<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21910
CONTINUCARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
FLORIDA 59-2716023
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
100 SOUTHEAST SECOND STREET
36TH FLOOR
MIAMI, FLORIDA 33131
(Address of principal executive offices)
(Zip Code)
(305) 350-7515
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
At May 15, 1998, the Registrant had 13,731,283 shares of $0.0001 par value
common stock outstanding.
Transitional Small Business Disclosure Format. Yes No X
---- -----
<PAGE> 2
CONTINUCARE CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - March 31, 1998 (Unaudited)
and June 30, 1997 3
Consolidated Statements of Operations - Three Months Ended
March 31, 1998 (Unaudited) and 1997 (Unaudited) 4
Consolidated Statements of Operations - Nine Months Ended
March 31, 1998 (Unaudited) and 1997 (Unaudited) 5
Consolidated Statements of Cash Flows - Nine Months Ended
March 31, 1998 (Unaudited) and 1997 (Unaudited) 6
Notes to Consolidated Financial Statements
March 31, 1998 (Unaudited) 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 15
PART II - OTHER INFORMATION 22
SIGNATURE PAGE 24
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONTINUCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 19,914,600 $ 6,989,580
Accounts receivable, net of allowance
for doubtful accounts of $7,372,000 and $980,000, respectively 12,460,206 2,829,426
Income Taxes receivable 2,298,016 505,699
Prepaid expenses and other current assets 1,200,646 401,814
------------ ------------
Total current assets 35,873,468 10,726,519
Notes receivable, net of allowance for doubtful
accounts of $4,612,000 in 1998 3,153,885 5,000,000
Property and equipment, net 4,815,500 1,176,049
Goodwill & other intangible assets, net 31,428,513 2,433,467
Deferred financing costs 2,850,000 --
Other assets, net -- 515,274
------------ ------------
Total assets $ 78,121,366 $ 19,851,309
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,881,180 $ 285,518
Accrued expenses 5,465,878 924,018
Accrued interest payable 1,567,351 37,295
Current portion of notes payable 2,025,528 811,133
Current portion of capital lease obligation 151,988 44,055
Income and other taxes payable 19,448 619,445
------------ ------------
Total current liabilities 11,111,373 2,721,464
Obligation under capital lease 474,720 181,551
Notes payable 46,000,000 2,330,367
------------ ------------
Total liabilities 57,586,093 5,233,382
------------ ------------
Commitments and contingencies -- --
Shareholders' equity
Common stock; $.0001 par value; authorized 100,000,000 shares; issued
and outstanding 13,731,283 at March 31, 1998 and 10,888,993
at June 30, 1997 1,373 1,089
Treasury stock, 2,930,000 shares (4,284,330) (2,284,330)
Additional paid-in-capital 27,891,341 14,549,884
Retained earnings (deficit) (3,073,111) 2,351,284
------------ ------------
Total shareholders' equity 20,535,273 14,617,927
------------ ------------
Total liabilities and shareholders' equity $ 78,121,366 $ 19,851,309
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
CONTINUCARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1998 1997
---- -----
<S> <C> <C>
Revenues
Fees for medical services net $ 16,625,005 $ --
Management fees 473,873 3,597,241
------------ ------------
Total Revenues 17,098,878 3,597,241
Expenses
Hospitalization and outpatient services 11,080,100 --
Payroll and employee benefits 4,015,742 1,666,470
Provision for bad debt -- 363,767
Provision for Notes Receivable 600,000 --
Professional fees 474,102 537,092
General and administrative 2,060,004 286,362
Start-up and Conversion 250,000 --
Depreciation and amortization 949,989 43,479
------------ ------------
Total expenses 19,429,937 2,897,170
------------ ------------
Income (loss) from operations (2,331,059) 700,071
------------ ------------
Other income (expenses)
Interest income (expense), net (423,198) 84,278
------------ ------------
Income (loss) before income taxes (2,754,257) 784,349
Provision (benefit) for income taxes (223,993) 286,597
------------ ------------
Net income (loss) $ (2,530,264) $ 497,752
============ ============
Weighted average common shares used in
the per share computation
- basic and diluted 13,656,283 12,150,993
============ ============
Basic and diluted earnings per common share $ (0.19) $ 0.04
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
CONTINUCARE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1998 1997
---- ----
<S> <C> <C>
Revenues
Fees for Medical Services $ 26,172,775 $ --
Management Fees 2,201,244 9,604,216
------------ ------------
Total Revenues 28,374,019 9,604,216
------------ ------------
Expenses
Hospitalization and outpatient services 15,174,024 --
Payroll and employee benefits 8,358,295 4,425,929
Provision for bad debt 281,201 833,107
Provision for Notes Receivable 2,767,000 --
Professional fees 1,006,341 1,004,543
General and administrative 4,773,924 518,417
Start-up and Conversion 724,797 --
Depreciation and amortization 1,633,307 83,950
------------ ------------
Total expenses 34,718,889 6,865,946
------------ ------------
Income (loss) from operations (6,344,870) 2,738,270
------------ ------------
Other income (expenses)
Interest income (expense), net (871,842) 149,648
Minority interest -- (171,314)
------------ ------------
Other expenses (871,842) (21,666)
------------ ------------
Income (loss) before income taxes (7,216,712) 2,716,604
Provision (benefit) for income taxes (1,792,317) 1,035,471
------------ ------------
Net income (loss) (5,424,395) $ 1,681,133
============ ============
Weighted average common shares used in
the per share computation
- basic and diluted 12,078,041 10,507,080
------------ ------------
Basic and diluted earnings per common share $ (.45) $ 0.16
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
CONTINUCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1998 1997
---- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (5,424,395) $ 1,681,133
Adjustments to reconcile net income to
net cash (used) by operating activities:
Depreciation and amortization 1,663,307 83,950
Provision for bad debt 281,201 833,107
Provision for notes receivable 2,767,000 --
Income applicable to minority interest -- 171,314
Changes in assets and liabilities,
excluding the effect of acquisitions:
(Increase) in accounts receivable (7,784,665) (5,480,870)
(Increase) in notes receivable -- (139,333)
(Increase) in prepaid expenses and
other current assets (798,832) (184,383)
(Increase) in other intangible assets -- (375,392)
(Increase) in deferred financing costs (2,850,000) --
Decrease in other assets 515,274 (314,354)
Increase in accounts payable and
accrued expenses 4,137,522 1,024,507
Increase in accrued interest payable 1,530,056 17,119
Increase in unearned revenue -- (18,301)
(Decrease) increase in income & other
taxes payable (2,392,314) 828,510
------------ ------------
Net cash (used) by operating activities (8,355,846) (1,872,993)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment additions (3,984,663) (746,894)
Cash paid for acquisitions (32,413,291) --
------------ ------------
Net cash (used) by investing activities (36,397,954) (746,894)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Beechwood Repurchase -- (375,000)
Principal repayment of Note Payable
to Stockholder (599,000) --
Proceeds from Notes Payable 2,500,000
Repayment of First Union Note (2,500,000) --
Proceeds from Notes Payable 46,000,000 --
Principal repayments of obligation
under capital leases (15,559) (16,737)
Proceeds from issuance of common stock 14,129,241 2,070,003
Payment of deferred financing costs (3,050,257) --
Payment from issuance of Notes Payable 1,214,395
</TABLE>
6
<PAGE> 7
<TABLE>
<S> <C> <C>
Cash received from pre-Merger Zanart -- 6,600,000
Proceeds from acceleration of Series A warrants 5,412,060
Costs incurred associated with Private
Placement & Merger -- (225,000)
------------ ------------
Net cash provided by financing activities 57,678,820 13,465,326
------------ ------------
Net increase in cash and cash equivalents 12,925,020 10,845,439
Cash and cash equivalents at beginning of period 6,989,580 819,066
------------ ------------
Cash and cash equivalents at end of period $ 19,914,600 $ 11,664,505
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Cash paid for income taxes $ 980,136 $ 187,000
============ ============
Cash paid for interest $ 90,471 $ 51,202
============ ============
Purchase of Furniture and Fixtures with proceeds
of capital lease obligation $ 762,400
============
ACQUISITIONS:
Fair value of assets acquired $ 9,845,810
Intangible assets 29,694,464
Accounts payable and accrued expenses ( 2,522,041 )
Liabilities assumed ( 2,614,942 )
Stock issued as part of purchase price ( 1,990,000 )
------------
Cash Paid $ 32,413,291
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE> 8
CONTINUCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
NOTE 1 - UNAUDITED INTERIM INFORMATION
The accompanying interim consolidated financial data for Continucare
Corporation ("Continucare" or the "Company") are unaudited; however, in the
opinion of management, the interim data include all adjustments, consisting of
normal recurring accruals, necessary for a fair presentation of the results for
the interim period. 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 at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
The results of operations for the three months and nine months ended March 31,
1998 are not necessarily indicative of the results to be expected for the year
ending June 30, 1998.
The interim unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto for the year ended June 30, 1997 as set forth in the Company's Form
10-KSB.
NOTE 2 - BUSINESS COMBINATION
On September 19, 1997, the Company acquired the stock of Maxicare, Inc.
("Maxicare"), a Florida based home health agency, for a purchase price of
$3,000,000. At closing, $2,700,000 was paid in cash, of which $2,500,000 was
borrowed by the Company under a term note which was paid in full on October
30,1997. The remaining $300,000 is due in equal installments at the end of
years two and three and is contingent on various factors. Maxicare is certified
by the Healthcare Financing Administration and is licensed in the state of
Florida as a Medicare and Medicaid home health agency. The acquisition is being
accounted for under the purchase method of accounting. The purchase price in
excess of the fair value of the net tangible assets acquired was approximately
$3,000,000 and is being amortized using the straight-line method over a
weighted average life of twenty years. As of March 31, 1998, the consolidated
financial statements include the accounts of Maxicare since the date of
purchase.
The following unaudited pro forma statements of operations reflect adjustments
to Continucare's historical financial position and results of operations to
give effect to the acquisition of Maxicare as if such had occurred as of the
beginning of the following periods, after giving effect to certain pro forma
adjustments as described below:
8
<PAGE> 9
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------ -----------------
1998 * 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenues $8,771,000 $30,474,000 17,907,000
========== =========== ===========
Income (loss) from operations $ 700,000 $(6,345,000) $ 2,738,000
========== =========== ===========
Net income (loss) $ 498,000 $(4,619,000) $ 1,681,000
========== =========== ===========
Basic and diluted earnings per
common share $ .04 $ (.34) $ .14
========== =========== ===========
</TABLE>
* Acquisition is included in the Company's Statements of Operations for the
three months ended March 31, 1998.
Pro forma adjustments reflect the amortization of the resulting goodwill and
the accrual for interest expense on the funds borrowed to consummate the
acquisition.
On October 31, 1997, the Company purchased the assets of Doctors Health Group,
a company that provides healthcare services at outpatient centers through
managed care contracts. The total purchase price for the acquisition was
approximately $15,000,000, of which $1,500,000 was paid in common stock of the
Company and approximately $13,500,000 was paid in cash. The acquisition is
being accounted for under the purchase method of accounting. The purchase price
in excess of the fair value of the net tangible assets acquired was
approximately $14,648,000 and is being amortized using the straight-line method
over a weighted average life of eleven years. As of March 31, 1998, the
consolidated financial statements include the accounts of Doctors Health Group
from the purchase date.
The following unaudited pro forma statements of operations reflect adjustments
to Continucare's historical financial position and results of operations to
give effect to the acquisition of Doctors Health Group as if such had occurred
as of the beginning of the following periods, after giving effect to certain
pro forma adjustments as described below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------- -----------------
1998 * 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenues $7,392,000 $33,374,000 $20,925,000
========== =========== ===========
Income (loss) from
operations $ 975,000 $(5,976,000) $ 3,806,000
========== =========== ===========
Net income (loss) $ 773,000 $(4,251,000) $ 2,749,000
========== =========== ===========
Basic and diluted earnings per
common share $ .06 $ (.31) $ .23
========== =========== ===========
</TABLE>
* Acquisition is included in the Company's Statements of Operations for the
three months ended March 31, 1998.
Pro forma adjustments reflect the amortization of the resulting goodwill and
the accrual for interest expense on the funds borrowed to consummate the
acquisition.
On December 1, 1997, the Company purchased the assets of Beacon Health Care
Group, Inc., a company that provides radiology and diagnostic services in South
Florida. The total purchase price for the acquisition was approximately
$2,700,000 of which approximately $2,200,000 was paid in cash and approximately
$500,000 was paid in common stock of the Company. The acquisition is being
accounted for under the
9
<PAGE> 10
purchase method of accounting. The purchase price in excess of the fair value
of the net tangible assets acquired was approximately $2,100,000 and is being
amortized using the straight-line method over a weighted average life of
fifteen years. As of March 31, 1998, the consolidated financial statements
include the accounts of Beacon Health Care Group, Inc. from the purchase date.
The following unaudited pro forma statements of operations reflect adjustments
to Continucare's historical financial position and results of operations to
give effect to the acquisition of Beacon Health Care Group as if such had
occurred as of the beginning of the following periods, after giving effect to
certain pro forma adjustments as described below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------ ------------------
1998 * 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenues $4,591,000 $30,174,000 $12,764,000
========== =========== ===========
Income (loss) from
operations $ 365,000 $(6,743,000) $ 2,022,000
========== =========== ===========
Net income (loss) $ 112,000 $(5,068,000) $ 871,000
========== =========== ===========
Basic and diluted earnings per
common share $ .01 $ (.37) $ .07
========== =========== ===========
</TABLE>
* Acquisition is included in the Company's Statements of Operations for the
three months ended March 31, 1998.
Pro forma adjustments reflect the amortization of the resulting goodwill and
the accrual for interest expense on the funds borrowed to consummate the
acquisition.
Effective January 1, 1998, the Company purchased the assets of Medical Service
Organization, Inc., a company that provides managed care management services in
South Florida. The total purchase price for the acquisition was approximately
$4,265,000 of which approximately $865,000 was paid in cash and $3,400,000 was
assumed liabilities. The acquisition is being accounted for under the purchase
method of accounting. The purchase price in excess of the fair value of the net
tangible assets acquired was approximately $4,265,000 and is being amortized
using the straight-line method over a weighted average life of twenty years. As
of March 31, 1998, the consolidated financial statements include the accounts
of Medical Service Organization from the purchase date.
The following unaudited pro forma statements of operations reflect adjustments
to Continucare's historical financial position and results of operations to
give effect to the acquisition of Medical Service Organization as if such had
occurred as of the beginning of the following periods, after giving effect to
certain pro forma adjustments as described below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------ -----------------
1998 * 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenues $4,533,000 $30,245,000 $12,411,000
========== =========== ===========
Income (loss) from
operations $ 654,000 $(6,436,000) $ 2,601,000
========== =========== ===========
Net income (loss) $ 452,000 $(4,710,000) $ 1,544,000
========== =========== ===========
Basic and diluted earnings per
common share $ .04 $ (.34) $ .13
========== =========== ===========
</TABLE>
10
<PAGE> 11
* Acquisition is included in the Company's Statements of Operations for the
three months ended March 31, 1998.
Pro forma adjustments reflect the amortization of the resulting goodwill and
the accrual for interest expense on the funds borrowed to consummate the
acquisition.
On February 13, 1998, the Company acquired the stock of Rehab Management
Systems, Inc., IntegraCare, Inc. and J.R. Rehab Associates, Inc. collectively
referred to as "RMS", for a purchase price of $10,500,000. At closing,
$10,500,000 was paid in cash, of which $9,940,000 was from a portion of the net
proceeds from the sale of 8% Convertible Notes due 2002. The remaining $560,000
was paid in cash from the company's working capital. RMS is comprised of
numerous rehabilitation clinics certified by the Healthcare Financing
Administration and is licensed in the states of Florida, Georgia, Alabama,
North Carolina and South Carolina as a Medicare and Medicaid Outpatient Rehab
provider of services. The acquisition is being accounted for under the purchase
method of accounting. The purchase price in excess of the fair value of the net
tangible assets acquired was approximately $4,173,000 and is being amortized
using the straight-line method over a weighted average life of twenty years. As
of March 31, 1998, the consolidated financial statements include the accounts
of RMS since the date of purchase.
The following unaudited pro forma statements of operations reflect adjustments
to Continucare's historical financial position and results of operations to
give effect to the acquisition of RMS as if such had occurred as of the
beginning of the following periods, after giving effect to certain pro forma
adjustments as described below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenues $20,755,000 $11,042,000 $50,709,000 $31,940,000
----------- =========== =========== ===========
Income(loss)
from operations $(2,163,000) $ 1,036,000 $(5,339,000) $ 3,744,000
----------- =========== =========== ===========
Net income (loss) $(1,557,000) $ 2,016,000 $(3,573,000) $ 2,727,000
----------- =========== =========== ===========
Basic and diluted earnings
per common share $ (.11) $ .17 $ (.26) $ .22
=========== =========== =========== ===========
</TABLE>
Pro forma adjustments reflect the amortization of the resulting goodwill and
the accrual for interest expense on the funds borrowed to consummate the
acquisition.
On April 14, 1998, the Company purchased the assets of SPI Managed Care, Inc.,
SPI Managed Care of Hillsborough County, Inc., SPI Managed Care of Broward,
Inc., and Broward Managed Care, Inc., collectively SPI, companies that provide
healthcare services at outpatient centers through managed care contracts. The
total purchase price for the acquisition was approximately $6,750,000, of which
$6,750,000 was paid in cash proceeds from the sale of 8% Convertible
Subordinated Notes due 2002, sold on October 30, 1997. The acquisition is being
accounted for under the purchase method of accounting. The purchase price in
excess of the fair value of the net tangible assets acquired was approximately
$6,500,000 and is being amortized using the straight-line method over a
weighted average life of twenty years. As of March 31, 1998, the consolidated
financial statements include the accounts of SPI from the purchase date.
11
<PAGE> 12
The following unaudited pro forma statements of operations reflect adjustments
to Continucare's historical financial position and results of operations to
give effect to the acquisition of SPI as if such had occurred as of the
beginning of the following periods, after giving effect to certain pro forma
adjustments as described below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenues $29,846,000 $16,411,000 $66,815,000 $48,045,000
----------- =========== =========== ===========
Income (loss) from
operations $(2,245,000) $ 794,000 $(6,064,000) $ 3,019,000
----------- =========== =========== ===========
Net income (loss) $(1,587,000) $ 636,000 $(4,205,000) $ 2,095,000
----------- =========== =========== ===========
Basic and diluted earnings
per common share $ (.12) $ .05 $ (.31) $ .17
=========== =========== =========== ===========
</TABLE>
Pro forma adjustments reflect the amortization of the resulting goodwill and
the accrual for interest expense on the funds borrowed to consummate the
acquisition.
NOTE 3 - CONVERTIBLE NOTES OFFERING
On October 30, 1997, the Company issued $46.0 million of 8% convertible
subordinate notes due 2002 (the "Notes") Interest on the notes is payable
semiannually beginning April 30, 1998. Continucare is using the net proceeds
from the Notes for acquisitions, working capital and other general corporate
purposes.
The Notes can be converted into shares of common stock of the Company at a
conversion price of $7.25 per share at any time after 60 days following the
date of initial issuance. In addition, the Notes are redeemable, in whole or in
part, at the option of the Company at any time on or after October 31, 2000, at
the redemption prices (expressed as a percentage of the principal amount) set
forth below for the 12-month period beginning October 31 of the years
indicated:
2000 .................. 104.00%
2001 .................. 102.00%
and thereafter at 100% of principal amount, together with accrued interest to
the redemption date.
The Notes were not registered under the Securities Act of 1933, as amended (the
"Securities Act") and could not be offered or sold without registration or an
applicable exemption from the registration requirements. A registration
statement covering resales of the Notes became effective on January 8, 1998. As
a result, holders of Notes who are identified in the registration statement may
make resales of the Notes, as described in the registration statement, without
any volume limitations or other constraints normally applicable to sales of
"restricted securities."
NOTE 4 - SHAREHOLDERS' EQUITY
On December 5, 1997, the Company completed a private equity placement of
2,250,000 shares of newly issued common stock, representing approximately 19.5%
of the outstanding shares on such date, at an issue price of $5.00 per share.
Proceeds to the Company, net of issue costs, were approximately $10,500,000.
The stock was issued to Strategic Investment Partners Ltd., an investment
vehicle owned by members of the Quantum Group of Funds which is managed by
Soros Fund Management LLC.
12
<PAGE> 13
On October 1, 1997, warrants to purchase 17,000 shares of common stock were
exercised at an issue price of $6.00 per share. On January 30, 1998 warrants to
purchase 250,000 shares of common stock were exercised at an issue price of
$3.15 per share.
During the nine months ended March 31, 1998, options to purchase shares of
common stock have been granted at an exercise price equal to the fair market
value on the day of grant as follows: 620,000 shares at $5.125; 110,000 shares
at $6.25; 38,000 shares at $6.75.
The Company has adopted Financial Accounting Standards Board Statement No. 128,
"Earnings per Share" ("SFAS 128") in the second quarter of the fiscal year. All
earnings per share amounts for all periods have been presented, and where
necessary, restated to conform to SFAS 128 requirements.
NOTE 5 - ASSIGNMENT OF REVENUE CONTRACTS
On September 10, 1997, the Company assigned certain of its Medicare behavioral
health management contracts with freestanding centers to a third party. In
connection with this transaction, the Company agreed to reduce the related
receivables by approximately $742,000, which the Company recorded against its
bad debt reserve in the prior fiscal year. The net balance of $7.3 million was
converted to notes receivable ("Notes Receivable") to be paid by the programs
over a five year term with interest to accrue at 9% per annum (included as Note
Receivable in the enclosed balance sheets). The Notes Receivable is secured by
all the assets of the business.
As of March 31, 1998 the Company recorded an allowance for doubtful accounts
against the notes receivable of approximately $4,600,000.
The Company is negotiating new managed care opportunities under this line of
business. Accordingly, the Company believes that this assignment does not
qualify as discontinued operations.
NOTE 6 - ACQUISITION RESCISSION
Effective January 30, 1998, the Company rescinded its acquisition of Healthnet
Maritime Services II, Inc. and an affiliate, which had originally been made on
October 31, 1997. In unwinding the transaction, the former seller of Healthnet
(i) forfeited the rights to 241,000 shares of common stock that were to be
issued, and (ii) agreed to pay the Company $50,000. The revenue and expenses of
Healthnet are included in the financial statements of the Company for the
period it
was owned by the Company.
NOTE 7 - INCOME TAXES
The benefit for income taxes for the three months and nine months ended March
31, 1998, has been limited to the amount of the loss that can be carried back
to 1997 and 1996 as well as the amount of deferred tax assets that will reverse
during the carry forward period. The Company has recorded a valuation allowance
for the difference between the effective tax rate and the benefit of the
operating losses.
13
<PAGE> 14
NOTE 8 - CONTINGENCY
In July 1997, the Company received a demand for arbitration relating to a claim
by a former shareholder of the predecessor to Continucare alleging securities
fraud in connection with the redemption of his shares. The former shareholder
is seeking rescission of the redemption agreement or, in the alternative,
damages in excess of $5,000,000. The Company has accrued $2,000,000 as its best
estimate of potential settlement, and reflected this as an increase in Treasury
Stock acquired.
NOTE 9 -IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00"as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to engage in normal business activities.
Based on a recent assessment, the Company has modified and replaced significant
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The Company believes
that with these modifications to its existing software and the conversions to
the new software, the Year 2000 Issue will not pose significant operational
problems for its computer systems.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-QSB contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. When used in this Form 10-QSB, the words "believe,"
"anticipate," "think," "intend," "plan," "will be," and similar expressions,
identify such forward-looking statements. Such statements regarding future
events and/or the future financial performance of the Company are subject to
certain risks and uncertainties, which could cause actual events or the actual
future results of the Company to differ materially from any forward-looking
statement. Certain factors that might cause such a difference include the
following: (1) limited operating history of Continucare in current business,
(2) various risks associated with the acquisition of businesses including the
expenses associated with the integration of the acquired businesses,
difficulties in assimilating the operations of the acquired entities, and
diversion of management resources; (3) statutory and regulatory changes,
retroactive and prospective rate adjustments, administrative rulings and
funding restrictions, any of which could limit or reduce reimbursement levels;
(4) ability to attract and retain a sufficient number of qualified medical
professionals; and (5) fluctuations in the volume of services rendered and/or
the number of patients using the Company's services.
GENERAL
The Company provides a continuum of outpatient and ancillary healthcare
services with a primary focus on outpatient treatment of musculoskeletal
injuries and diseases, such as arthritis, osteoporosis, stroke and traumatic
injuries. The Company's services include physical rehabilitation, home health,
outpatient medical services including urgent care, radiology and diagnostic
imaging services, primary care physician practice services including laboratory
services, and the management of managed care services with managed care
intermediaries.
15
<PAGE> 16
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
unaudited consolidated statements and notes thereto appearing elsewhere in this
Form 10-QSB. The following table sets forth, for the periods indicated certain
items from the statements of operations as a percentage of total revenues. The
statements of operations include the operations of acquisitions made during the
three months and nine months ended March 31, 1998 from the acquisition dates.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
FOR THE THREE MONTHS ENDED
MARCH 31,
---------
1998 1997
---- ----
<S> <C> <C>
Revenues:
Fees for medical services, net 97.2% 0.0%
Management fees 2.8 100.0
----- -----
Total revenues 100.0 100.0
Expenses:
Hospitalization and outpatient services 64.8 --
Payroll and employee benefits 23.5 46.3
Provision for bad debt -- 10.1
Provision for notes receivable 3.5 --
Professional fees 2.8 14.9
General and administrative 12.0 8.0
Start-up and conversion for new services 1.5 --
Depreciation and amortization 5.5 1.2
----- -----
Total expenses 113.6 80.5
-----
Income from operations (13.6) 19.5
----- -----
Other income (expenses):
Interest income (expense), net (2.5) 2.3
----- -----
Income (loss) before income taxes (16.1) 21.8
Provision (benefit)for income taxes ( 1.3) 8.0
----- -----
Net income (loss) (14.8)% 13.8%
===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
REVENUES - Total revenues increased 375% to $17,099,000 for the three months
ended March 31, 1998, from $3,597,000 for the three months ended March 31,
1997. The increase in revenues was primarily attributable to the operations of
various primary care practices acquired during the latter part of the prior
fiscal year in addition to the rehabilitative service entities, home health
agencies, outpatient primary care centers operated under managed care
contracts, managed care management services, and an outpatient radiology and
diagnostic imaging services company acquired during the first three quarters of
the current fiscal year. This increase was offset with a shift in focus by the
Company from the Medicare behavioral health area to the healthcare services
noted above, which resulted in the assignment of certain of these Medicare
behavioral health management contracts with freestanding community health
centers during the three months ended September 30, 1997.
Approximately 97.2% of the Company's revenues for the three months ended March
31, 1998 were derived from fees for medical services provided by the primary
care practices, home health agencies, the outpatient rehabilitation facilities
owned by the Company, the outpatient primary care centers, managed care
management services, and the outpatient radiology and diagnostic imaging
services company.
16
<PAGE> 17
Revenues for the three months ended March 31, 1997 were derived primarily from
Medicare behavioral health management contracts with freestanding centers and
hospitals.
EXPENSES - Hospitalization and outpatient services expenses of $11,080,000 for
the three months ended March 31, 1998, represent the cost of providing medical
services at the rehabilitative service entities, home health agencies,
outpatient primary care centers, primary care practices and the outpatient
radiology and diagnostic imaging services company.
Payroll and employee benefits decreased from 46.3% of total revenues for the
three months ended March 31, 1997, or $1,666,000, to 23.5% of total revenues,
or $4,016,000, for the three months ended March 31, 1998. This decrease is
primarily attributable to the fact that, although there has been an increase in
the dollar amount of payroll and employee benefits as a result of the
acquisitions noted above, the increase in related revenues has been higher
resulting in the decrease in payroll and employee benefits as a percentage of
revenues.
A provision of $600,000, or 3.5% of total revenues, was recorded in the quarter
ended March 31, 1998, to reflect management's determination of the Notes
Receivable estimated net realizable value.
Professional fees decreased to $474,000, or 2.8% of total revenues, for the
three months ended March 31, 1998 from $537,000, or 14.9%, of total revenues,
for the three months ended March 31, 1997 primarily as a result of a decrease
in outsourcing costs resulting from the hiring of additional management
individuals in the current quarter and current nine months.
General and administrative expenses were approximately $2,060,000, or 12.0% of
total revenues, for the three months ended March 31, 1998, as compared to
$286,000, or 8.0% of total revenues, for the three months ended March 31, 1997.
The increase of $1,774,000 was primarily related to the increased costs
attributable to the various primary care practices acquired during the latter
part of the prior fiscal year in addition to the administrative costs related
to the rehabilitation entities, home health agencies, outpatient primary care
centers and the outpatient radiology and diagnostic imaging services company
acquired during the first three quarters of the current fiscal year.
Start-up and conversion expenses were approximately $250,000, or 1.5% of total
revenues, for the three months ended March 31, 1998. These expenses were
primarily attributable to the Bally's project and the costs to incorporate the
operations of the various acquired primary care practices, rehabilitation
entities, home health agencies, outpatient primary care centers and the
outpatient radiology and diagnostic imaging services company acquired during
the first three quarters of the current fiscal year. The Company anticipates
such start-up and conversion expenses will continue to increase as the Company
continues to build its infrastructure to support its absorption of
acquisitions.
Depreciation and amortization increased to $950,000, or 5.5% of total revenues,
for the three months ended March 31, 1998 as compared to $43,000, or 1.2% of
total revenues, for the three months ended March 31, 1997 primarily as a result
of the amortization of goodwill and other intangibles related to the
acquisitions noted above.
INTEREST - Consolidated net interest income (expense) for the three months
ended March 31, 1998, was ($423,000), or 2.5% of total revenues, compared to
$84,000, or 2.3% of total revenues, for the three months ended March 31, 1997.
The $861,000 of total interest expense relates to the $46,000,000 of 8%
Convertible Subordinated Notes due September 30, 2002, (the "Notes") issued on
October 30, 1997. Interest on the Notes is payable semiannually beginning April
30, 1998. The increase in
17
<PAGE> 18
interest expense was offset by approximately $438,000 in interest income
primarily attributed to the investment of the Notes unused proceeds.
During the three months ended March 31, 1997, interest income was primarily
attributable to the investment earnings on the proceeds of a private placement
during such quarter for the reasons described above.
NET INCOME (LOSS) - Continucare's consolidated net loss for the three months
ended March 31, 1998 was approximately $2,530,000 compared to net income for
the three months ended March 31, 1997 of approximately $498,000.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION - Earnings
before interest, taxes, depreciation and amortization ("EBITDA") is not
presented as an alternative to operating results or cash flow from operations
as determined by Generally Accepted Accounting Principles ("GAAP"), but rather
to provide additional information related to the ability of the Company to meet
current trade obligations and debt service requirements. EBITDA should not be
considered in isolation from, or construed as having greater importance than,
GAAP operating income or cash flows from operations as a measure of an entity's
performance.
EBITDA was approximately ($1,381,000) and $744,000 for the three months ended
March 31, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
FOR THE NINE MONTHS ENDED
MARCH 31,
---------
1998 1997
---- ----
<S> <C> <C>
Revenues:
Fees for medical services, net 92.2 % 0.0%
Management fees 7.8 100.0
----- -----
Total revenues 100.0 100.0
Expenses:
Hospitalization and outpatient services 53.5 --
Payroll and employee benefits 29.5 46.1
Provision for bad debt 1.0 8.7
Provision for Notes receivable 9.7 --
Professional fees 3.5 10.4
General and administrative 16.8 5.4
Start-up and Conversion 2.6 --
Depreciation and amortization 5.8 0.9
----- -----
Total expenses 122.4 71.5
----- -----
Income from operations (22.4) 28.5
----- -----
Other income (expenses):
Interest income (expense), net (3.1) 1.5
Minority interest -- (1.7)
----- -----
Other income (expenses) (3.1) (0.2)
----- -----
Income before income taxes (25.5) 28.3
Provision for income taxes (6.3) 10.8
----- -----
Net income (loss) (19.2)% 17.5%
===== =====
</TABLE>
NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO NINE MONTHS ENDED MARCH 31, 1997
REVENUES - Total revenues increased 195% to $28,374,000 for the nine months
ended March 31, 1998, from $9,604,000 for the nine months ended March 31, 1997.
The increase in revenues was primarily attributable to the operations of
various primary care practices acquired during the latter part of the prior
fiscal year in addition to the rehabilitative entities, home health agencies,
outpatient primary care centers, managed care management services and the
outpatient radiology and
18
<PAGE> 19
diagnostic imaging services company that were acquired during the current nine
months. This increase was offset by a shift in focus by the Company from the
Medicare behavioral health area to the healthcare services noted above, which
resulted in the assignment of certain of these Medicare behavioral health
management contracts with freestanding community health centers during the nine
months ended March 31, 1998.
The Company's revenues for the nine months ended March 31, 1998 were derived
primarily from fees for medical services provided by the primary care
practices, rehabilitative entities, home health agencies, managed care
management services, the outpatient primary care centers and outpatient
radiology and diagnostic imaging services company. These revenues, $26,173,000
for the nine months ended March 31, 1998, represent 92.2% of total revenues for
this period.
Revenues for the nine months ended March 31, 1997 were derived primarily from
Medicare behavioral health management contracts with freestanding centers and
hospitals.
EXPENSES - Hospitalization and outpatient services expenses of $15,174,000 for
the nine months ended March 31, 1998, represent the cost of providing medical
services at the rehabilitative entities, home health agencies, outpatient
primary care centers, primary care practices, managed care management services,
and the outpatient radiology and diagnostic imaging services company.
Payroll and employee benefits increased to $8,358,000, for the nine months
ended March 31, 1998, versus $4,426,000, for the nine months ended March 31,
1997. The increase in payroll and employee benefits is attributable to the
increase in staff necessary to operate the primary care practices, outpatient
primary care centers, rehabilitative entities, home health agencies and
outpatient radiology and diagnostic imaging services company acquired in the
current nine months.
Provision for bad debts decreased to $181,000, or 1.0% of total revenues, for
the nine months ended March 31, 1998 from $833,000, or 8.7% of total revenues,
for the nine months ended March 31, 1997. The decrease is due to the shift in
revenue source from management fees to fees for medical services. Fees for
medical services are recorded net of discounts and contractual allowances
whereas management fees require the recording of a provision for bad debt to
record the related receivable at net realizable value as determined by
management's judgment.
The Company has recorded a provision for Notes Receivable of $2,767,000 or 9.7%
of total revenues in the quarters ended March 31, 1998, and December 31, 1997
to reflect management's determination of its estimated net realizable value.
Professional fees increased to $1,006,000, or 3.5% of total revenues, for the
nine months ended March 31, 1998 from $1,004,000, or 10.4%, of total revenues,
for the nine months ended March 31, 1997 primarily as a result of acquisitions
in this period as noted above.
General and administrative expenses were approximately $4,774,000, or 16.8% of
total revenues, for the nine months ended March 31, 1998, as compared to
$518,000, or 5.4% of total revenues, for the nine months ended March 31, 1997.
The increase of $4,256,000 was primarily related to the acquisition of various
primary care practices during the latter part of the prior fiscal year in
addition to the acquisitions of the rehabilitative entities, home health
agencies, outpatient primary care centers, managed care management services,
and the outpatient radiology and diagnostic imaging services company during the
current nine months.
Recognized start-up and conversion expenses were approximately $725,000, or
2.6% of total revenues, for the nine months ended March 31, 1998. These
expenses were primarily attributable to the Bally's project and the acquisition
of various primary care practices during the latter part of the prior fiscal
year in addition to the
19
<PAGE> 20
acquisitions of the rehabilitative entities, home health agencies, outpatient
primary care centers, managed care management services, and the outpatient
radiology and diagnostic imaging services company acquired during the first
three quarters of the current fiscal year. The Company anticipates such
start-up and conversion expenses will continue to increase as the Company
continues to build its infrastructure to support its absorption of
acquisitions.
Depreciation and amortization increased to $1,633,000, or 5.8% of total
revenues, for the nine months ended March 31, 1998 as compared to $84,000, or
0.9% of total revenues, for the nine months ended March 31, 1997 primarily as a
result of the amortization of goodwill and other intangibles related to the
acquisitions noted above.
INTEREST - Consolidated net interest income (expense) for the nine months ended
March 31, 1998, was ($872,000), or 3.1% of total revenues, compared to
$150,000, or 1.5% of total revenues, for the nine months ended March 31, 1997.
Of the $1,567,000 in total interest expense, approximately $1,554,000 is
attributed to the $46,000,000 Notes. The increase in interest expense was
offset by approximately $785,000 in interest income primarily attributed to the
investment of the Note's unused proceeds.
During the nine months ended March 31, 1997, interest income was primarily
attributable to the proceeds of the private placement.
MINORITY INTEREST - Minority interest for the nine months ended March 31, 1997,
was $162,000, or 1.7% of total revenues, and represented a 25% interest held by
a third-party in the earnings of a Continucare subsidiary. Effective December
31, 1996, the Company purchased the interest held by the third-party owner for
40,000 shares of Company Common Stock. As a result, the nine months ended March
31, 1998, reflects no minority interest.
NET INCOME (LOSS) - Continucare's consolidated net loss for the nine months
ended March 31, 1998 was approximately ($5,424,000) compared to net income for
the nine months ended March 31, 1997 of approximately $1,681,000.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION - Earnings
before interest, taxes, depreciation and amortization ("EBITDA") is not
presented as an alternative to operating results or cash flow from operations
as determined by Generally Accepted Accounting Principles ("GAAP"), but rather
to provide additional information related to the ability of the Company to meet
current trade obligations and debt service requirements. EBITDA should not be
considered in isolation from, or construed as having greater importance than,
GAAP operating income or cash flows from operations as a measure of an entity's
performance.
EBITDA was approximately ($4,712,000) and $2,822,000 for the nine months ended
March 31, 1998 and 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position has changed significantly since June 30, 1997.
On October 30, 1997, the Company issued $46,000,000 (of which approximately
$3.0 million was used for loan issue costs) of 8% Convertible Subordinated
Notes due September 30, 2002 with interest payable semiannually (the "Notes").
The Notes are convertible into Common Stock at any time after 60 days following
the date of initial issuance thereof and prior to maturity, unless previously
redeemed, at a conversion price of $7.25 per share. During the first three
quarters, the Company used approximately $13,500,000 of the proceeds of the
notes to purchase the outpatient centers operated under managed care contracts,
approximately $2,200,000 was used to purchase the outpatient radiology and
diagnostic imaging services company, approximately $2,565,000 was used to
purchase the Medical Service
20
<PAGE> 21
Organization, and approximately $9,940,000 was used to purchase three
rehabilitative service companies known as RMS in the aggregate The Company
intends to use the remainder of the proceeds for additional acquisitions,
working capital and other general corporate purposes.
On December 5, 1997, the Company completed a private equity placement of
2,250,000 shares of newly issued common stock, representing approximately 19.5%
of the outstanding shares on such date, at an issue price of $5.00 per share.
Proceeds to the Company, net of issue costs, were approximately $10,500,000.
The stock was issued to Strategic Investment Partners Ltd., an investment
vehicle owned by members of the Quantum Groups of Funds which is managed by
Soros Fund Management LLC.
On October 1, 1997, warrants to purchase 17,000 shares of common stock were
exercised at an issue price of $6.00 per share. On January 30, 1998 warrants to
purchase 250,000 shares were exercised at an issue price of $3.15 per share.
For the nine months ended March 31, 1998, net cash used in operating activities
was approximately $8,356,000 primarily as a result of an increase in accounts
receivable of approximately $7,785,000 related primarily to increased revenue
from businesses acquired during the current period. For the nine months ended
March 31, 1998, net cash used in investing activities was approximately
$36,398,000, primarily related to the purchase of a home health agency, Doctors
Health Group, Allied Medical Centers, Beacon Health Care Group, Medical Service
Organization and RMS. Net cash provided by financing activities for the nine
months ended March 31, 1998 was approximately $57,679,000, comprised primarily
of the $46,000,000 sale of principal amount of notes and $10,500,000 of the
sale of 2,250,000 shares of common stock to Strategic Investment Partners Ltd.
The Company's working capital was approximately $24,762,000 at March 31, 1998,
compared to $8,005,000 at June 30, 1997. The increase in working capital is
primarily attributable to and unexpended portion of the proceeds related to the
issuance of $46,000,000 of 8% Convertible Subordinated Notes on October 30,
1997 and the accounts receivable absorbed as part of the acquisitions completed
during the previous nine months as discussed above.
The Company anticipates that the cash flow from operations, together with funds
raised through the offering of the Notes will be used to make acquisitions in
order to grow its operations and pursue its business strategy. Based upon
current expectations, the Company believes that cash flow from operations will
be sufficient to meet its working capital requirements for fiscal year 1998,
although there can be no assurance that it will be able to do so.
21
<PAGE> 22
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In July 1997, the Company received a demand for arbitration relating to a claim
by a former shareholder of the predecessor to Continucare alleging securities
fraud in connection with the redemption of his shares. The former shareholder
is seeking rescission of the redemption agreement or, in the alternative,
damages in excess of $5,000,000. The Company has accrued $2,000,000 as its
best estimate of potential settlement, and reflected this as an increase in
Treasury Stock acquired.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on January 21, 1998, the
shareholders of the Company voted to elect Charles M. Fernandez, Dr. Phillip
Frost, Richard B. Frost, Mark J. Hanna, Dr. Elias F. Ghanem, Robert Soros, Lee
S. Hillman and J. Kenneth Looloian, as Directors of the Company.
The number of votes cast for or withheld, with respect to each of the nominees
were as follows:
<TABLE>
<CAPTION>
Nominee For Against
- ---------------------------------------------------------------------
<S> <C> <C>
Charles M. Fernandez 9,047,271 6,360
Dr. Phillip Frost 9,047,291 6,340
Richard B. Frost 9,047,291 6,340
Mark J. Hanna 9,047,291 6,340
Dr. Elias F. Ghanem 9,047,291 6,340
Robert Soros 9,047,291 6,340
Lee S. Hillman 9,047,291 6,340
J. Kenneth Looloian 9,047,291 6,340
</TABLE>
In addition, the shareholders of the Company voted to amend the Company's
Amended and Restated 1995 Stock Option Plan (the "Stock Option Plan") which
authorizes 1,750,000 shares of Common Stock for issuance upon exercise of stock
options. The shareholders cast 8,944,991 votes in favor of the Stock Option
Plan, 85,600 votes against and 23,040 shareholders withheld authority.
22
<PAGE> 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
During the three months ended March 31, 1998, the Company filed
the following reports on Form 8-K: (i) Form 8-K filed February 26, 1998, to
report an Item 2 event (acquisition of three Rehabilitative service companies).
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CONTINUCARE CORPORATION
Dated: May 15, 1998 By: /s/ CHARLES M. FERNANDEZ
------------------------------------
Charles M. Fernandez, Chairman,
Chief Executive Officer, President
Dated: May 15, 1998 By: /s/ Jeffrey A. Barnhill
------------------------------------
Jeffrey A. Barnhill
Senior VP of Financial Operation
and Principal Accounting Officer
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CONTINUCARE CORP. FOR THE NINE MONTHS ENDED MARCH 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 19,914,600
<SECURITIES> 0
<RECEIVABLES> 19,832,206
<ALLOWANCES> 7,372,000
<INVENTORY> 0
<CURRENT-ASSETS> 35,873,468
<PP&E> 8,698,708
<DEPRECIATION> 3,883,208
<TOTAL-ASSETS> 78,121,366
<CURRENT-LIABILITIES> 11,111,373
<BONDS> 46,000,000
0
0
<COMMON> 1,373
<OTHER-SE> 20,533,900
<TOTAL-LIABILITY-AND-EQUITY> 78,121,366
<SALES> 0
<TOTAL-REVENUES> 28,374,019
<CGS> 0
<TOTAL-COSTS> 30,037,381
<OTHER-EXPENSES> 1,633,307
<LOSS-PROVISION> 3,048,201
<INTEREST-EXPENSE> 871,842
<INCOME-PRETAX> (7,216,712)
<INCOME-TAX> (1,792,317)
<INCOME-CONTINUING> (5,424,395)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,424,395)
<EPS-PRIMARY> (.45)
<EPS-DILUTED> (.45)
</TABLE>
