $.0001 per share (the "Common
Stock") and 920,000 Series A Warrants each of which entitles the holder thereof
to purchase, one share of the Company's Common Stock at a purchase price of
$6.00 per share at any time through May 10, 2000. Additionally, as of such date
Underwriter Options to purchase 80,000 Units remain outstanding and unexercised.
Each Underwriter Option entitles the holder thereof to purchase for $7.50
through May 10, 2000, one share of Common Stock and one Series A Warrant
exercisable for one share of Common Stock at a price of $7.50 at any time
through May 10, 2000.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Certain information required by Part III of this Form 10-KSB is
incorporated by reference from the Company's definitive proxy statement to be
filed not later than October 29, 1996.
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                       ZANART ENTERTAINMENT INCORPORATED
                                  FORM 10-KSB
                        FISCAL YEAR ENDED JUNE 30, 1996
 
                               TABLE OF CONTENTS
 
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<S>        <C>                                                                            <C>
Item 1.    Description of Business......................................................
Item 2.    Description of Property......................................................
Item 3.    Legal Proceedings............................................................
Item 4.    Submission of Matters to a Vote of Security Holders..........................
Item 5.    Market for Common Equity and Related Stockholder Matters.....................
Item 6.    Management's Discussion and Analysis or Plan of Operation....................
Item 7.    Financial Statements.........................................................
Item 8.    Changes in and Disagreements with Accountants on Accounting and Financial
           Disclosure...................................................................
Item 9.    Directors, Executive Officers, Promoters and Control Persons; Compliance with
           Section 16(a) of the Exchange Act............................................
Item 10.   Executive Compensation.......................................................
Item 11.   Security Ownership of Certain Beneficial Owners and Management...............
Item 12.   Certain Relationships and Related Transactions...............................
Item 13.   Exhibits and Reports on Form 8-K.............................................
SIGNATURES..............................................................................
FINANCIAL STATEMENTS....................................................................  F-1
</TABLE>
 
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                                     PART I
 
ITEM 1.  DESCRIPTION OF BUSINESS.
 
                                ZANART BUSINESS
 
     Zanart Entertainment Incorporated ("Zanart" or "Company"), which was
incorporated in 1986, designs, publishes, packages and markets wall decor and
collectible art which incorporate popular images from motion pictures,
television and animation. Zanart's products include framed art, matted prints,
lithographs and serigraphs, calendars, posters, blueprints, movie and television
card portfolio sets and animation sericels which are produced pursuant to
licensing or other agreements with entertainment companies. The images for the
printed products are provided to Zanart by the licensor or designed by Zanart,
and the products are printed, manufactured and framed for Zanart by
manufacturers according to Zanart's instructions and specifications. Zanart's
product line consists of over 200 individual products. Zanart's products are
sold through retail chain stores, independent retail stores, catalogs and a
television shopping network. The future of Zanart's licensing business is
subject to the terms of the Merger Agreement as described below.
 
                              THE MERGER AGREEMENT
 
     On August 9, 1996, Zanart signed a definitive Agreement and Plan of Merger
(the "Merger Agreement") with Zanart Subsidiary, Inc. ("ZSI"), a wholly-owned
subsidiary of Zanart, and Continucare Corporation, a Florida corporation
("Continucare"). Pursuant to the Merger Agreement, on September 11, 1996 (the
"Closing Date"), ZSI merged (the "Merger") with and into Continucare. Upon the
consummation of the Merger, and pursuant to the terms of the Merger Agreement,
(i) each issued and outstanding share of common stock of Continucare (the
"Continucare Common Stock") converted into one share of common stock of Zanart
(the "Zanart Common Stock"), the separate existence of ZSI terminated and
Continucare became a wholly-owned subsidiary of Zanart, (ii) Zanart agreed to
sell or otherwise dispose of its assets (other than cash) and discharge all
liabilities relating to Zanart's existing licensing business within three months
of the Closing Date and (iii) Zanart's Board of Directors and management became
comprised of designees of Continucare.
 
                              CONTINUCARE BUSINESS
 
     Continucare develops and manages mental and physical rehabilitative
healthcare programs that offer a continuum of mental and physical rehabilitative
health services ranging from partial hospitalization care to day treatment and
outpatient services. Continucare offers a comprehensive mental healthcare
product line by providing the following types of services to its client general
acute care and psychiatric hospitals and community mental health centers:
clinical development, marketing, financial management, operational oversight,
human resources support, quality assurance and outcome measurement. Through its
ability to organize and provide such services Continucare is able to develop and
manage for its clients the series of mental and physical rehabilitative
healthcare programs that comprise a continuum of mental and physical
rehabilitative healthcare services.
 
     At September 21, 1996, Continucare had service contracts with six general
acute care hospitals, one free standing psychiatric hospital and 21 community
mental health centers and at least one comprehensive outpatient rehabilitative
facility ("CORF"), and letters of intent for the management of twelve additional
physical rehabilitative facilities. As of such date, 23 of such contracts were
in operation covering 28 various treatment programs.
 
CONTINUCARE STRATEGY
 
     Continucare's strategy is to (i) continue to develop all elements of the
continuum of mental health and physical rehabilitative services provided to
existing and new clients, (ii) aggressively pursue new management contracts for
the provision of mental and physical health services, (iii) emphasize its
outcome measurement system (the "Outcome Measurement System") as an additional
service and (iv) expand its types of services offered to include other
outpatient medical rehabilitative services, home health services and primary
care services.
 
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  Continue to Develop the Continuum of Mental Health Services
 
     Continucare believes that institutional and professional providers of
mental health services must have the ability to offer a complete line of mental
health care services in order to operate mental healthcare programs that satisfy
the current and anticipated demands of managed care companies and other
third-party payors. The mental health industry is recognizing the need to
provide patients with an organized plan of treatment, from most intensive to
least intensive, in order to properly monitor and treat patients as they
progress. The development of mental health services beyond traditional inpatient
hospitalization has been a key focus in Continucare's efforts to provide
management services covering the full continuum of mental health services. Prior
to August 1996, Continucare focused only on the management of programs offering
outpatient mental health services. Since that time, it has expanded its
management services to cover additional elements of the continuum of mental
health services, including day treatment and intensive as well as traditional
and group oriented outpatient services.
 
  Add New Mental Health Management Contracts
 
     Continucare believes that there is a substantial opportunity to provide
mental healthcare contract management services to institutional and professional
mental healthcare providers. Continucare utilizes a systematic approach to
identify potential clients and then aggressively markets within the boundaries
of federal and state laws to these potential clients by emphasizing its
expertise in managing the continuum of mental health services and the benefits
to the potential clients of offering mental health programs. Such benefits
typically include increased revenue, greater opportunity to allocate fixed
expenses, expanded influence and outreach to the community, improvement in the
quality of mental healthcare programs offered and the ability to attract new
physicians. Continucare's sales efforts also emphasize the value of quality,
independently managed mental health programs to managed care companies and other
third-party payors.
 
     Continucare intends to market its current line of mental healthcare
services to individual and group practitioners that provide traditional primary
and specialty healthcare services. This strategy is based on the results of many
studies that have indicated that 70% or more of illnesses are psycho-somatic in
nature. By adding mental health services to traditional primary and specialty
care practices, practitioners are able to provide a more coordinated and
comprehensive treatment program that addresses the mental and physical needs of
patients. The types of mental health services typically added to individual and
group practices include psycho-pharmacology, individual therapy, group therapy
and structured outpatient programs for mental health, addiction and other
disease-specific support issues. The professionals delivering these services
include:
 
     - Psychiatrists
     - Psychologists
     - Licensed Clinical Social Workers
     - Licensed Mental Health Counselors
     - Advanced Registered Nurse Practitioners
 
     Continucare is also currently expanding its target market to include
non-traditional sources of funding such as state and federal grant programs.
 
  Emphasize Continucare's Outcome Measurement System
 
     Continucare intends to continue to emphasize its Outcome Measurement
System, which provides outcome information regarding the effectiveness of a
provider's mental health and physical rehabilitative programs. The availability
of such information is intended to enable Continucare's clients to demonstrate
to third-party payors whether patients are improving as a result of the
treatment provided. It also provides Continucare and the client with a valuable
tool to compare clinical results and refine clinical treatment programs. With
the growth of managed care and its emphasis on effectiveness, Continucare
believes that its Outcome Measurement System will become a more important
component of the services it provides.
 
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  Expand the Types of Services Offered by Continucare
 
     Continucare intends to expand its range of services offered to healthcare
providers to include physical and medical rehabilitative services, home health
services and primary care services. Such new areas of services share in common
(i) the need to provide a continuum of services that range from intensive to
least intensive and (ii) the need for a system of development and management
support similar to that required by mental health related services. Continucare
believes that the same types of development and management services it offers to
mental healthcare providers are needed by providers offering physical and
medical rehabilitative services, home health services and primary care services.
Continucare further believes that its existing relationships with general acute
care hospitals and its medical directors serving clients under contract with
Continucare provide a significant opportunity for the development of the
aforementioned services. Continucare intends to utilize its marketing, outcome
measurement, utilization review and clinical management expertise to expand its
management of such services.
 
CONTINUCARE OPERATIONS
 
  General
 
     Continucare develops and manages mental and physical rehabilitative
healthcare programs that offer a continuum of health services ranging from
partial hospitalization care to day treatment and outpatient services. The
development and management of such programs requires the delivery to healthcare
providers of the following types of services in a consistent and efficient
manner:
 
          Clinical Development -- Each health program has a team of personnel
     comprised of primary doctors, psychiatrists, therapists and nurses that are
     focused on the direct delivery of care to patients. Administrative
     personnel comprised of a program director, clinical coordinators, sales
     staff and secretaries are responsible for the management of specific
     programs as well as the entire continuum of programs being offered by a
     particular provider. Continucare offers the service of recruiting and
     training such personnel in addition to designing the particular program
     structure in which they operate.
 
          Marketing -- Healthcare providers rely almost exclusively on community
     service representatives to market their respective mental and physical
     rehabilitative health programs. Community service representatives are
     responsible for identifying and developing patient referral sources in
     addition to developing a particular program's marketing plan. The community
     service representative informs physicians, other professionals and nursing
     homes in the target community of the treatment programs managed by
     Continucare in order to promote interest in such programs. Continucare
     offers the service of hiring and training community service representatives
     to successfully market each type of outpatient healthcare program.
 
          Financial Management -- Providers of mental and physical
     rehabilitative health care services must address the same financial
     management concerns as any other business. Continucare has the ability to
     provide full-service financial management services to each of its clients.
     Continucare offers the following types of financial management services:
 
        - Physician Billing and Collecting
        - Other Outpatient Billing and Collecting
        - Partial Hospitalization Billing and Collections
        - Internal Auditing and Bill Compliance
        - Account Receivable Financing
 
          Operational Oversight -- Continucare offers day-to-day operational
     oversight to each of the programs offered by mental and physical
     rehabilitative healthcare providers that comprise the continuum of health
     care services.
 
          Human Resources -- Continucare offers to its clients full human
     resources capabilities which include the recruiting, hiring and termination
     of all classes of healthcare professionals and staff. Continucare further
     develops training programs and policy and procedure manuals specific to the
     needs of
 
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     healthcare providers. In addition, Continucare offers permanent, long-term
     and short-term employee leasing to its managed programs and other clients.
     Continucare offers to lease the following types of employees:
 
        - Psychologists
        - Physician Assistants
        - Advanced Registered Nurse Practitioners
        - Registered Nurses
        - Licensed Practical Nurses
        - Certified Nurse Assistants
        - Licensed Clinical Social Workers
        - Licensed Mental Health Counselors
        - Master Level Social Workers
        - Mental Health Technicians
        - Psychiatrists
        - Physical Therapists
 
          Quality Assurance -- Continucare offers ongoing training to each of
     the professionals and staff under its supervision and continuously monitors
     the effectiveness of such training. Through such efforts Continucare
     assures that programs it develops and/or manages maintain the desired level
     of efficacy.
 
          Regulatory Compliance -- As further discussed below, healthcare
     providers are subject to an array of regulatory rules and guidelines.
     Continucare assists its clients during the developmental stage of mental
     and physical rehabilitative health programs in such matters as licensing,
     certificate of need approvals and Medicare/Medicaid certification.
     Continucare also provides the service of reviewing a particular provider's
     compliance with all applicable regulations and making recommendations to
     assure that such provider remains or becomes in compliance with such
     regulations.
 
          Outcome Measurement -- Continucare offers a clinical outcome
     measurement system that enables health providers to demonstrate clinical
     results to third-party payors and that assists clinicians in evaluating the
     effectiveness of treatment programs. Continucare began offering its Outcome
     Measurement System to health providers in July 1996. The Outcome
     Measurement System provides a qualitative and quantitative tool for
     clinical staff to evaluate the clinical effectiveness of the treatment
     programs and to make adjustments in the programs in order to improve
     quality and appropriateness of care. It also assists the client hospitals
     and health centers in complying with the increasing demands of regulatory
     and accrediting bodies for quality assessment of their outpatient health
     programs.
 
     The typical key indicators captured and evaluated include:
 
     - Functional level at admission
     - Average length of stay
     - Return to home or previous setting
     - Return to work
     - Readmission rates
     - Mortality rates
 
Each of the above-listed types of data is captured on a diagnosis specific
basis. This enables providers to tangibly differentiate their services from
their competitors.
 
     Under the Outcome Management System, sample data is collected from randomly
selected patients at admission, during treatment, discharge and 90 to 120 days
after discharge. Semiannual outcome reports include a summary of patient
characteristics and outcome measures. A multi-disciplinary committee reviews and
analyzes the data in order to identify specific areas for program improvement. A
regional clinical consultant then prepares an implementation plan. Program
improvements implemented through this process are evaluated for use at other
treatment programs managed by Continucare. Continucare trains and supervises
on-site personnel to ensure the collection of accurate outcome measurement data.
 
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     The services provided by the Outcome Management System enable the client
hospitals to demonstrate to third-party payors the results of the treatment
provided. At August 1996, 25% of Continucare's management contracts included the
Outcome Management System.
 
MANAGEMENT CONTRACTS
 
     Continucare provides its development and management services under
contracts with client hospitals and community mental health centers. Continucare
tailors (or customizes) each contract to address the differing needs of each
client and the anticipated needs of such client's patients. Continucare and the
client determine the mental and physical rehabilitative health programs and
services to be offered, which may consist of one or more treatment programs
offering partial hospitalization, day treatment or outpatient services.
 
     Under each contract, Continucare receives a fee for its services provided
to or on behalf of the client. The fees received by Continucare are fixed and
represent reimbursements for direct program costs. The management fees are often
subject to periodic adjustments as a result of changes in the medical consumer
price index.
 
THE OUTPATIENT HEALTHCARE CONTINUUM
 
     Through its ability to deliver services described above, Continucare offers
mental health care providers the structure and management of a complete
continuum of mental health services ranging from partial hospitalization care to
day treatment and outpatient services.
 
  Partial Hospitalization
 
     Partial hospitalization services are provided for limited periods per day
at established intervals with the patient returning home at the conclusion of
each day's treatment. Partial hospitalization services are designed to be both
an alternative to inpatient hospitalization services and a key component of care
following inpatient hospitalization. Continucare successfully operates over
twenty partial hospitalization programs in five states. Continucare operates
under two partial hospitalization models. The primary model is a freestanding
program licensed as a full service community mental health center. This model
enables Continucare not only to provide partial hospitalization services but
also to provide, manage or contract for the following types of services:
 
     - 24 Hour Crisis Response
     - Crisis Stabilization Beds
     - Structured/Intensive Outpatient Programs
     - Counseling and Education
 
     The second model is a partial hospitalization program operating under a
hospital license. These programs focus on delivering all of the aforementioned
services and the sole difference between these programs and Community Mental
Health Centers ("CMHCs") is that these programs are subject to hospital
regulations and are located in the hospital or on the hospital campus.
 
  Day Treatment
 
     Continucare has recently expanded beyond the partial hospitalization
business to include day treatment services. These programs serve as step-down
alternatives to patients that no longer require the more extensive treatment
provided under partial hospitalization programs. This treatment model assists
patients in transitioning back into their communities. Additionally, this
treatment model seeks to prevent patients from regressing, thus reducing the
number of expensive inpatient psychiatric hospital admissions. The Company
currently operates two day treatment programs and anticipates opening twelve day
treatment programs in the next twelve months.
 
  Outpatient Services
 
     Outpatient services consist generally of consultative sessions which can be
rendered in a variety of individual or group settings at various locations,
including hospitals, clinics or the offices of mental health providers.
Outpatient service providers can also serve as gatekeepers for persons being
evaluated for treatment. Once an individual is assessed for treatment in an
outpatient environment, the individual is provided the
 
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appropriate level of service in relation to the diagnosis. Continucare provides
outpatient services to hospitals, physicians, assisted living facilities,
skilled nursing facilities and community mental health centers. Continucare is
currently providing outpatient services to:
 
     - 25 Partial Hospitalization Programs
     - 12 Community Mental Health Centers
     - 20 Nursing Homes
     - 17 Assisted Living Facilities
     - 2 Free-Standing Specialty Hospitals
 
  Physical Rehabilitative Services
 
     As part of its commitment to the total continuum of out-patient care,
Continucare owns a Certified CORF, and has a letter of intent for twelve
additional CORF facilities, which provides a wide range of outpatient
rehabilitative services and programs to individuals with disabilities and
illnesses including orthopedic, neurological and neuromuscular diseases and
other conditions. CORFs provides diagnostic, therapeutic and restorative
services to individuals on an outpatient basis under the direction of a medical
doctor. The multitude of illnesses and injuries capable of being treated at a
CORF include amputation, arthritis, stroke (CVA), neck and lower back pain,
sports injuries, neuromuscular disease, orthopedic and neurological conditions
and peripheral nerve injuries.
 
COMPETITION
 
     The mental and physical rehabilitative health contract management services
industry is highly competitive. Continucare competes with several national
competitors and many regional and local competitors, some of which have
substantially greater resources then Continucare. In addition, providers may
elect to manage their own mental health programs.
 
     Competition among contract managers for mental and physical rehabilitative
health programs is generally based upon reputation, price, the ability to
provide financial and other benefits for the particular provider, and the
management expertise necessary to enable the provider to offer mental and
physical rehabilitative health programs that provide the full continuum of
mental health services in a quality and cost-effective manner. The pressure to
reduce health care expenditures has emphasized the need to manage the
appropriateness of mental health services provided to patients. As a result,
competitors without management experience covering the various levels of the
continuum of mental and physical rehabilitative health services may not be 
able to compete successfully. Continucare believes that its reputation and 
management expertise will enable it to compete successfully in this rapidly 
changing market.
 
GOVERNMENT REGULATION
 
  General
 
     Continucare's business is affected by federal, state and local laws and
regulations concerning, among other matters, mental and physical health 
facilities and reimbursement for mental and physical health services. These 
regulations impact the development and operation of mental and physical 
rehabilitative health programs managed by Continucare for its clients. 
Licensing, certification, reimbursement and other applicable government 
regulations vary by jurisdiction and are subject to periodic revision. 
Continucare is not able to predict the content or impact of future changes in 
laws or regulations affecting the mental and physical rehabilitative health 
industry.
 
  Mental and Physical Rehabilitative Health Facility Use and Certification
 
     The facilities of institutional and professional providers are subject to
various federal, state and local regulations, including facilities use,
licensure and inspection requirements, and licensing or certification
requirements of federal, state and local health agencies. Many states also have
certificate of need laws intended to avoid the proliferation of unnecessary or
under-utilized health care services and facilities. The mental and physical
health programs which Continucare manages are also subject to licensure and
certification requirements. Continucare assists its clients in obtaining and
renewing required approvals for its managed programs. Some approval processes
may lengthen the time required for new programs to commence
 
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operations. In granting and renewing a facility's licenses, governmental
agencies generally consider, among other factors, the physical condition of the
facility, the qualifications of administrative and professional staff, the
quality of professional and other services, and the continuing compliance of
such facility with the laws and regulations applicable to its operations.
Continucare believes that the mental health programs it manages and the
facilities used in its operation of such programs comply in all material
respects with applicable licensing and certification requirements.
 
  Reimbursement for Mental and Physical Rehabilitative Health Services
 
     Most of Continucare's clients receive reimbursement under one or more of
the Medicare or Medicaid programs for mental and physical rehabilitative health
services provided in programs managed by Continucare. Continucare is paid
directly by its clients for the management services it provides. While fees paid
to Continucare by its clients are not subject to or based upon reimbursement
under the Medicare or Medicaid programs or from any other third-party payor,
under many of its management contracts Continucare is obligated to refund all or
a portion of its fee if either Medicare denies reimbursement for an individual
patient treatment or if the fee paid to Continucare is denied by Medicare as a
reimbursable cost. In order to receive reimbursement under the Medicare or
Medicaid programs, each facility must meet applicable requirements promulgated
by the United States Department of Health and Human Services relating to the
type of facility, personnel, standards of patient care and compliance with all
state and local laws, rules and regulations. Continucare believes that the
programs it manages comply in all material respects with applicable Medicare or
Medicaid requirements.
 
     In the mid-1980's, changes in reimbursement rates and procedures included
the creation of the Medicare prospective payment system using predetermined
reimbursement rates for diagnosis related groups ("DRGs"). The DRG system
established fixed payment amounts per discharge for diagnoses generally provided
by acute care hospitals. Mental health services provided by acute care hospitals
which qualify for an exemption are deemed to be distinct part units ("DPUs") and
are not included in the DRG system. Services provided by DPUs are reimbursed on
an actual cost basis, subject to certain limitations. The mental health programs
managed by Continucare which are eligible for reimbursement under the Medicare
program currently meet the applicable requirements for designation as DPUs and
are exempt from the DRG system. In the future, however, it is possible that
Medicare reimbursement for mental health services, including those provided by
programs managed by Continucare, could be under the DRG system or otherwise
altered. Since a substantial portion of the patients of the programs managed by
Continucare are covered by Medicare, any changes which limit or reduce Medicare
reimbursement levels could have a material adverse effect on Continucare's
clients and, in turn, on Continucare.
 
     Federal law contains certain provisions designed to ensure that services
rendered by providers to Medicare and Medicaid patients are medically necessary
and meet professionally recognized standards. These provisions include a
requirement that treatment of Medicare and Medicaid patients must be reviewed in
a timely manner to determine the medical necessity of such treatment. In
addition, these provisions state that a provider may be required by the federal
government to reimburse the government for the cost of Medicare-reimbursed
services that are determined by a peer review organization to have been
medically unnecessary. Continucare and its clients have developed and
implemented quality assurance programs and procedures for utilization review and
retrospective patient care evaluation intended to meet these requirements.
 
  Patient Referral Laws
 
     Various federal and state laws regulate the relationships between health
care providers and referral sources, including federal and state fraud and abuse
laws prohibiting individuals and entities from knowingly and willfully offering,
paying, soliciting or receiving remuneration in order to induce referrals for
the furnishing of health care services or items. These federal laws generally
apply only to referrals for items or services reimbursed under the Medicare or
Medicaid programs or any state health care program. The objective of these laws
is generally to ensure that the purpose of a referral is quality of care and not
monetary gain by the
 
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<PAGE>   10
 
referring party. Violations of such laws can result in felony criminal
penalties, civil sanctions and exclusion from participation in the Medicare and
Medicaid programs.
 
     In addition, federal and some state laws impose restrictions on referrals
for certain designated health services by physicians and, in a few states,
psychologists and other mental health care professionals to entities with which
they have financial relationships. Continucare believes that its operations
comply with these restrictions to the extent applicable, although no assurances
can be given regarding compliance in any particular factual situation. Federal
legislation has been considered to expand current law from its application to
Medicare and Medicaid business to all payors and to additional health services.
Certain states are considering adopting similar restrictions or expanding the
scope of existing restrictions. There can be no assurance that the federal
government or other states in which Continucare operates will not enact similar
or more restrictive legislation or restrictions that could under certain
circumstances adversely impact Continucare's operations.
 
     Under a significant number of its management contracts, Continucare
receives a flat fee for its services. In addition, Continucare has entered into
agreements with physicians to serve as medical directors at the mental health
programs and facilities managed by Continucare, which generally provide for
payments to such persons by Continucare as compensation for their administrative
services. These medical directors also generally provide professional services
at such mental health programs and facilities. In 1991, regulations were issued
under federal fraud and abuse laws creating certain "safe harbors" for
relationships between health care providers and referral sources. Any
relationship that satisfies the terms of the safe harbor is considered
permitted.
 
  Health Care Reform
 
     The Clinton Administration and various federal legislators have considered
health care reform proposals intended to control health care costs and to
improve access to medical services for uninsured individuals. These proposals
included proposed cutbacks to the Medicare and Medicaid programs and steps to
permit greater flexibility in the administration of Medicaid. In addition, some
states in which Continucare operates are considering various health care reform
proposals. It is uncertain at this time what legislation on health care reform
may ultimately be enacted or whether other changes in the administration or
interpretation of governmental health care programs will occur. There can be no
assurance that future health care legislation or other changes in the
administration or interpretation of governmental health care programs will not
have a material adverse effect on Continucare's business, financial condition or
results of operations.
 
EMPLOYEES
 
     At September 1996, Continucare employed or managed approximately 400
individuals, including 350 full-time employees and 50 part-time employees.
Continucare has no collective bargaining agreement with any unions and believes
that its overall relations with its employees are good. In addition, at
September 1996, Continucare had administrative contacts with 45 physicians to
serve as medical directors for the health programs managed by Continucare.
 
INSURANCE
 
     Continucare carries general liability, comprehensive property damage,
malpractice, workers' compensation and other insurance coverages that management
considers adequate for the protection of Continucare's assets and operations.
There can be no assurance, however, that the coverage limits of such policies
will be adequate. A successful claim against Continucare in excess of its
insurance coverage could have a material adverse effect on Continucare.
 
CERTAIN RISKS RELATED TO CONTINUCARE BUSINESS
 
     The current and proposed business of Continucare is subject to a number of
risks including, but not limited to, the following: (i) Continucare has a very
limited operating history, (ii) Continucare's business is dependent on the
continued availability of reimbursement to its clients under Medicaid and
Medicare
 
                                        8
<PAGE>   11
 
programs, payments from insurers, self-funded benefit plans and other
third-party payors for the mental health and physical rehabilitative programs 
managed by Continucare, (iii) Continucare's business and prospects could be 
materially adversely affected if a significant number of its management 
contracts are terminated or if it does not enter into new management contracts,
(iv) Continucare's success is materially dependent upon its executive officers,
consultants and management team, the loss of one or more of whom could 
adversely affect it and (v) Continucare is subject to intense competition from 
a number of companies, many of which have, or may obtain, greater financial 
and other resources than those of Continucare.
 
ITEM 2.  DESCRIPTION OF PROPERTY.
 
     Since August 1993, Zanart, pursuant to a month-to-month sublease agreement
with one of its suppliers (the "Lessor Supplier") (a firm which as of September
26, 1996 held less than 1% of the outstanding common stock of the Company), at a
cost of approximately $1,200 monthly, has maintained its executive offices and
warehouse facilities in approximately 6,000 square feet of space located at 7641
Burnet Avenue, Van Nuys, California 91405. Since July 1995 the Company, pursuant
to a month-to-month sublease agreement with another suppler at a cost of $1,800
per month, has maintained additional warehouse space in approximately 8,000
square feet of space located at 17120 S. Main St., Gardena, California 90248.
The Company intends to continue to lease such properties through December 11,
1996.
 
     Continucare leases 13,000 square feet of space for its corporate offices in
Miami, Florida under a lease expiring in September 2001.
 
ITEM 3.  LEGAL PROCEEDINGS.
 
     The Company and Continucare are not a party and their property is not
subject to any material litigation, nor, to the knowledge of management, is any
such litigation presently threatened.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
     No matters were submitted to a vote of security holders of the Company,
through the solicitation of proxies or otherwise, during the fourth quarter of
the fiscal year ended June 30, 1996.
 
                                        9
<PAGE>   12
 
                                    PART II
 
ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 
     The principal U.S. market in which the Company's Common Stock, $.0001 par
value, is traded is the American Stock Exchange ("AMEX"). Prior to the Company's
listing of its Common Stock on AMEX, which occurred on September 11, 1996, such
shares of Common Stock were traded on the Nasdaq Small-Cap Market. Prior to the
May Public Offering, the Company's shares of Common Stock were not listed for
trading on Nasdaq, and the Company was aware of only one broker-dealer which
acted as a market maker in the Company's Common Stock. Such broker-dealer
informed the Company that the only trade which occurred within the 12 months
prior to May 1995 occurred in September 1994 for 50 shares of Common Stock at
$8.00 per share. The following table shows the high and low sales prices as
reported on Nasdaq, and on AMEX for the period commencing September 11, 1996,
for the Common Stock for the periods indicated below. These quotations have been
obtained from Nasdaq and AMEX. Quotations through August 14, 1995 reflect last
sales prices for the Company's Units sold in the May Public Offering, each Unit
consisting of one share of Common Stock and one Series A Warrant. Quotations
from August 15, 1995 reflect last sales prices for Common Stock of the Company,
exclusive of Series A Warrants.
 
<TABLE>
<CAPTION>
                          TRANSACTIONS IN UNITS                              HIGH         LOW
- --------------------------------------------------------------------------  ------       -----
<S>                                                                         <C>          <C>
May 11, 1995 -- June 30, 1995.............................................  $8.125       $6.75
July 1, 1995 -- August 14, 1995...........................................    8.38        7.25

TRANSACTIONS IN SHARES OF COMMON STOCK
- --------------------------------------------------------------------------  
August 15, 1995 -- September 30, 1995.....................................  $ 6.63       $3.88
Second Quarter, Fiscal 1996...............................................    5.25        3.25
Third Quarter, Fiscal 1996................................................    3.63        1.50
Fourth Quarter, Fiscal 1996...............................................    4.81        1.75
July 1, 1996 -- September 26, 1996........................................   11.50        3.38
</TABLE>
 
     The number of holders of record of the Company's Common Stock, as of
September 26, 1996 was 100, inclusive of those brokerage firms and/or clearing
houses holding the Company's shares of Common Stock for their clientele (with
each such brokerage house and/or clearing house being considered as one holder).
 
     The Company has not paid or declared any dividends upon its Common Stock
since its inception and, by reason of its present financial status and its
contemplated financial requirements, does not contemplate or anticipate paying
any dividends upon its Common Stock in the foreseeable future.
 
ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
 
     The following discussion relates only to the historical operations of the
Zanart business at and for the periods indicated.
 
RESULT OF OPERATIONS
 
  Fiscal Year Ended June 30, 1996 vs. Fiscal Year Ended June 30, 1995
 
     Revenues increased 8% to $2,503,506 from $2,325,337 in fiscal year 1995.
This increase was due to an increase in sales to the Company's largest customer
Warner Bros. Warner Bros. represented approximately $1,352,000 (compared with
approximately $1,080,000 in fiscal year 1995), or approximately 54% of sales in
fiscal year 1996, an increase from approximately 47% of sales in fiscal year
1995. Another significant customer, The Musicland Group, represented
approximately $275,000 or 11% of sales in fiscal year 1996 and $239,000 or 10%
of sales in fiscal year 1995.
 
     Cost of revenues (principally raw material, outside production costs and
licensing royalties) increased 29% to $2,345,238 from $1,818,202 in fiscal year
1995. The Company's gross margin decreased 69% to $158,268 from $507,135 in
fiscal year 1995. As a percentage of revenues, the gross margin decreased to 6%
 
                                       10
<PAGE>   13
 
from 22% in fiscal year 1995. The decrease in margin resulted from an increase
in the cost of raw materials, an unfavorable shift in the product sales mix, and
a reduction in sales price to dispose of slower moving inventories.
 
     Selling, general and administrative expenses ("SG&A") increased $554,166 to
$1,512,983 from $958,817 in fiscal year 1995. As a percentage of revenues, SG&A
increased to 60% from 41% in fiscal year 1995. A comparison of SG&A expenses
between years is as follows:
 
<TABLE>
<CAPTION>
                                                                   1995            1996
                                                                 --------       ----------
    <S>                                                          <C>            <C>
    Payroll/Payroll Related Costs..............................  $462,907       $  645,404
    Rent/Utilities.............................................    45,030           78,045
    Advertising/Selling Materials..............................    47,777          118,660
    Freight/Postage............................................    41,324           73,478
    Insurance..................................................    20,053           64,652
    Public/Investor Relations..................................     1,500           32,376
    Financial Printing/Filing Fees.............................     1,200           23,212
    Provision for Bad Debt.....................................    62,457          101,971
    Professional and Consulting Services.......................   101,967          137,873
    Other......................................................   174,602          237,312
                                                                 --------       ----------
                                                                 $958,817       $1,512,983
                                                                 ========       ==========
</TABLE>
 
     Interest expense decreased $103,925 to $2,483 from $106,408 in fiscal year
1995. The Company had no significant debt in fiscal year 1996 as the
Frost-Nevada Note was repaid in full with proceeds from the May 1995 public
offering. Interest income increased $111,730 from $23,149 in fiscal year 1995
and was primarily earned on the proceeds from the May 1995 Public Offering.
 
     The Company's net loss, including the loss on liquidation, for the fiscal
year ended June 30, 1996 was $2,282,050 compared to a net loss of $573,022 for
the prior year. The increase was primarily due to an increase in SG&A expense,
decrease in gross margin and loss on liquidation of $1,058,931.
 
  Fiscal Year Ended June 30, 1995 vs. Fiscal Year Ended June 30, 1994.
 
     Revenues increased 25% to $2,325,337 from $1,863,181 in fiscal year 1994.
This increase was due to an increase in the sale of licensed products,
especially the Company's ChromArt Line, and increased sales to the Company's
largest customer Warner Bros. Warner Bros. represented approximately $1,080,000
(compared with approximately $930,000 during fiscal year 1994), or approximately
47% of sales in fiscal year 1995, a decrease from approximately 50% of sales in
fiscal year 1994. Another significant customer, The Musicland Group, represented
approximately $239,000 or 10% of sales in fiscal year 1995 and 12% of sales in
fiscal year 1994.
 
     Cost of revenues (principally raw material, outside production costs and
licensing royalties) increased 27% to $1,818,202 from $1,436,504 in fiscal year
1994. The Company's gross margin increased 19% to $507,135 from $426,677 in
1994. As a percentage of revenues, the gross margin remained relatively
consistent between years at approximately 22% in fiscal year 1995 and
approximately 23% in fiscal year 1994.
 
     Selling, general and administrative expenses (SG&A) increased 73% to
$958,817 from $554,450 in fiscal year 1994. As a percentage of revenues SG&A
increased to 41% from 30% in fiscal year 1994. This increase
 
                                       11
<PAGE>   14
 
was primarily due to expenditures incurred by the Company in the latter half of
fiscal year 1995 in an effort to position itself for future expansion. A
comparison of significant SG&A expenses between years is as follows:
 
<TABLE>
<CAPTION>
                                                                         1994       1995
                                                                       --------   --------
    <S>                                                                <C>        <C>
    Payroll/Payroll Related Costs....................................  $194,484   $462,907
    Trade Shows......................................................    12,993     36,694
    Advertising/Selling Materials....................................     1,680     47,777
    Freight/Postage..................................................     4,304     41,324
    Professional Fees................................................    91,975     87,254
    Provision for Doubtful Accounts..................................    51,000     62,457
    Insurance........................................................     2,614     20,053
    Depreciation.....................................................     2,831     14,446
    Other............................................................   192,569    185,905
                                                                       --------   --------
                                                                       $554,450   $958,817
                                                                       ========   ========
</TABLE>
 
     Payroll and payroll related costs increased by $268,423, as the Company
hired a Chief Financial Officer, national sales manager, art director and
additional support staff. Increases in existing officers' salaries and bonuses
also occurred with the closing of the May Public Offering. Trade shows,
advertising/selling materials, and freight/postage combined for an increase of
$106,818 as the Company expanded its overall marketing efforts to enhance market
recognition as well as its channels of distribution. Insurance increased by
$17,439 due to the obtaining of additional coverages for property, casualty,
product liability and directors and officers insurance. Depreciation increased
by $11,615 as the Company acquired additional computers, office equipment, and
furniture/fixtures during the year.
 
     Interest expense, increased 71% to $106,408 from $62,200 in fiscal year
1994. The increase was due almost entirely to approximately $41,000 interest
paid in cash at the annualized rate of 10% and approximately $65,000 related to
the amortization of deferred financing costs related to the Frost-Nevada Note.
Interest income of approximately $23,000, compared to approximately $3,000 in
fiscal year 1994, was earned primarily on the proceeds of the May Public
Offering.
 
     The Company's net loss before the extraordinary loss from the early
extinguishment of debt was $535,741 compared to a net loss of $195,026 in fiscal
year 1994. The increase in loss was primarily due to an increase in SG&A expense
and net interest expense which were partially offset by an increase in the gross
margin.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     In connection with the May Public Offering, the Company received
approximately $4,400,000 in net proceeds (the "Offering Proceeds") from the sale
of 920,000 Units, each Unit consisting of one share of the Company's Common
Stock and one Series A Warrant entitling the holder to purchase one share of
Common Stock at a price $6.00 per share at any time through May 10, 2000. Since
the closing of the May Public Offering, the Company has used the Offering
Proceeds for marketing, product development, acquisition of new licenses,
repayment of indebtedness, payment of outstanding payables and general working
capital needs.
 
     In December 1994, the Company raised $100,000 from a private sale of 25,000
shares of the Company's Common Stock and an option acquire 25,000 shares of the
Company's Common Stock. The $100,000 received constituted the net proceeds from
the private placement to satisfy the Company's immediate cash needs. In December
1994, Frost-Nevada Limited Partnership converted $100,000 principal amount of
the Frost-Nevada Note (originally $500,000 which was loaned to the Company in
February 1994) into 33,333 shares of the Company's Common Stock. In May 1995,
the Company used certain of the Offering Proceeds to satisfy in full the
remaining principal amount ($400,000) owned on the Frost-Nevada Note.
 
                                       12
<PAGE>   15
 
     As discussed in Footnote 1 of the financial statements, the Company has
changed its basis of accounting for fiscal year 1996 from the going-concern
basis to the liquidation basis due to the merger with Continucare (the "Merger")
and the required liquidation. Accordingly, the carrying value of the remaining
assets as of June 30, 1996 are presented at the estimated realizable values and
all liabilities are presented at estimated settlement amounts. The net assets
($1,600,000) as of June 30, 1996 is the expected closing cash balance once the
Company is fully liquidated.
 
     During the fiscal year end June 30, 1996, the Company incurred negative
cash flow of $1,074,304 which includes a net cash use from operating and
investing activities of $819,839 and $254,465, respectively. The investing
activities were incurred before the Merger and required liquidation were known.
During the fiscal year ended June 30, 1995, the Company produced positive cash
flow of $2,930,588 which includes the effect of financing activities primarily
offset by cash used in operating activities. The primary source of cash during
the fiscal year ended June 30, 1995 was the May Public Offering.
 
     As of June 30, 1996, available cash was $2,196,266 compared to $3,270,570 a
year earlier. The Company had accounts receivable of $382,258 at June 30, 1996
compared to accounts receivable of $780,783 at June 30, 1995. Inventory as of
fiscal year end 1996 was $275,031 compared to $405,719 for the prior year. At
June 30, 1996 total assets were $2,857,204 compared to $4,623,085 as of the
prior year end. The above decreases resulted from the operating losses incurred
in fiscal year 1996 and certain writedowns of assets in connection with the
restating of assets to their estimated realizable values in conforming with
liquidation basis of accounting.
 
     At June 30, 1996, the Company's payables, excluding license related
liabilities, were $431,301 versus $608,436 for the prior year. The Company's
total liabilities were $1,257,204 which includes a reserve for loss on
liquidation of $660,492 compared to the prior fiscal year end liabilities of
$741,035. The increase in liabilities is due to the reserve for loss on
liquidation offset by a decrease in Company's payables between years.
 
ITEM 7.  FINANCIAL STATEMENTS.
 
     The financial statements included herein, commencing at page F-1, have been
prepared in accordance with the requirements of Regulation S-B. The financial
statements of Continucare included as an Exhibit to this Form 10-KSB are not
required to be so included and are provided purely for informational purposes.
In addition, such financial statements have not been audited.
 
ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
 
     There are no and have not been any disagreements between the Company and
its accountants on any matter of accounting principles, practices or financial
statement disclosure.
 
                                       13
<PAGE>   16
 
                                    PART III
 
ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
 
     The information required in response to this item is incorporated by
reference to the information contained in the Proxy Statement for the 1996
Annual Meeting of Shareholders of the Company.
 
ITEM 10.  EXECUTIVE COMPENSATION.
 
     The information required in response to this item is incorporated by
reference to the information contained in the Proxy Statement for the 1996
Annual Meeting of Shareholders of the Company.
 
ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
     The information required in response to this item is incorporated by
reference to the information contained in the Proxy Statement for the 1996
Annual Meeting of Shareholders of the Company.
 
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
     The information required in response to this item is incorporated by
reference to the information contained in the Proxy Statement for the 1996
Annual Meeting of Shareholders of the Company.
 
ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.
 
     (a) Exhibits
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                           DESCRIPTION
- ------       -----------------------------------------------------------------------------------
<C>     <C>  <S>
  1.1     -- Underwriting Agreement dated May 18, 1995 between the Company and First Equity
             Corporation of Florida. (3) (Exhibit 1)
  1.2     -- Series A Warrant Agreement. (3) (Exhibit 2)
  3.1     -- Restated Articles of Incorporation of Company, as amended. (1) (Exhibit 3.1)
  3.2     -- Restated Bylaws of Company. (1) (Exhibit 3.2)
  4.1     -- Form of certificate evidencing shares of Common Stock. (1) (Exhibit 4.1)
  4.2     -- Form of Series A Warrant. (1) (Exhibit 4.2)
  4.3     -- Unit Purchase Option Certificate dated May 18, 1995. (3) (Exhibit 3)
  5.1     -- Opinion of Berman Wolfe & Rennert, P.A. (2) (Exhibit 5.1)
 10.1     -- Employment Agreement dated as of July 21, 1994 by and between Company and Thomas
             Zotos. (1) (Exhibit 10.1)
 10.2     -- Employment Agreement dated as of July 21, 1994 by and between Company and Robert A.
             Stein. (1) (Exhibit 10.2)
 10.3     -- Employment Agreement dated as of August 5, 1994 by and between Company and Mark
             Politi. (1) (Exhibit 10.3)
 10.4     -- Consulting Agreement dated as of August 8, 1994 by and between Company and Alfred
             Masini. (1) (Exhibit 10.4)
 10.5     -- Consulting Agreement dated as of May 8, 1994 by and between Company and Gary
             Culpepper. (1) (Exhibit 10.5)
 10.6     -- Purchase Agreement dated February 9, 1994 by and between Company and Frost Nevada
             Limited Partnership. (1) (Exhibit 10.6)
 10.7     -- Promissory Note dated February 9, 1994, in the principal amount of $500,000 issued
             by Company to Frost Nevada Limited Partnership. (1) (Exhibit 10.7)
 10.8     -- Warrant dated February 9, 1994 to purchase 500,000 shares of Company issued to
             Frost Nevada Limited Partnership. (1) (Exhibit 10.8)
</TABLE>
 
                                       14
<PAGE>   17
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                           DESCRIPTION
- ------       -----------------------------------------------------------------------------------
<C>     <C>  <S>
 10.9     -- Memorandum and Registration Rights Agreement dated February 9, 1994 regarding
             issuance of 325,000 shares of Company Common Stock to Eric Stein. (1) (Exhibit
             10.9)
 10.10    -- Memorandum and Registration Rights Agreement dated February 9, 1994 regarding
             issuance of 520,000 shares of Company Common Stock to Richard B. Frost. (1)
             (Exhibit 10.10)
 10.11    -- Memorandum and Registration Rights Agreement dated February 9, 1994 regarding
             issuance of 505,000 shares of Company Common Stock to Mark J. Hanna. (1) (Exhibit
             10.11)
 10.12    -- Stock Restriction Agreements dated May 18, 1995 by and between the Company and each
             of Steven Adelman, Richard B. Frost, Frost Nevada Limited Partnership, Mark J.
             Hanna, Mark Politi, Jacqueline Simkin, Todd Slayton, Ronald Stein and Susan Stein,
             Robert Stein and Thomas Zotos. (3) (Exhibit 4)
 10.13    -- Employment Agreement dated October 31, 1994 by and between Company and Todd
             Slayton. (1) (Exhibit 10.13)
 10.14    -- Exchange Agreement dated December 30, 1994 by and between Company and Frost Nevada
             Limited Partnership. (1) (Exhibit 10.14)
 10.15    -- Promissory Note dated December 30, 1994 in the principal amount of $400,000 issued
             by the Company to Frost Nevada Limited Partnership. (1) (Exhibit 10.15)
 10.16    -- Subscription Agreement dated December 7, 1994 by and between Company and Jacqueline
             Simkin. (1) (Exhibit 10.16)
 10.17    -- Registration Rights Agreement dated December 7, 1994 by and between Company and
             Jacqueline Simkin. (1) (Exhibit 10.17)
 10.18    -- Agreement dated January 4, 1995 by and between Signs and Glassworks and Company.
             (1) (Exhibit 10.18)
 10.19    -- Commercial Lease dated August 20, 1993 by and between City Art and Company. (2)
             (Exhibit 10.19)
 10.20    -- License Agreement dated February 18, 1994 by and between DC Comics and Company. (2)
             (Exhibit 10.20)
 10.21    -- License Agreement dated December 2, 1993 by and between Warner Bros. and Company.
             (2) (Exhibit 10.21)
 10.22    -- License Agreement dated October 1, 1994 by and between Viacom Consumer Products and
             Company. (2) (Exhibit 10.22)
 10.23    -- License Agreement dated July 8, 1994 by and between Lucasfilm Ltd. and Company. (2)
             (Exhibit 10.23)
 10.24    -- License Agreement dated March 1, 1993 by and between Paramount Licensing Group and
             Company. (2) (Exhibit 10.24)
 10.25    -- Memorandum regarding waiver of registration rights pursuant to Registration Rights
             Agreement dated February 9, 1994 between Company and Eric Stein. (2) (Exhibit
             10.25)
 10.26    -- Memorandum regarding waiver of registration rights pursuant to Registration Rights
             Agreement dated February 9, 1994 between Company and Richard B. Frost. (2) (Exhibit
             10.26)
 10.27    -- Memorandum regarding waiver of registration rights pursuant to Registration Rights
             Agreement dated February 9, 1994 between Company and Mark J. Hanna. (2) (Exhibit
             10.27)
 10.28    -- Memorandum regarding waiver of registration rights pursuant to Registration Rights
             Agreement dated February 9, 1994 between Company and Frost Nevada Limited
             Partnership. (2) (Exhibit 10.28)
 10.29    -- Memorandum regarding waiver of registration rights pursuant to Registration Rights
             Agreement dated December 7, 1994 between Company and Jacqueline Simkin. (2)
             (Exhibit 10.29)
 10.30    -- 1995 Stock Option Plan.(4) (Exhibit 10.30)
 10.31    -- Amendment to Employment Agreement between the Company and Tom Zotos dated as of
             September 11, 1996.(5)
 10.32    -- Amendment to Employment Agreement between the Company and Robert A. Stein dated as
             of September 11, 1996.(5)
</TABLE>
 
                                       15
<PAGE>   18
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                           DESCRIPTION
- ------       -----------------------------------------------------------------------------------
<C>     <C>  <S>
 10.33    -- Amendment to Employment Agreement between the Company and Mark Politi dated as of
             September 11, 1996.(5)
 10.34    -- Amendment to Employment Agreement between the Company and Alfred Masini dated as of
             September 11, 1996.(5)
 10.35    -- Amendment to Employment Agreement between the Company and Gary Culpepper dated as
             of September 11, 1996.(5)
 10.36    -- Employment Agreement between the Company and Charles M. Fernandez dated as of
             September 11, 1996.
 21       -- Subsidiaries of the Company
 99       -- Consent of Jacqueline Simkin regarding directorship. (2) (Exhibit 99)
 99.1     -- Continucare's Unaudited Consolidated Financial Statements for the Period February
             12, 1996 (inception) to June 30, 1996.
</TABLE>
 
     Documents incorporated by reference to the indicated exhibit to the
following filings by Zanart under the Securities Act of 1933 or the Securities
Exchange Act of 1934.
 
          (1) Registration Statement on Form SB-2, Securities Act File No.
     33-88580, filed with the Commission on January 17, 1995.
 
          (2) Amendment No. 1 to Registration Statement on Form SB-2, Securities
     Act File No. 33-88580, filed with the Commission on March 21, 1995.
 
          (3) Current Report on Form 8-K, dated May 18, 1995.
 
          (4) Form 10-KSB filed with the Commission on September 29, 1995.
 
          (5) Current Report Form 8-K dated August 9, 1996.
 
                                       16
<PAGE>   19
 
                                   SIGNATURES
 
     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
                                      ZANART ENTERTAINMENT INCORPORATED
 
Date: September 30, 1996                  By:   /s/  CHARLES M. FERNANDEZ
                                          --------------------------------------
                                                  Charles M. Fernandez,
                                          Chairman, Chief Executive Officer and
                                                        President
 
     In accordance with 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.
 
<TABLE>
<CAPTION>
                  SIGNATURE                               TITLE                     DATE
- ---------------------------------------------  ----------------------------  -------------------
<C>                                            <S>                           <C>
            /s/  CHARLES M. FERNANDEZ          Chairman, Chief Executive     September 30, 1996
- ---------------------------------------------    Officer and President
            Charles M. Fernandez                 (Principal Executive
                                                 Officer)

              /s/  PHILLIP FROST, M.D.         Vice-Chairman                 September 30, 1996
- ---------------------------------------------
             Phillip Frost, M.D.

                    /s/  SUSAN TARBE           Executive Vice President and  September 30, 1996
- ---------------------------------------------    General Counsel
                 Susan Tarbe

                   /s/  MARIA T. SOSA          Chief Accounting Officer      September 30, 1996
- ---------------------------------------------    (Principal Accounting
                Maria T. Sosa                    Officer)

             /s/  ARTHUR M. GOLDBERG           Director                      September 30, 1996
- ---------------------------------------------
             Arthur M. Goldberg

                  /s/  RICHARD FROST           Director                      September 30, 1996
- ---------------------------------------------
                Richard Frost

                    /s/  MARK HANNA            Director                      September 30, 1996
- ---------------------------------------------
                 Mark Hanna

            /s/  MICHAEL PIERCY, M.D.          Director                      September 30, 1996
- ---------------------------------------------
            Michael Piercy, M.D.
</TABLE>
 
                                       17
<PAGE>   20
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Zanart Entertainment Incorporated:
 
     We have audited the accompanying statement of net assets in process of
liquidation of ZANART ENTERTAINMENT INCORPORATED (a Florida corporation) as of
June 30, 1996, and the related statement of changes in net assets in process of
liquidation for the year then ended. In addition, we have audited the statement
of operations, shareholders' equity (deficit) and cash flows for the year ended
June 30, 1995. 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 generally accepted auditing
standards. 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.
 
     As described in Note 1 to the financial statements, the Company entered
into an Agreement and Plan of Merger (the Agreement) with Continucare
Corporation on August 9, 1996. Pursuant to the Agreement, the Company shall take
such steps as are necessary to effectuate the sale or other disposition of the
assets and the discharge of all liabilities relating to the Company's existing
licensing business. As a result, the Company has changed its basis of accounting
for 1996 from the going-concern basis to the liquidation basis. Accordingly, the
carrying value of the remaining assets as of June 30, 1996 are presented at
estimated realizable values and all liabilities are presented at estimated
settlement amounts.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets in process of liquidation of Zanart
Entertainment Incorporated as of June 30, 1996, the changes in net assets in
process of liquidation for the year then ended and for the year ended June 30,
1995, the statement of operations, shareholders' equity (deficit) and cash flows
in conformity with generally accepted accounting principles applied on the bases
described in the preceding paragraph.
 
                                          /s/ ARTHUR ANDERSEN LLP
                                          --------------------------------------
                                          ARTHUR ANDERSEN LLP
 
Los Angeles, California
September 17, 1996
 
                                       F-1
<PAGE>   21
 
                       ZANART ENTERTAINMENT INCORPORATED
 
               STATEMENT OF NET ASSETS IN PROCESS OF LIQUIDATION
                              AS OF JUNE 30, 1996
 
<TABLE>
<S>                                                                                <C>
                                           ASSETS
Cash and cash equivalents........................................................  $2,196,266
Accounts receivable, net of allowance for doubtful accounts of $75,000...........     382,258
Inventories......................................................................     275,031
Officer advances.................................................................       3,649
                                                                                   ----------
  Total..........................................................................   2,857,204
                                                                                   ----------
                                         LIABILITIES
Accounts payable and accrued liabilities.........................................     172,811
Trade payable to vendor/shareholder..............................................     207,990
Professional fees payable........................................................      50,500
Accrued payroll..................................................................      19,743
Royalties payable................................................................     145,668
Reserve for loss on liquidation..................................................     660,492
                                                                                   ----------
  Total..........................................................................   1,257,204
                                                                                   ----------
NET ASSETS IN PROCESS OF LIQUIDATION.............................................  $1,600,000
                                                                                   ==========
</TABLE>
 
         The accompanying notes are an integral part of this statement.
 
                                       F-2
<PAGE>   22
 
                       ZANART ENTERTAINMENT INCORPORATED
 
          STATEMENT OF CHANGES IN NET ASSETS IN PROCESS OF LIQUIDATION
                        FOR THE YEAR ENDED JUNE 30, 1996
 
<TABLE>
<S>                                                                               <C>
REVENUES........................................................................  $ 2,503,506
COST OF REVENUES................................................................    2,345,238
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....................................    1,512,983
                                                                                  -----------
  Decrease from operations......................................................   (1,354,715)
INTEREST INCOME.................................................................      134,879
INTEREST EXPENSE................................................................       (2,483)
LOSS ON LIQUIDATION.............................................................   (1,058,931)
                                                                                  -----------
  Decrease before provision for state income taxes..............................   (2,281,250)
PROVISION FOR STATE INCOME TAXES................................................          800
                                                                                  -----------
  Net decrease..................................................................   (2,282,050)
NET ASSETS, beginning of year...................................................    3,882,050
                                                                                  -----------
NET ASSETS IN PROCESS OF LIQUIDATION, end of year...............................  $ 1,600,000
                                                                                  ===========
PRO FORMA EARNING PER SHARE INFORMATION (see Note 10):
  Earnings per common share.....................................................  $      0.06
                                                                                  ===========
  Weighted average number of shares outstanding.................................   11,402,983
                                                                                  ===========
</TABLE>
 
         The accompanying notes are an integral part of this statement.
 
                                       F-3
<PAGE>   23
 
                       ZANART ENTERTAINMENT INCORPORATED
 
                            STATEMENT OF OPERATIONS
                        FOR THE YEAR ENDED JUNE 30, 1995
 
<TABLE>
<S>                                                                                <C>
REVENUES.........................................................................  $2,325,337
COST OF REVENUES.................................................................   1,818,202
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.....................................     958,817
                                                                                   ----------
  Loss from operations...........................................................    (451,682)
INTEREST INCOME..................................................................      23,149
INTEREST EXPENSE.................................................................    (106,408)
                                                                                   ----------
  Loss before provision for state income taxes and extraordinary item............    (534,941)
PROVISION FOR STATE INCOME TAXES.................................................         800
                                                                                   ----------
  Loss before extraordinary item.................................................    (535,741)
EXTRAORDINARY ITEM -- LOSS FROM EARLY EXTINGUISHMENT OF DEBT.....................     (37,281)
                                                                                   ----------
     Net loss....................................................................  $ (573,022)
                                                                                   ==========
</TABLE>
 
         The accompanying notes are an integral part of this statement.
 
                                       F-4
<PAGE>   24
 
                       ZANART ENTERTAINMENT INCORPORATED
 
                  STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
                        FOR THE YEAR ENDED JUNE 30, 1995
 
<TABLE>
<CAPTION>
                                             COMMON STOCK      ADDITIONAL
                                          ------------------    PAID-IN
                                           SHARES     AMOUNT    CAPITAL       DEFICIT       TOTAL
                                          ---------   ------   ----------   -----------   ----------
<S>                                       <C>         <C>      <C>          <C>           <C>
BALANCE, June 30, 1994..................  1,924,650    $192    $  321,920   $  (458,961)  $ (136,849)
  Issuance of common stock for cash.....     25,000       3        99,997            --      100,000
  Issuance of common stock for early
     extinguishment of debt.............     33,333       3       133,330            --      133,333
  Proceeds from public offering net of
     offering expenses of $1,161,572....    920,000      92     4,358,496            --    4,358,588
  Net loss..............................         --      --            --      (573,022)    (573,022)
                                          ---------    ----    ----------   -----------   ----------
BALANCE, June 30, 1995..................  2,902,983    $290    $4,913,743   $(1,031,983)  $3,882,050
                                          =========    ====    ==========   ===========   ==========
</TABLE>
 
         The accompanying notes are an integral part of this statement.
 
                                       F-5
<PAGE>   25
 
                       ZANART ENTERTAINMENT INCORPORATED
 
                            STATEMENT OF CASH FLOWS
                        FOR THE YEAR ENDED JUNE 30, 1995
 
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
<TABLE>
<S>                                                                                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss.......................................................................  $ (573,022)
  Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization...............................................     121,838
     Provision for doubtful accounts.............................................      62,437
     Amortization of deferred financing costs....................................      65,268
     Loss from early extinguishment of debt......................................      37,281
     Changes in assets and liabilities:
       Accounts receivable.......................................................    (327,282)
       Income tax refund receivable..............................................       7,446
       Inventories...............................................................    (305,156)
       Prepaid expenses..........................................................     (43,486)
       Other assets..............................................................     (20,000)
       Accounts payable and accrued liabilities..................................     188,456
       Trade payable to vendor/shareholder.......................................    (170,263)
       Professional fees payable.................................................     (23,792)
       Accrued payroll...........................................................     (19,544)
       Royalties payable.........................................................      24,405
                                                                                   ----------
          Net cash used in operating activities..................................    (975,414)
                                                                                   ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of furniture and equipment...........................................     (48,637)
  Advances on licensing fees.....................................................     (95,000)
  Officer advances, net..........................................................       1,051
                                                                                   ----------
          Net cash used in investing activities..................................    (142,586)
                                                                                   ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on notes..............................................................    (410,000)
  Proceeds from the issuance of common stock.....................................   4,458,588
                                                                                   ----------
          Net cash provided by financing activities..............................   4,048,588
                                                                                   ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................................   2,930,588
CASH AND CASH EQUIVALENTS, beginning of year.....................................     339,982
                                                                                   ----------
CASH AND CASH EQUIVALENTS, end of year...........................................  $3,270,570
                                                                                   ==========
</TABLE>
 
         The accompanying notes are an integral part of this statement.
 
                                       F-6
<PAGE>   26
 
                       ZANART ENTERTAINMENT INCORPORATED
 
                         NOTES TO FINANCIAL STATEMENTS
                                 JUNE 30, 1996
 
1.  ORGANIZATION AND LINE OF BUSINESS
 
     Zanart Publishing Incorporated (Zanart) was formed in March 1990 and merged
with Xuma Corporation (Xuma), which was incorporated under the laws of the state
of Florida in August 1986. In March 1994, the name was changed to Zanart
Entertainment Incorporated (the Company).
 
     The Company designs, develops, markets and sells a variety of printed
products based upon characters from entertainment properties licensed by the
Company from television and motion picture studios. The Company's products are
sold through retail chain stores, individual retail stores, direct mail catalogs
and a television shopping network.
 
     During May 1995, the Company completed a public offering whereby 800,000
units were sold. Each unit was comprised of one share of common stock and one
warrant to purchase one share of common stock at a price of $6.00. Warrants are
fully exercisable when issued and will expire five years after they are issued.
No warrants have been exercised as of June 30, 1996.
 
     During June 1995, the Company sold another 120,000 units as over-allotments
related to the initial public offering. Total proceeds received, after related
offering costs of $1,161,572, from the above sales were $4,358,588. Total
proceeds include $160 received related to representative units issued to the
underwriters. Offering costs consisted of direct costs incurred related to the
public offering. These costs mainly consist of legal, accounting and printing
fees, underwriter's commissions, as well as marketing costs incurred in
connection with the offering.
 
     On August 9, 1996, the Company entered into an Agreement and Plan of Merger
(the Agreement) with Continucare Corporation (Continucare). Pursuant to the
Agreement, the Company will merge with and into Continucare (the Merger) and
each issued and outstanding share of Continucare common stock (8,300,000 shares)
will be converted into the right to receive one share of the Company's common
stock. Thereafter, the present shareholders of Continucare will own
approximately 74 percent of the issued and outstanding common stock of the
Company. In connection therewith, although from a legal standpoint the Company
will be the surviving Company, the acquiring company for accounting purposes
will be Continucare. The transaction will be accounted for as a recapitalization
of Continucare with Continucare as the acquiror (a reverse merger). Continucare
was incorporated on February 12, 1996 in the State of Florida. Together with its
subsidiaries, Continucare is a full-service healthcare management organization
that creates and implements operational, marketing, administrative, staffing and
financial programs for specialized outpatient institutional and professional
providers. Continucare, which specializes in mental and physical rehabilitative
programs, offers an expanded healthcare product line, including setting up and
managing partial hospitalization and full-service community-based outpatient
healthcare centers. Continucare manages nineteen partial hospitalization
programs in three states and two day-treatment programs which serve as a
step-down alternative to patients that no longer require partial hospitalization
in order to assist the patients in transitioning back into their communities. Of
the nineteen programs, four are also owned by shareholders of Continucare. See
Note 10 for unaudited pro forma information related to the Merger.
 
     Within three months from the closing of the Merger (September 11, 1996, the
Closing Date), the Company shall take such steps as are necessary to effectuate
the sale or other disposition of the assets and the discharge of all liabilities
relating to the Company's existing licensing business (the Liquidation). At the
end of the three months, the Company's closing cash balance is to be at least
$2,000,000. In the event that the closing cash balance is less than the
$2,000,000, then the holders of Continucare common stock shall receive one-half
share of the Company's common stock for each dollar of difference. The Company
estimates that its
 
                                       F-7
<PAGE>   27
 
                       ZANART ENTERTAINMENT INCORPORATED
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
closing cash balance will be approximately $1,600,000, resulting in an
additional 200,000 shares being issued to the holders of Continucare.
 
     As a result of the merger, the Company has changed its basis of accounting
for 1996 from the going-concern basis to the liquidation basis. Accordingly, the
carrying values of the remaining net assets as of June 30, 1996 are presented at
estimated realizable values and settlement amounts as determined by the Company.
The final realizable values and settlement amounts may be different from the
amounts estimated in the accompanying financial statements.
 
     The $660,492 reserve for loss on liquidation represents merger related
costs incurred by the Company of approximately $247,000, cash operating losses
incurred from July 1, 1996 to the Closing Date of approximately $178,000,
estimated costs to be incurred during the three month liquidation period of
approximately $105,000, and severance pay of approximately $130,000. The amount
has been included in loss on liquidation in the accompanying statements of
activities in liquidation. The loss on liquidation also includes certain
provisions made to restate the net assets as of June 30, 1996 at their estimated
realizable values. These provisions primarily include adjustments to
inventories, prepaid expenses, furniture and equipment, and licensing fees.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
A. CASH AND CASH EQUIVALENTS
 
     The Company considers cash equivalents to be short-term, highly liquid
investments that are both readily convertible to known amounts of cash, and are
so near their maturity that they present insignificant risk of changes in value
because of changes in interest rates. Cash equivalents include money market
funds and are carried at market which equals cost.
 
     Cash and cash equivalents are exposed to concentrations of credit risk. The
Company has placed approximately $2,109,000 in high quality securities within
one institution and one account.
 
B. INVENTORIES
 
     Inventories are carried at the lower of invoiced cost (first-in, first-out)
or market and consist of finished goods and raw materials/supplies of $110,012
and $165,019, respectively.
 
C. REVENUE RECOGNITION
 
     The Company recognizes revenue upon shipment of goods.
 
D. STATEMENT OF CASH FLOWS
 
     The Company prepares its 1995 statement of cash flows using the indirect
method as defined under Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows." Required cash and non-cash transaction disclosures
are as follows:
 
     During fiscal year 1995, the Company made cash payments of $40,444 and $800
for interest and income taxes, respectively.
 
     In December 1994, the Company issued 33,333 shares of its common stock in
exchange for a $100,000 reduction in debt.
 
E. SHAREHOLDER NOTE PAYABLE AND DEFERRED FINANCING COSTS
 
     In February 1994, the Company borrowed $500,000 from Frost Nevada Limited
Partnership. On December 30, 1994, the Company issued 33,333 shares of its
common stock valued at $133,333 ($4.00 per
 
                                       F-8
<PAGE>   28
 
                       ZANART ENTERTAINMENT INCORPORATED
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
share) in exchange for a $100,000 reduction in the principal amount. The
exchange resulted in an extraordinary loss of $37,281. The loss includes
amortization of deferred financing costs of $3,948. During fiscal year 1995, the
Company incurred interest expense of $40,444 in connection with the above
shareholder note payable.
 
     In connection with the original $500,000 loan above and certain related
consulting services rendered, 762,500 shares of the Company's common stock was
issued in 1994. The market value of the shares were $111,782 and were recorded
as deferred financing costs. During fiscal year 1995, the then remaining
unamortized deferred financing costs of $69,216 were amortized with $65,268
included in interest expense and $3,948 included in the extraordinary loss from
early extinguishment of debt in the accompanying statement of operations.
 
F. USE OF ESTIMATES
 
     The preparation of financial statements requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the recorded amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
 
G. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     All financial instrument carrying amounts approximate fair value because of
their short maturity or they bear interest at a reasonable rate.
 
H. LOSS PER COMMON SHARE
 
     Loss per common share is based upon the pro forma weighted average number
of common shares outstanding assuming the Merger with Continucare (see Note 1)
had been completed as of February 12, 1996, the date Continucare began
operations. Loss per common share information for 1995 has not been provided
because the historical financial statement after the Merger are exclusively
those of Continucare.
 
     Common stock equivalents have not been included as the Company's average
market common share price for 1996, as of June 30, 1996, and for the three
months ended June 30, 1996 have all been below the exercise price of all issued
and outstanding options and warrants.
 
I. NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS
 
     The requirements of the Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, issued in October 1995 and Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation, issued
in October 1995, are effective for financial statements for years that begin
after December 15, 1995. These new standards will be implemented in fiscal year
1997 and the effect of the new financial accounting pronouncements are expected
to be immaterial.
 
3.  SIGNIFICANT CUSTOMERS
 
     The Company's largest customer (Warner Bros. Inc.) represents approximately
54 and 47 percent of sales for fiscal year 1996 and 1995, respectively. The
Company's second largest customer (Musicland Group, Inc.) represents
approximately 11 and 10 percent of sales for fiscal year 1996 and 1995. No other
customers represented 10 percent or more of sales in fiscal years 1996 and 1995.
The Company's sales are primarily distributed throughout the United States to a
diversified customer base. However, a substantial portion of its debtors'
abilities to honor their contracts is dependent on the entertainment economic
sector.
 
                                       F-9
<PAGE>   29
 
                       ZANART ENTERTAINMENT INCORPORATED
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
4.  RELATED PARTY TRANSACTIONS
 
     The Company rents space from one of its suppliers (the Supplier, who is
also a minority shareholder) under a month-to-month operating lease agreement.
For the fiscal years ended June 30, 1996 and 1995, rent expense was
approximately $10,000 and $17,000, respectively.
 
     Company net purchases from the above Supplier/Shareholder totaled
$1,018,815 and $472,088 for the years ended June 30, 1996 and 1995,
respectively. Accounts payable due to the Supplier was $207,990 at June 30,
1996.
 
5.  INCOME TAXES
 
     The Company accounts for income taxes under the Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes". Under
SFAS 109, deferred income tax assets or liabilities are computed based on the
temporary difference between the financial statement and income tax basis of
assets and liabilities using the enacted marginal income tax rate in effect for
the year in which the difference are expected to reverse. Deferred income tax
expenses or credits are based on the changes in the deferred income tax asset or
liabilities from period to period.
 
     As of June 30, 1996 the Company had approximately $1,748,000 and $1,690,000
of federal and state net operating loss carryforwards, respectively. Other
deferred tax assets primarily related to certain allowances made for doubtful
accounts and inventories, and the provision recorded (totaling $1,058,931) to
restate net assets at their net realizable value (see Note 1).
 
     Pursuant to Internal Revenue Service code section 382 (Section 382(c)), a
company that is acquired must maintain operations for two years after the
purchase. Otherwise the acquired company's previously existing net operating
loss carryforwards, and deferred assets and liabilities are unavailable to the
acquiring company.
 
     Based on Section 382(c), the Liquidation, and SFAS 109, the Company has
recorded valuation allowances against the realization of its deferred tax
assets. It is this valuation allowance that is primarily the reconciling
difference between the expected income tax provision at the statutory federal
income tax rate and the actual provision incurred.
 
     The provision for state income taxes of $800 for the fiscal years ended
June 30, 1996 and 1995, respectively, consist only of the current state
provision.
 
6.  CONSULTING AGREEMENT
 
     During May and August 1994, the Company entered into consulting agreements
with two unrelated individuals. Under the agreements, the Company has granted
each individual an option to acquire 10,000 shares of the Company's common stock
at a price of $6.00 per share. These options vest and are exercisable at the
rate of 2,500 shares per year and are conditioned upon, among other things, the
individuals continuing as a consultant to the Company. During July 1996, one of
the above consultants was appointed to the Board of Directors. As a result, an
additional 2,500 shares are to vest on the Closing Date. The exercise period was
extended to October 31, 1998 for the above options in connection with the
Merger.
 
7.  EMPLOYMENT AGREEMENTS
 
     During fiscal year 1995, the Company entered into three year employment
agreements with four of its executive officers (Thomas Zotos, Robert Stein, Mark
Politi and Todd Slayton). In April 1996, Mark Politi resigned. Pursuant to the
employment agreements, each individual will receive an annual base salary
ranging from $60,000 to $75,000. A signing bonus of $20,000 was paid to Mr.
Zotos in July 1994. Upon the completion of the public offering, the executives
received additional compensation totaling $70,000. Additionally, these
 
                                      F-10
<PAGE>   30
 
                       ZANART ENTERTAINMENT INCORPORATED
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
individuals agree not to compete with the Company and solicit employees and
customers from the Company during the term of the agreements and for one year
thereafter. If at any time during the term of the agreements, a change of
ownership of at least more than 50 percent of the outstanding voting shares of
the Company occurs along with other defined events, the employee has the option
to terminate his agreement at which time the Company is obligated to pay to the
employee a lump sum equal to two times the present value of his remaining
financial entitlements under the agreement.
 
     Pursuant to the employee agreements entered into during fiscal year 1995,
the Company granted two executives an option to acquire a total of 62,500 shares
of the Company's common stock at a purchase price of $6.00 per share. Option
shares vest and are exercisable over a three year period. Due to the resignation
of an officer above, an option to acquire a total of 37,500 shares was
terminated. Pursuant to an amendment to the employment agreements in connection
with the Merger, the other option has been extended to October 31, 1998 and the
remaining unvested portion of 8,333 shares is to vest on October 31, 1996. The
amendment also provides for an additional option to acquire 20,000 shares of the
Company's common stock at the closing market price at the day before the Closing
Date ($8.25). The option is fully vested and expires October 31, 1998.
 
     As a result of the Merger, the officers entered into amendments to their
employment agreements. Pursuant to the amendments, the executives resigned as
officers and are to continue as employees through the three month liquidation
period. At the end of which, each former officer is to receive severance
compensation equal to six months of salary. The not to compete clauses and the
compensation due upon the change in control provisions have been waived. The
Company's rights (prior to the Merger) in its fixed assets, a licensing
agreement, and the Company's name, logo and trademarks are to be jointly
assigned to two of the former officers at no cost to the officers. The carrying
values as of June 30, 1996 of the assets to be assigned of approximately $49,000
have been charged to loss on liquidation in the accompanying statement of
activities in liquidation.
 
     Minimum payments required in fiscal 1997 under the three remaining
employment agreements are approximately $207,000.
 
8.  OPTIONS AND WARRANTS
 
     The Company entered into an agreement on December 7, 1994 to sell 25,000
shares of its common stock for $4.00 per share to an unrelated party. The
purchaser also receives an option to acquire an additional 25,000 shares of
common stock, subject to an anti-dilution covenant as defined in the agreement,
at a purchase price of $4.00 per share. The option shares may be exercised in
whole or in part at any time or from time to time for five years ending December
1999.
 
     In connection with the public offering, the underwriters were issued 80,000
representative units. Each representative unit entitles the holder to purchase
one share of common stock and a warrant to purchase a share of common stock each
for $7.50. The warrants vest and are exercisable over a four year period
starting one year from the public offering. The representative units were issued
for $160.
 
     In December 1995, the Company's shareholders approved the 1995 Stock Option
Plan (the Plan). Under the Plan, a maximum of 360,000 shares of the Company's
common stock may be issued at an exercise price equal to not less than the fair
market value of the Company's common stock on the date of the grant. The Plan
provides for the issuance of incentive stock options to employees of the Company
and non-qualified stock options to employees, directors, independent contractors
and agents of the Company. In December 1995, two options to purchase 2,500
common shares each at $5.25 a share was granted to the non-employer directors of
the Company. The options vest immediately and are exercisable with no expiration
date. The Plan was terminated subsequent to year end as a condition to the
Merger.
 
                                      F-11
<PAGE>   31
 
                       ZANART ENTERTAINMENT INCORPORATED
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
     The following is a summary of all options and warrants granted to acquire
the Company's common stock as of June 30, 1996.
 
<TABLE>
<CAPTION>
 SHARES        SHARES        SHARES
 GRANTED       VESTED       EXERCISED
- ---------     ---------     ---------
<S>           <C>           <C>
1,405,000     1,389,167        --
</TABLE>
 
     The following is a summary of all options and warrants granted to acquire
the Company's common stock as of the Closing Date.
 
<TABLE>
<CAPTION>
 SHARES        SHARES        SHARES
 GRANTED       VESTED       EXERCISED
- ---------     ---------     ---------
<S>           <C>           <C>
1,425,000     1,414,167        --
</TABLE>
 
     Of the 10,833 unvested shares as of the Closing Date, 8,333 shares will
vest on October 31, 1996 and the remainder will be canceled in accordance with
the Agreement.
 
9.  COMMITMENTS AND CONTINGENCIES
 
     The Xuma registration statement declared effective by the U.S. Securities
and Exchange Commission on March 31, 1988 contained disclosures that management
of the Company would not consider acquiring a business opportunity in which its
management had a five percent or greater equity interest unless the Company
first received from an independent, qualified business appraiser an opinion that
the acquisition was fair and reasonable to the shareholders. At the time Xuma
merged with Zanart in March 1990, Zanart was controlled by a member of Xuma's
management. Neither an affiliation notice nor a business appraisal were obtained
and delivered to the shareholders. Management of Xuma determined a business
appraisal was not needed as there were no significant operating or intangible
assets in Zanart at the date of the merger. However, Zanart was in the process
of obtaining license agreements to commence principal operations and securing
the services of its current Chief Executive Officer, Mr. Zotos (who has
significant experience in the entertainment licensing properties business) to
become an employee of the Company to manage the Company's operations. The shares
of common stock outstanding as of the date of the Zanart merger, net of shares
held by current and past officers and directors, totaled 51,400 or 6 percent of
the total outstanding shares after the merger (11 percent of pre-merger
outstanding shares).
 
     Additionally, due to a ministerial error, the Xuma registration statement
contained as an exhibit Articles of Incorporation (Disclosed Articles) that were
different from the actual Articles of Incorporation (Actual Articles) filed by
the Company on August 4, 1986. The primary difference between the two sets of
articles was that the Actual Articles contained provisions granting shareholders
preemptive rights. Accordingly, it is possible that certain shareholders of the
Company could assert that they had preemptive rights to acquire certain
Company's securities and that certain issuance's of the Company's securities
were made in violation of such rights. In February 1994, the Company restated
its Articles of Incorporation eliminating preemptive rights originally granted
to shareholders. Accordingly, shareholders dissenting to this action can enforce
recession rights thereby requiring the Company to pay them the fair value of
their shares at the date of the restatement of the articles. The number of
shares of common stock which may still assert either preemptive or dissenters
rights as a result of these actions, net of shares held by current and past
officers and directors, totaled 63,400 shares.
 
     Based upon the closely controlled nature of the Company, the passage of
time and lack of damages incurred relating to the merger as well as the limited
number of securities issuance's and shareholders possessing either preemptive or
rescission rights, Company management is of the belief, based in part on
discussions with legal counsel, that these items would not, individually or in
the aggregate, have a material adverse effect on the Company.
 
                                      F-12
<PAGE>   32
 
                       ZANART ENTERTAINMENT INCORPORATED
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
10.  PRO FORMA INFORMATION (UNAUDITED)
 
     The following unaudited pro forma condensed consolidated balance sheet as
of June 30, 1996 has been prepared by adjusting Continucare's historical
condensed consolidated balance sheet as of June 30, 1996. As Zanart's operations
will be discontinued, no pro forma statement of income is presented as the
Merger would have no material effect on the historical operations of Continucare
had the Merger occurred on February 12, 1996 (Inception). The historical balance
sheet has been adjusted to give effect to the merger as if the Merger had
occurred as of June 30, 1996.
 
     The pro forma unaudited condensed consolidated balance sheet presented
herein does not purport to be indicative of the actual financial position of the
Continucare had the Merger actually been consummated on June 30, 1996, or of the
future financial position of Continucare which will result from the consummation
of the Merger.
 
<TABLE>
<CAPTION>
                                                         HISTORICAL     PRO FORMA
                                                         CONTINUCARE   ADJUSTMENTS       PRO FORMA
                                                         -----------   -----------      -----------
<S>                                                      <C>           <C>              <C>
CURRENT ASSETS:
  Cash and cash equivalents............................  $   819,000   $  (375,000)(1)  $ 8,544,000
                                                                         6,500,000(3)
                                                                         1,600,000(4)
  Accounts receivable..................................    1,968,100            --        1,968,100
  Prepaid expenses and other current assets............        1,000            --            1,000
                                                          ----------    ----------      -----------
          Total current assets.........................    2,788,100     7,725,000       10,513,100
                                                          ----------    ----------      -----------
PROPERTY AND EQUIPMENT.................................        5,000            --            5,000
OTHER ASSETS...........................................       72,000            --           72,000
                                                          ----------    ----------      -----------
TOTAL ASSETS...........................................  $ 2,865,100   $ 7,725,000      $10,950,100
                                                          ==========    ==========      ===========
CURRENT LIABILITIES:
  Accounts payable and accrued expenses................  $   356,000            --      $   356,000
  Income and other taxes payable.......................      413,000            --          413,000
                                                          ----------    ----------      -----------
          Total current liabilities....................      769,000            --          769,000
NOTES PAYABLE..........................................      655,000            --          655,000
                                                          ----------    ----------      -----------
TOTAL LIABILITIES......................................    1,424,000            --        1,424,000
MINORITY INTEREST......................................       33,000            --           33,000
                                                          ----------    ----------      -----------
SHAREHOLDERS' EQUITY(6):
  Common stock.........................................          100           (25)(1)        1,140
                                                                               425(2)
                                                                               330(3)
                                                                               290(4)
                                                                                20(5)
  Additional paid-in capital...........................      764,000      (374,975)(1)    8,488,250
                                                                              (425)(2)
                                                                         6,499,670(3)
                                                                         1,599,710(4)
                                                                               (20)(5)
Retained earnings......................................      644,000            --          644,000
                                                          ----------    ----------      -----------
          Total shareholders' equity...................    1,408,100     7,725,000        9,133,100
                                                          ----------    ----------      -----------
          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...  $ 2,865,100   $ 7,725,000      $10,590,100
                                                          ==========    ==========      ===========
</TABLE>
 
                                      F-13
<PAGE>   33
 
                       ZANART ENTERTAINMENT INCORPORATED
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
- ---------------
 
(1) To record the repurchase of the common stock of a 25 percent former
     shareholder of Continucare during August 1996 for $375,000.
(2) To record the issuance of 4,999,925 shares of Continucare common stock in
     connection with a 66,667 to one stock split effected during August 1996.
     Prior to the stock split, Continucare amended its Articles of Incorporation
     to increase its authorized common shares to 10,000,000 par value $.0001.
(3) To record the proceeds from a private placement of 3,300,000 shares of
     Continucare common stock at $2.00 a share completed during August 1996, net
     of estimated costs of $100,000.
(4) To record (i) the cancellation 8,300,000 shares of Continucare common stock
     issued and outstanding; (ii) the issuance of 8,300,000 shares of Zanart
     common stock to Continucare shareholders, representing the conversion of
     each share of Continucare into one share of Zanart common stock, based on
     the Agreement; (iii) 2,902,983 shares of Zanart common stock issued and
     outstanding as of the date of the Agreement; and (iv) Zanart's net assets
     acquired in the Merger consisting of $1,600,000 in cash.
(5) To record the issuance of an additional 200,000 shares at $.0001 par value
     (see Note 1).
(6) Historical and pro forma earnings per share for Continucare for the period
     from February 12, 1996 (Inception) through June 30, 1996 are calculated as
     follows:
 
<TABLE>
<CAPTION>
                                                               HISTORICAL       PRO FORMA
                                                              JUNE 30, 1996   JUNE 30, 1996
                                                              -------------   -------------
        <S>                                                   <C>             <C>
        Income from Continucare operations..................   $ 1,033,000     $  1,033,000
                                                                ==========      ===========
        Net income..........................................   $   644,609     $    644,609
                                                                ==========      ===========
        Number of shares outstanding:
          Continucare:
             Historical -- (giving effect to stock split)...     6,666,667        6,666,667
             Net increase after stock repurchase and private
               placement....................................            --        1,633,333
          Zanart merger (after the issuance of additional
             200,000 shares)................................            --        3,102,983
                                                                ----------      -----------
                                                                 6,666,667       11,402,983
                                                                ==========      ===========
        Earnings per share (EPS)............................   $      0.10     $       0.06
                                                                ==========      ===========
</TABLE>
 
     As discussed in Note 1, the above pro forma earnings per share (EPS)
     calculation excludes issued and outstanding options and warrants. However,
     assuming that the Merger took place at Continucare's inception, the pro
     forma weighted average number of shares outstanding (including options and
     warrants under the treasure stock method) would increase by approximately
     420,000 shares resulting in a reduction in EPS to $0.05 per share.
 
                                      F-14

<PAGE>   1
                  CHARLES M. FERNANDEZ EMPLOYMENT AGREEMENT

        This Employment Agreement ("Agreement") is made and entered into as of
the 11th day of September, 1996 by and between ZANART ENTERTAINMENT
INCORPORATED, a Florida corporation (the "Company"), and CHARLES M. FERNANDEZ
(the "Executive").

                                  Recitals

        A.      The Executive is becoming a principal shareholder of the
Company.

        B.      The Board of Directors of the Company (the "Board") believes
that the Executive can contribute to the growth and success of the Company, and
desires to assure the Company of the Executive's employment and to compensate
him therefor.

        C.      The Board has determined that this Agreement will reinforce and
encourage the Executive's attention and dedication to the Company.

        D.      The Executive is willing to make his services available to the
Company on the terms and conditions hereinafter set forth.

                                  Agreement

        NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:

        1.      Employment.

                1.1     General.  The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to serve the Company on the terms
and conditions set forth herein.

                1.2     Duties of Executive.  During the term of this
Agreement, the Executive shall serve as Chairman of the Board and President of
the Company, shall diligently perform all services as may be assigned to him by
the Board, and shall exercise such power and authority as may from time to time
be delegated to him by the Board.  The Executive shall devote substantially all
of his business time and attention to the business and affairs of the Company,
render such services to the best of his ability, and use his best efforts to
promote the interests of the Company.

        2.      Term.  Except as otherwise provided in Section 5 hereof, the
term of this Agreement shall continue through the date hereof and shall
terminate as provided below ("Term").  The Term shall be a continuous three
year period commencing this date and running for a period such that on each
"Anniversary Date", as defined below, an additional year automatically shall be
added.  Within 60 days prior to any Anniversary Date either party may provide
written notice, with or without cause, to the other party of that party's
intention not to extend the Term of this Agreement beyond the number of years
then remaining in the Term, which number shall always be three.  Such written
notice shall be deemed the notice to terminate this Agreement at the end of the
three year term then in effect.  The "Anniversary Date," as used herein, shall
be the 11th day of September of each year during the Term, including each year
beyond the first three years of the Term.  It is the intention of the parties
that the Term as of each Anniversary Date automatically shall be three years,
that three years' written notice shall be required to terminate this Agreement
except as otherwise provided in Section 5 hereof and that said written notice
to terminate may only be given on an Anniversary Date.

        3.      Compensation.

                3.1     Base Salary.  The Executive shall receive a base salary
at the annual rate of Three Hundred Fifty Thousand Dollars ($350,000) (the
"Base Salary") during the Term of this Agreement, with such Base Salary payable
in installments consistent with the Company's normal payroll schedule, subject
to applicable withholding and other taxes.


                                     -1-
<PAGE>   2


                3.2     Bonus.  The Executive shall receive a bonus (the
"Bonus") equal to $100,000, which amount shall be payable in 20 equal quarterly
installments of $5,000 over the first five years of this Agreement; provided,
that if this Agreement is terminated earlier as set forth herein, then the
Executive shall be entitled to receive the amount of the Bonus which has not
been theretofore paid at the time of such termination.  The Executive shall
also be eligible to receive a bonus in an amount determined by the unanimous
vote of all members of the Company's Board of Directors, based upon the
Company's operating results, financial condition, prospects and intended
utilization of earnings, if any.

                3.3     Cost-of-living Increase.  Commencing September 11,
1997, and each Anniversary Date thereafter during the Term, the Base Salary
shall be increased, but shall not be decreased, by that percentage by which the
Consumer Price Index (All Items Less Shelter), Urban Wage Earners and Clerical
Workers, for the Miami, Florida area published by the United States Government
(the "Index") for the immediately preceding calendar year exceeds such index
for the next preceding calendar year.  If publication of the Index is
discontinued, the parties hereto shall accept comparable statistics on the cost
of living for the Miami, Florida area as computed and published by an agency of
the United States government or, if no such agency computes and publishes such
statistics, by any regularly published national financial periodical that does
compute and publish such statistics.

        4.      Expense Reimbursement and Other Benefits.

                4.1     Other Reimbursable Expenses.  During the term of the
Executive's employment hereunder, the Company, upon the submission of proper
substantiation by the Executive, shall reimburse the Executive for all other
reasonable expenses actually and necessarily paid or incurred by the Executive
in the course of and pursuant to the business of the Company.

                4.2     Other Benefits.  The Company shall pay life insurance
premiums for the Executive in an amount equal to $500/month.  The Executive and
his immediate family shall be entitled to participate in all medical and
hospitalization, group life insurance, and any and all other plans as are
presently and hereinafter provided by the Company to its executives.  The
Executive shall also be entitled to vacations in accordance with the Company's
prevailing policy for its executives.

                4.3     Working Facilities.  The Company shall furnish the
Executive with an office, secretarial help and such other facilities and
services suitable to his position and adequate for the performance of his
duties hereunder.

                4.4     Automobile Allowance.  The Executive shall be entitled
to an automobile allowance of $1,000 per month, which amount is intended to
compensate Executive for wear and tear and, in addition, reimburse the
Executive for all costs of gasoline, oil, repairs, maintenance, insurance and
other expenses incurred by Executive by reason of the use of Executive's
automobile for Company business from time to time.

        5.      Termination.

                5.1     Termination for Cause.  The Company shall at all times
have the right, upon written notice to the Executive, to terminate the
Executive's employment hereunder for "Cause" (as hereinafter defined).  For
purpose of this Agreement, the term "Cause" shall mean, subject to the proviso
in the last sentence of Section 1.2 of this Agreement, (i) the willful failure
or refusal of the Executive to perform the duties or render the services
assigned to him from time to time by the Board (except during reasonable
vacation periods or sick leave), (ii) the charging or indictment of the
Executive in connection with a felony, (iii) the association, directly or
indirectly, of the Executive, for his profit or financial benefit, with any
person, firm, partnership, association, entity or corporation that competes in
any material way with the Company, (iv) the disclosing or using of any material
trade secret or confidential information of the Company at any time by the
Executive, except as required in connection with his duties to the Company, (v)
the breach by the Executive of his fiduciary duty or duty of trust to the
Company.

                5.2     Disability.  The Company shall at all times have the
right, upon written notice to the Executive, to terminate the Executive's
employment hereunder if the Executive shall, as the result of mental or
physical incapacity, illness or disability, become unable to perform his duties
hereunder for in excess of ninety (90) days in any 12-month period.  Upon any
termination pursuant to this Section 5.2, the Company shall pay to the
Executive any unpaid amounts of his Base Salary accrued through the 


                                     -2-
<PAGE>   3


effective date of termination and the amount, if any, of the unpaid Bonus in
accordance with Section 3.2 hereof, and an amount to be determined by the
unanimous vote of the Board of Directors in their sole and absolute discretion,
and the Company shall have no further liability hereunder (other than for
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however to the provisions of Section 4.1).

                5.3     Death.  In the event of the death of the Executive
during the term of his employment hereunder, the Company shall pay to the
estate of the deceased Executive any unpaid amounts of his Base Salary accrued
through the effective date of his death and the amount, if any, of the unpaid
Bonus in accordance with Section 3.2 hereof, and the Company shall have no
further liability hereunder (other than for reimbursement for reasonable
business expenses incurred prior to the date of the Executive's death, subject,
however to the provisions of Section 4.1).

                5.4     Termination Without Cause.  At any time the Company
shall have the right to terminate the Executive's employment hereunder by
written notice to the Executive; provided, however, that, the Company shall
continue to pay to the Executive the Base Salary for a period of three years
following the effective date of termination specified in such notice in
accordance with the Company's normal payroll policies and the amount, if any,
of the unpaid Bonus in accordance with Section 3.2 hereof.  The Company shall
have no further liability hereunder (other than for reimbursement for
reasonable business expenses incurred prior to the date of termination,
subject, however to the provisions of Section 4.1).

                5.5     Resignation by Executive.  The Executive shall at all
times have the right, upon 60 days' written notice to the Company, to terminate
the Employee's employment hereunder.  Upon any termination pursuant to this
Section 5.5, the Employee shall be entitled to be paid his Base Salary to the
date of termination and the amount, if any, of the unpaid Bonus in accordance
with Section 3.2 hereof, and the Company shall have no further liability
hereunder (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1).

        6.      Restrictive Covenants.

                6.1     Non-competition.  While employed by the Company and for
a period of two years following the termination of the Executives employment
hereunder (other than a termination without cause, as contemplated by Section
5.4 hereof), the Executive shall not, directly or indirectly, engage in or have
any interest in any sole proprietorship, partnership, corporation or business
or any other person or entity (whether as an employee, officer, director,
partner, agent, security holder, creditor, consultant or otherwise) that
directly or indirectly engages primarily in the healthcare business (the
"Business") in competition with the Company or its affiliates in Florida or in
any other state in which the Company and/or its affiliates (as such term is
defined in Rule 12b-2 as promulgated under the Securities Exchange Act of 1934,
as amended) are conducting business at the time of termination or separation. 
The Company acknowledges and agrees that (i) the Executive is now engaged and
hereafter may engage in other activities unrelated to the Company for his own
account including, without limitation, activities with Bally's Entertainment
Corporation and/or other companies controlled by Arthur Goldberg, and that no
aspect or element of such activities shall (A) be deemed to be engaged in for
the benefit of the Company or (B) to entitle the Company or any other
shareholder of the Company to participate in such activities in any respect;
provided, that such unrelated activities shall not consist, in whole or in
part, directly or indirectly, of any aspect of the healthcare business or
otherwise constitute a conflict of interest.

                6.2     Nondisclosure.  Executive shall not divulge,
communicate, use to the detriment of the Company or any affiliate or for the
benefit of any other person or persons, or misuse in any way, any confidential
information pertaining to the business of the Company or any affiliate.  Any
confidential information or data now known or hereafter acquired by the
Executive with respect to the business of the Company or any affiliate (which
shall include, but not be limited to, information concerning the Company's or
any affiliates financial condition, prospects, patients, sources, and methods
of doing business) shall be deemed a valuable, special and unique asset of the
Company that is received by the Executive in confidence and as a fiduciary, and
Executive shall remain a fiduciary to the Company with respect to all of such
information.


                                     -3-
<PAGE>   4

                6.3     Nonsolicitation of Employees and Customers.  While
employed by the Company and for a period of three years (except that the period
with respect to the prohibitions in clause (ii) hereof shall be one year if
Executive's employment is terminated pursuant to Section 5.4 hereof) following
the date his employment is terminated hereunder, the Executive shall not,
directly or indirectly, for herself or for any other person, firm, corporation,
partnership, association or other entity, (i) attempt to employ or enter into
any contractual arrangement with any employee or former employee of the
Company, unless such employee or former employee has not been employed by the
Company for a period in excess of six months, and/or (ii) call on or solicit
any of the actual or targeted patients of the Company, nor shall the Executive
make known the names and addresses of such patients.

                6.4     Books and Records.  All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned
immediately to the Company on termination of the Executive's employment
hereunder or on the Company's request at any time.

        7.      Injunction.  It is recognized and hereby acknowledged by the
parties hereto that a breach by the Executive of any of the covenants contained
in Section 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain. 
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants
contained in Section 6 of this Agreement by the Executive or any of his
affiliates, associates, partners or agents, either directly or indirectly, and
that such right to injunction shall be cumulative and in addition to whatever
other remedies the Company may possess.

        8.      Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida without regard to
any conflict of law, rule or principle that would give effect to the laws of
another jurisdiction.

        9.      Entire Agreement.  This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and, upon its effectiveness, shall supersede all prior agreements,
understandings and arrangements, both oral and written, between the Executive
and the Company (or any of its affiliates including, without limitation,
Continucare Corporation) with respect to such subject matter. This Agreement
may not be modified in any way unless by a written instrument signed by both
the Company and the Executive.

        10.     Notices.  Any notice required or permitted to be given
hereunder shall be deemed given when delivered by hand or when deposited in the
United States mail, by registered or certified mail, return receipt requested,
postage prepaid, to the parties hereto at their respective address set forth in
the Purchase Agreement, or to such other address as either party hereto may
from time to time give notice of to the other.

        11.     Benefits; Binding Effect.  This Agreement shall be for the
benefit of and binding upon the parties hereto and their respective heirs,
personal representative, legal representatives, successors and, where
applicable, assigns, including, without limitation, any successor to the
Company, whether by merger, consolidation, sale of stock, sale of assets or
otherwise; provided, however that the Executive shall not delegate his
employment obligations hereunder, or any portion thereof, to any other person.

        12.     Severability.  The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted.  If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.


                                     -4-
<PAGE>   5


        13.     Waivers.  The waiver by either party hereto of a breach or
violation of any term or provision of this Agreement shall not operate nor be
construed as a waiver of any subsequent breach or violation.

        14.     Damages.  Nothing contained herein shall be construed to
prevent the Company or the Executive from seeking and recovering from the other
damages sustained by either or both of them as a result of its or his breach of
any term or provision of this Agreement.  In the event that either party hereto
brings suit for the collection of any damages resulting from, or for the
injunction of any action constituting, a breach of any of the terms or
provisions of this Agreement, then the party found to be at fault shall pay all
reasonable court costs and attorneys' fees of the other.

        15.     Section Headings.  The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.

        16.     No Third Party Beneficiary.  Nothing expressed or implied in
this Agreement is intended, or shall be construed, to confer upon or give any
person other than the Company, the Executive and their respective heirs,
personal representatives, legal representatives, successors and assigns, as
applicable, any rights or remedies under or by reason of this Agreement.

        IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.

                                      ZANART ENTERTAINMENT INCORPORATED      
                                                                             
                                      By:____________________________________
                                                                             
                                      _______________________________________
                                               CHARLES M. FERNANDEZ          


                                     -5-

<PAGE>   1
 
                                                                      EXHIBIT 21
 
           LIST OF SUBSIDIARIES OF ZANART ENTERTAINMENT INCORPORATED
 
<TABLE>
<CAPTION>
                       NAME OF SUBSIDIARY                          JURISDICTION OF INCORPORATION
- -----------------------------------------------------------------  -----------------------------
<S>                                                                <C>
Contincare Corporation...........................................             Florida
</TABLE>

<PAGE>   1
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS                                                               Unaudited

<S>                                                                <C>        
CURRENT ASSETS:
  Cash and cash equivalents                                        $   819,066
  Accounts receivable, net of allowance for doubtful accounts
    of $146,692                                                      1,967,978
  Prepaid expenses and other current assets                                800
                                                                   -----------
           Total current assets                                      2,787,844

PROPERTY AND EQUIPMENT, net                                              4,806

INTANGIBLE ASSETS, net                                                   1,499

OTHER ASSETS, net                                                       70,747
                                                                   -----------

TOTAL ASSETS                                                       $ 2,864,896
                                                                   -----------

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable and accrued expenses                            $   314,584
  Accrued interest payable                                              23,161
  Unearned revenue                                                      18,301
  Income and other taxes payable                                       412,686
                                                                   -----------

           Total current liabilities                                   768,732

NOTES PAYABLE                                                          655,000
                                                                   -----------

           Total liabilities                                         1,423,732
                                                                   -----------

MINORITY INTEREST                                                       32,686
                                                                   -----------
COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
  Common stock; $1.00 par value; 100 shares
    authorized, issued and outstanding                                     100
  Additional paid-in capital                                           763,769
  Retained earnings                                                    644,609
                                                                   -----------

           Total shareholders' equity                                1,408,478
                                                                   -----------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                         $ 2,864,896
                                                                   ===========
</TABLE>


See notes to unaudited consolidated financial statements.



<PAGE>   2

CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD FROM FEBRUARY 12, 1996 (INCEPTION) TO JUNE 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                    UNAUDITED
<S>                                                                <C>        
REVENUES                                                           $ 2,507,063
                                                                   -----------

EXPENSES:
  Payroll and employee benefits                                        973,412
  Provision for bad debts                                              242,664
  Professional fees                                                    203,625
  General and administrative                                            54,430
  Depreciation and amortization                                            362
                                                                   -----------

           Total expenses                                            1,474,493
                                                                   -----------

INCOME FROM OPERATIONS                                               1,032,570
                                                                   -----------

OTHER EXPENSES:
  Interest                                                              23,204
  Minority interest                                                     32,686
                                                                   -----------

           Other expenses                                               55,890
                                                                   -----------

INCOME BEFORE INCOME TAXES                                             976,680

PROVISION FOR INCOME TAXES                                             332,071
                                                                   -----------

NET INCOME                                                         $   644,609
                                                                   ===========
</TABLE>


See notes to unaudited consolidated financial statements.




<PAGE>   3

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM FEBRUARY 12, 1996 (INCEPTION) TO JUNE 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                             Additional                        Total
                                               Common          Paid-in        Retained     Shareholders'
                                               Stock           Capital        Earnings        Equity

<S>                                          <C>             <C>             <C>           <C>          
Issuance of 100 shares
  for initial capitalization of Company      $      100      $      900                    $       1,000
                                                                                                        
Issuance of stock in subsidiary                                                                         
  to purchase net assets                                        762,869                          762,869
                                                                                                        
Net income                                                                   $  644,609          644,609
                                             ----------      ----------      ----------    -------------                          
                                             $      100      $  763,769      $  644,609    $   1,408,478
                                             ==========      ==========      ==========    =============                          

</TABLE>

See notes to unaudited consolidated financial statements.



<PAGE>   4

CONTINUCARE CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM FEBRUARY 12, 1996 (INCEPTION) TO JUNE 30, 1996
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                      UNAUDITED
<S>                                                                                  <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                         $   644,609
  Adjustments to reconcile net income to net cash provided by operating
    activities: 
    Depreciation and amortization                                                            362 
    Provision for bad debts                                                              242,664 
    Income applicable to minority interest                                                32,686 
    Changes in assets and liabilities, excluding the effect of acquisitions:
      Increase in accounts receivable                                                 (1,445,590)
      Increase in prepaid expenses and other current assets                                 (800)
      Increase in intangible assets                                                       (1,579)
      Increase in other assets                                                           (67,221)
      Increase in accounts payable and accrued expenses                                  314,584
      Increase in accrued interest payable                                                23,161
      Increase in unearned revenue                                                        18,301
      Increase in income and other taxes payable                                         406,976
                                                                                     -----------

           Net cash provided by operating activities                                     168,153
                                                                                     -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Property and equipment additions                                                        (5,087)
                                                                                     -----------

           Net cash used by investing activities                                          (5,087)
                                                                                     -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of related shareholders notes payable                           655,000
  Proceeds from issuance of common stock                                                   1,000
                                                                                     -----------

          Net cash provided by financing activities                                      656,000
                                                                                     -----------

NET INCREASE IN CASH AND CASH EQUIVALENTS, END OF YEAR                               $   819,066
                                                                                     -----------

SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash payments for interest                                                         $        43
                                                                                     -----------
  Cash payments for income taxes                                                     $
                                                                                     -----------

NON CASH INVESTING AND FINANCING ACTIVITIES:
  Purchase of assets and liabilities in exchange for subsidiary stock                $   762,869
                                                                                     -----------
</TABLE>


See notes to unaudited consolidated financial statements.


<PAGE>   5


CONTINUCARE CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM FEBRUARY 12, 1996 (INCEPTION) TO JUNE 30, 1996
- --------------------------------------------------------------------------------


1.    GENERAL

      DESCRIPTION OF BUSINESS - Continucare Corporation (the "Company") was
      incorporated on February 12, 1996 in the State of Florida. Together with
      its subsidiaries, the Company is a full-service healthcare management
      organization that creates and implements operational, marketing,
      administrative, staffing and financial programs for specialized
      outpatient institutional and professional providers (collectively, the
      "Providers"). The Company, which specializes in mental and physical
      rehabilitative programs, offers an expanded healthcare product line,
      including setting up and managing partial hospitalization and
      full-service community-based outpatient healthcare centers. The Company
      manages nineteen partial hospitalization programs in three states and two
      day-treatment programs which serve as a step-down alternative to patients
      that no longer require partial hospitalization in order to assist the
      patients in transitioning back into their communities. Of the nineteen
      programs, four are also owned by shareholders of the Company. See Note 4.

      As of May 1, 1996, the Company, through Continucare Medical Care Network,
      Inc. ("CMCN"), a majority-owned subsidiary, provides full-service
      financial management including billing and collection services and
      various employee leasing options. See further discussion below.

      BUSINESS COMBINATIONS - On May 1, 1996, the Company, through CMCN, a then
      wholly-owned subsidiary, acquired certain contracts, assets, and
      liabilities of Joanne Telmosse Consulting, Inc. ("Consulting"), based in
      Coral Springs, Florida, which provides billing and collection services.
      Concurrently, the Company acquired certain contracts, assets and
      liabilities of ProCare Staffing, Inc. (a related company of Consulting by
      common ownership), which offers permanent, long-term and short-term
      employee leasing to physicians, community hospitals, community mental
      health centers and partial hospitalization programs. In exchange for the
      net assets acquired, the Company issued 25 shares of CMCN's common stock
      (representing a 25% interest) to the common owner of the acquired
      companies. The Company recorded as additional paid-in capital $762,869,
      which the Company estimates is the fair value of the net assets acquired.
      The transaction was accounted for under the purchase method. The income
      generated from the net assets acquired are incorporated in the
      Consolidated Income Statement for the period from May 1, 1996, the
      effective date of the transaction, to June 30, 1996.

      In conjunction with these transactions, the Company entered into a
      subcontract agreement with Medical Billing Service Systems, Inc., which
      is a related company of Consulting by common ownership (the "Subcontract
      Agreement"), whereby Medical Billing Service Systems, Inc. is to provide
      the billing and collection services for the contracts acquired by the
      Company from Consulting in return for a $35,000 monthly fee. The
      Subcontract Agreement is cancelable without cause by either party with
      180 days notice.


<PAGE>   6

      The following unaudited consolidated pro forma combined condensed
      statement of income for the period from February 12, 1996 (inception) to
      June 30, 1996 has been prepared to reflect these acquisitions as if they
      were consummated as of February 12, 1996 (inception), after giving effect
      to certain pro forma adjustments as described below.

          Total Revenues                                    $ 4,043,100
                                                            -----------
          Net income                                        $   893,700
                                                            -----------

      Pro forma adjustments reflect minority interest, provision for bad debt,
      the recording of the monthly fee under the Subcontract Agreement and an
      accrual for income taxes.

      PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
      statements include the accounts of the Company and its wholly-owned and
      majority-owned subsidiaries. All significant intercompany transactions
      and balances have been eliminated in consolidation.

2.    SIGNIFICANT ACCOUNTING POLICIES

      REVENUE - The Company derives its revenues based on contracts with
      Providers. The contracts have terms ranging from one to fifteen years,
      with the majority in the fifteen-year category, and are cancelable
      without cause by either party with 180 days notice. Revenue is recognized
      in the period earned. The Company also recognizes revenues from its
      employee leasing services at the time services are rendered. Revenues for
      billing services are recognized upon billing of services to the payors.

      USE OF ESTIMATES - The preparation of financial statements in conformity
      with generally accepted accounting principles requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the
      date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. Actual results could differ from
      those estimates.

      FAIR VALUE OF FINANCIAL INSTRUMENTS - The estimated fair values of
      financial instruments have been determined by the Company using available
      market information and appropriate valuation methods. Considerable
      judgment is required in interpreting market data to develop the estimates
      of fair value. Accordingly, the estimates presented herein are not
      necessarily indicative of the amounts the Company could realize in a
      current market exchange. The use of different market assumptions and/or
      estimation methods may have a material effect on the estimated fair value
      amounts. The Company has used the following market assumptions and/or
      estimation methods:

         CASH AND CASH EQUIVALENTS - The carrying amount reported in the
         balance sheet is a reasonable estimate of fair value.

         NOTES PAYABLE - The carrying value at June 30, 1996 approximates fair
         value based on the terms of the note.

      CASH AND CASH EQUIVALENTS - The Company defines cash and cash equivalents
      as those highly liquid investments purchased with an original maturity of
      three months or less.

      ACCOUNTS RECEIVABLE - In the normal course of business, the Company
      extends credit to its customers. The Company performs ongoing credit
      evaluations of its customers, and records allowances for potential losses
      based on management's expectations of their ultimate collection.


<PAGE>   7

      OTHER ASSETS - Other assets include primarily long-term deposits and the
      deferred tax assets.

      INCOME TAXES - Deferred tax assets and liabilities are determined based
      on the difference between the financial statement and tax bases of assets
      and liabilities, using enacted tax rates in effect for the year in which
      the differences are expected to reverse. Current income taxes are based
      on the current year's income taxable for federal and state reporting
      purposes.

      PROPERTY AND EQUIPMENT - Property and equipment are stated at cost of
      acquisition. Depreciation and amortization are computed using the
      straight-line method over the estimated useful lives of the related
      assets, which range from three to five years. Repairs and maintenance
      costs are expensed as incurred. Improvements and replacements are
      capitalized.

3.    INCOME TAXES

      The components of the provision for income taxes for the period from
      February 12, 1996 (inception) to June 30, 1996 are as follows:


<TABLE>
      <S>                                                          <C>         
      Current income taxes:                                                    
        Federal                                                    $   337,776 
        State                                                           49,170 
                                                                   ----------- 
                                                                               
                Total current                                          386,946 
                                                                   ----------- 
                                                                               
      Deferred income taxes:                                                   
        Federal                                                        (46,855)
        State                                                           (8,020)
                                                                   ----------- 
                                                                               
                 Total deferred                                        (54,875)
                                                                   ----------- 
                                                                               
      Total provision for income taxes                             $   332,071 
                                                                   =========== 
</TABLE>

      The total income tax provision is at a rate of approximately 34% which
      equals the statutory federal income tax rate.

      The tax effects of temporary differences that give rise to deferred tax
      assets and deferred tax liabilities at June 30, 1996 are as follows:

<TABLE>
      <S>                                                          <C>         
      Deferred tax assets:                                                     
        Bad debt reserve                                           $    55,170 
                                                                   ----------- 
        Gross deferred tax assets                                       55,170 
                                                                   ----------- 
                                                                               
      Deferred tax liabilities:                                                
        Depreciation and amortization                                     (295)
                                                                   ----------- 
        Gross deferred tax liabilities                                    (295)
                                                                   ----------- 
                                                                               
      Net deferred tax asset                                       $    54,875 
                                                                   =========== 
</TABLE>

<PAGE>   8

4.    RELATED PARTY TRANSACTIONS

      The Company subleases office space from Community Behavioral Services
      ("CBS"). As of June 30, 1996, three of the four shareholders of the
      Company are one third owners of CBS. The lease is a month-to-month
      agreement with monthly lease payments of $3,805.

      The Company has contracted with CBS to perform certain managerial and
      administrative services on behalf of the Company. The Company reimburses
      CBS for the actual cost of expenses incurred by CBS in the direct
      performance of such services. For the period ended June 30, 1996, total
      expenses incurred by the Company for these services totaled $407,700 and
      are recorded in the appropriate expense categories in the Consolidated
      Statement of Income. In addition, the Company provides management
      services for four facilities owned by CBS in return for a management fee
      which is based on the Company's estimated cost of providing such
      services. The management fee charged by the Company is calculated based
      on the ratio of patient volume represented by CBS to total Company
      patient volume at other Provider facilities, applied to certain of the
      Company's expenses. This management fee is recorded by the Company as a
      reduction of the related expense. For the period, management fees charged
      by the Company to CBS were $324,700. As of June 30, 1996, the net payable
      by the Company to CBS under these arrangements was $83,000 which is
      reflected in accounts payable and accrued expenses in the Consolidated
      Balance Sheet.

      The Company, as of late May 1996, also provides management services to
      Interphase, Inc. ("Interphase"), a related Company which is partially
      owned by three of the Company's shareholders at June 30, 1996. The
      Company receives a management fee for the services provided based on the
      Company's cost of providing such services. The management fee charged by
      the Company is calculated based on the ratio of patient volume
      represented by Interphase to total Company patient volume at other
      Provider facilities, applied to certain of the Company's expenses. The
      management fee charged is recorded as a reduction of the Company's
      related expenses. As of and for the period from February 12, 1996
      (inception) to June 30, 1996, the balance receivable from and the
      revenues earned under this arrangement was $19,100.

      The Company is obligated to a shareholder (the "Shareholder Note"), for a
      note payable in the amount of $599,750 and is reflected in notes payable
      in the accompanying Consolidated Financial Statements. The Shareholder
      Note, which is collateralized by substantially all of the Company's
      assets, bears interest at 10% per annum and is due, in full, on February
      12, 1998. Interest is due semiannually commencing on August 12, 1996.
      Accrued interest and interest expense related to this note was $21,662 as
      of and for the fiscal year ended June 30, 1996.

      The Company is obligated to Health Care Management Partners, Inc., a
      company which is owned jointly by three of the four shareholders of the
      Company, for a note payable in the amount of $55,250 as of June 30, 1996
      (the "HCMP Note") and is reflected in notes payable in the accompanying
      Consolidated Financial Statements. The HCMP Note, which is subordinate to
      the Shareholder Note, bears interest at 10% and is due, in full, on
      February 12, 1998. Interest expense related to this note was $1,500 for
      the fiscal year ended June 30, 1996.

5.    LONG-TERM DEBT

      Long-term debt is comprised entirely of the Shareholder Note and the HCMP
      Note as described in Note 4.


<PAGE>   9

6.    COMMITMENTS AND CONTINGENCIES

      The Company has employment contracts with its four executives. These
      contracts have indefinite terms and are cancelable at the option of the
      Company or employee. The contracts provide for increases in annual base
      salary, a flat bonus and an additional bonus at the discretion of the
      Company's Board of Directors based upon the Company's operating results,
      financial condition, prospects and intended utilization of earnings, if
      any. Subsequent to year-end, one of the executives resigned. See
      discussion at Note 7.

      As provided for in the management contracts with the Providers, the
      Company maintains annual claims made policies for general and
      professional liability insurance jointly with each of the Providers.
      Coverage under the policies are $1,000,000 per incident and $3,000,000
      aggregate. It is the Company's intention to renew such coverage on an
      on-going basis.

7.    SUBSEQUENT EVENTS AND OTHER MATTERS

      On July 3, 1996, the Company entered into a Letter of Intent with a
      large, national hospital chain (the "Chain") to develop, staff and manage
      outpatient psychiatric treatment and physical rehabilitation programs
      (the "Programs") for hospitals affiliated with the Chain. The Programs
      are to be initiated in seventeen treatment facilities and may be expanded
      to cover additional facilities upon the mutual agreement of the parties.
      The scope and duration of the services to be provided by the Company, as
      well as the management fee to be paid to the Company, will be determined
      upon the mutual agreement of the parties depending upon the specific
      requirements of each Program. The Company estimates that such management
      fees shall range from $25,000 to $35,000 per month, per Program.
      Management also anticipates additional operating costs will be incurred
      in providing such services.

      On July 8, 1996, the Company entered into a management contract with an
      ORNDA Healthcorp. subsidiary to perform certain management services for
      certain partial hospitalization programs. The contract, which is for an
      initial term of five years, is expected to generate a total of
      approximately $4,080,000 ($816,000 annually) in revenue over the initial
      term. The contract may be renewed for additional periods of one year each
      upon the mutual consent of the parties and may be terminated upon certain
      conditions as defined in the agreement. Management also anticipates
      additional operating costs will be incurred in providing such services.

      On July 15, 1996, the Company entered into a Stock Purchase and
      Redemption Agreement with Beechwood Partners, Ltd., a limited partnership
      ("Beechwood"), to repurchase Beechwood's 25% investment in the Company's
      common stock for $375,000 which will be accounted for as treasury stock.
      In connection with this transaction, one of the executives resigned from
      his position with the Company. Certain provisions of the Stock Purchase
      and Redemption Agreement require the Company to make an additional
      payment to Beechwood upon the occurrence of certain events. The
      additional payment is comprised of a flat amount not to exceed $600,000
      and a variable portion payable only if the remaining executives receive
      new employment agreements providing for "excessive compensation" as
      defined in the Stock Purchase and Redemption Agreement.

      On August 9, 1996, the Company has entered into contracts to provide
      certain staffing services with a not-for-profit corporation which
      operates a community mental health center and a partial hospitalization
      program from its facilities. The contracts have an initial term of one
      year and is automatically renewable unless terminated in accordance with
      the provisions in the contract, such contracts are expected to 


<PAGE>   10

      generate approximately $600,000 of revenue over the initial term.
      Management also anticipates additional costs will be incurred in
      providing such services.

      Effective August 6, 1996, the Company amended its Articles of
      Incorporation to increase its authorized common shares to 10,000,000, par
      value $1. Concurrently, the Company authorized each issued and
      outstanding share be converted to 66,666.666 shares reflecting a
      66,666.66 for one stock split. The stock split has not been reflected in
      the accompanying financial statements.

      On August 9, 1996, the Company signed a merger agreement (the "Merger
      Agreement") with Zanart Entertainment, Inc. ("Zanart") and Zanart
      Subsidiary, Inc. Under the terms of the Merger Agreement, all of the
      Company's common stock outstanding will be converted into Zanart shares
      of common stock at an exchange ratio of one to one. In connection with
      the Merger Agreement, the Company will also sell an additional 3,300,000
      of its common stock at $2.00 a share through a private placement, which
      is fully subscribed. The merger is subject to certain conditions,
      including shareholder approval, and the consummation of the private
      placement. Zanart's present business, which is to design, publish,
      package and market wall decor and collectible art which incorporates
      popular images from motion pictures, television and animation will be
      sold or discontinued within three months of the closing. The Zanart Board
      of Directors will resign and new directors will be appointed, by the
      Company. Zanart is a public company and it is anticipated that this
      merger will be accounted for as a purchase with the Company as a
      continuing interest.

      The Company is in the process of negotiating a lease agreement for office
      space to accommodate present and expected future expansion. The lease,
      which is for an initial term of five years, provides for annual lease
      payments of approximately $216,000 in the first year and approximately
      $283,000 in years two through five.

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