##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-K [X]
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended May 31, 2004or[  ]
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ___to ___
 Commission file number 1-9927 COMPREHENSIVE CARE CORPORATION  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    95-2594724
(IRS Employer
Identification No.)204 South Hoover Blvd., Suite 200
Tampa, Florida
(Address of principal executive offices)
    
    33609
(Zip Code)
 (813) 288-4808
(Registrants telephone number, including area code) Securities registered pursuant to Section 12(g) of the Act: Title of each class
    
    Name of each exchange on which registeredCommon Stock, Par Value $.01 per share
7 1/2% Convertible Subordinated Debentures due 2010
    
    Over The Counter Bulletin Board
Over-the-Counter
 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 (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 o Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. x Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act
Rule 12b-2). Yes o No x The aggregate market value of voting stock held by non-affiliates of the
Registrant November 30, 2003, was $7,097,488 based on the average bid and ask
price of the Common Stock on November 30, 2003, as reported on the Over The
Counter Bulletin Board. At August 20, 2004, the Registrant had 4,682,548 shares of Common Stock
outstanding. DOCUMENTS INCORPORATED BY REFERENCE None.




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TABLE OF CONTENTS  PART IItem 1. BUSINESSGOVERNMENT REGULATIONACCREDITATIONMANAGEMENT INFORMATION SYSTEMSADMINISTRATION AND EMPLOYEESMARKETING AND SALESAVAILABLE INFORMATIONCORPORATE GOVERNANCEItem 2. PROPERTIESItem 3. LEGAL PROCEEDINGSItem 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIItem 5. MARKET FOR COMPANYS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESItem 6. SELECTED FINANCIAL DATAItem 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATANote 1  Description of the Companys BusinessNote 2  Summary of Significant Accounting PoliciesNote 3  Basis of PresentationNote 4  Major Contracts/CustomersNote 5  Accounts ReceivableNote 6  Other Current AssetsNote 7  Property and EquipmentNote 8  Note ReceivableNote 9  Discontinued OperationsNote 10  Accounts Payable and Accrued LiabilitiesNote 11  Long-term DebtNote 12  Income TaxesNote 13  Employee Benefit PlanNote 14  Preferred Stock, Common Stock, and Stock Option PlansNote 15  Commitments and ContingenciesNote 16  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSItem 9a. CONTROLS AND PROCEDURESPART IIIItem 10. Executive Officers and Directors of the CompanyItem 11. EXECUTIVE COMPENSATIONCompensation Committee Report Regarding Compensation of Executive OfficersEmployment Agreements with ExecutivesCompensation Committee Interlocks and Insider ParticipationPerformance GraphSection 16(A) Beneficial Ownership Reporting ComplianceIndemnification of Officers and DirectorsTable II  Options Held at May 31, 2004Option Grants In the Last Fiscal yearAGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND AGGREGATED FISCAL YEAR-END OPTION VALUEItem 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTEQUITY COMPENSATION PLAN INFORMATIONItem 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-KSIGNATURESExhibit IndexEx-21 Company SubsidiariesEx-23.1 Kirkland, Russ, Murphy ConsentEx-23.2 Eisner ConsentEx-31.1 Section 302 CEO CertificationEx-31.2 Section 302 CFO CertificationEx-32.1 Section 906 CEO CertificationEx-32.2 Section 906 CFO Certification    Table of Contents  COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 
 PART I 
 Item 1. BUSINESS Organizational History Comprehensive
Care Corporation® (referred to herein as the Company,
CompCare ®(1), we, our or us) is a Delaware Corporation organized in
1969. Unless the context otherwise requires, all references to the Company
include the Companys principal operating subsidiary, Comprehensive Behavioral
Care, Inc.SM (2) (CBC) and subsidiary corporations. CompCare, through its operating subsidiaries, manages the delivery of
psychiatric and substance abuse services to commercial, Medicare, and Medicaid
members on behalf of employers, health plans, including health maintenance
organizations (HMOs) and preferred provider organizations (PPOs),
government organizations, third-party claims administrators, and commercial and
other group purchasers of behavioral healthcare services. Current services
include a broad spectrum of inpatient and outpatient mental health and
substance abuse therapy, counseling, and supportive interventions. Business General The services we provide are delivered through management service
agreements (MSOs), administrative service agreements (ASOs), and capitated
contracts. MSOs and ASOs are contractual obligations under which the Company
does not assume any financial risk or responsibility for the members
behavioral health care costs. We may provide various managed care functions
under MSO and ASO arrangements, including clinical care management, provider
network development, customer service, claims processing, and information
systems reporting. The scope of services under MSO arrangements is slightly
narrower in comparison to those services we perform under ASO arrangements.
Under capitated contracts, the primary payer of healthcare services prepays us
a fixed, per member per month fee for covered psychiatric and substance abuse
services regardless of actual member utilization and the Company assumes the
financial risk for the members behavioral health care costs. Programs are
contracted through inpatient facilities as well as through experienced
outpatient practitioners. We currently manage programs through which services are provided to
recipients in fifteen states. Current programs and services include fully
integrated, capitated behavioral healthcare services, Employee Assistance
Programs (EAPs), case management/utilization review services, administrative
services management, provider sponsored health plan development, behavioral
corrections programs, preferred provider network development, management and
physician advisor reviews and overall care management services. We also provide
prior and concurrent authorization for physician-prescribed psychotropic
medications for a major Medicaid HMO in Michigan under that states mandated
pharmacy management program. Members are generally directed to CompCare by
their employer, health plan, or physician and receive an initial authorization
for an assessment. Based upon the initial assessment, a treatment plan is
established for the member. Fully integrated capitated lives (i.e. where the
company has contractual, financial risk) totaled approximately 698,000 and
789,000 at May 31, 2004 and 2003, respectively. Combined MSO and ASO lives
were approximately 370,000 and 337,000 at May 31, 2004 and 2003, respectively.
EAP lives were approximately 2,000 at May 31, 2004 and 2003. Our objective is to provide easily accessible, high quality behavioral
healthcare services and products and to manage costs through measures such as
the monitoring of hospital inpatient admissions and the review of
authorizations for various types of outpatient therapy. The goal is to combine
access to quality behavioral healthcare services with effective management
controls in order to ensure the most cost-effective use of healthcare
resources. Sources of Revenue We provide managed behavioral healthcare and substance abuse services to
recipients, primarily through subcontracts with HMOs who have historically
carved out these functions to managed behavioral healthcare organizations like
CompCare. We generally receive a negotiated amount on a per member per month
or capitated basis in exchange for providing these services. We then contract
directly with behavioral healthcare providers who receive a pre-determined,
fee-for-service rate or case rate. Behavioral healthcare providers include
psychiatrists, clinical psychologists, therapists, other licensed healthcare
professionals, and hospitals. As of May 31, 2004, we have approximately 10,000
behavioral healthcare practitioners in our network who are primarily located in
the five states in which the Company has its principal contracts. Under such
full-risk capitation arrangements, profit is a function of utilization and the
amount of claims payments made to our network providers. Alternatively, we
may subcontract with a provider company on a sub-capitated basis. In cases
where we have made sub-  (1)   (2)
 2




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES capitation arrangements, the outside company manages service delivery through
CompCares approved and credentialed network that is guided by stringent
quality standards. During Fiscal 2004, we provided services under capitated arrangements for
commercial, Medicare, Medicaid, and Childrens Health Insurance Program
(CHIP) patients in Florida and Texas, commercial and Medicaid patients in
Michigan, Medicaid patients in California and Connecticut, and commercial
patients in Arizona, Georgia, Indiana, Kentucky, Minnesota, New York, North
Carolina, Ohio, South Carolina, and Wisconsin. In Fiscal 2004, our new business included one new CHIP client in Texas,
one new Medicaid contract in Michigan, and one new Medicaid client in
California. We perform periodic reviews of our current client contracts to
determine profitability. In the event a contract is not profitable, we may
seek to revise the terms of the contract or to terminate the agreement in
accordance with the specific contract terms. Growth Strategy Our objective is to expand our presence in both existing and new managed
behavioral healthcare markets by obtaining new contracts with health plans,
corporations, government agencies, and other payers through CompCares
reputation of providing quality managed behavioral healthcare services with the
most cost-effective use of healthcare resources. Our principal means for
pursuing public sector business is through the submission of proposals in
response to formal, competitive bidding proceedings that are initiated by
health plans or government agencies. We intend, where feasible, to expand our
commercial business during the upcoming fiscal year through new marketing
initiatives directed at employer groups and, also, HMOs that contract directly
with employers. Additionally, we continue to develop and market new
stand-alone products to prospective and existing customers. Pharmacy
management and specific disease management are two such current examples. The
success of our growth strategy is dependent upon our ability to competitively
bid on new contracts, comply with conditions contained in requests for
proposals, obtain required licenses, if any, in new markets, establish provider
networks in new markets and negotiate favorable agreements with our providers. Competition The behavioral healthcare industry is very competitive and provides
products and services that are price sensitive. We believe that there are
approximately 150 managed behavioral healthcare companies providing service for
an estimated 227 million covered lives in the United States. Several
competitors have revenues, financial resources, and membership substantially
larger than ours. We believe that our largest competitor, Magellan Health
Services, Inc., has approximately 25% of the market based on the number of
covered lives. We also compete with small local and regional companies at
times. Competition is built around pricing, the overall quality of service
provided, the extent and quality of the provider network, and the technical
capacity of the behavioral healthcare organization. 
 GOVERNMENT REGULATION Regulatory Monitoring and Compliance CompCare is subject to extensive and evolving state and federal
regulations relating to the nations mental health system as well as changes in
Medicaid and Medicare reimbursement that could have an effect on the
profitability of our contracts. These regulations range from licensure and
compliance with regulations related to insurance companies and other
risk-assuming entities, to licensure and compliance with regulations related to
healthcare providers. These laws and regulations may vary considerably among
states. As a result, CompCare may be subject to the specific regulatory
approach adopted by each state for regulation of managed care companies and for
providers of behavioral healthcare treatment services. The Company holds
licenses or certificates to perform utilization review and third party
administrator (TPA) services in certain states. Certain of the services
provided by our managed behavioral healthcare subsidiaries may be subject to
such licensing requirements in other states. There can be no assurance that
additional utilization review or TPA licenses will not be required or, if
required, that CompCare will qualify to obtain such licenses. In many states,
entities that assume risk under contract with licensed insurance companies or
health plans who retain ultimate financial responsibility have not been
considered by state regulators to be conducting an insurance or HMO business.
As a result, we have not sought licensure as either an insurer or HMO in
certain states. If the regulatory positions of these states were to change,
our business could be materially affected until such time as CompCare meets the
regulatory requirements. Currently, we cannot quantify the potential effects of
additional regulation of the managed care industry, but such costs will have an
adverse effect on future operations to the extent that they are not able to be
recouped in future managed care contracts. 3




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES As of May 31, 2004, we managed approximately 780,000 lives in connection
with behavioral and substance abuse services covered through Medicaid and/or
CHIPs in California, Connecticut, Florida, Michigan and Texas. Any changes in
Medicaid funding could ultimately affect our reimbursement and overall
profitability. The Company is subject to the requirements of the Health Insurance
Portability and Accountability Act of 1996 (HIPAA). The purpose of the HIPAA
provisions is to improve the efficiency and effectiveness of the healthcare
system through standardization of the electronic data interchange of certain
administrative and financial transactions and, also, to protect the security
and privacy of protected health information. Entities subject to HIPAA include
some healthcare providers and all healthcare plans. To meet the specific
requirements of HIPAA, the Company recently determined it needed to make a
significant investment in its current information system or in a new
information system that would better meet the Companys future needs (see
Management Information Systems below). 
 ACCREDITATION To develop standards that effectively evaluate the structure and function
of medical and quality management systems in managed care organizations, the
National Committee on Quality Assurance, (NCQA) has developed an extensive
review and development process in conjunction with the managed care industry,
healthcare purchasers, state regulators, and consumers. The Standards for
Accreditation of Managed Behavioral Healthcare Organizations (MBHOs) used by
NCQA reviewers to evaluate an MBHO address the following areas: quality
improvement; utilization management; credentialing; members rights and
responsibilities; and preventative-care. These standards validate that an MBHO
is founded on principles of quality and is continuously improving the clinical
care and services it provides. NCQA utilizes Health Plan Employer Data and
Information Set (HEDIS), which is a core set of performance measurements
developed to respond to complex but clearly defined employer needs as standards
for patient care and customer satisfaction. CompCares Southeast Region
operation was awarded a one-year NCQA accreditation in July 1999 and Full
Accreditation in December 2001. Effective July 22, 2002, CompCares Full
Accreditation award extends the NCQA accreditation to July 22, 2005 and covers
membership in Connecticut, Florida, Georgia, Indiana and Michigan. Full
Accreditation is granted for a period of three years to those plans that have
excellent programs for continuous quality improvement and that meet NCQAs
rigorous standards. We believe our NCQA accreditation is beneficial to our clients and their
members we serve. Additionally, NCQA accreditation may be an important
consideration to our prospective clients. 
 MANAGEMENT INFORMATION SYSTEMS We are implementing a new managed care information system designed to
streamline our clinical and claims operations and offer significant service
improvements to our providers. The new software will feature state of the art
decision aids to enhance the patient treatment process beginning with member
assessment and initial authorization and continuing through claims payment and
encounter evaluation. The system will connect all CompCare locations to a
virtual private network (VPN) technology telecommunications network, allowing
automated call-path routing for overlapping coverage during peak call times. We
believe this system will readily support continued growth and meet our future
business needs. The total cost of the system, which is expected to be
implemented by early 2005, will be approximately $370,000 of which $190,000 has
already been paid to our vendor. In August 2004, we began converting our wide-area network from frame relay
technology to VPN technology. We expect to complete this conversion in
September 2004. The VPN network will significantly improve the speed and
security of connections between our regional offices and reduce
telecommunications costs by allowing voice telephone calls between our offices
to be made over the computer network. Certain provider partners will have
limited access to our network resources, and remote user access will improve as
well. We expect to recoup the costs of the network improvements during Fiscal
2005. 
 ADMINISTRATION AND EMPLOYEES Our executive and administrative offices are located in Tampa, Florida,
where we maintain operations, business development, accounting, reporting and
information systems, and provider and member service functions. Provider
management, account management, and certain clinical and utilization management
functions are performed at our Connecticut, Michigan, and Texas locations. We
currently employ approximately 80 full-time and 15 part-time employees. 
 MARKETING AND SALES Our business development staff is responsible for generating new sales
leads and for preparing proposals and responses to formal commercial and public
sector Requests for Proposals (RFPs). The Companys Chief Development Officer
manages 4




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES marketing initiatives, under the supervision of the Companys President and
Chief Executive Officer (CEO). Regional and administrative operations
personnel strengthen the Companys marketing efforts by providing a local
presence. Sales expectations are integrated into the performance requirements
for executive staff and local sales personnel. 
 AVAILABLE INFORMATION The Companys stockholder website is www.compcare-shareholders.com. The
Company makes available free of charge, through a link to the Securities and
Exchange Commissions (SEC) internet site our annual, quarterly, and current
reports, and any amendments to these reports, as well as any beneficial
ownership reports of officers and directors filed electronically on Forms 3, 4,
and 5. All such reports will be available as soon as reasonably practicable
after electronically filing such reports with the SEC. Information contained on
our website or linked through our website is not part of this report on Form
10-K. 
 CORPORATE GOVERNANCE Corporate governance is typically defined as the system that allocates
duties and authority among a companys stockholders, board of directors and
management. The stockholders elect the board and vote on extraordinary
matters; the board is the companys governing body, responsible for hiring,
overseeing and evaluating management, particularly the CEO; and management runs
the companys day-to-day operations. Our certificate of incorporation provides
for a staggered board of five directors separated into three classes. Our
Board of Directors currently consists of four directors. The Company is in an
ongoing process to try to fill the one remaining vacancy. The current Board
members include two independent directors. The primary responsibilities of the
Board of Directors are oversight, counseling and direction to the Companys
management in the long-term interests of the Company and its stockholders. The
Boards detailed responsibilities include: (a) selecting, regularly evaluating
the performance of, and approving the compensation of the CEO and other senior
executives; (b) reviewing and, where appropriate, approving the Companys major
financial objectives, strategic and operating plans and actions; (c) overseeing
the conduct of the Companys business to evaluate whether the business is being
properly managed; and (d) overseeing the processes for maintaining the
Companys integrity with regard to its consolidated financial statements and
other public disclosures and compliance with law and ethics. The Board of
Directors has delegated to the CEO, working with the Companys other executive
officers, the authority and responsibility for managing the Companys business
in a manner consistent with the Companys standards and practices, and in
accordance with any specific plans, instructions or directions of the Board.
The CEO and management are responsible for seeking the advice and, in
appropriate situations, the approval of the Board with respect to extraordinary
actions to be undertaken by the Company. 
 Item 2. PROPERTIES We do not own any real property. The following table sets forth certain
information regarding our leased properties as of May 31, 2004. All leases are
triple net leases, under which CompCare bears all costs of operations,
including insurance, taxes, and utilities. Monthly Base RentName and Location
    
    Lease Expires
    
    (in Dollars)Corporate Headquarters, Regional, Administrative,
And Other OfficesTampa, Florida, Corporate Headquarters and
Southeastern Regional offices
    
    
    2006
    
    
    $
    23,507Grand Prairie, Texas
    
    
    2005
    
    
    
    6,474Bloomfield Hills, Michigan
    
    
    2005
    
    
    
    7,680
 
 Item 3. LEGAL PROCEEDINGS From time to time, the Company and its subsidiaries may be parties to and
their property is subject to ordinary, routine litigation incidental to their
business, in which case claims may exceed insurance policy limits and the
Company or any one of its subsidiaries may have exposure to a liability that is
not covered by insurance. Management is not aware of any such lawsuits that
could have a material adverse impact on the Companys consolidated financial
statements. 5




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this report, no
matters were submitted to a vote of security holders of the Company. 
 PART II 
 Item 5. MARKET FOR COMPANYS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES  Our Common Stock is traded on the Over The Counter Bulletin Board
(OTC-BB) under the symbol CHCR. The following table sets forth the
range of high and low closing prices for the Common Stock, as reported by
the OTC-BB, for the fiscal quarters indicated: PriceFiscal Year
    
    
    
    High
    
    Low2004
    
    
    First Quarter
    
    $
    3.00
    
    
    
    2.15Second Quarter
    
    
    2.40
    
    
    
    1.46Third Quarter
    
    
    2.02
    
    
    
    1.35Fourth Quarter
    
    
    1.80
    
    
    
    1.152003
    
    
    First Quarter
    
    
    1.65
    
    
    
    0.75Second Quarter
    
    
    1.01
    
    
    
    0.32Third Quarter
    
    
    2.38
    
    
    
    0.65Fourth Quarter
    
    
    3.05
    
    
    
    2.01
  (a)
    
    As of August 20, 2004, the Company had 1,408 common stockholders of
record.  (b)
    
    The Company did not pay any cash dividends on its Common Stock during any
quarter of Fiscal 2004, 2003, or 2002 and does not contemplate the
initiation of payment of any cash dividends in the foreseeable future (see
Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS). 
 Item 6. SELECTED FINANCIAL DATA Prior to Fiscal 1993, CompCare principally engaged in the ownership,
operation, and management of psychiatric and substance abuse programs in
company owned, leased, or unaffiliated hospitals. During Fiscal 1999, we
completed our plan to dispose of our hospital business segment. Fiscal 2004
results include a $387,000 charge related to such discontinued operations (see
Note 9  Discontinued Operations to the audited, consolidated financial
statements). Fiscal 2003 results include a $7.7 million, non-operating gain related to
the IRS settlement (see Note 12  Income Taxes to the audited, consolidated
financial statements). Additionally, Fiscal 2003 results included a $470,000
gain included in discontinued operations, related to the settlement of one
matter involving Medi-Cal reimbursements paid to Brea Neuropsychiatric
Hospital, a facility owned by the Company until its disposal in fiscal year
1991, covering fiscal periods from 1983 through 1986. The selected consolidated financial data that follows should be read in
conjunction with the consolidated financial statements and accompanying notes
appearing elsewhere in this report. Reclassifications of prior year amounts
have been made to conform to the current years presentation. 6




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES Year Ended May 31,Consolidated Statements of Operations Data:
    
    2004
    
    2003
    
    2002
    
    2001
    
    2000(Amounts in thousands, except per share data)Operating revenues
    
    $
    27,583
    
    
    $
    32,104
    
    
    $
    27,625
    
    
    $
    18,192
    
    
    $
    17,442Costs and expenses:Healthcare operating expenses
    
    
    24,178
    
    
    
    29,201
    
    
    
    24,625
    
    
    
    15,326
    
    
    
    15,801General and administrative expenses
    
    
    3,385
    
    
    
    3,459
    
    
    
    3,544
    
    
    
    3,842
    
    
    
    6,974Provision for (recovery of) doubtful accounts
    
    
    (7
    )
    
    
    20
    
    
    
    (112
    )
    
    
    (439
    )
    
    
    (606
    )Depreciation and amortization
    
    
    107
    
    
    
    195
    
    
    
    342
    
    
    
    656
    
    
    
    794Restructuring expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    83127,663
    
    
    
    32,875
    
    
    
    28,399
    
    
    
    19,355
    
    
    
    23,794Operating loss from continuing operations before items shown
below
    
    
    (80
    )
    
    
    (771
    )
    
    
    (774
    )
    
    
    (1,163
    )
    
    
    (6,352
    )Other income (expenses):Net gain on IRS settlement
    
    
    
    
    
    
    7,717
    
    
    
    
    
    
    
    
    
    
    
    Loss in connection with prepayment of note receivable
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    (496
    )
    
    
    Gain on sale of assets
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    9Loss on sale of assets
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Other non operating income
    
    
    1
    
    
    
    34
    
    
    
    40
    
    
    
    332
    
    
    
    204Interest income
    
    
    26
    
    
    
    47
    
    
    
    88
    
    
    
    163
    
    
    
    399Interest expense
    
    
    (215
    )
    
    
    (181
    )
    
    
    (178
    )
    
    
    (208
    )
    
    
    (289
    )(Loss) income from continuing operations before income taxes
    
    
    (288
    )
    
    
    6,845
    
    
    
    (824
    )
    
    
    (1,372
    )
    
    
    (6,030
    )Income tax expense
    
    
    102
    
    
    
    20
    
    
    
    1
    
    
    
    35
    
    
    
    13(Loss) income from continuing operations
    
    
    (390
    )
    
    
    6,825
    
    
    
    (825
    )
    
    
    (1,407
    )
    
    
    (6,043
    )(Loss) income from discontinued operations
    
    
    (387
    )
    
    
    633
    
    
    
    
    
    
    
    290
    
    
    
    277(Loss) income before cumulative effect of change in
accounting principle
    
    
    (777
    )
    
    
    7,458
    
    
    
    (825
    )
    
    
    (1,117
    )
    
    
    (5,766
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    
    
    
    
    Net (loss) income attributable to common stockholders
    
    $
    (777
    )
    
    $
    7,458
    
    
    $
    (770
    )
    
    $
    (1,117
    )
    
    $
    (5,766
    )(Loss) income per common share  basic:(Loss) income from continuing operations
    
    $
    (0.09
    )
    
    $
    1.75
    
    
    $
    (0.21
    )
    
    $
    (0.37
    )
    
    $
    (1.58
    )(Loss) income from discontinued operations
    
    
    (0.09
    )
    
    
    0.16
    
    
    
    
    
    
    
    0.08
    
    
    
    0.07Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    0.01
    
    
    
    
    
    
    
    Net (loss) income
    
    $
    (0.18
    )
    
    $
    1.91
    
    
    $
    (0.20
    )
    
    $
    (0.29
    )
    
    $
    (1.51
    )(Loss) income per common share  diluted:(Loss) income from continuing operations
    
    $
    (0.09
    )
    
    $
    1.57
    
    
    $
    (0.21
    )
    
    $
    (0.37
    )
    
    $
    (1.58
    )(Loss) income from discontinued operations
    
    
    (0.09
    )
    
    
    0.15
    
    
    
    
    
    
    
    0.08
    
    
    
    0.07Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    0.01
    
    
    
    
    
    
    
    Net (loss) income
    
    $
    (0.18
    )
    
    $
    1.72
    
    
    $
    (0.20
    )
    
    $
    (0.29
    )
    
    $
    (1.51
    )Balance Sheet Data:Working capital deficit
    
    $
    (4,098
    )
    
    $
    (4,447
    )
    
    $
    (12,275
    )
    
    $
    (11,770
    )
    
    $
    (12,245
    )Total assets
    
    
    6,225
    
    
    
    6,379
    
    
    
    11,399
    
    
    
    9,754
    
    
    
    21,275Total long-term debt and capital lease obligations
    
    
    2,364
    
    
    
    2,298
    
    
    
    2,264
    
    
    
    2,244
    
    
    
    2,244Stockholders deficit
    
    $
    (4,725
    )
    
    $
    (4,990
    )
    
    $
    (12,519
    )
    
    $
    (11,778
    )
    
    $
    (10,672
    )
 7




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 
 Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Annual Report on Form 10-K includes forward-looking statements, the
realization of which may be impacted by certain important factors discussed
below under Risk Factors  Important Factors Related to Forward-Looking
Statements and Associated Risks. Overview Comprehensive Care Corporation is a Delaware Corporation organized in
1969. The Company, primarily through its wholly owned subsidiary,
Comprehensive Behavioral Care, Inc., provides managed care services in the
behavioral health and psychiatric fields, which is its only operating segment.
The Company manages the delivery of a continuum of psychiatric and substance
abuse services to commercial, Medicare, and Medicaid members on behalf of
employers, health plans, government organizations, third-party claims
administrators, and commercial and other group purchasers of behavioral
healthcare services. The managed care operations include administrative
service agreements, fee-for-service agreements, and capitation contracts. The
customer base for its services includes both corporate and governmental
entities. The Companys services are provided primarily by unrelated vendors
on a subcontract or subcapitated basis. General For the fiscal year ended May 31, 2004, the Company reported a loss from
continuing operations of $390,000, or $0.09 loss per share (basic and diluted),
and a net loss of $777,000, or $0.18 loss per share (basic and diluted).
During the comparable period of the prior fiscal year, the Company recorded a
$7,717,000, non-operating gain resulting from an IRS settlement and, as a
result, reported income from continuing operations of $6,825,000 and net income
of $7,458,000, or $1.91 basic income per share ($1.72 diluted income per
share). Due to the recent loss of one major customer in Florida and the temporary
reduction in Texas CHIP revenue that occurred during the months of September
2003 through January 2004, we reduced our staff by approximately 10% in
December 2003. We have since recalled or hired certain staff as a result of
the Texas CHIP business reinstatement in February 2004, but do not expect
staffing levels to return to prior existing levels or to increase other
operating costs significantly as a result of this recent event. Additionally,
as part of our ongoing expense reduction program to align costs with expected
revenues, we will maintain in effect certain reductions in operating costs
associated with the specific contracts that have terminated or otherwise cannot
be supported by expected revenues. Consolidated
    
    ConsolidatedOperations
    
    OperationsFiscal 2004
    
    Fiscal 2003Operating revenues
    
    $
    27,583
    
    
    $
    32,104Healthcare operating expenses
    
    
    24,178
    
    
    
    29,201General and administrative expenses
    
    
    3,385
    
    
    
    3,459Other operating expenses
    
    
    100
    
    
    
    21527,663
    
    
    
    32,875Operating loss
    
    $
    (80
    )
    
    $
    (771
    )
 Results of Operations Year Ended May 31, 2004 As Compared to the Year Ended May 31, 2003. We reported a net loss of $777,000 and an operating loss of $80,000 for
the fiscal year ended May 31, 2004 compared to net income of $7.5 million and
an operating loss of $771,000 for the fiscal year ended May 31, 2003. Results
for the fiscal year ended May 31, 2003 include a $7.7 million non-operating
gain in connection with the IRS settlement (see Note 12  Income Taxes to the
audited, consolidated financial statements) and a $470,000 gain included in
discontinued operations, related to the settlement of one matter involving
Medi-Cal reimbursements paid to Brea Neuropsychiatric Hospital, a facility
owned by the Company until its disposal in fiscal year 1991, covering fiscal
periods from 1983 through 1986. For the fiscal year ended May 31, 2003,
excluding the $8.2 million, one-time gains from net income would have resulted
in a $729,000 net loss ($0.19 loss per basic and diluted share). Additionally,
Fiscal 2003 results from discontinued operations include $88,000 of revenue
related to a favorable settlement of one hospital cost report and the
elimination of a $75,000 reserve for another cost report, both pertaining to
our hospital business segment that was discontinued in Fiscal 1999. Operating
revenues decreased by 8




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 14.1%, or $4.5 million, to approximately $27.6 million for the fiscal year
ended May 31, 2004 compared to $32.1 million for the fiscal year ended May 31,
2003. Reduced revenues from Texas CHIP contracts and the effect of terminated
contracts in Florida resulted in lower revenues, but were partially offset by
increased business in Connecticut and Texas, and new business in Michigan. Healthcare operating expenses decreased by approximately $5.0 million, or
17.2%, for the fiscal year ended May 31, 2004 as compared to the fiscal year
ended May 31, 2003. This decrease is directly attributable to the loss of
revenue as described above. Healthcare operating expense as a percentage of
operating revenue decreased by 3.3%, from 91.0% for the fiscal year ended May
31, 2003 to 87.7% for the fiscal year ended May 31, 2004. This decrease is
primarily due to the termination in January 2003 of one major contract that
consistently returned a high medical loss ratio. General and administrative expenses, which included $122,000 of legal and
consulting services incurred in connection with one unsuccessful bid in
Tennessee, decreased by $74,000, or 2.1%, for the fiscal year ended May 31,
2004 as compared to the fiscal year ended May 31, 2003. General and
administrative expense as a percentage of operating revenue increased from
10.8% for the fiscal year ended May 31, 2003 to 12.3% for the fiscal year ended
May 31, 2004 due to the previously described decrease in operating revenue. Other operating expenses decreased by $115,000 for the fiscal year ended
May 31, 2004 compared to the fiscal year ended May 31, 2003. This decrease is
attributable to a reduction in depreciation expense as a result of specific
assets being fully depreciated, and a decrease in bad debt expense. Results of Operations  Year Ended May 31, 2003 As Compared to the Year Ended May 31, 2002. We reported net income of approximately $7.5 million and an operating loss
of $771,000 for the fiscal year ended May 31, 2003 compared to a net loss of
$770,000 and an operating loss of $774,000 for the fiscal year ended May 31,
2002. Results for the fiscal year ended May 31, 2003 include a $7.7 million
non-operating gain in connection with the IRS settlement (see Note 12  Income
Taxes to the audited, consolidated financial statements) and a $470,000 gain
included in discontinued operations, related to the settlement of one matter
involving Medi-Cal reimbursements paid to Brea Neuropsychiatric Hospital, a
facility owned by the Company until its disposal in fiscal year 1991, covering
fiscal periods from 1983 through 1986. For the fiscal year ended May 31, 2003,
excluding the $8.2 of one-time gains from net income would have resulted in a
$729,000 net loss ($0.19 loss per basic and diluted share). Additionally,
results from discontinued operations include $88,000 of revenue related to a
favorable settlement of one hospital cost report and the elimination of a
$75,000 reserve for another cost report, both pertaining to our hospital
business segment that was discontinued in Fiscal 1999. Operating revenues
increased by 16.2%, or $4.5 million, to approximately $32.1 million for the
fiscal year ended May 31, 2003 compared to $27.6 million for the fiscal year
ended May 31, 2002. This increase is primarily attributable to membership
growth from existing business, one new contract implemented during the fourth
quarter of Fiscal 2002, and new Indiana business that was implemented during
January 2003. These increases were offset by the loss of business from two
major customers during Fiscal 2003. Healthcare operating expenses increased by approximately $4.6 million, or
18.6%, for the fiscal year ended May 31, 2003 as compared to the fiscal year
ended May 31, 2002. This increase is directly attributable to revenue growth as
described above. Healthcare operating expense as a percentage of operating
revenue increased by 1.9% from 89.1% for the fiscal year ended May 31, 2002 to
91.0% for the fiscal year ended May 31, 2003. This increase is primarily
attributable to a change in revenue mix resulting in increased Medicaid
membership during Fiscal 2003 compared to Fiscal 2002. General and administrative expenses decreased by $85,000, or 2.4%, for the
fiscal year ended May 31, 2003 as compared to the fiscal year ended May 31,
2002. This decrease is primarily attributable to net reductions in outside
professional service fees offset by staffing additions necessary to support new
revenue. General and administrative expense as a percentage of operating
revenue decreased from 12.8% for the fiscal year ended May 31, 2002 to 10.8%
for the fiscal year ended May 31, 2003. Other operating expenses decreased by $15,000 for the fiscal year ended
May 31, 2003 compared to the fiscal year ended May 31, 2002. This decrease is
attributable to a decrease in depreciation expense offset by an increase in bad
debt expense in Fiscal 2003 as compared to Fiscal 2002. The increase in bad
debt expense is primarily due to a $66,000 bad debt recovery in Fiscal 2002. 9




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES Seasonality of Business Historically and during Fiscal 2004, we have experienced consistently low
utilization during our first fiscal quarter, which comprises the months of
June, July, and August, and increased utilization during our fourth fiscal
quarter, which comprises the months of March, April and May. Such variations
in utilization impact our costs of care during these months, generally having a
positive impact on our gross margins and operating profits during the first
fiscal quarter and a negative impact on our gross margins and operating profits
during the fourth quarter. Liquidity and Capital Resources During the fiscal year ended May 31, 2004, net cash used in continuing and
discontinued operations amounted to $1,168,000 and $88,000, respectively. The
Company had $946,000 of net cash provided from financing activities, primarily
through the sale of an aggregate of 700,000 shares of common stock in a private
transaction completed in December 2003. The December 2003 private transaction
reduced our working capital deficiency and stockholders deficit each by
approximately $971,000. Uses of cash during the fiscal year ended May 31, 2004
include $190,000 related to the ongoing implementation of our new, customized
management information system. Our capital needs during Fiscal 2005 will
require additional installments toward the $180,000 that remains to be paid in
connection with this system, which has expected total costs of approximately
$370,000. Once implemented, this system will enable us to meet HIPAA
requirements, streamline our entire clinical and claims functions, and offer
service improvements to our participating providers. As of May 31, 2004, the
Company had a working capital deficiency of $4.1 million and a stockholders
deficit of $4.7 million. We are continuing to pursue sources of financing on
terms that would support our future capital needs and provide available funds
for working capital during Fiscal 2005. We cannot state with any degree of
certainty whether any required additional equity or debt financing will be
available to us during Fiscal 2005 and, if available, that the source of
financing would be available on terms and conditions acceptable to us. These
conditions raise substantial doubt about the Companys ability to continue as a
going concern, which is dependent upon our ability to continue to generate
sufficient cash flow to meet our obligations on a timely basis, obtaining
additional financing as may be required and, ultimately, sustaining an
operating profit. Our unpaid claims liability is estimated using an actuarial paid
completion factor methodology and other statistical analyses. These estimates
are subject to the effects of trends in utilization and other factors. Any
significant increase in member utilization that falls outside of our
estimations would increase healthcare operating expenses and may impact our
ability to achieve profitability and positive cash flow. Although considerable
variability is inherent in such estimates, we believe that the unpaid claims
liability is adequate. However, actual results could differ from the $3.6
million claims payable amount reported as of May 31, 2004. The State of Connecticut recently enacted legislation requiring
risk-bearing entities, such as CompCare, to be licensed as a Preferred Provider
Network (PPN). We have one contract in Connecticut, which will require us to obtain a PPN License prior to
December 31, 2004, in order to renew that contract in its current form. This contract represented approximately 13.7% of our
operating revenue for the fiscal year ended May 31, 2004 (see Note 4 Major Contracts/Customers to the audited,
consolidated financial statements). We are currently in conversations with the State of Connecticut to determine whether we meet
the financial requirements to obtain a PPN license. While we believe, based on these conversations, that we will be able to obtain a
PPN License, we cannot be certain at this time. Commitments and Contractual Obligations
    
    Payments Due by PeriodTotal
    
    Fiscal
2005
    
    Fiscal
2006 and
2007
    
    Fiscal
2008 and
2009
    
    Fiscal
2010 and
thereafter(Amounts in thousands)Long-term Debt Obligations (a)
    
    $
    2,244
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,244Capital Lease Obligations and related interest
    
    
    142
    
    
    
    56
    
    
    
    81
    
    
    
    5
    
    
    
    Operating Lease Obligations
    
    
    934
    
    
    
    509
    
    
    
    422
    
    
    
    3
    
    
    
    Purchase Obligations
    
    
    180
    
    
    
    180
    
    
    
    
    
    
    
    
    
    
    
    Other Long-Term Liabilities (b)
    
    
    224
    
    
    
    168
    
    
    
    56
    
    
    
    
    
    
    
    Total
    
    $
    3,724
    
    
    
    913
    
    
    
    559
    
    
    
    8
    
    
    
    2,244
   (a)
    
    Excludes 7 1/2% in interest payable semi-annually in April and October
(see Note 11  Long-term Debt to the audited, consolidated financial
statements).(b)
    
    Represents principal and interest due the Companys Medicare
intermediary for its Aurora, Colorado facility (see Note 9  Discontinued
Operations to the audited, consolidated financial statements). 10




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES Critical Accounting Estimates Our discussion and analysis of our financial condition and results of
operations is based upon the Companys consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these consolidated
financial statements requires us to make significant estimates and judgments to
develop the amounts reflected and disclosed in the consolidated financial
statements, most notably our estimate for claims incurred by not yet reported
(IBNR). On an on-going basis, we evaluate the appropriateness of our
estimates and we maintain a thorough process to review the application of our
accounting policies. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions. We believe our accounting policies specific to our accrued claims payable
(IBNR) and revenue recognition involve our most significant judgments and
estimates that are material to our consolidated financial statements (see Note
2  Summary of Significant Accounting Policies to the audited, consolidated
financial statements). CAUTIONARY STATEMENT FOR THE PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Certain information included
in this annual report on Form 10-K and in other Company reports, SEC filings,
statements, and presentations is forward looking within the meaning of the
Private Securities Litigation Reform Act of 1995, including, but not limited
to, statements concerning the Companys anticipated operating results,
financial resources, increases in revenues, increased profitability, interest
expense, growth and expansion, and the ability to obtain new behavioral
healthcare contracts. Such forward-looking information involves important
risks and uncertainties that could significantly affect actual results and
cause them to differ materially from expectations expressed herein and in other
Company reports, SEC filings, statements, and presentations. These risks and
uncertainties include local, regional, and national economic and political
conditions, the effect of governmental regulation, the competitive environment
in which the Company operates, and other risks detailed from time to time in
the Companys SEC reports. Risk Factors Important Factors Related to Forward-Looking Statements and Associated Risks This Annual Report on Form 10-K contains certain forward-looking statements
that are based on our current expectations and plans. Although we believe our
expectations and plans are reasonable, we can provide no assurance that they
will be achieved. Our forward-looking statements are not guarantees of future
performance and are significantly affected by the material risk factors set
forth below. We may not be able to accurately predict utilization of our full-risk contracts
resulting in contracts priced at levels insufficient to ensure profitability.
Managed care operations are at risk for costs incurred to supply agreed upon
levels of service. Failure to anticipate or control costs could have material,
adverse effects on the Company. Providing services on a full-risk capitation
basis exposes CompCare to the additional risk that contracts negotiated and
entered into may ultimately be determined to be unprofitable if utilization
levels require us to deliver and provide services at capitation rates which do
not account for or factor in such utilization levels. Our existing and potential managed care clients operate in a highly competitive
environment and may be subject to a higher rate of merger, acquisition and
regulation than in other industries.
We typically contract with small to medium sized HMOs which may be adversely
affected by the continuing efforts of governmental and third party payers to
contain or reduce the costs of healthcare through various means. Our clients
may also determine to manage the behavioral healthcare benefits in house and,
as a result, discontinue contracting with the Company. Additionally, our
clients may be acquired by larger HMOs, in which case there can be no
assurance that the acquiring company would renew our contract. Many managed care companies, including nine of our existing clients, provide
services to groups covered by Medicaid and/or CHIP programs. Recent state
budgetary cutbacks to such programs have reduced reimbursement rates and could
ultimately affect companies such as CompCare.
As of May 31, 2004, we managed approximately 780,000 lives in connection with
behavioral and substance abuse services covered through CHIP and Medicaid
programs in Texas and Medicaid in Connecticut, Florida, and Michigan. Any
changes in CHIP or Medicaid reimbursement could ultimately affect the Company
through contract 11




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES bidding and cost structures with the health plans first impacted by such
changes. Benefits available to Texas CHIP recipients were significantly reduced
for the five month period September 1, 2003 to January 31, 2004 as a result of
legislative bills passed by the Texas State legislature. Although subsequent
legislation restored the majority of benefits available to CHIP recipients
effective February 1, 2004, the temporary reduction in revenues had a negative
impact on the Companys results of operations for the fiscal year ended May 31,
2004. Such changes, if implemented in the future, could have a material,
adverse impact on our operations. Additionally, we cannot predict which states
in which we operate may pass legislation that would reduce our revenue through
changes in the reimbursement rates or in the number of eligible participants.
In either case, we may be unable to reduce our costs to a level that would
allow us to maintain current gross margins specific to our Medicaid and CHIP
programs. Because providers are responsible for claims submission, the timing of which is
uncertain, we must estimate the amount of claims incurred but not reported.
Our costs of care include estimated amounts for IBNR. The IBNR is estimated
using an actuarial paid completion factor methodology and other statistical
analyses that we continually review and adjust, if necessary, to reflect any
change in the estimated liability. These estimates are subject to the effects
of trends in utilization and other factors. Although considerable variability
is inherent in such estimates, we believe that our unpaid claims liability is
adequate. However, actual results may differ materially from the estimated
amounts reported. A failure of our information systems would significantly impair our ability to
serve our customers and manage our business.
An effective and secure information system, available at all times, is vital to
our health plans and their members. We depend on our computer systems for
significant service and management functions, such as providing membership
verification, monitoring utilization, processing provider claims, and providing
regulatory data and other client and managerial reports. Any loss of
availability of our current information system, or implementation failure
related to our new information system currently being developed, may cause a
disruption in operations and impact our performance. We are subject to intense competition that may prevent us from gaining new
customers or pricing our contracts at levels to achieve sufficient gross
margins to ensure profitability.
The Company is continually and aggressively pursuing new business. However,
the smaller size and financial condition of our company has proved a deterrent
to some prospective customers. Additionally, we will likely have difficulty
in matching the financial resources expended on marketing characteristic of our
competitors. As a result, we may not be able to realize our forecasted short
and long-term growth plans. A significant portion of our current revenue is derived from five health plans.
The loss of any one of these customers could have a material, adverse effect on
our working capital and future results of operations.
We currently have contracts with five health plans to provide behavioral
healthcare services under commercial, Medicaid, and CHIP plans. These combined
contracts represent approximately 47.9% and 34.3% of our operating revenue for
the fiscal years ended May 31, 2004 and May 31, 2003, respectively. The terms
of each contract are generally for one-year periods and are automatically
renewable for additional one-year periods unless terminated by either party.
The loss of one or more of these clients, without replacement by new business,
could negatively affect the financial condition of the Company. Recent operating losses create uncertainty regarding future viability.
For each of the fiscal years ending May 31, 2004, 2003 and 2002, we had
operating losses of approximately $80,000, $771,000 and $774,000, respectively.
The report of the Companys independent auditors with respect to their audit
of the Companys consolidated financial statements for the years ended May 31,
2004, 2003 and 2002 contains an explanatory paragraph relating to the
preparation of the Companys consolidated financial statements on a going
concern basis and states that the Companys working capital deficiency,
stockholders deficit, and continued losses from operations raise substantial
doubt about its ability to continue as a going concern. At May 31, 2004, the
Companys total current liabilities exceeded its total current assets by
approximately $4.1 million and it had an accumulated deficit of approximately
$57.7 million, with a total stockholders deficit of approximately $4.7 million.
There is no certainty that we will be successful in implementing any of the
plans of management to restore us to profitability, to achieve and maintain
positive cash flow on an ongoing basis, or otherwise to ensure that we will be
able to continue as a going concern. 12




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES The industry is subject to extensive state and federal regulations, as well as
diverse licensure requirements varying by state. Changes in regulations could
affect the profitability of our contracts or our ability to retain clients or
gain new customers.
CompCare holds licenses or certificates to perform utilization review and TPA
services in certain states. There can be no assurance that additional
utilization review or TPA licenses will not be required or, if required, that
CompCare will qualify to obtain such licenses. In many states, entities that
assume risk under contract with licensed insurance companies or health plans
have not been considered by state regulators to be conducting an insurance or
HMO business. As a result, we have not sought licensure as either an insurer
or HMO in any state. If the regulatory positions of these states were to
change, our business could be materially affected until such time as we are
able to meet the regulatory requirements. Additionally, some states may
determine to contract directly with companies such as ours for managed
behavioral healthcare services in which case they may also require us to
maintain financial reserves or net worth requirements that we may not be able
to meet. Currently, we cannot quantify the potential effects of additional
regulation of the managed care industry, but such costs will have an adverse
effect on future operations to the extent that they are not able to be recouped
in future managed care contracts. CompCare is subject to the requirements of HIPAA. The purpose of the HIPAA is
to improve the efficiency and effectiveness of the healthcare system through
standardization of the electronic data interchange of certain administrative
and financial transactions and, to protect the security and privacy of
protected health information. While we expect to meet all compliance rules
and timetables with respect to the HIPAA regulations, failure to do so may
result in penalties and have a material adverse effect on the Companys ability
to retain its customers or to gain new business. In order to remain competitive and attract new customers, we will require
additional working capital. We may not be able to acquire the necessary
funding.
We believe that our ability to increase business is dependent on our ability to
have available working capital and, therefore, we require additional funding.
In December 2003, we raised approximately $1.0 million through a private
placement transaction of an aggregate of 700,000 shares of our common stock
thereby reducing our working capital deficiency and stockholders deficit each
by approximately $1.0 million as a result of this transaction. The shares
issued in connection with this private placement transaction have not been
registered and may be resold pursuant to Rule 144 under the general rules and
regulations of the Securities Act of 1933, as amended, assuming that all of the
conditions and provisions of the rule have been satisfied. The earliest date
that these shares will become eligible for resale without a registration
statement is December 8, 2004. We are continuing to pursue additional sources of financing on terms that would
support our capital needs and provide available funds for working capital in
Fiscal 2005. We cannot state with any degree of certainty whether any required
additional equity or debt financing will be available to us during Fiscal 2005
and, if available, that the source of financing would be available on terms and
conditions acceptable to us. We have noted an annual seasonality in the usage of our provider network. Our
financial results may suffer to the extent we cannot adequately manage periods
of increased utilization.
Historically and during Fiscal 2004, we have experienced consistently low
utilization during our first fiscal quarter, which comprises the months of
June, July, and August, and increased utilization during our fourth fiscal
quarter, which comprises the months of March, April and May. Such variations
in utilization impact our costs of care during these months, generally having a
positive impact on our gross margins and operating profits during the first
fiscal quarter and a negative impact on our gross margins and operating profits
during the fourth quarter. Assumptions relating to the foregoing involve judgments that are difficult to
predict accurately and are subject to many factors that can materially affect
results. Budgeting and other management decisions are subjective in many
respects and thus susceptible to interpretations and periodic revisions based
on actual experience and business developments, the impact of which may cause
us to alter our budgets which may in turn affect the Companys results. In
light of the factors that can materially affect the forward-looking information
included herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that our objectives or plans
will be achieved. 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk While we currently have market risk sensitive instruments, we have no
significant exposure to changing interest rates as the interest rate on our
long-term debt is fixed. Additionally, we do not use derivative financial
instruments for investment or trading purposes and our investments are
generally limited to cash deposits. 13




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 
 Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES Index to Consolidated Financial Statements Years Ended May 31, 2004, 2003 and 2002 Report of Kirkland, Russ, Murphy & Tapp P.A
    
    
    15Report of Eisner LLP
    
    
    16Consolidated Balance Sheets, May 31, 2004 and 2003
    
    
    17Consolidated Statements of Operations, Years Ended May 31, 2004, 2003 and 2002
    
    
    18Consolidated Statements of Stockholders Deficit, Years Ended May 31, 2004, 2003 and 2002
    
    
    19Consolidated Statements of Cash Flows, Years Ended May 31, 2004, 2003 and 2002
    
    
    20Notes to Consolidated Financial Statements
    
    
    21-33
 14




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders
Comprehensive Care Corporation We have audited the accompanying consolidated balance sheet of
Comprehensive Care Corporation and subsidiaries as of May 31, 2004, and the
related consolidated statements of operations, stockholders deficit and cash
flows for the fiscal year ended May 31, 2004. These consolidated financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion. In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Comprehensive Care Corporation and subsidiaries as of May 31, 2004, and the
consolidated results of their operations and their cash flows for the fiscal
year ended May 31, 2004, in conformity with U.S. generally accepted accounting
principles. As discussed in Note 3, the Companys working capital deficiency,
stockholders deficit, and continued losses from operations raise substantial
doubt about its ability to continue as a going concern. Managements plans as
to these matters are also described in Note 3. The accompanying consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. /s/ Kirkland, Russ, Murphy & Tapp P.A. Clearwater, Florida
July 30, 2004 15




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders
Comprehensive Care Corporation We have audited the accompanying consolidated balance sheet of
Comprehensive Care Corporation and subsidiaries as of May 31, 2003, and the
related consolidated statements of operations, stockholders deficit and cash
flows for the years ended May 31, 2003 and 2002. These financial statements are
the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Comprehensive Care Corporation and subsidiaries as of May 31, 2003, and the
consolidated results of their operations and their cash flows for the years
ended May 31, 2003 and 2002, in conformity with U.S. generally accepted
accounting principles. As discussed in Note 3, the Companys working capital deficiency,
stockholders deficit, and continued losses from operations raise substantial
doubt about its ability to continue as a going concern. Managements plans as
to these matters are also described in Note 3. The accompanying consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. As discussed in Note 2, effective June 1, 2001, the Company adopted
Statement of Financial Accounting Standards No. 142 and changed its method of
accounting for goodwill. /s/ Eisner LLP New York, New York
July 25, 2003 16




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets May 31,2004
    
    2003(Amounts in Thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,209
    
    
    
    3,590Accounts receivable, less allowance for doubtful accounts of $10 and
$27, respectively
    
    
    191
    
    
    
    75Accounts receivable  managed care reinsurance contract
    
    
    553
    
    
    
    354Other current assets
    
    
    524
    
    
    
    605Total current assets
    
    
    4,477
    
    
    
    4,624Property and equipment, net
    
    
    390
    
    
    
    230Note receivable
    
    
    
    
    
    
    155Goodwill, net
    
    
    991
    
    
    
    991Restricted cash
    
    
    325
    
    
    
    328Other assets
    
    
    42
    
    
    
    51Total assets
    
    $
    6,225
    
    
    
    6,379LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    1,720
    
    
    
    1,836Accrued claims payable
    
    
    3,647
    
    
    
    4,103Accrued reinsurance claims payable
    
    
    3,183
    
    
    
    3,117Income taxes payable
    
    
    25
    
    
    
    15Total current liabilities
    
    
    8,575
    
    
    
    9,071Long-term liabilities:Long-term debt
    
    
    2,244
    
    
    
    2,244Other liabilities
    
    
    131
    
    
    
    54Total long-term liabilities
    
    
    2,375
    
    
    
    2,298Total liabilities
    
    
    10,950
    
    
    
    11,369Stockholders deficit:Preferred stock, $50.00 par value; authorized 18,740 shares; none issued
    
    
    
    
    
    
    Common stock, $0.01 par value; authorized 12,500,000 shares; issued
and outstanding 4,673,048 and 3,936,549, respectively
    
    
    47
    
    
    
    39Additional paid-in-capital
    
    
    52,950
    
    
    
    51,928Deferred compensation
    
    
    (4
    )
    
    
    (16
    )Accumulated deficit
    
    
    (57,718
    )
    
    
    (56,941
    )Total stockholders deficit
    
    
    (4,725
    )
    
    
    (4,990
    )Total liabilities and stockholders deficit
    
    $
    6,225
    
    
    
    6,379
 See accompanying reports of independent registered public accounting firms and
notes to the consolidated financial statements. 17




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations Year Ended May 31,2004
    
    2003
    
    2002(Amounts in thousands, except per share data)Operating Revenues
    
    $
    27,583
    
    
    
    32,104
    
    
    
    27,625Costs and Expenses:Healthcare operating expenses
    
    
    24,178
    
    
    
    29,201
    
    
    
    24,625General and administrative expenses
    
    
    3,385
    
    
    
    3,459
    
    
    
    3,544(Recovery of) provision for doubtful accounts
    
    
    (7
    )
    
    
    20
    
    
    
    (112
    )Depreciation and amortization
    
    
    107
    
    
    
    195
    
    
    
    34227,663
    
    
    
    32,875
    
    
    
    28,399Operating loss before items shown below
    
    
    (80
    )
    
    
    (771
    )
    
    
    (774
    )Other income (expense):Net gain on IRS settlement
    
    
    
    
    
    
    7,717
    
    
    
    Loss in connection with collection of note receivable
    
    
    (20
    )
    
    
    
    
    
    
    Gain on sale of assets
    
    
    
    
    
    
    4
    
    
    
    Loss on disposal of assets
    
    
    
    
    
    
    (5
    )
    
    
    Other non-operating income, net
    
    
    1
    
    
    
    34
    
    
    
    40Interest income
    
    
    26
    
    
    
    47
    
    
    
    88Interest expense
    
    
    (215
    )
    
    
    (181
    )
    
    
    (178
    )(Loss) income from continuing operations before income taxes
    
    
    (288
    )
    
    
    6,845
    
    
    
    (824
    )Income tax expense
    
    
    102
    
    
    
    20
    
    
    
    1(Loss) income from continuing operations
    
    
    (390
    )
    
    
    6,825
    
    
    
    (825
    )(Loss) income from discontinued operations
    
    
    (387
    )
    
    
    633
    
    
    
    (Loss) income before cumulative effect of change in
accounting principle
    
    
    (777
    )
    
    
    7,458
    
    
    
    (825
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    55Net (loss) income
    
    $
    (777
    )
    
    
    7,458
    
    
    
    (770
    )(Loss) income per common share  basic:(Loss) income from continuing operations
    
    $
    (0.09
    )
    
    
    1.75
    
    
    
    (0.21
    )(Loss) income from discontinued operations
    
    
    (0.09
    )
    
    
    0.16
    
    
    
    Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    0.01Net (loss) income
    
    $
    (0.18
    )
    
    
    1.91
    
    
    
    (0.20
    )(Loss) income per common share  diluted:(Loss) income from continuing operations
    
    $
    (0.09
    )
    
    
    1.57
    
    
    
    (0.21
    )(Loss) income from discontinued operations
    
    
    (0.09
    )
    
    
    0.15
    
    
    
    Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    0.01Net (loss) income
    
    $
    (0.18
    )
    
    
    1.72
    
    
    
    (0.20
    )Weighted average common shares outstanding:Basic
    
    
    4,284
    
    
    
    3,905
    
    
    
    3,860Diluted
    
    
    4,284
    
    
    
    4,343
    
    
    
    3,860
 See accompanying reports of independent registered public accounting firms and
notes to the consolidated financial statements. 18




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
(In Thousands) Common Stock
    
    Additional
Paid-In
    
    Accumulated
    
    Deferred
    
    Total StockholdersShares
    
    Amount
    
    Capital
    
    Deficit
    
    Compensation
    
    DeficitBalance, May 31, 2001
    
    
    3,818
    
    
    $
    38
    
    
    
    51,813
    
    
    
    (63,629
    )
    
    
    
    
    
    
    (11,778
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (770
    )
    
    
    
    
    
    
    (770
    )Compensatory stock options granted
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (1
    )
    
    
    Shares issued for executive compensation
    
    
    50
    
    
    
    1
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    26Exercise of stock options
    
    
    11
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3Balance, May 31, 2002
    
    
    3,879
    
    
    $
    39
    
    
    
    51,842
    
    
    
    (64,399
    )
    
    
    (1
    )
    
    
    (12,519
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,458
    
    
    
    
    
    
    
    7,458Shares issued for executive compensation
    
    
    20
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    20Compensatory stock options and warrants
granted to non-employees
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    
    
    
    
    (22
    )
    
    
    26Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7Exercise of stock options
    
    
    38
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    18Balance, May 31, 2003
    
    
    3,937
    
    
    $
    39
    
    
    
    51,928
    
    
    
    (56,941
    )
    
    
    (16
    )
    
    
    (4,990
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (777
    )
    
    
    
    
    
    
    (777
    )Shares issued in connection with private
placement
    
    
    700
    
    
    
    7
    
    
    
    964
    
    
    
    
    
    
    
    
    
    
    
    971Compensatory stock options and warrants
granted to non-employees
    
    
    20
    
    
    
    1
    
    
    
    50
    
    
    
    
    
    
    
    (4
    )
    
    
    47Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    16Exercise of stock options
    
    
    16
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    8Balance, May 31, 2004
    
    
    4,673
    
    
    $
    47
    
    
    
    52,950
    
    
    
    (57,718
    )
    
    
    (4
    )
    
    
    (4,725
    )
 See accompanying reports of independent registered public accounting firms and
notes to the consolidated financial statements. 19




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Year Ended May 31,2004
    
    2003
    
    2002(Amounts in thousands)Cash flows from operating activities:(Loss) income from continuing operations
    
    $
    (390
    )
    
    
    6,825
    
    
    
    (770
    )Adjustments to reconcile (loss) income from continuing operations to
net cash used in operating activities:Depreciation and amortization
    
    
    107
    
    
    
    195
    
    
    
    342Provision for doubtful accounts
    
    
    
    
    
    
    20
    
    
    
    Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (55
    )Net gain from IRS settlement
    
    
    
    
    
    
    (7,717
    )
    
    
    Loss in connection with prepayment of note receivable
    
    
    20
    
    
    
    
    
    
    
    Gain on sale of assets
    
    
    
    
    
    
    (4
    )
    
    
    Loss on disposal of assets
    
    
    
    
    
    
    5
    
    
    
    Compensation expense  stock issued
    
    
    33
    
    
    
    20
    
    
    
    Compensation expense  stock options and warrants issued
    
    
    31
    
    
    
    15
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (116
    )
    
    
    229
    
    
    
    98Accounts receivable  managed care reinsurance contract
    
    
    (199
    )
    
    
    221
    
    
    
    208Other receivable
    
    
    
    
    
    
    525
    
    
    
    Other current assets, restricted funds, and other non-current assets
    
    
    (4
    )
    
    
    286
    
    
    
    284Unbenefitted tax refunds received
    
    
    
    
    
    
    (2,258
    )
    
    
    Accounts payable and accrued liabilities
    
    
    (270
    )
    
    
    (132
    )
    
    
    (397
    )Accrued claims payable
    
    
    (456
    )
    
    
    (532
    )
    
    
    1,564Accrued reinsurance claims payable
    
    
    66
    
    
    
    1,098
    
    
    
    1,236Income taxes payable
    
    
    10
    
    
    
    (1
    )
    
    
    (15
    )Other liabilities
    
    
    
    
    
    
    
    
    
    
    (8
    )Net cash (used in) provided by continuing operations
    
    
    (1,168
    )
    
    
    (1,205
    )
    
    
    2,487Net cash used in discontinued operations
    
    
    (88
    )
    
    
    (480
    )
    
    
    Net cash (used in) provided by continuing and discontinued
operations
    
    
    (1,256
    )
    
    
    (1,685
    )
    
    
    2,487Cash flows from investing activities:Net proceeds from sale of property and equipment
    
    
    
    
    
    
    3
    
    
    
    Payment received on note for sale of property and equipment
    
    
    139
    
    
    
    4
    
    
    
    4Additions to property and equipment
    
    
    (210
    )
    
    
    (77
    )
    
    
    (43
    )Net cash used in investing activities
    
    
    (71
    )
    
    
    (70
    )
    
    
    (39
    )Cash flows from financing activities:Proceeds from the issuance of common stock
    
    
    979
    
    
    
    18
    
    
    
    3Repayment of debt
    
    
    (33
    )
    
    
    (13
    )
    
    
    (2
    )Net cash provided by financing activities
    
    
    946
    
    
    
    5
    
    
    
    1Net (decrease) increase in cash and cash equivalents
    
    
    (381
    )
    
    
    (1,750
    )
    
    
    2,449Cash and cash equivalents at beginning of year
    
    
    3,590
    
    
    
    5,340
    
    
    
    2,891Cash and cash equivalents at end of year
    
    $
    3,209
    
    
    
    3,590
    
    
    
    5,340Supplemental disclosures of cash flow information:Cash paid during the year forInterest
    
    $
    205
    
    
    
    182
    
    
    
    179Income taxes
    
    $
    92
    
    
    
    22
    
    
    
    16Noncash financing and investing activitiesProperty acquired under capital leases
    
    $
    76
    
    
    
    49
    
    
    
    30
 See accompanying reports of independent registered public accounting firms and
notes to the consolidated financial statements. 20




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 
 Note 1  Description of the Companys Business Comprehensive Care Corporation (the Company or CompCare) is a Delaware
Corporation organized in 1969. Unless the context otherwise requires, all
references to the Company include Comprehensive Behavioral Care, Inc. (CBC)
and subsidiary corporations. The Company, primarily through its wholly owned
subsidiary, CBC, provides managed care services in the behavioral health and
psychiatric fields, which is its only operating segment. The Company manages
the delivery of a continuum of psychiatric and substance abuse services to
commercial, Medicare, and Medicaid members on behalf of employers, health
plans, government organizations, third-party claims administrators, and
commercial and other group purchasers of behavioral healthcare services. The
managed care operations include administrative service agreements,
fee-for-service agreements, and capitation contracts. The customer base for
its services includes both corporate and governmental entities. The Companys
services are provided primarily by unrelated vendors on a subcontract or
subcapitated basis. 
 Note 2  Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of
Comprehensive Care Corporation and its wholly owned subsidiaries. Significant
inter-company accounts and transactions have been eliminated in consolidation. Use Of Estimates The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes.
Actual results could differ from these estimates. Reclassifications Reclassifications of prior year amounts related to discontinued hospital
operations have been made to conform to the current years presentation (see
Note 9). Revenue Recognition The Companys managed care activities are performed under the terms of
agreements with health maintenance organizations (HMOs), preferred provider
organizations, and other health plans or payers to provide contracted
behavioral healthcare services to subscribing participants. Revenue under a
substantial portion of these agreements is earned monthly based on the number
of qualified participants regardless of services actually provided (generally
referred to as capitation arrangements). The information regarding qualified
participants is supplied by the Companys clients and the Company relies
extensively on the accuracy of the client remittance and other reported
information to determine the amount of revenue to be recognized. Such
agreements accounted for 85.5%, or $23.6 million, of revenue for the fiscal
year ended May 31, 2004, 87.4%, or $28.2 million, of revenue for the fiscal
year ended May 31, 2003, and 84.7%, or $23.4 million, of revenue for the fiscal
year ended May 31, 2002. The remaining balance of the Companys revenues is
earned on a fee-for-service basis and is recognized as services are rendered. Healthcare Expense Recognition The Company attempts to control its costs and risk by entering into
contractual relationships with healthcare providers including hospitals,
physician groups and other managed care organizations either on a
sub-capitated, a discounted fee-for-services, or a per-case basis. The
Companys capitation contracts typically exclude risk for chronic care
patients. The cost of healthcare services is recognized in the period that the
Company is obligated to provide such services. Certain contracted healthcare
providers assume the financial risk for participant care rendered by them and
they are compensated on a sub-capitated basis. In cases where the Company retains the financial responsibility for
authorizations, hospital utilization, and the cost of other behavioral
healthcare services, the Company establishes an accrual for estimated claims
payable (see Accrued Claims Payable below). 21




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES Premium Deficiencies Estimated future healthcare costs and expenses in excess of estimated
future premiums are recorded as a loss when determinable. No such deficiencies
existed at May 31, 2004 or May 31, 2003. Cash and Cash Equivalents At May 31, 2004, cash and cash equivalents consist entirely of funds on
deposit in savings and checking accounts at major financial institutions. At
May 31, 2003, cash in excess of daily requirements was invested in short-term
investments with original maturities of 90 days or less, with such investments
aggregating $2.4 million and included in cash equivalents in the accompanying
consolidated balance sheet. Restricted Cash At May 31, 2004 and 2003, non-current restricted accounts include $0.3
million of cash held in trust in connection with the Companys Directors and
Officers liability insurance policy. During Fiscal 2003, the Company
surrendered one license held by an inactive Michigan subsidiary and, as a
result, approximately $100,000 of previously restricted cash was released to
the Company. Property and Equipment Property and equipment are stated at cost. Depreciation expense is
computed using the straight-line method over the estimated useful lives ranging
from 3 to 12 years. Leasehold improvements are amortized over the shorter of
the lease term or the assets useful life. Goodwill Goodwill includes costs in excess of fair value of the net assets acquired
in purchase transactions, less amortization. In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 141, Business
Combinations and No. 142, Goodwill and Other Intangible Assets, which
establishes new guidance for the treatment of goodwill and other intangible
assets. Pursuant to SFAS 142, which was adopted by the Company effective June
1, 2001, goodwill is not amortized but is periodically evaluated for impairment
to carrying amount, with decreases in carrying amount recognized immediately.
The Company reviews goodwill for impairment annually, or more frequently if
changes in circumstances or the occurrence of events suggest an impairment
exists. The test for impairment of goodwill requires the Company to make
estimates about fair value, which are based on projected future cash flows. In
accordance with SFAS 142, the Company had performed an impairment test within
six months of the adoption date and determined that no impairment of goodwill
had occurred as of such date. In addition, the Company performed an annual
impairment test as of May 31, 2004, 2003 and 2002 and determined that no
impairment of goodwill had occurred as of such dates. SFAS 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Additionally, SFAS 141, requires the
elimination of any unamortized deferred credits related to an excess of fair
value of acquired assets over cost from a business combination for which the
acquisition date was before July 1, 2001 immediately upon adoption of SFAS 142.
As of June 1, 2001, the Company had an unamortized deferred credit of $55,000
that related to an acquisition in 1996. As a result, the Company recognized
$55,000 as the cumulative effect of a change in accounting principle during the
quarter ended August 31, 2001. Extinguishment of Debt In April 2002, the FASB issued Statement No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This Statement eliminates the automatic classification of gain
or loss on extinguishment of debt as an extraordinary item and requires that
such gain or loss be evaluated for extraordinary classification under the
criteria of Accounting Principles Board No. 30, Reporting Results of
Operations. The Company adopted the provisions of SFAS 145 effective for its
fiscal year ended May 31, 2003 and has reflected gains on settlement of debt as
other income instead of as extraordinary items. 22




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES Accrued Claims Payable The accrued claims payable liability represents the estimated ultimate net
amounts owed for all behavioral healthcare services provided through the
respective balance sheet dates, including estimated amounts for claims incurred
but not yet reported (IBNR) to the Company. The unpaid claims liability is
estimated using an actuarial paid completion factor methodology and other
statistical analyses and is continually reviewed and adjusted, if necessary, to
reflect any change in the estimated liability. These estimates are subject to
the effects of trends in utilization and other factors. However, actual claims
incurred could differ from the estimated claims payable amount reported as of
May 31, 2004 and 2003. Although considerable variability is inherent in such
estimates, management believes that the unpaid claims liability is adequate. Income Taxes The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes. Under the asset and liability method
of SFAS No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to net operating loss carryforwards and to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect of a change in tax rates
on deferred tax assets or liabilities is recognized in the consolidated
statements of operations in the period that included the enactment. A
valuation allowance is established for deferred tax assets unless their
realization is considered more likely than not. Stock Options The Company issues stock options to its employees and non-employee
directors (optionees) allowing optionees to purchase the Companys common
stock pursuant to shareholder approved stock option plans. As permitted by
Statement of Financial Accounting Standards (SFAS) No. 148,  Accounting for
Stock-Based Compensation-Transitional Disclosure, the Company has elected to
follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees and related interpretations in accounting for its employee stock
options (APB 25). Under APB 25, in the event that the exercise price of the
Companys employee stock options is less than the market price of the
underlying stock on the date of grant, compensation expense is recognized. No
stock-based employee compensation cost is reflected in net (loss) income, as
all options granted under the Companys employee stock options plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net (loss) income
and (loss) income per share if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based employee compensation. Year Ended May 31,2004
    
    2003
    
    2002(in thousands except for pershare information)Net (loss) income, as reported
    
    $
    (777
    )
    
    $
    7,458
    
    
    $
    (770
    )Deduct:Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax
effects
    
    
    (211
    )
    
    
    (179
    )
    
    
    (15
    )Pro forma net (loss) income
    
    $
    (988
    )
    
    $
    7,279
    
    
    $
    (785
    )(Loss) income per common share:Basic  as reported
    
    $
    (0.18
    )
    
    $
    1.91
    
    
    $
    (0.20
    )Basic  pro forma
    
    $
    (0.23
    )
    
    $
    1.86
    
    
    $
    (0.20
    )Diluted  as reported
    
    $
    (0.18
    )
    
    $
    1.72
    
    
    $
    (0.20
    )Diluted  pro forma
    
    $
    (0.23
    )
    
    $
    1.68
    
    
    $
    (0.20
    )
 The weighted average fair values of options granted were $1.31, $0.72, and
$0.40 in Fiscal 2004, 2003, and 2002, respectively. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options vesting period. 23




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES The fair value of these options was estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions: Year Ended May 31,2004
    
    2003
    
    2002Volatility factor of the expected market price of the
Companys common stock
    
    
    95.0
    %
    
    
    95.0
    %
    
    
    95.0
    %Expected life (in years) of the options
    
    3, 4, and 5
    
    
    5
    
    
    
    5Risk-free interest rate
    
    
    3.6
    %
    
    
    4.0
    %
    
    
    4.9
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 The fair value of options granted to non-employee consultants is being
amortized to expense over the vesting period of the options. Per Share data In calculating basic (loss) income per share, net (loss) income is divided
by the weighted average number of common shares outstanding for the period.
Diluted (loss) income per share reflects the assumed exercise or conversion of
all dilutive securities, such as options, warrants, and convertible debentures.
No such exercise or conversion is assumed where the effect is antidilutive,
such as when there is a net loss. The following table sets forth the
computation of basic and diluted (loss) income per share in accordance with
Statement No. 128, Earnings Per Share (amounts in thousands, except per share
data): Fiscal Year Ended May 31,2004
    
    2003
    
    2002Numerator:(Loss) income from continuing operations
    
    $
    (390
    )
    
    
    6,825
    
    
    
    (825
    )(Loss) income from discontinued operations
    
    
    (387
    )
    
    
    633
    
    
    
    (Loss) income from continuing operations before cumulative effect
of change in accounting principle
    
    $
    (777
    )
    
    
    7,458
    
    
    
    (825
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    55Numerator for diluted (loss) income per share available to Common
Stockholders
    
    $
    (777
    )
    
    
    7,458
    
    
    
    (770
    )Denominator:Weighted average shares
    
    
    4,284
    
    
    
    3,905
    
    
    
    3,860Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    437
    
    
    
    Warrants
    
    
    
    
    
    
    1
    
    
    
    Denominator for diluted income per share-adjusted weighted
average shares after assumed exercises
    
    
    4,284
    
    
    
    4,343
    
    
    
    3,860(Loss) income per common share  basic:(Loss) income from continuing operations
    
    $
    (0.09
    )
    
    
    1.75
    
    
    
    (0.21
    )(Loss) income from discontinued operations
    
    
    (0.09
    )
    
    
    0.16
    
    
    
    Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    0.01Net (loss) income
    
    $
    (0.18
    )
    
    
    1.91
    
    
    
    (0.20
    )(Loss) income per common share  diluted:(Loss) income from continuing operations
    
    $
    (0.09
    )
    
    
    1.57
    
    
    
    (0.21
    )(Loss) income from discontinued operations
    
    
    (0.09
    )
    
    
    0.15
    
    
    
    Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    0.01Net (loss) income
    
    $
    (0.18
    )
    
    
    1.72
    
    
    
    (0.20
    )
 Fair Value of Financial Instruments FASB Statement No. 107, Disclosures about Fair Value of Financial
Instruments requires disclosure of fair value information about financial
instruments for which it is practical to estimate that value. 24




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES For cash and cash equivalents, notes receivable, and restricted cash, the
carrying amount approximates fair value. For long-term debt, the fair value is
based on the estimated market price for the Debentures on the last day of the
fiscal year. The carrying amounts and fair values of the Companys financial instruments at May 31, 2004 and 2003 are as follows: 2004
    
    2003Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    Value(Amounts in thousands)AssetsCash and cash equivalents
    
    $
    3,209
    
    
    
    3,209
    
    
    
    3,590
    
    
    
    3,590Note receivable
    
    
    
    
    
    
    
    
    
    
    159
    
    
    
    159Restricted cash
    
    
    325
    
    
    
    325
    
    
    
    328
    
    
    
    328LiabilitiesLong-term debt
    
    $
    2,244
    
    
    
    2,118
    
    
    
    2,244
    
    
    
    2,328
 
 Note 3  Basis of Presentation The accompanying consolidated financial statements are prepared on a going
concern basis. During the fiscal year ended May 31, 2004, net cash used in
continuing and discontinued operations amounted to $1,168,000 and $88,000,
respectively. The Company had $946,000 of net cash provided from financing
activities, primarily through the sale of an aggregate of 700,000 shares of
common stock in a private placement transaction completed in December 2003.
This transaction reduced the Companys working capital deficiency and
stockholders deficit each by approximately $971,000. Uses of cash during the
fiscal year ended May 31, 2004 include $190,000 for the Companys ongoing
implementation of its new, customized management information system. The
Companys capital needs during Fiscal 2005 will require additional installments
toward the $180,000 that remains to be paid in connection with this system,
which has expected total costs of approximately $370,000. Once implemented,
this system will enable the Company to meet HIPAA requirements, streamline the
Companys entire clinical and claims functions, and offer service improvements
to the Companys participating providers. As of May 31, 2004, the Company had a working capital deficiency of $4.1
million and a stockholders deficit of $4.7 million. The Company is continuing
to pursue sources of financing on terms that would support the Companys
capital needs and provide available funds for working capital during Fiscal
2005. Management cannot state with any degree of certainty whether any required
additional equity or debt financing will be available to the Company during
Fiscal 2005 and, if available, that the source of financing would be available
on terms and conditions acceptable to the Company. Further, the Company has
incurred operating losses during each of the years ended May 31, 2004, 2003 and
2002. These conditions raise substantial doubt about the Companys ability to
continue as a going concern, which is dependent upon its ability to continue to
generate sufficient cash flow to meet its obligations on a timely basis,
obtaining additional financing as may be required and, ultimately, attaining an
operating profit. The accompanying consolidated financial statements do not
include any adjustments that may result from the outcome of this uncertainty. 
 Note 4  Major Contracts/Customers (1) Beginning January 1, 2003, the Company contracted with a new HMO client to
provide behavioral healthcare services to contracted Medicaid members in
Florida. This business accounted for 16.0%, or $4.4 million, of the Companys
operating revenues during the fiscal year ended May 31, 2004. During the prior
fiscal year, such Medicaid members were serviced by the Company through its
contract with another HMO whose agreements with the Company covered Medicaid,
Medicare, and commercial members and represented a combined 24.1%, or $7.8
million, and 21.4%, or $5.9 million, of the Companys operating revenue for the
twelve months ended May 31, 2003 and 2002, respectively. On December 31, 2002,
the Company received a formal termination notice, effective February 28, 2003,
from the prior HMO client with respect to the Medicare and commercial business.
In addition, the acquiring HMO, whose contract with the Company was scheduled
to renew in January 2004, formally advised the Company on October 30, 2003 that
it had determined to insource behavioral health and, therefore, would not
renew its contract with the Company. Accordingly, the Companys contract with
this HMO customer terminated effective December 31, 2003. 25




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES (2) The Company has one contract to provide behavioral healthcare services to
Connecticut members under contract with one HMO. This agreement represented
approximately 13.7%, or $3.8 million, 9.0%, or $2.9 million, and 12.7%, or $3.5
million of the Companys operating revenue for the fiscal years ended May 31,
2004, 2003, and 2002, respectively. Additionally, this contract provides that
the Company, through its contract with this HMO, receives additional funds
directly from a state reinsurance program for the purpose of paying providers.
During the fiscal years ended May 31, 2004, 2003, and 2002, the Company filed
reinsurance claims totaling approximately $2.1 million, $3.0 million, and $3.8
million, respectively. Such claims represent cost reimbursements and, as such,
are not included in the reported operating revenues and are accounted for as
reductions of healthcare operating expenses. As of May 31, 2004 and 2003,
respectively, the Company has reported $3.2 million and $3.1 million as accrued
reinsurance claims payable, with $0.6 and $0.4 million reported as accounts
receivable-managed care reinsurance contracts. In the event that the Company
does not collect the amounts receivable related to reinsurance amounts, the
Company could remain liable for the costs of the specific services provided to
members that qualify for such reimbursements. The difference between the
reinsurance receivable amount and the reinsurance payable amount is related to
timing differences between the authorization date, the date the money is
received by the Company, and the date the money is paid to the provider. In
certain cases, providers have submitted claims for authorized services having
incorrect service codes or otherwise incorrect information that has caused
payment to be denied by the Company. In such cases, there are contractual and
statutory provisions that allow the provider to appeal a denied claim. If no
appeal is received by the Company within the prescribed amount of time, the
Company may be required to remit the reinsurance funds back to the appropriate
party. For non-reinsurance claims incurred but not reported under this
contract, the Company estimates its claims payable using a similar method as
that used for other existing contracts. This HMO has been a customer since
March 2001. The original contract term ended December 31, 2002 and, in
accordance with its terms, has automatically renewed for two consecutive
one-year periods, with the current term ending December 31, 2004. (3) The Company has contracts with one HMO to provide behavioral healthcare
services to contracted commercial, Medicaid, and Childrens Health Insurance
Program (CHIP) members in Texas. This business accounted for approximately
14.5%, or $4.0 million, 11.9%, or $3.9 million, and 12.2%, or $3.4 million of
the Companys operating revenues during the fiscal years ended May 31, 2004,
2003, and 2002, respectively. The Fiscal 2003 and 2002 amounts include revenue
received from another customer placed under conservatorship by the State of
Texas whose Medicaid members were added to those of the HMO during Fiscal 2003.
Benefits available to Texas CHIP recipients were significantly reduced for the
five month period September 1, 2003 to January 31, 2004 as a result of
legislative bills passed by the Texas State legislature. Consequently, CHIP
business under this contract accounted for approximately 4.8%, or $1.3 million,
of operating revenues for the fiscal year ended May 31, 2004 as compared to
7.3%, or $2.4 million, and 7.2%, or $2.0 million of operating revenues for the
twelve month periods ended May 31, 2003 and 2002, respectively. Subsequent
legislation has restored the majority of benefits available to CHIP recipients
effective February 1, 2004. This HMO has been a customer of the Company since
November 1998. The original contract term was for one year and the contract
provides for automatic one-year renewal terms. (4) During the prior fiscal year, the Company had three contracts with one HMO
to provide behavioral healthcare services to Florida members. The combined
revenue from these contracts accounted for 11.7%, or $3.8 million and 17.0%, or
$4.7 million, of the Companys operating revenues during the fiscal years ended
May 31, 2003 and 2002, respectively. These contracts covering Florida members
terminated effective January 1, 2003. Additionally, the Company has one major
contract with an affiliate of this HMO (see Item 2 above). Although there can be no assurance that the Company will be able to reduce its
costs in an amount sufficient to offset the loss of gross margins associated
with the customers listed under (1) and (3) above, the Company has undertaken
efforts to restructure its regional and corporate operations, including the
centralization of certain clinical and administrative functions, generalized
staff downsizing, and the elimination of certain expenses that cannot be
supported with existing and remaining revenues, to minimize any effect on
future results of operations. In general, the Companys contracts with its customers are typically for
initial one-year terms, with automatic annual extensions. Such contracts
generally provide for cancellation by either party with 60 to 90 days written
notice. 26




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 
 Note 5  Accounts Receivable Accounts Receivable of $201,000 at May 31, 2004 and $102,000 at May 31, 2003
consists of trade receivables resulting from services rendered under managed
care capitation contracts. The following table summarizes changes in the
Companys allowance for doubtful accounts for the years ended May 31, 2004,
2003 and 2002: Balance
    
    Additions
    
    
    
    
    
    Write-offBeginning
    
    Charged
    
    
    
    
    
    of
    
    Balanceof Year
    
    To Expense
    
    Recoveries*
    
    Accounts
    
    End of Year(Amounts in thousands)Year ended May 31, 2004
    
    $
    27
    
    
    
    10
    
    
    
    
    
    
    
    (27
    )
    
    
    10Year ended May 31, 2003
    
    $
    8
    
    
    
    43
    
    
    
    
    
    
    
    (24
    )
    
    
    27Year ended May 31, 2002
    
    $
    11
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    8
 *Excludes $17,000 in 2004, $24,000 in 2003, and $109,000 in 2002 of recoveries
from accounts previously written off. Recoveries are reflected on the Companys consolidated statement of
operations as a reduction to the provision for doubtful accounts. 
 Note 6  Other Current Assets Other current assets consist of the following: May 31,2004
    
    2003(Amounts in thousands)Accounts receivable  other
    
    $
    37
    
    
    
    138Prepaid insurance
    
    
    315
    
    
    
    314Other prepaid fees and expenses
    
    
    172
    
    
    
    153Total other current assets
    
    $
    524
    
    
    
    605
 
 Note 7  Property and Equipment Property and equipment consists of the following: May 31,2004
    
    2003(Amounts in thousands)Furniture and equipment
    
    $
    3,385
    
    
    
    3,480Leasehold improvements
    
    
    49
    
    
    
    49Capitalized leases
    
    
    130
    
    
    
    543,564
    
    
    
    3,583Less accumulated depreciation and amortization
    
    
    (3,174
    )
    
    
    (3,353
    )Net property and equipment
    
    $
    390
    
    
    
    230
 
 Note 8  Note Receivable Note receivable consists of the following: May 31,2004
    
    2003(Amounts in Thousands)8% promissory note, payable in monthly installments of approximately
$1,400, with a $146,000 principal payment due at maturity on
April 1, 2006
    
    $
    
    
    
    
    159Less current maturities
    
    
    
    
    
    
    (4
    )$
    
    
    
    
    155
 In Fiscal 1999, the Company sold its Aurora, Colorado facility to
Jefferson Hills Corporation (JHC) in exchange for cash and a secured
promissory note. On August 31, 2000, the Company entered into a prepayment
agreement that 27




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES resulted in an immediate cash payment of $500,000 from JHC and a revision of
the note maturity date to April of 2006. As an inducement to make such
prepayment, the Company credited JHC with an aggregate of approximately
$996,000. During Fiscal 2004, the Company negotiated an early payment arrangement
with JHC that resulted in payoff of the note. The Company received a cash
payment of $137,500 from JHC and recorded a non-operating loss of $20,000
during Fiscal 2004 in connection with this early payment arrangement. 
 Note 9  Discontinued Operations Results for the fiscal year ended May 31, 2004 include a change in
estimate resulting in a $387,000 charge recorded in August 2003 related to
hospital operations disposed of in prior years, which is included under
discontinued operations in the accompanying consolidated financial statements.
The charge primarily relates to settlement of the Companys Fiscal 1999
Medicare cost report for its Aurora, Colorado facility that was sold by the
Company during Fiscal 1999. The settlement requires the Company to repay
$400,000 specific to Fiscal 1999, less approximately $106,000 in Medicare
refunds that were due the Company in connection with its Fiscal 1995 and 1996
Medicare cost report settlements for this same Aurora, Colorado hospital.
Further, the Medicare intermediary accepted the Companys proposed, 24-month,
12.125% installment payment plan to repay the net amount of approximately
$300,000, of which $206,000 remains to be paid as of May 31, 2004. Of the
remaining amount, approximately $151,000 is included in accounts payable and
accrued expenses and $55,000 in long-term liabilities in the accompanying
consolidated balance sheet at May 31, 2004. In connection with the above presentation, the Company has reclassified
its results of operations for Fiscal 2003 to reflect items related to
discontinued hospital operations, consisting of a $470,000 gain on settlement
of a liability (see Note 15(4)) and income of $163,000 relating to hospital
cost report settlements. 
 Note 10  Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consist of the following: May 31,2004
    
    2003(Amounts in Thousands)Accounts payable
    
    $
    166
    
    
    
    379Accrued salaries and wages
    
    
    135
    
    
    
    151Accrued vacation
    
    
    141
    
    
    
    130Accrued legal and audit
    
    
    84
    
    
    
    149Other accrued liabilities.
    
    
    1,194
    
    
    
    1,026Deferred compensation
    
    
    
    
    
    
    1$
    1,720
    
    
    
    1,836
 
 Note 11  Long-term Debt Long-term debt consists of the following: May 31,2004
    
    2003(Amounts in Thousands)7-1/2% convertible subordinated debentures due April, 2010, interest
payable semi-annually in April and October*
    
    $
    2,244
    
    
    
    2,244
 *The debentures are convertible into approximately 9,000 shares of Common
Stock at a conversion price of $248.12 per share. 
 Note 12  Income Taxes Provision for income taxes consists of the following: Year Ended May 31,2004
    
    2003
    
    2002(Amounts in thousands)Current:Federal
    
    $
    
    
    
    
    
    
    
    
    State
    
    
    102
    
    
    
    20
    
    
    
    1$
    102
    
    
    
    20
    
    
    
    1
 28




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES Reconciliation between the provision for income tax and the amount
computed by applying the statutory Federal income tax rate (34%) to income
(loss) before income tax is as follows: Year Ended May 31,2004
    
    2003
    
    2002(Amounts in thousands)Income tax provision (benefit) at the statutory tax rate
    
    $
    (230
    )
    
    
    2,543
    
    
    
    (280
    )State income tax provision (benefit), net of federal tax effect
    
    
    (26
    )
    
    
    296
    
    
    
    (33
    )Non-taxable gain on IRS settlement
    
    
    
    
    
    
    (3,733
    )
    
    
    Non-deductible items
    
    
    44
    
    
    
    54
    
    
    
    58Benefit of net operating loss carryforward not recognized
    
    
    314
    
    
    
    840
    
    
    
    255Other, net
    
    
    
    
    
    
    20
    
    
    
    1$
    102
    
    
    
    20
    
    
    
    1
 Significant components of the Companys deferred tax assets are as follows: May 31,2004
    
    2003(Amounts in thousands)Deferred Tax Assets:Net operating loss carryforwards
    
    $
    1,332
    
    
    
    730Accrued expenses
    
    
    134
    
    
    
    Employee benefits and options
    
    
    55
    
    
    
    79Other, net
    
    
    90
    
    
    
    186Total Deferred Tax Assets
    
    
    1,611
    
    
    
    995Valuation Allowance
    
    
    (1,611
    )
    
    
    (995
    )Net Deferred Tax Assets
    
    
    
    
    
    
    
 In Fiscal 2003 the Company settled a tax dispute with the IRS regarding
the disallowance of $12.4 million in previously received tax refunds specific
to the Companys Fiscal 1985 and 1986 income tax returns. In accordance with
the settlement the Company paid the IRS $2.2 million and relinquished rights to
Federal net operating loss carryforwards of approximately $42.0 million
resulting from losses incurred in fiscal years ended May 31, 1995 through May
31, 2001, and a minimum tax credit carryover of approximately $0.7 million. As a result of the resolution of this matter, the Company extinguished the
$12.1 million liability, which had been recorded for the refunds pending
resolution of the dispute, and recorded a non-operating gain in the quarter
ended February 28, 2003 of approximately $7.7 million net of related expenses,
including $2.0 million representing the unrecovered portion of the $2.5 million
of fees previously paid to its tax advisor. The gain represented income per
share of $1.97 (diluted income per share of $1.77). No taxable income
resulted from the settlement of the liability. At May 31, 2004, the Companys Federal net operating loss carryforwards
total approximately $3.5 million resulting from losses incurred in the fiscal
years ended May 31, 2002, 2003, and 2004, which expire in 2022, 2023, and 2024. The Company may be unable to utilize some or all of its allowable tax
deductions or losses, which depends upon factors including the availability of
sufficient taxable income from which to deduct such losses during limited
carryover periods. Further, the Companys ability to use any net operating
losses may be subject to limitation in the event that the Company issues or
agrees to issue substantial amounts of additional equity. The Company monitors
the potential for change of ownership and believes that its financing plans
as contemplated will not cause a change of ownership; however, no assurances
can be made that future events will not act to limit the Companys tax
benefits. After consideration of all the evidence, both positive and negative,
management has determined that a valuation allowance at May 31, 2004 and 2003,
was necessary to fully offset the deferred tax assets based on the likelihood
of future realization. 29




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 
 Note 13  Employee Benefit Plan The Company offers a 401(k) Plan (the Plan), which is a defined
contribution plan qualified under Section 401(k) of the Internal Revenue Code,
for the benefit of its eligible employees. All full-time and part-time
employees who have attained the age of 21 and have completed one thousand hours
of service are eligible to participate in the Plan. Each participant may
contribute from 2% to 50% of his or her compensation to the Plan up to the
annual maximum allowed amount, which was $12,000 during Calendar 2003, subject
to limitations on the highly compensated employees to ensure the Plan is
non-discriminatory. Company contributions are discretionary and are determined
by the Companys management. The Companys employer matching contributions
were approximately $2,300, $9,000, and $9,000 to the Plan in Fiscal 2004, 2003,
and 2002, respectively. 
 Note 14  Preferred Stock, Common Stock, and Stock Option Plans Preferred Stock As of May 31, 2004, there are 18,740 remaining shares authorized and
available to issue, and no outstanding shares of Preferred Stock. The Company
is authorized to issue shares of Preferred Stock, $50.00 par value, in one or
more series, each series to have such designation and number of shares as the
Board of Directors may fix prior to the issuance of any shares of such series.
Each series may have such preferences and relative participation, optional or
special rights with such qualifications, limitations or restrictions stated in
the resolution or resolutions providing for the issuance of such series as may
be adopted from time to time by the Board of Directors prior to the issuance of
any such series. Common Stock Authorized shares of common stock reserved for possible issuance for
convertible debentures and stock options are as follows at May 31, 2004: Convertible debentures
    
    
    9,044Outstanding stock options
    
    
    1,229,390Possible future issuance under stock option plans
    
    
    312,569Total
    
    
    1,551,003
 Stock Option Plans The Company currently has two active incentive plans, the 1995 Incentive
Plan and the 2002 Incentive Plan (Plans), that provide for the granting of
stock options, stock appreciation rights, limited stock appreciation rights,
and restricted stock grants to eligible employees and consultants to the
Company. Grants issued under the Plans may qualify as Incentive Stock Options
(ISOs) under Section 422A of the Internal Revenue Code. Options for ISOs may
be granted for terms of up to ten years and are generally exercisable in
cumulative increments of 50% each six months. Options for Non-statutory Stock
Options (NSOs) may be granted for terms of up to 13 years. The exercise
price for ISOs must equal or exceed the fair market value of the shares on the
date of grant, and 65% in the case of other options. The Plans also provide
for the full vesting of all outstanding options under certain change of control
events. The maximum number of shares authorized for issuance is 500,000 under
the 2002 Incentive Plan and 1,000,000 under the 1995 Incentive Plan. As of May
31, 2004, there were 208,500 shares available for option grants and there were
280,500 options outstanding, of which 193,000 options were exercisable, under
the 2002 Incentive Plan. Additionally, as of May 31, 2004, there were 2,400
shares available for option grants and there were 859,725 options outstanding,
of which 859,725 options were exercisable, under the 1995 Incentive Plan. The Company also has a non-qualified stock option plan for its outside
directors (the Directors Plan). Each non-qualified stock option is
exercisable at a price equal to our common stocks fair market value as of the
date of grant. Initial grants vest annually in 25% increments beginning on the
first anniversary of the date of grant, provided the individual is still a
director on those dates. Annual grants will become 100% vested as of the first
annual meeting of our stockholders following the date of grant, provided the
individual is still a director as of that date. Such annual grants include
options granted to non-employee directors for service on the various committees
of the Board of Directors. An optionee who ceases to be a director shall
forfeit that portion of the option attributable to such vesting dates on or
after the date he or she ceases to be a director. The maximum number of shares
authorized for issuance under the Directors Plan is 250,000. As of May 31,
2004, there were 96,669 shares available for option grants and there were
89,165 options outstanding, of which 42,499 options were exercisable, under the
Directors Plan. 30




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES A summary of the Companys stock option activity and related information for
the years ended May 31 is as follows: WeightedAverage ExerciseShares
    
    PriceOutstanding as of May 31, 2001
    
    
    888,525
    
    
    $
    0.84Granted
    
    
    38,000
    
    
    
    0.45Exercised
    
    
    (11,250
    )
    
    
    0.27Forfeited
    
    
    (12,100
    )
    
    
    0.66Outstanding as of May 31, 2002
    
    
    903,175
    
    
    $
    0.83Granted
    
    
    247,999
    
    
    
    1.03Exercised
    
    
    (38,000
    )
    
    
    0.48Forfeited
    
    
    (3,950
    )
    
    
    2.40Outstanding as of May 31, 2003
    
    
    1,109,224
    
    
    $
    0.88Granted
    
    
    161,666
    
    
    
    1.91Exercised
    
    
    (16,500
    )
    
    
    0.47Forfeited
    
    
    (25,000
    )
    
    
    1.86Outstanding as of May 31, 2004
    
    
    1,229,390
    
    
    $
    0.91
 A summary of options outstanding and exercisable as of May 31, 2004 follows: Weighted-
    
    Weighted-Exercise
    
    Average
    
    Average
    
    
    
    
    
    Weighted-AverageOptions
    
    Price
    
    Exercise
    
    Remaining
    
    Options
    
    Exercise Price ofOutstanding
    
    Range
    
    Price
    
    Contractual Life
    
    Exercisable
    
    Exercisable Options329,000
    
    $
    0.25 -  $0.39
    
    
    $
    0.27
    
    
    
    6.11
    
    
    
    329,000
    
    
    $
    0.27532,333
    
    $
    0.51 -  $0.61
    
    
    $
    0.55
    
    
    
    6.04
    
    
    
    532,333
    
    
    $
    0.5591,666
    
    $
    1.00 -  $1.50
    
    
    $
    1.33
    
    
    
    8.51
    
    
    
    76,666
    
    
    $
    1.35175,666
    
    $
    1.70 -  $2.16
    
    
    $
    1.90
    
    
    
    9.45
    
    
    
    56,500
    
    
    $
    2.07100,725
    
    $
    3.5625-  $4.00
    
    
    $
    3.93
    
    
    
    4.53
    
    
    
    100,725
    
    
    $
    3.931,229,390
    
    $
    0.25 - $4.00
    
    
    $
    1.00
    
    
    
    6.60
    
    
    
    1,095,224
    
    
    $
    0.91
 
 Note 15  Commitments and Contingencies Lease Commitments The Company leases certain facilities and equipment. The facility leases
contain escalation clauses based on the Consumer Price Index and provisions for
payment of real estate taxes, insurance, and maintenance and repair expenses.
Total rental expense for all operating leases was $0.6 million in each of the
fiscal years ended May 31, 2004, 2003, and 2002. Future minimum payments, by year and in the aggregate, under
non-cancelable operating leases with initial or remaining terms of one year or
more, consist of the following at May 31, 2004: Fiscal Year
    
    Operating Leases(Amounts in thousands)2005
    
    $
    5092006
    
    
    3692007
    
    
    532008
    
    
    3Total minimum lease payments
    
    $
    934
 31




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES Other Commitments and Contingencies  (1)
    
    A contract with one existing client requires the Company to maintain a
performance bond throughout the contract term. At May 31, 2004, the
Company maintained a $600,000 performance bond in compliance with this
requirement.(2)
    
    Related to the Companys discontinued hospital operations, Medicare
guidelines allow the Medicare fiscal intermediary to re-open previously
filed cost reports. Management believes that the Companys Fiscal 1998
and 1999 cost reports remain eligible for re-opening at some future date,
in which case the intermediary may determine that additional amounts are
due to or from Medicare.(3)
    
    The Company is subject to the requirements of the Health Insurance
Portability and Accountability Act of 1996 (HIPAA). The purpose of the
HIPAA provisions is to improve the efficiency and effectiveness of the
healthcare system through standardization of the electronic data
interchange of certain administrative and financial transactions and,
also, to protect the security and privacy of protected health information.
Entities subject to HIPAA include some healthcare providers and all
healthcare plans. To meet the specific requirements of HIPAA, the Company
recently determined it needed to make a significant investment in its
current information system or in a new information system that would
better meet the Companys future needs. As a result, the Company has
entered into a Software License Maintenance and Services Agreement with
Qualifacts Systems, Inc. (Qualifacts), a vendor that has provided the
Company with an immediate, temporary solution to meet HIPAA compliance
rules specific to the Electronic Health Care Transactions and Code Sets
Standards Model Compliance Plan with the Centers for Medicare and Medicaid
Services and, additionally, to design a new, customized management
information system that will enable the Company to continue to meet HIPAA
requirements in the future. The Company expects to incur a total of
approximately $0.4 million of costs to customize the Qualifacts system and
activate the licenses needed for Qualifacts and other, related third-party
software.(4)
    
    On February 19, 1999, the California Superior Court denied the Companys
Petition for Writ of Mandate of an adverse administrative appeal decision
regarding application of the Maximum Inpatient Reimbursement Limitation to
Medi-Cal reimbursement paid to Brea Neuropsychiatric Hospital for its
fiscal periods 1983 through 1986. The Company owned this facility until
its disposal in fiscal year 1991. The subject matter of the Superior
Court action involved the refusal of the administrative law judge to order
further reductions in the liability for costs associated with treating
high cost, long stay Medi-Cal patients, which are commonly referred to as
outliers.In July 2002, the Company entered into a Repayment Agreement with the
Department to resolve this liability, recorded at $950,000 at May 31, 2002,
at a substantially reduced amount. The terms of the Repayment Agreement
required the Company to either 1) pay one lump sum of $450,000 to the
Department on or before September 1, 2002 or 2) beginning September 1, 2002,
the Company would be required to make three monthly installment payments of
$160,000 each, with the last payment being due on or before November 1, 2002,
for a total of $480,000 as full and complete satisfaction of the outstanding
liability. As of November 30, 2002, after making three installment payments
to the Department of $160,000 each, the Company had fully satisfied its
obligations under the terms of the settlement agreement. As a result, the
Company recorded a non-operating gain of $470,000 on settlement of the
liability during the quarter ended November 30, 2002, which has been
classified as discontinued operations in the accompanying financial
statements. From time to time, the Company and its subsidiaries are also parties and
their property is subject to ordinary, routine litigation incidental to their
business, in which case claims may exceed insurance policy limits and the
Company or any one of its subsidiaries may have exposure to a liability that is
not covered by insurance. Management is not aware of any such lawsuits that
could have a material adverse impact on the Companys consolidated financial
statements. 32




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 
 Note 16  QUARTERLY FINANCIAL INFORMATION (UNAUDITED) FISCAL 2004 Quarter Ended
    
    
    
    
    
    Fiscal Year8/31/03
    
    11/30/03
    
    2/29/04
    
    5/31/04
    
    Total(Amounts in thousands, except per share data)Operating revenues
    
    $
    7,893
    
    
    
    7,011
    
    
    
    6,348
    
    
    
    6,331
    
    
    
    27,583Gross profit
    
    
    1,041
    
    
    
    812
    
    
    
    828
    
    
    
    724
    
    
    
    3,405General and administrative expenses
    
    
    908
    
    
    
    970
    
    
    
    799
    
    
    
    708
    
    
    
    3,385Provision for (recovery of) doubtful accounts
    
    
    (8
    )
    
    
    (4
    )
    
    
    (2
    )
    
    
    7
    
    
    
    (7
    )Depreciation and amortization
    
    
    27
    
    
    
    28
    
    
    
    27
    
    
    
    25
    
    
    
    107Other expense
    
    
    35
    
    
    
    48
    
    
    
    73
    
    
    
    52
    
    
    
    208Income (loss) from continuing operations before income taxes
    
    
    79
    
    
    
    (230
    )
    
    
    (69
    )
    
    
    (68
    )
    
    
    (288
    )Income tax expense
    
    
    17
    
    
    
    3
    
    
    
    9
    
    
    
    73
    
    
    
    102Income (loss) from continuing operations
    
    
    62
    
    
    
    (233
    )
    
    
    (78
    )
    
    
    (141
    )
    
    
    (390
    )Loss from discontinued operations
    
    
    (387
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (387
    )Net loss
    
    $
    (325
    )
    
    
    (233
    )
    
    
    (78
    )
    
    
    (141
    )
    
    
    (777
    )Income (loss) per common share  basic:Income (loss) from continuing operations
    
    $
    0.02
    
    
    
    (0.06
    )
    
    
    (0.02
    )
    
    
    (0.03
    )
    
    
    (0.09
    )Loss from discontinued operations
    
    
    (0.10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.09
    )Net loss
    
    $
    (0.08
    )
    
    
    (0.06
    )
    
    
    (0.02
    )
    
    
    (0.03
    )
    
    
    (0.18
    )Income (loss) per common share  diluted:Income (loss) from continuing operations
    
    $
    0.01
    
    
    
    (0.06
    )
    
    
    (0.02
    )
    
    
    (0.03
    )
    
    
    (0.09
    )Loss from discontinued operations
    
    
    (0.08
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.09
    )Net loss
    
    $
    (0.07
    )
    
    
    (0.06
    )
    
    
    (0.02
    )
    
    
    (0.03
    )
    
    
    (0.18
    )Weighted Average Common Shares Outstanding  basic
    
    
    3,937
    
    
    
    3,942
    
    
    
    4,585
    
    
    
    4,672
    
    
    
    4,284Weighted Average Common Shares Outstanding  diluted
    
    
    4,725
    
    
    
    3,942
    
    
    
    4,585
    
    
    
    4,672
    
    
    
    4,284
 FISCAL 2003 Quarter Ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fiscal Year8/31/02
    
    11/30/02
    
    (e)
    
    2/28/03
    
    (e)
    
    5/31/03
    
    (e)
    
    Total (e)(Amounts in thousands, except per share data)Operating revenues
    
    $
    8,307
    
    
    
    8,631
    
    
    
    
    
    
    
    7,973
    
    
    
    
    
    
    
    7,193
    
    
    
    
    
    
    
    32,104Gross profit
    
    
    954
    
    
    
    871
    
    
    
    
    
    
    
    746
    
    
    
    
    
    
    
    332
    
    
    
    
    
    
    
    2,903General and administrative expenses
    
    
    888
    
    
    
    952
    
    
    
    
    
    
    
    771
    
    
    
    
    
    
    
    848
    
    
    
    
    
    
    
    3,459Provision for (recovery of) doubtful accounts
    
    
    (8
    )
    
    
    (6
    )
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    20Depreciation and amortization
    
    
    68
    
    
    
    63
    
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    195Net gain on IRS settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,717
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,717
    )Other expense
    
    
    32
    
    
    
    22
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    101Income (loss) from continuing operations before income taxes
    
    
    (26
    )
    
    
    (160
    )
    
    
    
    
    
    
    7,625
    
    
    
    
    
    
    
    (594
    )
    
    
    
    
    
    
    6,845Income tax expense
    
    
    7
    
    
    
    3
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    20Income (loss) from continuing operations
    
    
    (33
    )
    
    
    (163
    )
    
    
    
    
    
    
    7,618
    
    
    
    
    
    
    
    (597
    )
    
    
    
    
    
    
    6,825Income from discontinued operations
    
    
    
    
    
    
    470
    
    
    
    (a
    )
    
    
    88
    
    
    
    (c
    )
    
    
    75
    
    
    
    (d
    )
    
    
    633Net (loss) income
    
    $
    (33
    )
    
    
    307
    
    
    
    
    
    
    
    7,706
    
    
    
    (b
    )
    
    
    (522
    )
    
    
    
    
    
    
    7,458Income (loss) per common share  basic:Income (loss) from continuing operations
    
    $
    (0.01
    )
    
    
    (0.04
    )
    
    
    
    
    
    
    1.95
    
    
    
    
    
    
    
    (0.15
    )
    
    
    
    
    
    
    1.75Income from discontinued operations
    
    
    
    
    
    
    0.12
    
    
    
    
    
    
    
    0.02
    
    
    
    
    
    
    
    0.02
    
    
    
    
    
    
    
    0.16Net (loss) income
    
    $
    (0.01
    )
    
    
    0.08
    
    
    
    
    
    
    
    1.97
    
    
    
    
    
    
    
    (0.13
    )
    
    
    
    
    
    
    1.91Income (loss) per common share  diluted:Income (loss) from continuing operations
    
    $
    (0.01
    )
    
    
    (0.04
    )
    
    
    
    
    
    
    1.69
    
    
    
    
    
    
    
    (0.15
    )
    
    
    
    
    
    
    1.57Income from discontinued operations
    
    
    
    
    
    
    0.11
    
    
    
    
    
    
    
    0.02
    
    
    
    
    
    
    
    0.02
    
    
    
    
    
    
    
    0.15Net (loss) income
    
    $
    (0.01
    )
    
    
    0.07
    
    
    
    
    
    
    
    1.71
    
    
    
    
    
    
    
    (0.13
    )
    
    
    
    
    
    
    1.72Weighted Average Common Shares Outstanding  basic
    
    
    3,879
    
    
    
    3,898
    
    
    
    
    
    
    
    3,908
    
    
    
    
    
    
    
    3,929
    
    
    
    
    
    
    
    3,905Weighted Average Common Shares Outstanding  diluted
    
    
    3,879
    
    
    
    4,254
    
    
    
    
    
    
    
    4,509
    
    
    
    
    
    
    
    3,929
    
    
    
    
    
    
    
    4,343
   (a)
    
    Includes a $470,000 gain on settlement of the Medi-Cal liability.(b)
    
    Includes the $7.7 million gain in settlement of the IRS matter (see
Note 12  Income Taxes).(c)
    
    Includes $88,000 related to a favorable cost report settlement that
was completed during the fiscal year ended May 31, 2003 pertaining to
the Companys hospital business segment that was discontinued in Fiscal
1999.(d)
    
    Includes $75,000 related to the elimination of the Companys reserve
for cost report settlements (see (c) above).(e)
    
    Reclassified to reflect items related to discontinued operations (see
Note 9). 33




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 
 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS  (a)
    
    On June 1, 2004, the Company dismissed Eisner LLP (Eisner) as its
independent registered public accounting firm. The determination to
dismiss Eisner was made by the Audit Committee of the Board of Directors
of the Company and was prompted by economic considerations and, also, the
Companys desire to engage a firm with local presence. Eisners New York
office had audited the Companys consolidated financial statements for
each of the two years ended May 31, 2003, and with respect to which had
included in its reports a going concern uncertainty. These reports did
not contain any adverse opinion, disclaimer of opinion, or qualification
or modification as to audit scope or accounting principles. Since their
retention as the Companys independent registered public accounting firm
and through June 1, 2004, there were no disagreements with Eisner on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not
resolved to Eisners satisfaction would have caused Eisner to make
reference thereto in their report on the consolidated financial statements
of the Company for such years. During the period of their retention there
were no reportable events as defined in Item 304(a)(1)(v) of Regulation
S-K.(b)
    
    New Independent Registered Public Accounting Firm. On June 1, 2004, the
Audit Committee of the Board of Directors of the Company appointed
Kirkland, Russ, Murphy & Tapp P.A. (KRMT) to serve as its independent
registered public accounting firm for the fiscal year ending May 31, 2004.
In the years ended May 31, 2003 and 2002, the Company did not consult KRMT
with respect to the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion
that might be rendered on the Companys consolidated financial statements,
or any other matters or reportable events as set forth in Items
304(a)(2)(i) and (ii) of Regulation S-K. 
 Item 9a. CONTROLS AND PROCEDURES Evaluation of the Companys Disclosure Controls and Internal Controls.As of
the end of the period covered by this report on Form 10-K, the Company
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (Disclosure Controls), and its internal controls
and procedures for financial reporting (Internal Controls). This evaluation
(the Controls Evaluation) was done under the supervision and with the
participation of our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO). Rules adopted by the Securities and Exchange Commission
(SEC) require that in this section of the Annual Report on Form 10-K we
present the conclusions of the CEO and the CFO about the effectiveness of our
Disclosure Controls and Internal Controls based on and as of the date of the
Controls Evaluation. Disclosure Controls and Internal Controls.As provided in Rule 13a-14 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, Disclosure Controls are defined as meaning controls and procedures
that are designed with the objective of insuring that information required to
be disclosed in our reports filed under the Securities Exchange Act of 1934, as
amended (the Exchange Act), is recorded, processed, designed and reported
within the time periods specified by the SECs rules and forms. Disclosure
Controls include, within the definition under the Exchange Act, and without
limitation, controls and procedures designed to insure that information
required to be disclosed by us in our reports is accumulated and communicated
to our management including our CEO and CFO, as appropriate, to allow timely
decisions regarding disclosure. Internal Controls are procedures which are
designed with the objective of providing reasonable assurance that (1) our
transactions are properly authorized; (2) our assets are safeguarded against
unauthorized or improper use; and (3) our transactions are properly recorded
and reported, all to permit the preparation of our consolidated financial
statements in conformity with generally accepted accounting principles. Scope of the Controls Evaluation.The evaluation made by our CEO and CFO of
our Disclosure Controls and our Internal Controls included a review of the
controls objectives and design, the controls implementation by the Company
and the effect of the controls on the information generated for use in this
Form 10-K. In the course of the Controls Evaluation, we sought to identify
data errors, control problems or acts of fraud and to confirm that appropriate
corrective action, including process improvements, were being undertaken. This
type of evaluation will be done on a quarterly basis so that the conclusions
concerning controls effectiveness can be reported in our Quarterly Reports on
Form 10-Q and Annual Report on Form 10-K. The overall goals of these various
evaluation activities are to monitor our Disclosure Controls and our Internal
Controls and to make modifications as necessary; our intent in this regard is
that the Disclosure Controls and the Internal Controls will be maintained as
dynamic systems that change (including with improvements and corrections) as
conditions warrant. Among other matters, we sought in our evaluation to determine whether there
were any significant deficiencies or material weaknesses in the Companys
Internal Controls, or whether the Company had identified any acts of fraud 34




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES involving personnel who have a significant role in the Companys Internal
Controls. In the professional auditing literature, significant deficiencies
are referred to as reportable conditions; these are control issues that could
have a significant adverse effect on the ability to record, process, summarize
and report financial data in the consolidated financial statements. A
material weakness is defined in the auditing literature as a particularly
serious reportable condition where the internal control does not reduce to a
relatively low level the risk that misstatements caused by error or fraud may
occur in amounts that would be material in relation to the financial statements
and not be detected within a timely period by employees in the normal course of
performing their assigned functions. We also sought to deal with other
controls matters in the Controls Evaluation, and in each case if a problem was
identified, we considered what revision, improvement and/or correction to make
in accordance with our on-going procedures. The Companys management, including the CEO and CFO, does not expect that our
Disclosure Controls or our Internal Controls will prevent all errors and all
fraud. A control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control systems objectives
will be met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Controls can also be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Over time, controls may become inadequate because
of changes in conditions or deterioration in the degree of compliance with its
policies or procedures. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur
and not be detected. Conclusion.Based on their evaluation, as of the end of the period covered by
this annual report of the effectiveness of our Disclosure Controls, the Chief
Executive Officer and Chief Financial Officer have each concluded that our
Disclosure Controls are effective and sufficient to ensure that we record,
process, summarize, and report information required to be disclosed by us in
our periodic reports filed under the Securities Exchange Act within the time
periods specified by the Securities and Exchange Commissions rules and forms. Subsequent to the date of their evaluation, there have not been any significant
changes in our Internal Controls or in other factors to our knowledge that
could significantly affect these controls, including any corrective action with
regard to significant deficiencies and material weaknesses. The design of any
system of controls and procedures is based in part upon certain assumptions
about the likelihood of future events. 
 PART III 
 Item 10. Executive Officers and Directors of the Company The executive officers and directors of the Company are as follows: Name
    
    Age
    
    PositionMary Jane Johnson
    
    
    54
    
    
    President(1)(2), Chief Executive Officer(1)(2), and Director(1)(2)Robert J. Landis
    
    
    45
    
    
    Chairman of the Board of Directors(1)(2),
Chief Financial Officer (1)(2), and Treasurer(1)(2)Thomas Clay
    
    
    56
    
    
    Chief Development Officer(2)Cathy J. Welch
    
    
    44
    
    
    Secretary(1)(2), Vice President of Finance/Controller(1)(2)Eugene L. Froelich
    
    
    62
    
    
    Director(3)Howard A. Savin
    
    
    58
    
    
    Director(3)
   (1)
    
    Comprehensive Care Corporation.(2)
    
    Comprehensive Behavioral Care, Inc.
(Principal operating subsidiary of the Company).(3)
    
    Mr. Froelich and Dr. Savin are each
members of the Audit Committee. Mr. Froelich is the Audit Committee Financial Expert as that term is defined under
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended. Mr. Froelich is independent as defined by Rule 4200(a)(14) of the
Marketplace Rules of the Nasdaq Stock Market. 35




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES MARY JANE JOHNSON, RN, MBA, age 54. Ms. Johnson has served as President
and Chief Executive Officer since January 2000. In April 1999, Ms. Johnson was
elected a Class I director with her current term expiring at the 2006 Annual
Meeting. Since joining the Company in August 1996, Ms. Johnson has also served
as Chief Operating Officer of Comprehensive Care Corporation, an appointment
that was effective July 1999, and as Chief Executive Officer for the Companys
principal subsidiary, Comprehensive Behavioral Care, Inc., since August 1998.
Ms. Johnson served as Executive Director for Merit Behavioral Care from 1993 to
1996. Ms. Johnson, a Registered Professional Nurse, has a Bachelors Degree in
Nursing from the State University of New York and a Masters Degree in Business
Administration from Adelphi University. ROBERT J. LANDIS, CPA, MBA, age 45. Mr. Landis has served as Chairman of
the Board of Directors since January 2000 and as Chief Financial Officer and
Treasurer since July 1998. In April 1999, Mr. Landis was elected a Class III
director with his current term expiring at the 2004 Annual Meeting. Mr. Landis
served as Treasurer of Maxicare Health Plans, Inc., a health maintenance
organization, from November 1988 to July 1998. Mr. Landis also serves on the
Board of Directors and on the audit committee of Global Axcess Corporation, a
company that owns and operates automatic teller machines, whose common stock is
publicly traded on the Over The Counter Bulletin Board. Mr. Landis, a Certified
Public Accountant, received a Bachelors Degree in Business Administration from
the University of Southern California and a Masters Degree in Business
Administration from California State University at Northridge. THOMAS CLAY, MSW, age 56. Mr. Clay has been employed by CompCare since
December 1999 and currently serves as the Chief Development Officer for
Comprehensive Behavioral Care, Inc. (CBC) having served as President, Public
Sector Services since June 2002. Mr. Clay previously served as CBCs Senior
Vice President of Clinical Operations from October 2000 through May 2002.
During 1997, until joining the Company, Mr. Clay worked as a behavioral
healthcare consultant specializing in adapting managed care technology to
public sector services for providers and behavioral healthcare organizations.
From January 1991 through July 1997, Mr. Clay served in a variety of executive
positions for Tarrant County Mental Health Mental Retardation Services in Fort
Worth, Texas. Mr. Clay received a Master of Social Work degree from Tulane
University and a Bachelor of Arts Degree in Psychology from the University of
Texas at Austin. CATHY J. WELCH, CPA, age 44. Ms. Welch has been employed by the Company
since February 1998, having served as Controller since February 1999 and Vice
President of Finance and Controller since July 1999. In January 2000, Ms.
Welch was appointed to the position of Corporate Secretary for the Company.
Prior to her employment with CompCare, Ms. Welch served in a variety of
financial positions for Columbia/HCA hospitals from November 1993 through June
1997. Ms. Welch, a Certified Public Accountant, received a Bachelor of Arts
Degree in Business Administration from the University of South Florida. EUGENE L. FROELICH, CPA, age 62. In January 2003, the Board of Directors
appointed Mr. Froelich to fill an existing vacancy for a Class II Director
until the expiration date of the term for this director seat, which is
currently the 2005 Annual Meeting. Additionally, Mr. Froelich is the Chairman
of the Companys Audit Committee and he is the Audit Committee Financial Expert
as that term is defined under General Rules and Regulations under the
Securities Exchange Act of 1934, as amended. He also serves on the Companys
Compensation Committee. Mr. Froelich has more than 30 years of financial
experience and has served as an executive to several publicly held healthcare,
entertainment, and high tech corporations and is currently working as a
consultant in these industries. From April 2001 to October 2001, Mr. Froelich
served as Chief Financial Officer of Futurelink Corp., a publicly traded
company, engaged in the technology information sector. Futurelink Corp. had
filed for protection under Chapter 11 of the federal bankruptcy code in August
2001 and, following such filing, Mr. Froelich voluntarily resigned his position
with Futurelink Corp. From July 2000 to April 2001, Mr. Froelich was Chief
Financial Officer of Wizshop.com, a private company, engaged in the Internet
retail business. From 1998 to 2000, Mr. Froelich acted as an independent
consultant and advisor to various corporations. During the period from 1989 to
1998, Mr. Froelich was Chief Financial Officer and Executive Vice President of
Maxicare Health Plans, Inc. (Maxicare), a publicly traded corporation
operating under Chapter 11 of the federal bankruptcy code at the time Mr.
Froelich joined Maxicare in 1989. HOWARD A. SAVIN, Ph.D., age 58. In June 2002, Dr. Savin was appointed as
a Class II director, with his current term expiring at the 2005 Annual Meeting,
to fill an existing vacancy of the Board of Directors. Additionally, Dr. Savin
is the Chairman of the Companys Compensation Committee and he serves on the
Companys Audit Committee. Dr. Savin currently serves as President of his own
consulting firm, Behavioral Health Care Solutions, and as Senior Consultant for
the Devereux Foundation, an organization engaged in providing high-quality
human services to children, adults, and families with special needs that derive
from behavioral, psychological, intellectual or neurological impairments. Dr.
Savin was previously Senior Vice President of Clinical Affairs at the Devereux
Foundation from July 1, 1995 through June 30, 36




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 2004. From November 1993 to December 1994, Dr. Savin served as Vice President
of Medco Behavioral Care Corp., which later became Merit Behavioral Health and
Magellan. Dr. Savin holds a Masters Degree in Psychology from the University
of Bridgeport and a Ph.D. from the University of Georgia. Audit Committee The Board of Directors has constituted an Audit Committee comprised of two
independent directors, as that term is defined under the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the Act).
Mr. Eugene L. Froelich is the Chairman of the Audit Committee and is the Audit
Committee Financial Expert. The Audit Committee has responsibility for the
appointment, compensation, retention and oversight of the Companys independent
auditors; establishing procedures for the receipt, retention and treatment of
complaints regarding accounting, internal controls or auditing matters, and
procedures for the submission of confidential, anonymous concerns by employees
regarding questionable accounting or auditing matters. The Audit Committee has, as required by the Act and Section 301 of the
Sarbanes-Oxley Act of 2002, adopted a whistleblower policy providing for the
receipt, retention and treatment of complaints received by the Company
regarding accounting, internal accounting controls or auditing matters and the
confidential, anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters. Code of Conduct The Board of Directors has adopted a Code of Conduct applicable to all
officers, directors and employees of the Company which provides, among other
things, for honest and ethical conduct; avoidance of conflicts of interest,
including the disclosure of any material transaction or relationship that could
be expected to give rise to a conflict; full, fair, accurate, and timely and
understandable disclosure in reports filed by the Company with the Securities
and Exchange Commission; internal reporting of Code of Conduct violations; and
accountability for any violations. 37




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 
 Item 11. EXECUTIVE COMPENSATION The following provides certain information concerning compensation earned by
the Companys Chief Executive Officer and its other executive officers whose
total
salary and bonus for Fiscal 2004 exceed $100,000 (together, these persons are
sometimes referred to as the named executives).  Annual Compensation
    
    Long-term CompensationRestricted
    
    SecuritiesOther
    
    Stock
    
    Underlying
    
    Long-termFiscal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Annual
    
    Award(s)
    
    Options/
    
    Incentive
    
    All OtherYear
    
    Name and Position
    
    
    
    
    
    Salary ($)
    
    Bonus ($)
    
    Compensation ($)
    
    ($)
    
    SARS (#)
    
    Payouts ($)
    
    Compensation ($)2004
    
    Mary Jane Johnson
    
    President(1,2),Chief
    
    
    163,007
    
    
    
    
    
    
    
    6,500(8)
    
    
    
    
    
    
    
    25,000
    
    
    
    
    
    
    
    219(9)2003
    
    Mary Jane Johnson
    
    Executive Officer(1,2), and
    
    175,000
    
    
    
    
    
    
    
    6,500(8)
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    445(9)2002
    
    Mary Jane Johnson
    
    Director(1,2)
    
    
    175,000
    
    
    
    110,200(5)
    
    
    
    6,500(8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    937(9)2004
    
    Robert Landis
    
    Chairman of the Board of
    
    
    169,279
    
    
    
    20,000(4)
    
    
    
    3900(11)
    
    
    
    
    
    
    
    25,000
    
    
    
    
    
    
    
    441(9)2003
    
    Robert Landis
    
    Directors(1,2), Chief
    
    
    172,981
    
    
    
    15,250(4)
    
    
    
    5,700(11)
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    908(9)2002
    
    Robert Landis
    
    Financial Officer(1,2),
    
    
    175,000
    
    
    
    59,945(6)
    
    
    
    6,500(11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    888(9)and Treasurer(1,2)2004
    
    Thomas Clay
    
    Chief Development
    
    
    111,231
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    219(9)2003
    
    Thomas Clay
    
    Officer(2)
    
    
    117,692
    
    
    
    
    
    
    
    1,800(12)
    
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    993(9)2002
    
    Thomas Clay
    
    
    
    
    
    
    111,000
    
    
    
    2,550(10)
    
    
    
    19,386(12)
    
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    611(9)2004
    
    Paul R. McCarthy(3)
    
    Chief Operating Officer(3)
    
    
    67,385
    
    
    
    
    
    
    
    32,422(7)
    
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    289(9)2003
    
    Paul R. McCarthy
    
    
    
    
    
    
    118,154
    
    
    
    20,001(10)
    
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    1,197(9)2002
    
    Paul R. McCarthy
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   (1)
    
    Comprehensive Care Corporation.(2)
    
    Comprehensive Behavioral Care, Inc., Principal Subsidiary of the Company.(3)
    
    Dr. McCarthy ceased being an Executive Officer of the Company on December
31, 2003.(4)
    
    Represents actual payments made in connection with the stay bonus awards
described under Employment Agreements with Executives below.(5)
    
    Represents $100,000 in actual payments made during Fiscal 2002 in
connection with the stay bonus described under Employment Agreements with
Executives below plus
a non-cash stock bonus valued at $10,200.(6)
    
    Represents $50,000 in actual payments made during Fiscal 2002 in
connection with the stay bonus described under Employment Agreements with
Executives below plus
a non-cash stock bonus valued at $9,945.(7)
    
    Includes separation pay of $30,000 and, also, accrued vacation pay of
$2,422 as of Dr. McCarthys December 31, 2003 separation date.(8)
    
    Represents a car allowance in accordance to Ms. Johnsons employment
agreement.(9)
    
    Represents amounts contributed by the Company to the indicated persons
401(k) Plan Account.(10)
    
    Represents a non-cash stock bonus.(11)
    
    Represents compensation expense for personal use mileage in accordance to
Mr. Landis employment agreement.(12)
    
    Represents transitional living expenses paid to Mr. Clay. 38




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES Compensation Committee The Compensation Committee reviews the Companys compensation programs and
exercises authority with respect to the payment of salaries and incentive
compensation to the Companys executive officers. The Compensation Committee
also administers the Companys 1995 and 2002 Stock Option Plans. 
 Compensation Committee Report Regarding Compensation of Executive Officers In June 2002, the election of Howard Savin, Ph.D. as an independent
director enabled the Company to re-establish a Compensation and Stock Option
Committee (Committee). Dr. Savin, as Chairman of the Committee, was joined
in January of 2003 by newly appointed Director Eugene Froelich. Prior to June
2002, and at any time during the absence of independent directors to comprise a
compensation committee, the Board of Directors fulfilled such responsibilities.
The newly formed Committee continues to adhere to the same philosophies and
goals regarding executive compensation that have guided previous compensation
committees and the Board of Directors. These philosophies and key components of
executive compensation are discussed below. Overview and Philosophy The Compensation and Stock Option Committees policies are designed to enable
the Company to attract and retain outstanding executives in the healthcare
industry to assist the Company in meeting its long-range objectives, thereby
serving the interests of the Companys stockholders. The Committees
compensation philosophy is to provide rewards that (1) are linked to both
Company performance and individual performance, (2) align employee interests
with shareholder interests, (3) are sufficient to attract and retain
high-quality employees, and (4) provide a mix of cash and potential stock
ownership tied to long-term as well as immediate business strategy. The current employment agreements of Ms. Johnson and Mr. Landis were
approved by the current Compensation and Stock Option Committee, which is
comprised solely of independent directors. The current employment agreements
of all other executive officers of the Company and the Companys principal
operating subsidiary, Comprehensive Behavioral Care, Inc. were approved by the
Board of Directors. Executive Officer Compensation The following key principles guide the Compensation and Stock Option Committee
in structuring compensation targets and packages of executive officers and key
management:  
    
    Total annual compensationwill include salary as the core
compensation plus options to purchase shares of the Companys Common
Stock, the value of which is a function of the market price, which is
an extension of stockholder interests.
    
    Management development- support of compensation opportunity
structures to attract and retain individuals who can maximize the
creation of stockholder value, and motivate employees to attain Company
and individual objectives.
    
    Recognition of individual contributionsas well as overall Company results toward identified business results.
    
    Competitive position of both base salary and total compensationwithin the healthcare industry. Components of Executive Compensation The components of executive compensation for each of the Companys four
named executive officers included a base salary, provision for an annual
incentive bonus, and provisions for the award of stock options. Ms. Johnson and
Mr. Landis each have employment agreements, which were approved by the current
Compensation and Stock Option Committee, which took into account the skills,
knowledge and experience that each of the executive officers brought to their
positions. The base salary of each executive officer is intended to be
maintained at slightly above the median range of salary for similar positions
at public companies that are in the same line of business as the Company and
which are of similar size. Under the terms of their current employment
contracts, dated February 7, 2003, Ms. Johnsons base salary is currently set
at $205,000 per annum and Mr. Landis is to receive $185,000 per annum although
each is currently receiving a base salary of $175,000 per annum. Base salaries
for Mr. Clay and Dr. McCarthy were each set by the Board of Directors at
$120,000 per annum. 39




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES Each of the Companys executive officers is eligible to receive an annual
performance based incentive bonus or other such bonus or additional
compensation as may be determined from time to time by the Compensation and
Stock Option Committee. There were no cash amounts paid during Fiscal 2004 or
Fiscal 2003 in connection with any annual performance bonus as provided for in
the Companys employment agreements with its executive officers. During Fiscal
2003, Dr. McCarthy was awarded a restricted stock grants totaling 20,001 shares
in lieu of any cash-signing bonus, which was included in Fiscal 2003 executive
compensation. The current employment agreement of each executive officer provides for
the award of stock options. In the case of Ms. Johnson and Mr. Landis, the
Compensation and Stock Option Committee determined that each is to receive an
annual grant of options to purchase 25,000 shares of stock. Additionally, the
Compensation and Stock Option Committee reserves the right to increase the
Annual Stock Options award based on exceptional performance by the Executive.
In the case of Mr. Clay and Dr. McCarthy, each is eligible for participation in
periodic grants of stock options as determined by the Compensation and Stock
Option Committee at its discretion. During Fiscal 2004, Ms. Johnson and Mr.
Landis received grants for a total of 25,000 stock options each while Mr. Clay
and Dr. McCarthy were granted a total of 10,000 stock options each. 
 Employment Agreements with Executives Effective February 1, 2003, the Company entered into a new employment
agreement with Mary Jane Johnson. Such agreement, which superceded the
previous agreement entered into in July of 1999, terminates May 31, 2006 and is
subject to two 18-month extensions. Ms. Johnsons employment agreement
provides for a salary of $205,000 per annum and includes an annual performance
bonus based on the Companys earnings before interest, taxes, depreciation and
amortization (EBITDA). Such annual performance bonus shall be equal to the
greater of 2 1/2% of the Companys EBITDA, or $25,000. Ms. Johnson is
provided an auto allowance of $250 biweekly as well as a policy of life
insurance. In addition, the Company pays for a portion of Ms. Johnsons health
insurance and other group insurance premiums in accordance with the Companys
general benefit guidelines covering all full-time employees. Ms. Johnsons
employment agreement provides that in the event of a change in control of the
Company, or in the case of termination without cause, Ms. Johnson will be paid
a severance benefit equal to twenty four (24) months base salary, together with
her performance bonus. Ms. Johnson is additionally eligible to receive a
special transaction bonus should the company merge with or into another entity
in which the Company is not the surviving entity, or if the Company sells all
or substantially all of its assets and the special transaction is $5.0 million
or greater. The special transaction bonus shall be an amount equal to 1% of the
special transaction value in excess of $5.0 million. Effective with the 2003
Annual Meeting of Stockholders and annually coincident with such meetings, Ms.
Johnson will be granted options to purchase 25,000 shares of the Companys
common stock. The options will bear an exercise price of the fair market value
of the Companys stock on the date of grant and will vest within one year of
such date. Ms. Johnsons employment agreement may be terminated by either
party in accordance with its terms, which require written notification to the
other party at least six months prior to the initial termination date or
renewal termination date. Effective February 1, 2003, the Company entered into an employment
agreement with Robert J. Landis. Such agreement, which superceded the previous
agreement dated September 14, 1998, terminates May 31, 2006 and is subject to
two 18-month extensions. Mr. Landis employment agreement provides for a
salary of $185,000 per annum and includes an annual performance bonus based on
the Companys earnings before interest, taxes, depreciation and amortization
(EBITDA). Such annual performance bonus shall be equal to the greater of 2
1/2% of the Companys EBITDA, or $20,000. In addition, the Company pays
for a portion of Mr. Landis health insurance and other group insurance
premiums in accordance with the Companys general benefit guidelines covering
all full-time employees. Mr. Landis is also provided with a policy of life
insurance and a $250 biweekly auto allowance. Mr. Landis employment agreement
provides that in the event of a change in control of the Company or in the case
of termination without cause, Mr. Landis will be paid a severance benefit equal
to twenty four (24) months base salary, together with his performance bonus.
Mr. Landis is additionally eligible to receive a special transaction bonus
should the company merge with or into another entity in which the Company is
not the surviving entity, or if the Company sells all or substantially all of
its assets and the special transaction is $5.0 million or greater. The special
transaction bonus shall be an amount equal to 1% of the special transaction
value in excess of $5.0 million. Effective with the 2003 Annual Meeting of
Stockholders and annually coincident with such meetings, Mr. Landis will be
granted options to purchase 25,000 shares of the Companys common stock. The
options will bear an exercise price of the fair market value of the Companys
stock on the date of grant and will vest within one year of such date. Mr.
Landis employment agreement may be terminated by either party in accordance
with its terms, which require written notification to the other party at least
six months prior to the initial termination date or renewal termination date. 40




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES On June 3, 2002, the Company entered into an employment agreement with
Thomas Clay. Mr. Clays employment agreement provides for a salary at the rate
of $120,000 per annum and includes a performance-based bonus not to exceed
$20,000 per annum, which will be based 20% on individual performance and 80% on
the Companys financial performance against set criteria. In addition, Mr.
Clay is eligible to participate in the Companys Sales Incentive Plan, a
commission program designed to compensate the Companys sales and marketing
staff in proportion to their individual contributions to the Companys sales
and marketing objectives. Mr. Clay is provided with a policy of life insurance
and the Company pays for a portion of Mr. Clays health insurance and other
group insurance premiums in accordance with the Companys general benefit
guidelines covering all full-time employees. Mr. Clays employment agreement
provides that, in the event of a change in control of the Company as defined,
Mr. Clay will be paid a severance benefit equal to six (6) months base salary
or, in the case of termination without cause, Mr. Clay will be paid a severance
benefit equal to three (3) months base salary. Mr. Clays employment agreement
continues unless terminated by either party in accordance with the terms of the
employment agreement. On June 3, 2002, the Company entered into an employment agreement with
Paul R. McCarthy, Ph.D. Dr. McCarthys employment agreement provided for a
salary at the rate of $120,000 per annum and included a performance-based bonus
not to exceed $20,000 per annum, to be based 20% on individual performance and
80% on the Companys financial performance against set criteria. Dr. McCarthy
was provided with a policy of life insurance and the Company paid for a portion
of Dr. McCarthys health insurance and other group insurance premiums in
accordance with the Companys general benefit guidelines covering all full-time
employees. Dr. McCarthys employment agreement provided that, in the event of
a change in control of the Company as defined, Dr. McCarthy would be paid a
severance benefit equal to six (6) months base salary or, in the case of
termination without cause, Dr. McCarthy would be paid a severance benefit equal
to three (3) months base salary. Effective December 31, 2003, in connection
with the Companys ongoing expense reduction efforts, Dr. McCarthy was
separated from the Company without cause. Effective July 2, 1999, the Board awarded stay bonuses to Ms. Johnson and
Mr. Landis in amounts not to exceed the greater of: $150,000 or 85% of the
current base salary, and $125,000 or 83% of the current base salary,
respectively, not payable unless each remained employed by the Company through
December 31, 2000. Effective January 1, 2001, Ms. Johnson and Mr. Landis each
were entitled to receive $150,000 and $145,250, respectively, in connection
with these stay bonus awards. As an accommodation to the Company, the two
executive officers consented to a deferral of the receipt of their stay bonus.
During Fiscal 2001, Ms. Johnson and Mr. Landis each were paid $50,000. During
Fiscal 2002, Ms. Johnson was paid $100,000 and Mr. Landis, $50,000. In the
fiscal years ended May 31, 2003 and 2004, Mr. Landis received $15,250 and
$20,000, respectively, related to this bonus. Effective July 6, 2001, a restricted stock grant of 20,000 shares, 19,500
shares, and 5,000 shares of the Companys Common Stock was made to Ms. Johnson,
Mr. Landis, and Mr. Clay, respectively, and was included in Fiscal 2002
executive compensation. Such shares were valued at $0.51 per share,
representing the fair market value of the Companys Common Stock on July 6,
2001. During Fiscal 2003, Dr. McCarthy was awarded two restricted stock grants
for a total of 20,001 shares of the Companys Common Stock to be included in
Fiscal 2003 executive compensation. The initial award was for 6,667 shares,
valued at $1.50 per share, representing the fair market value of the Companys
Common Stock on June 3, 2002. The second award to Dr. McCarthy was for 13,334
shares, valued at $0.75 per share, representing the fair market value of the
Companys Common Stock on September 5, 2002. 
 Compensation Committee Interlocks and Insider Participation Our Compensation Committee is currently composed of Dr. Savin and Mr.
Froelich. No member of the Compensation Committee is currently or was formerly
an officer or an employee of Comprehensive Care Corporation or its
subsidiaries. There are no compensation committee interlocks and no insider
participation in compensation decisions that are required to be reported under
the rules and regulations of the Securities Exchange Act of 1934, as amended. 41




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 
 Performance Graph The following is a line graph comparing the Companys total stockholder
returns to those of the NASDAQ Health Services Index and a Comparable Company
Index (including the Company, PHC, Inc., Magellan Health Services, Inc. and
Horizon Health Corp.) for each year in the period from June 1, 1999 and ended
May 31, 2004. The Companys Common Stock is traded on the Over The Counter
Bulletin Board and, accordingly, the Company has selected the NASDAQ Health
Services Index as an appropriate index for this graph. Total return values
were calculated based on cumulative total return, assuming the value of the
investment in the Companys Common Stock, and in each index, was $100 and that
all dividends were reinvested. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
AMONG COMPREHENSIVE CARE CORPORATION,
THE NASDAQ HEALTH SERVICES INDEX AND A PEER GROUP (PERFORMANCE GRAPH) ASSUMES $100 INVESTED ON JUNE 1, 1999
ASSUMES DIVIDENDS REINVESTED
FIVE FISCAL YEARS ENDED MAY 31, 2004 1999
    
    May 2000
    
    May 2001
    
    May 2002
    
    May 2003
    
    May 2004Comprehensive Care Corporation
    
    
    100.00
    
    
    
    42.00
    
    
    
    90.00
    
    
    
    320.00
    
    
    
    560.00
    
    
    
    320.00Comparable Company Index
    
    
    100.00
    
    
    
    36.28
    
    
    
    142.69
    
    
    
    90.43
    
    
    
    31.36
    
    
    
    42.34NASDAQ Health Services Index
    
    
    100.00
    
    
    
    73.12
    
    
    
    113.89
    
    
    
    140.10
    
    
    
    115.01
    
    
    
    169.39
 42




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 
 Section 16(A) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended requires
the Companys officers and directors, and persons who own more than ten percent
of a registered class of the Companys equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(SEC). Officers, directors, and greater than ten-percent stockholders are
required by SEC regulations to furnish the Company with all copies of all
Section 16(a) forms they file. The Company believes that its officers,
directors and greater than ten-percent beneficial owners complied with all
applicable Section 16(a) filing requirements during the fiscal year ended May
31, 2004. In making such determination specific to greater than ten-percent
beneficial owners, we relied on information obtained from Schedule 13G filed by
Mr. Harry Ross on December 17, 2003 and dated December 8, 2003. 
 Indemnification of Officers and Directors In connection with the Companys indemnification program for executive
officers and directors, Ms. Johnson, Mr. Landis, and Mr. Clay as well as five
current, key management employees, directors, or subsidiary directors, eleven
former directors, and eleven former executive officers, are entitled to
indemnification and are beneficiaries of the officers and directors
indemnification trust (as defined below). Upon written demand for payment by the person designated in the Trust
Agreement as Beneficiary Representative accompanied by a Notice of
Qualification (as defined below), the Trustee shall pay the person designated
in the Trust Agreement (Underwriter) to administer the payments to the
accounts of Indemnitees an amount not greater than the balance, if any, of the
specified bookkeeping account (Account) recorded by the Trustee for each
Indemnitee. A Notice of Qualification is a written statement by the
Beneficiary Representative which (i) states the date and action on which the
policyholder is obligated to Indemnitee(s) under the terms of the
Indemnification Agreement, (ii) certifies that, pursuant to the terms of the
Indemnification Agreement, the Indemnitees are entitled to payment thereunder
as a result of the investigation, claim, action, suit or proceeding, and (iii)
states the amount of the payment to which the Underwriter is entitled. Upon the
receipt of a demand, the Trustee shall promptly inform the Company of such
receipt, by courier delivery to the Company, of written notice thereof. Subject
to any contrary order issued by a court of competent jurisdiction, a payment
made pursuant to this Section may be made without the approval or direction of
the Company, and shall be made despite any direction to the contrary by the
Company. Prior to the time amounts are to be paid to the Underwriter or his
designee from the Trust Fund as described above, Indemnitees have no preferred
claim or beneficial ownership interest in trust funds, and their rights are
merely unsecured contractual rights. The Company considers it desirable to provide each Indemnitee with
specified assurances that the Company can and will honor the Companys
obligations under the Indemnification Agreements, including a policy of
insurance to provide for directors and officers liability coverage. 43




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 
 Table II  Options Held at May 31, 2004 The following tables present information regarding the number of options
granted to and exercised by the Companys named executives during Fiscal 2004
and the number of unexercised options held by the Companys named executives at
May 31, 2004. No stock appreciation rights were granted or held by such
persons during Fiscal 2004. 
 Option Grants In the Last Fiscal year Percent of TotalOptions/SARS
    
    ExerciseGranted to
    
    or Base
    
    
    
    
    
    Grant DateEmployees in
    
    Price
    
    Expiration
    
    PresentName
    
    Options Granted
    
    Fiscal Year
    
    ($/Share)
    
    Date
    
    ValueMary Jane Johnson
    
    
    25,000
    
    
    
    19.2
    %
    
    $
    1.70
    
    
    
    01/23/14
    
    
    $
    1.2524Robert J. Landis
    
    
    25,000
    
    
    
    19.2
    %
    
    
    1.70
    
    
    
    01/23/14
    
    
    
    1.2524Thomas Clay
    
    
    10,000
    
    
    
    7.7
    %
    
    
    2.16
    
    
    
    11/18/13
    
    
    
    1.4725Paul R. McCarthy *
    
    
    10,000
    
    
    
    7.7
    %
    
    
    2.16
    
    
    
    11/18/13
    
    
    
    1.4725
   *Separated from the Company effective December 31, 2003. The present value as of the date of grant, calculated using the
Black-Scholes method is based on assumptions about future interest rates, stock
price volatility and dividend yield. There is no assurance that these
assumptions will prove to be true in the future. The actual value, if any,
that may be realized by each individual will depend upon the market price of
the Common Stock on the date of exercise. 
 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND AGGREGATED FISCAL YEAR-END OPTION VALUE Number ofSecurities
    
    Value ofUnderlying
    
    UnexercisedUnexercised
    
    In-the-moneyOptions/SARs at
    
    Options/SARs atShares
    
    Value
    
    FY End (#)
    
    FY End ($)Acquired on
    
    Realized
    
    Exercisable/
    
    Exercisable/Name
    
    Exercise (#)
    
    ($)
    
    Unexercisable
    
    Unexercisable(1)Mary Jane Johnson
    
    
    
    
    
    
    
    
    
    
    270,000/25,000
    
    
    $
    277,643/$0Robert J. Landis
    
    
    
    
    
    
    
    
    
    
    315,625/25,000
    
    
    
    277,643/0Thomas Clay
    
    
    
    
    
    
    
    
    
    
    52,500/5,000
    
    
    
    40,910/0Paul R. McCarthy(2)
    
    
    10,000
    
    
    $
    11,900
    
    
    
    
    
    
    
    
   (1)
    
    Calculated on the basis of the closing sale price per share for the
Companys Common Stock on the Over The Counter Bulletin Board of $1.60 on May
28, 2004. Value was calculated on the basis of the difference between the
option price and $1.60 multiplied by the number of shares of Common Stock
underlying the respective options.(2)
    
    Separated from the Company effective December 31, 2003. 44




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 
 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information known to the Company
concerning the beneficial ownership of Common Stock as of May 31, 2004, by (i)
all persons who are beneficial owners of five percent (5%) or more of the
Common Stock, (ii) each director of the Company, and (iii) the executive
officers named in the Summary Compensation Table included elsewhere herein, and
(iv) all directors and executive officers as a group in accordance with Section
13(d)(3) under the general rules and regulations of the Securities and Exchange
Commission (SEC) Act of 1934, as amended. According to rules adopted by the
SEC, a person is the beneficial owner of securities if he or she has, or
shares, the power to vote such securities or to direct their investment. Unless
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to shares beneficially owned and has an address of 204 South
Hoover Boulevard, Suite 200, Tampa, Florida 33609. Shares Beneficially
    
    Percent of CommonName of Beneficial Owner
    
    Owned
    
    Stock OutstandingHarry
Ross(6)
3622 Reeves Road, Ojai, CA 93023
    
    
    720,000
    
    
    
    15.4
    %Mary Jane Johnson(2)
    
    
    302,500
    
    
    
    6.1
    %Robert J. Landis(3)
    
    
    360,125
    
    
    
    7.2
    %Thomas Clay(1)
    
    
    57,500
    
    
    
    1.2
    %Howard A. Savin(4)
    
    
    31,666
    
    
    
    *Eugene L. Froelich(5)
    
    
    13,333
    
    
    
    *All
executive officers and directors
As a group (8 persons)
    
    
    850,124
    
    
    
    15.6
    %
   *Less than 1%.(1)
    
    Includes 5,000 shares of common stock held directly and 52,500 shares
subject to options that are presently exercisable. Excludes 5,000 options
that are not presently exercisable.(2)
    
    Includes 20,000 shares of common stock held directly and 282,500 shares
subject to options that are presently exercisable or exercisable within 60
days of May 31, 2004. Excludes 12,500 options that are not exercisable
within 60 days of May 31, 2004.(3)
    
    Includes 32,000 shares of common stock held directly and 328,125 shares
subject to options that are presently exercisable or exercisable within 60
days of May 31, 2004. Excludes 12,500 options that are not exercisable
within 60 days of May 31, 2004.(4)
    
    Includes 31,666 options that are presently exercisable or exercisable
within 60 days of May 31, 2004. Excludes 20,833 options that are not
exercisable within 60 days of May 31, 2004.(5)
    
    Includes 13,333 options that are presently exercisable. Excludes 23,333
options that are not presently exercisable.(6)
    
    Information obtained from Schedule 13G filed by Mr. Ross on December 17,
2003 and dated December 8, 2003. 
 EQUITY COMPENSATION PLAN INFORMATION The following table summarizes share and exercise price information with
respect to the Companys equity compensation plans (including individual
compensation arrangements) under which equity securities of Comprehensive Care
Corporation are authorized for issuance as of May 31, 2004: (a)
    
    (b)
    
    (c)Plan category
    
    Number of securities to
    
    Weighted-average
    
    Number of securities remainingbe issued upon exercise
    
    exercise price of
    
    available for future issuanceof outstanding options,
    
    outstanding options,
    
    under equity compensationwarrants and rights
    
    warrants and rights
    
    plans (excluding securitiesreflected in column (a))Equity compensation
plans approved by
shareholders
    
    
    1,229,390
    
    
    $
    0.91
    
    
    
    307,569Equity compensation
plans not approved
by shareholders*
    
    
    100,000
    
    
    
    3.39
    
    
    
    Total
    
    
    1,329,390
    
    
    $
    1.12
    
    
    
    307,569
   *Consists of warrants to purchase common stock of the Company issued to three
consultants, in lieu of cash compensation, for services provided to the
Company. 45




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 
 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For information relating to the employment agreements with executive
officers, stock options, stay bonuses, stock grants, and other compensation,
see the information included in Item 11 above. During the fiscal year ended
May 31, 2004, two executive officers served on the Board of Directors of the
Company and, also, on the Board of Directors for each of the Companys
wholly-owned subsidiary corporations. 
 Item 14. Principal Accountant Fees and Services Audit Fees.The aggregate fees billed by Kirkland, Russ, Murphy & Tapp P.A.
(KRMT) for professional services rendered in connection with the audit of our
annual consolidated financial statements for the fiscal year ended May 31, 2004
were $54,000. In addition, Fiscal 2004 audit fees included $20,000 billed by
Eisner LLP in connection with their review of the consolidated financial
statements included in our Form 10-Qs filed during Fiscal 2004. The aggregate fees billed by Eisner LLP for professional services rendered in
connection with the audit of our consolidated financial statements for the year
ended May 31, 2003 and review of the consolidated financial statements included
in our Fiscal 2003 Form 10-Qs were $152,500. Audit-Related Fees.There were no fees billed by KRMT during Fiscal 2004 or by
Eisner LLP during Fiscal 2004 or Fiscal 2003 for assurance and related
services. Tax Fees.No fees were billed by KRMT or by Eisner LLP during Fiscal 2004 for
tax-related services, although the Company has engaged KRMT to prepare its
Fiscal 2004 tax returns with expected fees for such services ranging from
$20,000 to $22,000. The aggregate fees billed by Eisner LLP during Fiscal 2003
for tax-related services were $67,133. Such fees were primarily for
tax-consulting services related to the then pending Internal Revenue Service
claim, which was successfully settled in Fiscal 2003. All Other Fees.There were no fees billed by KRMT during Fiscal 2004 or by
Eisner LLP during Fiscal 2004 or Fiscal 2003 for professional services other
than the services described under Audit Fees and Tax Fees above. 
 Part IV 
 Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a)
    
    
    1.
    
    
    Consolidated Financial Statements  Included in Part II of this report:Report of Independent Registered Public Accounting FirmConsolidated Balance Sheets, May 31, 2004 and 2003Consolidated Statements of Operations, Years Ended May 31, 2004, 2003 and 2002Consolidated Statements of Stockholders Deficit, Years Ended May 31, 2004, 2003 and 2002Consolidated Statements of Cash Flows, Years Ended May 31, 2004, 2003 and 2002Notes to Consolidated Financial Statements2.
    
    
    Consolidated Financial Statement Schedules: None.Other schedules are omitted, as required information is inapplicable or
the information is presented in the consolidated financial statements or
related notes.3.
    
    
    Exhibits:
 Number
    
    Description and Reference3.1
    
    Restated Certificate of Incorporation as amended.(5)3.2
    
    Restated Bylaws as amended July 20, 2000.(8)4.1
    
    Indenture dated April 25, 1985 between the Company and
Bank of America, NT&SA, relating to Convertible Subordinated
Debentures.(1)4.2
    
    Form of Common Stock Certificate.(6)10.1
    
    Form of Stock Option Agreement. *(2)10.2
    
    Form of Indemnity Agreement as amended March 24, 1994. *(3)
 46




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Number
    
    Description and Reference10.3
    
    Directors and Officers Trust dated February 27, 1995 between the Company and Mark Twain Bank. *(4)10.4
    
    Comprehensive Care Corporation 1995 Incentive Plan, as amended on November 17, 1998.(9)10.5
    
    Amended and Restated Non-Employee Directors Stock Option Plan. *(5)10.6
    
    Employment agreement as amended February 7, 2003 between the Company and
Robert J. Landis. *(7)10.7
    
    Employment agreement as amended February 7, 2003 between the Company and
Mary Jane Johnson. *(7)10.8
    
    Employment agreement dated June 3, 2002 between the Company and Paul R. McCarthy. *(10)10.9
    
    Employment agreement dated June 3, 2002 between the Company and Thomas C. Clay. *(10)10.10
    
    Comprehensive Care Corporation 2002 Incentive Plan. (11)14
    
    Code of Business Conduct and Ethics. (12)16
    
    Letter dated June 2, 2004 from Eisner LLP in concurrence
with the Companys statement made concerning Eisner LLPs
dismissal as the Companys principal accountant. (13)21
    
    List of the Companys active subsidiaries (filed herewith).23.1
    
    Consent of Kirkland, Russ, Murphy & Tapp P.A. (filed herewith).23.2
    
    Consent of Eisner LLP (filed herewith).31.1
    
    Comprehensive Care Corporation CEO Certification pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).31.2
    
    Comprehensive Care Corporation CFO Certification pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).32.1
    
    Comprehensive Care Corporation CEO Certification pursuant
to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).32.2
    
    Comprehensive Care Corporation CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
   *
    
    Management contract or compensatory plan or arrangement with one or more
directors or executive officers.(1)
    
    Filed as an exhibit to the Companys Form S-3 Registration Statement No.
2-97160.(2)
    
    Filed as an exhibit to the Companys Form 10-K for the fiscal year ended
May 31, 1988.(3)
    
    Filed as an exhibit to the Companys Form 10-K for the fiscal year ended
May 31, 1994.(4)
    
    Filed as an exhibit to the Companys Form 10-Q for the quarter ended
February 28, 1995.(5)
    
    Filed as an exhibit to the Companys Form 8-K dated November 9, 1995.(6)
    
    Filed with original filing of Registration Statement on Form S-1, dated
January 29, 1997.(7)
    
    Filed as an exhibit to the Companys Form 8-K dated February 7, 2003.(8)
    
    Filed as an exhibit to the Companys Form 10-K for the Fiscal Year ended
May 31, 2000.(9)
    
    Filed as an exhibit to the Companys Form 8-K dated November 25, 1998.(10)
    
    Filed as an exhibit to the Companys Form 8-K dated June 7, 2002.(11)
    
    Filed as an exhibit to the Companys Form 8-K, dated September 20, 2002.(12)
    
    Filed as an exhibit to the Companys Form 10-K for the fiscal year ended
May 31, 2003.(13)
    
    Filed as an exhibit to the Companys Form 8-K, dated June 4, 2004.  (b)
    
    Reports on Form 8-K.  1)
    
    The Company filed a current report on Form 8-K, dated June 4, 2004, to
report under Item 4 that the Company had dismissed Eisner LLP as its
independent public accountants on June 1, 2004 and, additionally, that the
Audit Committee of the Board of Directors of the Company appointed
Kirkland, Russ, Murphy & Tapp P.A. to serve as its independent registered
public accounting firm for the fiscal year ended May 31, 2004.2)
    
    The Company filed a current report on Form 8-K, dated May 20, 2004, to
report under Item 5 that the Company had announced the completion of its
beta test in Michigan of the Companys new behavioral health pharmacy
management program.3)
    
    The Company filed a current report on Form 8-K, dated April 12, 2004, to
report under Items 7 and 9 that the Company had updated its Message from
the CEO letter, which is located on the Companys stockholder web site
at: www.compcare-shareholders.com. 47




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 
 SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, August 26, 2004. COMPREHENSIVE CARE CORPORATION By
    /s/ MARY JANE JOHNSON
Mary Jane Johnson
President and Chief Executive Officer
(Principal Executive Officer)By
    /s/ ROBERT J. LANDIS
Robert J. Landis
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates so indicated. Signature
    
    Title
    
    Date/s/   MARY JANE JOHNSON
Mary Jane Johnson
    
    President, Chief Executive Officer,
and Director
    
    August 26, 2004/s/   ROBERT J. LANDIS
Robert J. Landis
    
    Chairman of the Board of Directors,
Chief Financial Officer, and Treasurer
(Principal Financial and
Accounting Officer)
    
    August 26, 2004/s/   HOWARD A. SAVIN
Howard A. Savin
    
    Director
    
    August 26, 2004/s/   EUGENE L. FROELICH
Eugene L. Froelich
    
    Director
    
    August 26, 2004
 48




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES 
 Exhibit Index Fiscal Year Ended May 31, 2004 EXHIBITNUMBER
    
    DESCRIPTION
    
    
    
    
    
    PAGE NUMBER21
    
    List of the Companys subsidiaries
    
    
    
    
    
    
    5023.1
    
    Consent of Kirkland, Russ, Murphy & Tapp P.A.
    
    
    
    
    
    
    5123.2
    
    Consent of Eisner LLP
    
    
    
    
    
    
    5231.1
    
    Comprehensive Care Corporation CEO Certification pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
    
    
    
    
    
    
    5331.2
    
    Comprehensive Care Corporation CFO Certification pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
    
    
    
    
    
    
    5432.1
    
    Comprehensive Care Corporation CEO Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    
    
    
    
    
    
    5532.2
    
    Comprehensive Care Corporation CFO Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    
    
    
    
    
    
    56
 49