##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-K





Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the calendar year ended December 31, 2008

Commission File Number 1-9927





LOGO

COMPREHENSIVE CARE CORPORATION

(Exact name of Registrant as specified in its charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 95-2594724                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)

3405 W. Dr. Martin Luther King, Jr. Blvd, Suite 101

Tampa, Florida 33607

(Address of
principal executive offices, zip code)

(813) 288-4808

(Registrants telephone number, including area code)





Securities registered
pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $0.01
per share

71/2% Convertible Subordinated Debentures due 2010

(Title of class)





Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes   ̈    No  x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ̈    No  x

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   ̈

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated
Filer   ̈    Accelerated Filer    ̈    Non-Accelerated Filer   x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

The aggregate market value of voting stock held by non-affiliates of the Registrant on June 30, 2008 was approximately $1,993,000 based on the closing price of $0.40 of the common stock on June 30, 2008, as
reported on the Over-The-Counter Bulletin Board. This amount excludes approximately 2.8 million shares of common stock held by officers, directors, and persons owning 5% or more of our outstanding common stock. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.

On March 23, 2009, the Registrant had 23,926,218 shares of
common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.









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##### Table of Contents

TABLE OF CONTENTS



|              |  |                                                                                                              |  |   
|------------- |  | ------------------------------------------------------------------------------------------------------------ |  | --
|PART I        |  |                                                                                                              |  | 3 
|Item 1.       |  | Business                                                                                                     |  | 3 
|Item 1A.      |  | Risk Factors                                                                                                 |  | 10
|Item 2.       |  | Properties                                                                                                   |  | 18
|Item 3.       |  | Legal Proceedings                                                                                            |  | 18
|              |  |                                                                                                             
|PART II       |  |                                                                                                              |  | 19
|Item 5.       |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 19
|Item 6.       |  | Selected Financial Data                                                                                      |  | 20
|Item 7.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 21
|Item 7A.      |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 29
|Item 8.       |  | Consolidated Financial Statements and Supplementary Data                                                     |  | 30
|Item 9A.      |  | Controls and Procedures                                                                                      |  | 59
|              |  |                                                                                                             
|PART III      |  |                                                                                                              |  | 60
|Item 10.      |  | Directors, Executive Officers and Corporate Governance                                                       |  | 60
|Item 11.      |  | Executive Compensation                                                                                       |  | 62
|Item 12.      |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 70
|Item 13.      |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 71
|Item 14.      |  | Principal Accounting Fees and Services                                                                       |  | 72
|              |  |                                                                                                             
|PART IV       |  |                                                                                                              |  | 74
|Item 15.      |  | Exhibits and Financial Statement Schedules                                                                   |  | 74
|              | 
|SIGNATURES    |  | 76                                                                                                          
|              | 
|EXHIBIT 3.6   |  |                                                                                                             
|EXHIBIT 10.21 |  |                                                                                                             
|EXHIBIT 10.22 |  |                                                                                                             
|EXHIBIT 10.23 |  |                                                                                                             
|EXHIBIT 21.1  |  |                                                                                                             
|EXHIBIT 23.1  |  |                                                                                                             
|EXHIBIT 31.1  |  |                                                                                                             
|EXHIBIT 31.2  |  |                                                                                                             
|EXHIBIT 32.1  |  |                                                                                                             
|EXHIBIT 32.2  |  |                                                                                                             



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PART I



|ITEM1. | BUSINESS
|------ | --------

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 and in our other reports, Securities and Exchange Commission (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 projected successful integration of the operations of Core Corporate Consulting
Group, Inc. (Core) into CompCares business, the continuing success that Core is expected to have in marketing its products, the potential represented by ethnic markets and the overall performance of the healthcare market, our
anticipated operating results, financial resources, increases in revenues, increased profitability, interest expense, predictions of anticipated health care costs, 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 our other reports, SEC filings, statements, and
presentations. These risks and uncertainties include, among others, changes in local, regional, and national economic and political conditions, the effect of governmental regulation, competitive market conditions, varying trends in member
utilization, our ability to manage healthcare operating expenses, the profitability of our capitated contracts, cost of care, seasonality, the Companys ability to obtain additional financing, our ability to renegotiate or extend expiring
customer contracts, the risk that any definitive agreements or additional business will result from letters of intent entered into by us, and other risks detailed from time to time in our SEC reports.

OVERVIEW

Comprehensive Care Corporation
(referred to herein as the Company, CompCare, we, us or our) is a Delaware corporation organized in 1969.

Primarily through Comprehensive Behavioral Care, Inc. (CBC), we provide managed care services in the behavioral health and psychiatric fields, which is our only operating segment. Recent federal and state
legislation provides a new focus for CBC in specialty behavioral health care areas such as Autism Spectrum Disorders (ASD) and Attention Deficit Disorder (ADD). Additionally, CBC provides analytic services for its health plan
customers to integrate medical claims data and pharmacy data into actionable information so patient care can be coordinated cost effectively. We coordinate and manage the delivery of a continuum of psychiatric and substance abuse services and
products to:



| |  |  | Commercial members
| | - |  | ------------------



| |  |  | Medicare members
| | - |  | ----------------



| |  |  | Medicaid members
| | - |  | ----------------



| |  |  | Childrens Health Insurance Program (CHIP) members
| | - |  | ----------------------------------------------------

on behalf of:



| |  |  | health plans
| | - |  | ------------



| |  |  | government organizations
| | - |  | ------------------------



| |  |  | third-party claims administrators
| | - |  | ---------------------------------



| |  |  | commercial purchasers
| | - |  | ---------------------



| |  |  | other group purchasers of behavioral healthcare services.
| | - |  | ---------------------------------------------------------

Our customer base includes both employers and health plans administering government-sponsored programs for Medicaid, Medicare, CHIP and commercial plans. We provide clinical services primarily by a contracted network
of providers that include:



| |  |  | psychiatrists
| | - |  | -------------



| |  |  | psychologists
| | - |  | -------------



| |  |  | therapists
| | - |  | ----------



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| |  |  | other licensed healthcare professionals
| | - |  | ---------------------------------------



| |  |  | psychiatric hospitals
| | - |  | ---------------------



| |  |  | general medical facilities with psychiatric beds
| | - |  | ------------------------------------------------



| |  |  | residential treatment centers
| | - |  | -----------------------------



| |  |  | other treatment facilities
| | - |  | --------------------------

The
services provided through our provider network include outpatient programs (such as counseling or therapy), intermediate care programs (such as intensive outpatient programs and partial hospitalization services), and inpatient and crises
intervention services. We do not directly provide treatment or own any provider of treatment services.

We typically enter into contracts
with our clients on an annual basis to provide managed behavioral healthcare and substance abuse services to our clients members. Our arrangements with our clients fall into two broad categories:



| |  |  | capitation arrangements, where our clients pay us a fixed fee per member, and
| | - |  | -----------------------------------------------------------------------------



| |  |  | fee-for-service and administrative service arrangements where we manage behavioral healthcare programs or perform various managed care services.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------

Under capitation arrangements, the number of covered members reported by our clients determines the amount of premiums
we receive, which is independent of the cost of services rendered to members. The amount of premiums we receive for each member is fixed at the beginning of the contract term. These premiums may be subsequently adjusted, up or down, generally at the
commencement of each renewal period.

The following table sets forth our operating revenue and covered lives, segregated by category, for
the years ended December 31, 2008 and 2007, the seven months ended December 31, 2006, and for the fiscal year ended May 31, 2006:



|                      |  |                         |            |   |                                    |   |            |                              |  |   |           |   |  |   |            |  
|--------------------- |  | ----------------------- | ---------- | - | ---------------------------------- | - | ---------- | ---------------------------- |  | - | --------- | - |  | - | ---------- | -
|                      |  | Year Ended December 31, |            |   | Seven MonthsEndedDecember 31, 2006 |   |            | Fiscal YearEndedMay 31, 2006 | 
|                      |  | 2008                    |            |   | 2007                               |   |            |                             
|Capitated revenue     |  | $                       | 34,117,000 |   |                                    | $ | 36,295,000 |                              |  | $ | 9,829,000 |   |  | $ | 23,044,000 |  
|% of total revenues   |  |                         | 97.0       | % |                                    |   | 97.0       | %                            |  |   | 95.3      | % |  |   | 96.2       | %
|Member lives          |  |                         | 867,000    |   |                                    |   | 933,000    |                              |  |   | 664,000   |   |  |   | 654,000    |  
|                      |  |                         |            |  
|Non-capitated revenue |  | $                       | 1,039,000  |   |                                    | $ | 1,105,000  |                              |  | $ | 486,000   |   |  | $ | 912,000    |  
|% of total revenues   |  |                         | 3.0        | % |                                    |   | 3.0        | %                            |  |   | 4.7       | % |  |   | 3.8        | %
|Member lives          |  |                         | 92,000     |   |                                    |   | 92,000     |                              |  |   | 99,000    |   |  |   | 86,000     |  

Over the last several years, we have experienced a trend with our clients to contract for services
more on a capitated basis than on a non-capitated basis. However, during 2008 the Company placed more focus on Administrative Services Only (ASO) contracts to obtain a better balance of risk and non-risk clients.

Our largest expense is the cost of behavioral health services that we provide, which is a function of our arrangements with healthcare providers. Since
we are subject to increases in healthcare operating expenses based on an increase in the number and frequency of our members seeking behavioral care services, our profitability depends on our ability to predict and effectively manage healthcare
operating expenses in relation to the fixed premiums we receive under capitation arrangements. Providing services on a capitation basis exposes us to the risk that our contracts may ultimately be unprofitable if we are unable to anticipate or
control healthcare costs. Estimation of healthcare operating expense is our most significant critical accounting estimate. See Managements Discussion and Analysis of Financial Condition and Results of Operations  Critical
Accounting Estimates.

We manage programs through which services are provided to recipients in eight states and Puerto Rico. Our
programs and services include:



| |  |  | fully integrated capitated behavioral healthcare services
| | - |  | ---------------------------------------------------------



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| |  |  | analytic services for medical and pharmacy claims for medical integration of behavioral and medical care coordination
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | specialty programs for care coordination of ASD, ADD, and psychotropic drugs with analytic services for all claims data
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | case management/utilization review services
| | - |  | -------------------------------------------



| |  |  | administrative services management
| | - |  | ----------------------------------



| |  |  | preferred provider network development
| | - |  | --------------------------------------



| |  |  | management and physician advisor reviews
| | - |  | ----------------------------------------



| |  |  | overall care management services
| | - |  | --------------------------------



| |  |  | Employee Assistance Programs, or EAPs.
| | - |  | --------------------------------------

We provide prior and concurrent authorization for physician-prescribed psychotropic medications for a Medicaid health maintenance organization (HMO) in Michigan and a Medicare health plan in Puerto Rico. Members are generally
directed to us by their employer, health plan, or physician and receive an initial authorization for an assessment. Based upon the physicians initial assessment, a treatment plan is established for the member.

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. Our 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.

RECENT DEVELOPMENTS

On January 20, 2009, we entered into an Agreement and Plan of Merger (the Merger ) with Core, a privately held Delaware corporation. The
Merger was accomplished by merging our wholly owned subsidiary, CompCare Acquisition, Inc., with and into Core, with Core continuing as the surviving corporation and becoming a wholly-owned direct subsidiary of CompCare. All 10,294,725 outstanding
shares of Cores Class A Common Stock were exchanged for 10,294,725 shares of CompCare common stock. Each outstanding share of Cores Class B Common Stock was exchanged for newly designated CompCare Series B-1 Convertible Preferred
Stock and Series B-2 Convertible Preferred Stock, which in aggregate are convertible into the equivalent of 11,801,250 common shares. As a result of the Merger, Core stockholders became the holders of 77% of the voting power of the Company. Core has
a national presence in product sourcing and the direct response market. Core markets a variety of health related products, insurance, and discount plans through multiple distribution channels.

On January 20, 2009, Woodcliff Healthcare Investment Partners LLC (Woodcliff), a wholly-owned subsidiary of Hythiam, Inc.
(Hythiam) and our then largest stockholder, entered into a Stock Purchase Agreement with Core and Hythiam, pursuant to which Core purchased all 14,400 shares of Series A Convertible Preferred Stock and all 1,739,130 shares of common
stock of the Company owned by Woodcliff. The Series A Preferred Stock purchased by Core represented 100% of our outstanding shares of Series A Preferred Stock. Prior to the Merger, Core converted all of its Series A Preferred Stock into 4,553,136
shares of common stock of the Company.

On January 14, 2009, stockholders of record as of January 9, 2009 holding 58.2% of our
outstanding voting capital stock took action by written consent approving the amendment and restatement of the Companys Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 30,000,000
shares to 100,000,000 shares and to increase the number of authorized shares of our preferred stock from 60,000 shares to 1,000,000 shares.

On January 1, 2009, we began providing behavioral health services for approximately 173,000 Medicaid recipients under contracts with two affiliated health plans in the states of Michigan and Illinois. The contracts are expected to
generate approximately $1.2 million in annual revenue and are for one-year terms with automatic one-year renewals.

As of December 31,
2008, we ceased providing behavioral health services to 278,000 Medicaid members of our major Indiana client, which had decided to manage its membership through its own provider delivery system. Revenues from this client accounted for $17.8 million,
or 50.6%, and $15.0 million, or 40.2%, of our operating



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revenues for the years ended December 31, 2008 and 2007, respectively. In addition, our contract with a Maryland HMO covering approximately 11,000
Medicare members ended December 31, 2008. This contract accounted for $1.9 million, or 5.3%, and $1.3 million, or 3.6% of our operating revenues for the years ended December 31, 2008 and 2007, respectively.

In the summer of 2008 we formed a majority owned subsidiary, CompCare de Puerto Rico, Inc., with an island based provider delivery system. We began
providing behavioral health services to approximately 9,000 members of a health plan located in Puerto Rico on December 1, 2008. Effective January 1, 2009, we also initiated pharmaceutical management services for the plans members.
Services under the contract are expected to generate approximately $1.0 million of annual revenue. The contract is for a term of three years with automatic one-year renewals.

In October 2008 we were awarded Full Accreditation by the National Committee on Quality Assurance (NCQA). NCQA accreditation attests that we
meet managed behavioral healthcare organization (MBHO) accreditation standards that govern quality improvement, utilization management, provider credentialing, members rights and responsibilities, and preventative care. These
standards confirm that a MBHO maintains minimum quality requirements and seeks to improve the clinical care and services it provides. Full Accreditation is granted for a period of three years to those plans that meet the NCQAs rigorous
standards. We believe our NCQA accreditation is beneficial to our clients and their members we serve. Additionally, NCQA accreditation is required by several of our client contracts and is frequently an important consideration to our prospective
clients.

SOURCES OF REVENUE

We provide managed behavioral healthcare and substance abuse services to recipients, primarily through subcontracts with HMOs, which have historically
outsourced these functions to managed behavioral healthcare organizations like us. 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 that receive a predetermined, fee-for-service rate or case rate. Our behavioral healthcare providers include:



| |  |  | psychiatrists
| | - |  | -------------



| |  |  | psychologists
| | - |  | -------------



| |  |  | therapists
| | - |  | ----------



| |  |  | other licensed healthcare professionals and
| | - |  | -------------------------------------------



| |  |  | hospitals.
| | - |  | ----------

As of December 31,
2008, we had approximately 18,000 behavioral healthcare practitioners in our network who are primarily located in the eight states and Puerto Rico in which we have principal contracts:



| |  |  | Illinois
| | - |  | --------



| |  |  | Indiana
| | - |  | -------



| |  |  | Florida
| | - |  | -------



| |  |  | Michigan
| | - |  | --------



| |  |  | Texas
| | - |  | -----



| |  |  | Georgia
| | - |  | -------



| |  |  | California
| | - |  | ----------



| |  |  | Connecticut and
| | - |  | ---------------



| |  |  | Puerto Rico
| | - |  | -----------

Under such full-risk
capitation arrangements, our profit is a function of utilization and the amount of claims payments made to our network providers. 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.

During the year ended December 31, 2008, we provided services under capitated arrangements for Medicare patients in Connecticut, Maryland, Pennsylvania, and Puerto Rico; commercial patients in Georgia; Medicare, Medicaid, and
commercial patients in Florida and Michigan; Medicaid and commercial patients in Indiana; Medicare and Medicaid patients in California; and Medicare, Medicaid, and CHIP patients in Texas.



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Our Medicare, Medicaid and CHIP contracts are subject to agreements with our HMO clients whose contracts
with the various governmental agencies may be subject to renegotiation at the election of the specific agency.

Over eighty percent of our
operating revenue is currently concentrated, and has been concentrated in past fiscal years, in contracts with four health plans to provide behavioral healthcare services under commercial, Medicare, Medicaid, and CHIP plans. 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, may adversely impact our
financial results.

GROWTH STRATEGY

CBC is a leader in the MBHO field with years of experience serving public program health plans and unique innovative programs addressing ASD, ADD and pharmacy management. The continued consolidation of the behavioral
health care market through the acquisition of MBHOs by health plans offers CBC opportunities and we have become one of the few MBHOs that are not owned by a health plan and thus remain independent to focus on many customers at once.

Our objective is to expand our presence in both existing and new managed behavioral healthcare markets by enhancing our product offerings, adjusting our
client portfolio to better balance our risk-to-ASO ratio and identifying new business development partners. We have identified portions of our market to focus on health plans known as safety net plans, which serve populations that we
believe need many of the services that we provide. We have expanded our specialty management products to include ASD, ADD, and pharmacy management for psychotropic medications. We provide data analytic services for health plan claims and pharmacy
data to effectively integrate plan data so that actionable information can be utilized to address patient care.

We provide our core
product, outsourced behavioral healthcare management, to health plans, government entities, and other entities. In addition, the Medicare market is growing rapidly with new Medicare Advantage Plans being approved by the Centers for Medicare and
Medicaid Services (CMS). Persons over the age of 65 and younger persons who are deemed disabled are eligible to receive Medicare benefits. The shifting demographics of the U.S. population signal increasing Medicare enrollment as the baby
boom generation ages. According to the U.S. government, Medicare expenditures are projected to double over the next decade to a cost of approximately $863 billion in the year 2016. Additionally, the passage of the recent economic stimulus
legislation requires that mental health and substance abuse benefits be paid at the same level as medical benefits. Compliance is mandated by 2010 and is anticipated to generate additional business for MBHOs. Finally, 35 states are in various stages
of legislating mandates, with 11 already having passed legislation, for the case management of Autism. Mental health expertise continues to be critical to successful management of healthcare costs, and of particular importance to managing the care
of populations with specific needs and we are well positioned for the growth in this sector of the market.

Our acquisition of Core will
enable us to expand our product offerings to include Cores health-related products under its Medquip brand name, insurance and discounted health products branded as Core Advantage, and durable health and non-health related goods.
We will utilize traditional and non-traditional distribution channels focused on targeted markets, such as the uninsured, the underinsured, and underserved ethnic groups. We believe the customer base of each company will provide cross-selling
opportunities leading potentially to greater revenue, and the ability of the combined companies to realize synergies that we anticipate will lead to greater profit margins.

PROVIDER NETWORK

Our managed behavioral healthcare services are
provided by contracted providers, including behavioral healthcare professionals and facilities. Our behavioral healthcare professionals include a variety of specialized behavioral healthcare personnel, such as:



| |  |  | psychiatrists
| | - |  | -------------



| |  |  | psychologists
| | - |  | -------------



| |  |  | therapists
| | - |  | ----------



| |  |  | licensed clinical social workers
| | - |  | --------------------------------



| |  |  | substance abuse counselors and
| | - |  | ------------------------------



| |  |  | other licensed healthcare professionals.
| | - |  | ----------------------------------------



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The facilities we provide our services to include:



| |  |  | psychiatric hospitals
| | - |  | ---------------------



| |  |  | general medical facilities with psychiatric beds
| | - |  | ------------------------------------------------



| |  |  | residential treatment facilities
| | - |  | --------------------------------



| |  |  | other treatment facilities.
| | - |  | ---------------------------

Outpatient providers include both individual practitioners, as well as individuals who are members of group practices or other licensed centers or programs. Outpatient providers typically execute contracts with us under which they are
generally paid on a fee-for-service basis.

Our provider network also includes contractual arrangements with intensive outpatient
facilities, partial hospitalization facilities, community health centers, and other community-based facilities. Our contracts with facilities are on a per diem or fee-for-service basis and, in some cases, on a case rate basis, whereby a
fixed amount is paid irrespective of the amount of services provided.

COMPETITION

The behavioral healthcare industry is very competitive and provides products and services that are price sensitive. We believe that there are
approximately 150 MBHOs providing services for an estimated 227 million covered lives in the United States. Competitors include both freestanding MBHOs as well as HMOs and insurers with internal behavioral health units or subsidiaries. Many of
these competitors have revenues, financial resources, and membership substantially larger than ours. The extent of competition results in significant pricing pressures which limits our revenue growth. Accordingly, we expect our future growth to come
mainly from additional contracts in different segments.

SEASONALITY OF BUSINESS

Historically, we have experienced increased member utilization during the months of March, April and May and consistently low utilization by members
during the months of June, July, and August. Such variations in member utilization impact our costs of care during these months, generally having a positive impact on our gross margins and operating profits during the June through August period and
a negative impact on our gross margins and operating profits during the months of March through May.

GOVERNMENT
REGULATION

We are 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 our profitability. 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 between states. As a result, we 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. We hold licenses or certificates to perform utilization review and/or third party administrator (TPA) services in:



| |  |  | Connecticut
| | - |  | -----------



| |  |  | Florida
| | - |  | -------



| |  |  | Georgia
| | - |  | -------



| |  |  | Illinois
| | - |  | --------



| |  |  | Indiana
| | - |  | -------



| |  |  | Maryland
| | - |  | --------



| |  |  | Michigan
| | - |  | --------



| |  |  | Pennsylvania
| | - |  | ------------



| |  |  | Texas.
| | - |  | ------

Some 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



8



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will not be required or, if required, that we will qualify to obtain or renew such licenses. In many states, entities that assume risk under contract with
licensed insurance companies or health plans that 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 change, our business could be materially affected until such time as we meet the regulatory requirements. 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.

As of January 1, 2009, we managed approximately 805,000 lives in connection with behavioral and substance abuse services covered through Medicare,
Medicaid and CHIP programs in Texas; Medicare and Medicaid in Florida, California, and Michigan; and Medicare in Connecticut and Puerto Rico. Any changes in Medicare, Medicaid or CHIP funding would ultimately affect our reimbursement and overall
profitability.

We are subject to the requirements of the Health Insurance Portability and Accountability Act of 1996, or HIPAA. One of the
purposes of 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, also, to protect the security and privacy
of protected health information. Entities subject to HIPAA include some healthcare providers and all healthcare plans.

ACCREDITATION

The National Committee on Quality Assurance provides information about the quality of national managed care plans to enable consumers
to evaluate health plan performance. To develop standards that effectively evaluate the structure and function of medical and quality management systems in managed care organizations, 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 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 the 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.

In October 2008, we were awarded Full Accreditation by NCQA extending through September of 2011. Full Accreditation is
granted for a period of three years to those plans that have, according to the NCQA, 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 is required by several of our
client contracts and is frequently an important consideration to our prospective clients.

MANAGEMENT INFORMATION
SYSTEMS

All of our health plans information technology and systems operate on a single platform. This approach avoids
the costs associated with maintaining multiple systems and improves productivity. The open architecture of the systems gives us the ability to transfer data from other systems thereby facilitating the integration of new health plan business. We use
our information system for claims processing, utilization management, reporting, cost trending, planning, and analysis. The system also supports member and provider service functions, including:



| |  |  | enrollment
| | - |  | ----------



| |  |  | member eligibility verification
| | - |  | -------------------------------



| |  |  | provider rosters
| | - |  | ----------------



| |  |  | claims status inquiries
| | - |  | -----------------------



| |  |  | referrals and authorizations.
| | - |  | -----------------------------

We
have implemented significant enhancements to our existing healthcare information system with recently made available technology from our current vendor to best meet our future information system needs and



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comply with all HIPAA requirements. These enhancements include advanced software to facilitate patient case management and provide our
healthcare providers with self-serve capabilities through the Internet. We expect all parties involved to benefit from the efficiencies of our improved information systems.

MARKETING AND SALES

Our marketing and sales efforts are
led by our Chief Executive Officer and Senior Vice President of Business Development. In addition, we utilize consultants for direct sales to commercial, Medicaid, and Medicare prospective clients. We will continue to dedicate resources to expand
our sales staff and marketing efforts as necessary.

CompCares sales strategy focuses on matching our solutions to the needs
identified by our potential clients. Examples of developing customer solutions include our ASD, ADD, and pharmacy analytics programs that offer unique solutions for our customers. Sales are highly technical and complex, involving many stakeholders
within an organization. The sales cycle is typically 12 to18 months. Sales leads may be generated by our business development staff, our operations staff, consultants, cold calls, prior business relationships, or recommendations from existing
clients. We attend trade shows within geographic areas in which we conduct business and reach out to contacts known to us, our consultants, and our investors. Proposals in response to RFPs from prospective commercial and public sector clients are
prepared by our sales staff and presented by our Chief Executive Officer and Senior Vice President of Business Development. In addition, we maintain permanent marketing outreach through our website, www.compcare.com.

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 also performed in our Texas office and by employees located in Michigan and Indiana. As of December 31, 2008, we employed 64 full-time and 10
part-time employees.

AVAILABLE INFORMATION

Our stockholder website is www.compcare-shareholders.com. We make available free of charge, through a link to the 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. Information contained on our website or linked through our website
is not part of this report on Form 10-K. The public may read and copy any materials we file with the SEC at the SECs Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC,
which can be found at http://www.sec.gov.

CODE OF ETHICS

We have adopted a code of ethics applicable to all of our employees, including our principal executive officer, principal financial officer, principal
accounting officer and persons performing similar functions. The text of this code of ethics can be found on our website at www.compcare-shareholders.com. We intend to post notice of any waiver from, or amendment to, any provision of our code of
ethics on our website.



|ITEM1A. | RISK FACTORS
|------- | ------------

You should carefully consider and evaluate all of the
information in this report, including the risk factors listed below. Risks and uncertainties in addition to those we describe below, that may not be presently known to us, or that we currently believe are immaterial, may also harm our business and
operations. If any of these risks occur, our business, results of operations and financial condition could be harmed, the price of our common stock could decline, and future events and circumstances could differ significantly from those anticipated
in the forward-looking statements contained in this report.



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Risks related to our business

We may not be able to successfully implement our modified business strategy.

Our merger with Core in January 2009
will result in the addition of a variety of health related products to our currently offered managed behavioral healthcare services. We may not be successful in implementing a sales plan to effectively market the new products or the products may not
generate the level of customer interest, and thus revenue and profit margins, that were anticipated at the time of the merger.



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We may not be able to accurately predict utilization of our full-risk contracts, which could result in contracts
priced at levels insufficient to ensure profitability.

Managed care operations are at risk for costs incurred to provide agreed upon levels of service.
Failure to anticipate or control costs could have material, adverse effects on our business. A very large percentage of our services are provided on a full-risk capitation basis, which exposes us to significant risk that contracts negotiated and
entered into may ultimately be unprofitable if utilization levels require us to provide services at a cost in excess of the capitation rates we receive for the services.

Because providers are responsible for claims submission, the timing of which is uncertain, we must estimate the amount of claims incurred but not reported, and actual results may differ materially.

Our costs of care include estimated amounts for claims incurred but not reported, referred to as 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. Our estimates of
IBNR may be inadequate in the future, which would negatively affect results of operations. 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.

We may be subject to fines and penalties being assessed to us by our clients.

Many of our contracts contain provisions stating that if our clients are assessed penalties or fines by a regulatory agency due to our noncompliance with a contractual
requirement, we will be responsible for paying the assessed fine or penalty. Though to date, no material fines have been assessed under such provisions, any future fines would have a negative impact on our results of operations.

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 plan customers 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. Although our computer and
communications hardware is protected by physical and software safeguards, it is still vulnerable to computer viruses, fire, storm, flood, power loss, telecommunications failures, physical or software break-ins, and similar events. We do not have
100% redundancy for all of our computer and telecommunications facilities. A catastrophic event could have a significant negative effect on our business, results of operations, and financial condition.

We also depend on a third-party provider of application services for our core business application. Any sustained disruption in their services to us would have a
material effect on our business.

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.

We are continually pursuing new business. Many of our competitors are significantly
larger and better capitalized than us, and 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 successfully compete in our industry. Our major competitors include Magellan Health Services, United Behavioral Health, ValueOptions, and APS Healthcare.

We will require additional funding, and we cannot guarantee that we will find adequate sources of capital in the future or that we will be able to continue as a going
concern.

We cannot assure you that our existing cash and cash equivalents will be sufficient to fund our business. We expect to obtain these funds from
operating activities and financing activities that may include equity or debt financings, which could dilute stockholder ownership. We cannot provide assurance that additional funding will be available on acceptable terms, if at all.

Failure to achieve profitable operations and positive cash flows from operations during 2009 would adversely affect our ability to achieve our business objectives and
may require us to raise additional funds that may include equity or debt financing. There can be no assurance as to the availability of needed funding and, if available, that the source of funds would be available on terms and conditions acceptable
to us. The inability or failure to raise funds before our available cash is depleted will have a material adverse effect on our business and may raise doubt as to our ability to continue as a going concern.



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Our ability to utilize net operating loss carryforwards may be limited.

As of December 31, 2008, we had net operating loss carryforwards, or NOLs, of approximately $12.8 million for federal income tax purposes that will begin to expire
in 2022. These NOLs may be used to offset future taxable income, to the extent we generate any taxable income, and thereby reduce or eliminate our future federal income taxes otherwise payable. Section 382 of the Internal Revenue Code imposes
limitations on a corporations ability to utilize NOLs if it experiences an ownership change as defined in Section 382. In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in
the stock of a corporation by more than 50 percent over a three-year period. In the event that an ownership change has occurred, or were to occur, utilization of our NOLs would be subject to an annual limitation under Section 382 determined by
multiplying the value of our stock at the time of the ownership change by the applicable long-term tax-exempt rate as defined in the Internal Revenue Code. Any unused annual limitation may be carried over to later years. If so, the use of our NOLs,
or a portion thereof, against our future taxable income may be subject to an annual limitation under Section 382, which may result in expiration of a portion of our NOLs before utilization.

We underwent such ownership changes in June 2005, January 2007, and January 2009. Any future ownership changes can impose the application of another
Section 382 limitation on our federal NOLs and can reduce the amount of NOLs we can utilize in a year if the market value of our stock were to decline significantly prior to an ownership change. Such an event may have an adverse impact on our
anticipated future cash flow.

Our sales cycle is long, which complicates our ability to predict our growth.

The sales and implementation process for our services is lengthy and requires our potential clients to commit time and other resources. Our sales cycle is unpredictable
and has generally ranged from 12 to 18 months from our initial contact to an executed contract. Accordingly, it may be difficult to replace lost business quickly.

We are dependent on a limited number of customers, and a loss or reduction in business of any one could have a material adverse effect on our working capital and results of operations.

For the year ended December 31, 2008, we provided behavioral healthcare services to the members of four health plans under contracts that on a combined basis
represented approximately 88% percent of our operating revenue. The loss of one or more of these clients, unless replaced by new business, would negatively affect our financial condition. During 2008, we experienced the loss of our Pennsylvania,
Maryland, and Indiana major customers, which on a combined basis provided 68% of our operating revenue for fiscal 2008. As a result, we may experience lower operating margins and profitability. 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 by giving the requisite written notice.

We
may be unsuccessful in obtaining performance bonds or other security that is required by our existing or future clients, and consequently may lose clients.

Some of our clients may require us to maintain performance bonds, restricted cash accounts, or other security with respect to our obligations to pay IBNR claims and claims not yet processed and paid. Due to current market conditions, we may
be unable to provide the security required by our client. This could result in the loss of a client or clients which would negatively affect our financial condition.

We are dependent on our provider network to provide services to our members.

We contract with providers as a means
to assure access to behavioral health services for our members. Some providers could refuse to contract with us, demand higher payments, or take other actions which could result in higher healthcare operating expenses. In addition, certain providers
may have significant market position, which could cause disruption to provider access in a particular geographic area for our members and affect our contractual requirements with our customers of maintaining an adequate network.

Claims brought against us may exceed our insurance coverage.

We
maintain a program of insurance coverage against a broad range of risks related to our business. As part of this program of insurance, we are subject to certain deductibles and self-insured retentions. Our insurance may not be sufficient to cover
all judgments, settlements, or costs relating to future claims, suits or complaints. Upon expiration of our insurance policies, sufficient insurance may not be available on favorable terms, if at all. If we are unable to secure adequate insurance in
the future, this may have a material adverse effect on our profitability and financial condition.



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The Company may be unable to attract and retain qualified personnel.

The Companys business is largely dependent on the skills, experience and performance of key members of the Companys senior management team. The Company plans
to increase its sales and marketing personnel, as well as enter into agreements with independent third-parties to sell products and services in order to grow revenue. The Company believes that its success depends largely on its ability to attract
and retain highly skilled and qualified technical, managerial, and marketing personnel. The market for highly skilled sales, marketing and support personnel is highly competitive as a result of the limited availability of technically qualified
personnel with the requisite understanding of the markets which the Company serves. The inability to hire or retain qualified personnel may hinder the Companys ability to implement its business strategy and may harm its business.

The Companys cash deposits exceed FDIC insured amounts.

The
Company regularly maintains cash balances that exceed amounts covered FDIC. As of December 31, 2008, the Company had approximately $1.1 million in banking accounts. Should our bank cease operations, it would cause a significant disruption to
the Companys cash flow. The Company has recently opened new bank accounts at other banking institutions and began to spread its cash reserves in order to minimize any potential impact of a bank failure.

Our growth could strain our personnel and infrastructure resources, and if we are unable to implement appropriate controls and procedures to manage our growth, we may
not be able to successfully implement our business plan.

Our expected growth in our operations will place a significant strain on our management,
administrative, operational, and financial infrastructure. Our future success will depend in part upon the ability of our management to manage growth effectively. This may require us to hire and train additional personnel to manage our expanding
operations. In addition, we will be required to continue to improve our operational, financial and management controls and our reporting systems and procedures. If we fail to successfully manage our growth, we may be unable to execute upon our
business plan and our business and operations may be adversely impacted.

Risks related to our industry

Adverse conditions in the global economy could negatively affect our revenues and sources of liquidity.

The financial markets have been experiencing extreme disruption, including severely diminished liquidity and availability of credit, which could adversely affect our
ability to raise additional capital. State and federal budgets could be adversely affected resulting in reduced payments to our clients for health care coverage programs, including Medicare, Medicaid, and CHIP, which in turn could result in lower
revenues being paid to us and adversely affecting our results of operations.

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 HMOs that 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 decide to manage the behavioral
healthcare benefits in-house and, as a result, discontinue contracting with us. Additionally, our clients may be acquired by larger HMOs, in which case there can be no assurance that the acquiring company would renew our contract. The
non-renewal of one or more contracts could adversely impact our business.

Many managed care companies, including nine of our existing clients, provide
services to groups covered by Medicare, Medicaid and/or CHIP programs. Such federal and state controlled programs are susceptible to annual changes in reimbursement rates and eligibility requirements that could ultimately affect companies such as
CompCare.

As of January 1, 2009, we managed approximately 805,000 lives in connection with behavioral and substance abuse services covered through
Medicare, Medicaid and CHIP programs in Texas; Medicare and Medicaid in Florida, California and Michigan; and Medicare in Connecticut and Puerto Rico. Any changes in Medicare, Medicaid, and/or CHIP reimbursement could ultimately affect us through
contract bidding and cost structures with the health plans first impacted by such changes. If we are unable to adapt to the differing needs of our Medicare members and the Medicare regulations, we may be unsuccessful in managing this line of
business.

Temporary reductions in state funding have previously had a negative impact on us, and if implemented in the future, could have a material,
adverse impact on our operations. In addition, states in which we operate may pass legislation that would reduce our revenue or increase our claims expense through changes in the reimbursement



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rates, changes in the benefit covered, or in the number of eligible participants. We may be unable to reduce our costs to a level that would allow us to
maintain current gross margins specific to our Medicare, Medicaid and CHIP programs.

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 to gain new customers.

We are required to hold licenses or certificates to perform utilization review and/or TPA services in Connecticut, Florida, Georgia, Indiana, Illinois, Maryland,
Michigan, Pennsylvania, and Texas. Additional utilization review or TPA licenses may be required in the future, and we may not qualify to obtain new licenses or renew existing 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, if at all. Additionally, some states may decide 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.

Healthcare reform can significantly reduce our revenues and profitability.

The U.S. Congress and certain state
legislatures are considering legislation that, among other things, could limit funding to our clients. We cannot predict the effect of this legislation or other legislation that may be adopted by Congress or by the states. Such legislation, if
implemented, could have a material, adverse effect on us.

We are subject to federal statutes prohibiting false claims.

The Federal False Claims Act imposes civil penalties for knowingly making or causing to be made false claims with respect to governmental programs, such as Medicare and
Medicaid, for services not rendered, or for misrepresenting actual services rendered, in order to obtain higher reimbursement. While we do not directly provide services to beneficiaries of federally funded health programs and, accordingly, do not
submit claims to the federal government, we do provide services to health plans that could become involved with false claims, which could include allegations against us as well.

Failure to adequately comply with HIPAA may result in penalties and loss of revenues.

We are subject to the
requirements of HIPAA. The purpose of 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. We have implemented policies and practices to achieve compliance with HIPAA, and believe we are fully compliant with all HIPAA regulations. However, any lack of compliance with HIPAA regulations
may result in penalties and have a material adverse effect on our ability to retain our customers or to gain new business.

The managed care industry is
subject to class action lawsuits and claims for professional liability that could increase our expenditures and have an adverse effect on our profitability and financial condition.

In recent years the managed care industry has been subject to a greater number of lawsuits and claims of professional liability alleging negligence in performing utilization review and other managed care activities
and in the denial of payment for services. Such incidents may result in professional negligence or other claims against us causing us to incur fees and expend substantial resources in defense of such actions. Although we maintain professional
liability insurance, there can be no assurance that future claims will not have a material effect on our profitability and financial position.

Risks related to our common and preferred stock

Our Series B-1 and Series B-2 Convertible Preferred shareholders have significant
rights and preferences over the holders of our common stock.

The Core shareholders who received our Series B-1 and Series B-2 Convertible Preferred
Stock as a result of our merger with Core on January 20, 2009 are entitled to receive dividends when declared by our Board of Directors. The payment of these dividends will take priority over any payment of dividends on our common stock. The
holders of our Series B-1 and Series B-2 Convertible Preferred Stock will also have a claim against our assets senior to the claim of the holders of our common stock in the event of our liquidation, dissolution or winding-up. In addition, each
Series is entitled to vote together with the holders of our common stock on an as converted basis.



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The holders of Series B-1 Convertible Preferred stock are entitled to convert into a designated number of shares of
Series C Preferred Stock upon the filing of a Certificate of Designation and satisfaction of other conversion conditions. The holders of the Series C Preferred Stock, when outstanding, will have a claim against our assets senior to the claim of our
common stock and the Series B-2 Convertible Preferred Stock. The aggregate amount of that senior claim will be approximately $3,600,000, which will increase thereafter if such preferred stock accrues dividends or if we issue additional shares of
such preferred stock. The Series B-2 Convertible Preferred Stock is entitled to convert into common shares at a predetermined ratio after satisfaction of certain conversion conditions.

The holders of our Series B-1Convertible Preferred Stock have other rights and preferences, including the following:



| |  |  | to convert its preferred stock into an increased number of shares of common stock as a result of antidilution adjustments;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | to designate representatives to appoint a majority of our Board of Directors;
| | - |  | -----------------------------------------------------------------------------



| |  |  | to prevent the creation and issuance of capital stock with rights equal to or superior to those of the Series B-1 Preferred Convertible Stock;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | prior consent for a sale or merger including a material portion of our assets or business; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | prior consent before entering into any single or series of related transactions exceeding $5,000,000 or incurring any debt in excess of $5,000,000.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

These rights and preferences could adversely affect our ability to finance future operations, satisfy capital needs or engage in other
business activities that may be in our interest.

The price of our common stock may be adversely affected by our small public capitalization.

The size of our public market capitalization is relatively small, and the volume of our shares that are traded is low. These factors could cause
significant fluctuation in the trading of our stock, which may adversely affect the price of our common stock.

We may experience fluctuations in our
quarterly operating results, which would cause our stock price to decline.

Our quarterly operating results have varied in the past and may fluctuate
significantly in the future due to seasonal changes in utilization levels, changes in estimates regarding IBNR claims, the timing of implementation of new contracts, and enrollment changes. These factors may affect our quarterly and annual net
revenue, expenses, and profitability in the future, and consequently we may fail to meet market expectations, causing our stock price to decline.

Shares reserved for future issuance upon the conversion of our preferred stock, subordinated debentures, options, warrants, and a convertible promissory note will cause dilution to our common stockholders.

As of December 31, 2008, 4,553,136 shares of our common stock were reserved for Series A Convertible Preferred Stock, 1,153,500 shares for outstanding options and
warrants, 800,000 shares for a convertible promissory note, and 15,873 shares for our subordinated debenture. On January 20, 2009, the Series A Preferred Stock was converted to common stock, and Series B-1 and B-2 Convertible Preferred Stock
were issued. Upon the satisfaction of certain conversion conditions, the Series B-1 Convertible Preferred Stock will have the ability to convert into Series C Preferred Stock, which will have the option to convert into 4,554,379 shares of common
stock. The Series B-2 Convertible Preferred Stock is convertible into 7,246,871 shares of common stock once similar conversion conditions have been met. Our stockholders would experience further dilution of their investment upon conversion or
exercise of these securities.

Errors in estimates may have a significant negative impact on our financial condition and results of operations.

Assumptions relating to certain business, accounting and financial estimates 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



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may in turn affect our 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 us or any other person that our objectives or plans will be achieved.

We incur costs as a
result of being a publicly-traded company.

As a publicly-traded company, we incur legal, accounting, and other expenses, including costs associated
with the periodic reporting requirements applicable to a company whose securities are registered under the Securities Exchange Act of 1934, as amended (the Exchange Act), recently adopted corporate governance requirements, including requirements
under the Sarbanes-Oxley Act of 2002, and other rules implemented relatively recently by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

The Company may raise additional funds in the future through issuances of securities and such additional funding may be dilutive to stockholders or impose operational
restrictions.

We may raise additional capital in the future to help fund acquisitions and our operations through sales of shares of our common stock or
securities convertible into shares of our common stock, as well as issuances of debt. Such additional financing may be dilutive to our stockholders, and debt financing, if available, may involve restrictive covenants which may limit our operating
flexibility. If additional capital is raised through the issuances of shares of our common stock or securities convertible into shares of our common stock, the percentage ownership of existing stockholders will be reduced. These stockholders may
experience additional dilution in net book value per share and any additional equity securities may have rights, preferences and privileges senior to those of the holders of our common stock.

We are not subject to certain of the corporate governance provisions of the Sarbanes-Oxley Act of 2002 and, without voluntary compliance with such provisions, neither
you nor the Company will receive the benefits and protections they were enacted to provide.

Since our common stock is not listed for trading on a
national securities exchange, we are not subject to certain of the corporate governance rules established by the national securities exchanges pursuant to the Sarbanes-Oxley Act of 2002. These rules relate to independent director standards, director
nomination procedures, audit and compensation committees standards, the use of an audit committee financial expert and the adoption of a code of ethics.

While we intend to file an application to have our securities listed for trading on a national securities exchange in the future that would require us to fully comply with those obligations, we cannot assure you that we will file such an
application, that we will be able to satisfy applicable listing standards, or, if we do satisfy such standards, that we will be successful in receiving approval of our application by the governing body of the applicable national securities exchange.

Applicable SEC rules governing the trading of penny stocks may limit the trading and liquidity of our common stock which may affect the
trading price of our common stock.

Our common stock is a penny stock as defined under Rule 3a51-1 of the Exchange Act and is accordingly
subject to SEC rules and regulations that impose limitations upon the manner in which our common stock may be publicly traded. These regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability
determination regarding such a purchaser and receive such purchasers written agreement to a transaction prior to sale. These regulations may have the effect of limiting the trading activity of our common stock and reducing the liquidity of an
investment in our common stock.

Our common share price may subject us to securities litigation.

The market for our common stock is characterized by significant price volatility when compared to other issuers, and we expect that our share price will continue to be
volatile for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of
similar litigation. Securities litigation could result in substantial costs and liabilities and could divert managements attention and resources.

Our stock price may be volatile, which may result in losses to our shareholders.

The
stock markets have experienced significant price and trading volume fluctuations, and the market prices of companies listed on the OTC Bulletin Board® (OTCBB) have been volatile in the past
and have experienced share price and trading volume changes. The trading price of our common stock is likely to be volatile and could fluctuate widely in response to many of the following factors, some of which are beyond our control:



| |  |  | variations in our operating results
| | - |  | -----------------------------------



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| |  |  | changes in expectations of our future financial performance, including financial estimates by securities analysts and investors
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in operating and stock price performance of other companies in our industry
| | - |  | -----------------------------------------------------------------------------------



| |  |  | additions or departures of key personnel
| | - |  | ----------------------------------------



| |  |  | future sales of our common stock.
| | - |  | ---------------------------------

Domestic and
international stock markets often experience significant price and volume fluctuations. These fluctuations, as well as general economic and political conditions unrelated to our performance, may adversely affect the price of our common stock.



|ITEM2. | PROPERTIES
|------ | ----------

We do not own any real property. We
lease our corporate office and Texas office. The following table sets forth certain information regarding our leased properties as of December 31, 2008. The Texas lease is a full service lease under which we bear only those costs of operations
and property taxes exceeding the base-year expenses. The Florida lease monthly base rent covers all services and property taxes. We believe our current office space is suitable and adequate to meet our existing needs and that additional facilities
will be available for lease to meet our future needs. Our Indiana office, which was not subject to a written lease agreement, was closed in December 2008.



|                                                                    |  |              |  |                              |       
|------------------------------------------------------------------- |  | ------------ |  | ---------------------------- | ------
|Name and Location                                                   |  | LeaseExpires |  | Monthly BaseRent(in Dollars)
|Corporate Headquarters, Regional, Administrative, and Other Offices |  |              |  |                              |       
|Tampa, Florida, Corporate Headquarters                              |  | 2010         |  | $                            | 35,437
|Grand Prairie, Texas                                                |  | 2010         |  |                              | 3,086 



|ITEM3. | LEGAL PROCEEDINGS
|------ | -----------------

We and nine current and former
board members were named as defendants in two class action lawsuits filed by two shareholders on January 23, 2007 and February 1, 2007, respectively, regarding a proposed merger between CompCare and Hythiam. On May 25, 2007, we
mutually terminated the Agreement and Plan of Merger. The lawsuits were subsequently dismissed as moot, but requests for attorney fees by plaintiffs remained pending. On June 19, 2008, the Chancery Court awarded $325,000 in fees and expenses to
plaintiffs counsel. The award was paid in January 2009 from funds provided by a claim against our directors and officers insurance policy.



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PART II



|ITEM5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------ | ------------------------------------------------------------------------------------------------------------



| | (a) | Market Information - Our common stock is traded on the OTCBB under the symbol CHCR. The following table sets forth the range of high and low bid quotations for the common
stock, as reported by the OTCBB, for the fiscal quarters indicated. The market quotations reflect inter-dealer prices without retail mark-up, mark-down or commissions and may not represent actual transactions.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                       |  |                |  |       |      |     |     
|-------------------------------------- |  | -------------- |  | ----- | ---- | --- | ----
|                                       |  |                |  | Price
|                                       |  |                |  | HIGH  |      | LOW
|Year 2008                              |  | FIRST QUARTER  |  | $     | 0.70 |     | 0.45
|(January 1, 2008 to December 31, 2008) |  | SECOND QUARTER |  |       | 0.59 |     | 0.30
|                                       |  | THIRD QUARTER  |  |       | 0.47 |     | 0.25
|                                       |  | FOURTH QUARTER |  |       | 0.51 |     | 0.15
|                                       |  |                | 
|Year 2007                              |  | FIRST QUARTER  |  | $     | 2.00 |     | 0.79
|(January 1, 2007 to December 31, 2007) |  | SECOND QUARTER |  |       | 1.20 |     | 0.70
|                                       |  | THIRD QUARTER  |  |       | 1.30 |     | 0.88
|                                       |  | FOURTH QUARTER |  |       | 1.00 |     | 0.46
|                                       |  |                | 
|Transition Period                      |  | FIRST QUARTER  |  | $     | 2.45 |     | 1.73
|(June 1, 2006 to December 31, 2006)    |  | SECOND QUARTER |  |       | 2.25 |     | 1.80
|                                       |  | DECEMBER       |  |       | 2.05 |     | 1.80



| | (b) | Holders - As of March 23, 2009, we had 1,116 holders of record of our common stock.
| | --- | -----------------------------------------------------------------------------------



| | (c) | Dividends - We did not pay any cash dividends on our common stock during the years ended December 31, 2008 and 2007, the seven months ended December 31, 2006 or
during the 2006 fiscal year and do not contemplate the initiation of payment of any cash dividends in the foreseeable future. The holders of record of our newly issued Series B-1 and Series B-2 Convertible Preferred Stock are entitled to
receive dividends in preference to the holders of our common stock and any of our equity securities ranking junior to our Series B-1 and Series B-2 Convertible Preferred Stock, when and if declared by our Board. If declared, holders of our Series
B-1 and Series B-2 Convertible Preferred Stock will receive dividends in an amount equal to the amount that would have been payable had the Series B-1 and B-2 Convertible Preferred Stock been converted into shares of our common stock immediately
prior to the declaration of such dividend. No dividends shall be authorized, declared, paid or set apart for payment on any class or series of the Companys stock ranking, as to dividends, on a parity with or junior to the Series B-1
Convertible Preferred Stock for any period unless full cumulative dividends have been, or contemporaneously are, authorized, declared, paid or set apart in trust for such payment on the Series B-1 Convertible Preferred Stock. In addition, as
long as a majority of the 1,675 shares of our Series B-1 Convertible Preferred Stock are outstanding, we cannot declare or pay any dividend or other distribution with respect to any equity securities without the affirmative vote of holders of at
least 50% of the outstanding shares of Series B-1 Convertible Preferred Stock.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | The equity compensation plan information contained in Item 12 of Part III of this Annual Report is incorporated herein by reference.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------



| | (e) | Performance Graph - Not applicable. This annual report on Form 10-K does not precede or accompany a proxy or information statement relating to an annual meeting of security
holders at which directors are to be elected (or special meeting or written consents in lieu of such meeting).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.



19



---

##### Table of Contents

|ITEM6. | SELECTED FINANCIAL DATA
|------ | -----------------------

Prior to fiscal 1993, we
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.

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.



|                                                                            |  |                                               |        |   |                        |   |        |                               |  |   |                           |   |  |      |        |   |      |   |        |   |  |   |        |  
|--------------------------------------------------------------------------- |  | --------------------------------------------- | ------ | - | ---------------------- | - | ------ | ----------------------------- |  | - | ------------------------- | - |  | ---- | ------ | - | ---- | - | ------ | - |  | - | ------ | -
|                                                                            |  | Year EndedDecember 31,                        |        |   | Year EndedDecember 31, |   |        | Seven MonthsEndedDecember 31, |  |   | Fiscal Year Ended May 31, |  
|CONSOLIDATED STATEMENTS OF OPERATIONS DATA:                                 |  | 2008                                          |        |   | 2007                   |   |        | 2006                          |  |   | 2006                      |   |  | 2005 |        |   | 2004 |  
|                                                                            |  | (Amounts in thousands, except per share data) |       
|Operating revenues                                                          |  | $                                             | 35,156 |   |                        | $ | 37,400 |                               |  | $ | 10,315                    |   |  | $    | 23,956 |   |      | $ | 24,473 |   |  | $ | 27,583 |  
|Costs and expenses:                                                         |  |                                               |        |   |                        |   |        |                               |  |   |                           |   |  |      |        |   |      |   |        |   |  |   |        |  
|Healthcare operating expenses                                               |  |                                               | 36,496 |   |                        |   | 36,790 |                               |  |   | 9,713                     |   |  |      | 20,562 |   |      |   | 21,298 |   |  |   | 24,178 |  
|General and administrative expenses                                         |  |                                               | 3,742  |   |                        |   | 4,032  |                               |  |   | 1,767                     |   |  |      | 3,316  |   |      |   | 3,078  |   |  |   | 3,385  |  
|(Recovery of) provision for doubtful accounts                               |  |                                               | (49    | ) |                        |   | (4     | )                             |  |   | (136                      | ) |  |      | (88    | ) |      |   | (4     | ) |  |   | (7     | )
|Depreciation and amortization                                               |  |                                               | 153    |   |                        |   | 154    |                               |  |   | 62                        |   |  |      | 87     |   |      |   | 96     |   |  |   | 107    |  
|                                                                            |  |                                               |        |   |                        |   |        |                               |  |   |                           |   |  |      |        |   |      |   |        |   |  |   |        |  
|                                                                            |  |                                               | 40,342 |   |                        |   | 40,972 |                               |  |   | 11,406                    |   |  |      | 23,877 |   |      |   | 24,468 |   |  |   | 27,663 |  
|                                                                            |  |                                               |        |   |                        |   |        |                               |  |   |                           |   |  |      |        |   |      |   |        |   |  |   |        |  
|Operating (loss) income from continuing operations before items shown below |  |                                               | (5,186 | ) |                        |   | (3,572 | )                             |  |   | (1,091                    | ) |  |      | 79     |   |      |   | 5      |   |  |   | (80    | )
|Other income (expenses):                                                    |  |                                               |        |   |                        |   |        |                               |  |   |                           |   |  |      |        |   |      |   |        |   |  |   |        |  
|Loss in connection with prepayment of note receivable                       |  |                                               |       |   |                        |   |       |                               |  |   |                          |   |  |      |       |   |      |   |       |   |  |   | (20    | )
|Loss from software development                                              |  |                                               |       |   |                        |   |       |                               |  |   |                          |   |  |      | (123   | ) |      |   |       |   |  |   |       |  
|Loss on impairment of investment                                            |  |                                               |       |   |                        |   |       |                               |  |   |                          |   |  |      | (17    | ) |      |   | (118   | ) |  |   |       |  
|Gain from sale of available-for-sale securities                             |  |                                               |       |   |                        |   | 29     |                               |  |   |                          |   |  |      |       |   |      |   |       |   |  |   |       |  
|Gain from property insurance claim                                          |  |                                               |       |   |                        |   |       |                               |  |   | 17                        |   |  |      |       |   |      |   |       |   |  |   |       |  
|Gain on sale of assets                                                      |  |                                               |       |   |                        |   | 3      |                               |  |   | 2                         |   |  |      |       |   |      |   |       |   |  |   |       |  
|Loss on sale/disposal of assets                                             |  |                                               | (9     | ) |                        |   |       |                               |  |   |                          |   |  |      |       |   |      |   |       |   |  |   |       |  
|Other non operating income, net                                             |  |                                               | 14     |   |                        |   | 192    |                               |  |   | 254                       |   |  |      | 66     |   |      |   | 88     |   |  |   | 1      |  
|Interest income                                                             |  |                                               | 26     |   |                        |   | 147    |                               |  |   | 58                        |   |  |      | 78     |   |      |   | 15     |   |  |   | 26     |  
|Interest expense                                                            |  |                                               | (192   | ) |                        |   | (190   | )                             |  |   | (113                      | ) |  |      | (186   | ) |      |   | (206   | ) |  |   | (215   | )
|                                                                            |  |                                               |        |   |                        |   |        |                               |  |   |                           |   |  |      |        |   |      |   |        |   |  |   |        |  
|Loss from continuing operations before income taxes                         |  |                                               | (5,347 | ) |                        |   | (3,391 | )                             |  |   | (873                      | ) |  |      | (103   | ) |      |   | (216   | ) |  |   | (288   | )
|Income tax expense                                                          |  |                                               | 5      |   |                        |   | 72     |                               |  |   | 43                        |   |  |      | 78     |   |      |   | 52     |   |  |   | 102    |  
|                                                                            |  |                                               |        |   |                        |   |        |                               |  |   |                           |   |  |      |        |   |      |   |        |   |  |   |        |  
|Loss from continuing operations                                             |  |                                               | (5,352 | ) |                        |   | (3,463 | )                             |  |   | (916                      | ) |  |      | (181   | ) |      |   | (268   | ) |  |   | (390   | )
|Loss from discontinued operations                                           |  |                                               |       |   |                        |   |       |                               |  |   | (20                       | ) |  |      |       |   |      |   |       |   |  |   | (387   | )
|                                                                            |  |                                               |        |   |                        |   |        |                               |  |   |                           |   |  |      |        |   |      |   |        |   |  |   |        |  
|Net loss attributable to common stockholders                                |  | $                                             | (5,352 | ) |                        | $ | (3,463 | )                             |  | $ | (936                      | ) |  | $    | (181   | ) |      | $ | (268   | ) |  | $ | (777   | )
|                                                                            |  |                                               |        |   |                        |   |        |                               |  |   |                           |   |  |      |        |   |      |   |        |   |  |   |        |  
|Loss per common share - basic:                                              |  |                                               |        |   |                        |   |        |                               |  |   |                           |   |  |      |        |   |      |   |        |   |  |   |        |  
|Loss from continuing operations                                             |  | $                                             | (0.67  | ) |                        | $ | (0.45  | )                             |  | $ | (0.14                     | ) |  | $    | (0.03  | ) |      | $ | (0.05  | ) |  | $ | (0.09  | )
|Loss from discontinued operations                                           |  |                                               |       |   |                        |   |       |                               |  |   | (0.01                     | ) |  |      |       |   |      |   |       |   |  |   | (0.09  | )
|                                                                            |  |                                               |        |   |                        |   |        |                               |  |   |                           |   |  |      |        |   |      |   |        |   |  |   |        |  
|Net loss                                                                    |  | $                                             | (0.67  | ) |                        | $ | (0.45  | )                             |  | $ | (0.15                     | ) |  | $    | (0.03  | ) |      | $ | (0.05  | ) |  | $ | (0.18  | )
|                                                                            |  |                                               |        |   |                        |   |        |                               |  |   |                           |   |  |      |        |   |      |   |        |   |  |   |        |  
|Loss per common share - diluted:                                            |  |                                               |        |   |                        |   |        |                               |  |   |                           |   |  |      |        |   |      |   |        |   |  |   |        |  
|Loss from continuing operations                                             |  | $                                             | (0.67  | ) |                        | $ | (0.45  | )                             |  | $ | (0.14                     | ) |  | $    | (0.03  | ) |      | $ | (0.05  | ) |  | $ | (0.09  | )
|Loss from discontinued operations                                           |  |                                               |       |   |                        |   |       |                               |  |   | (0.01                     | ) |  |      |       |   |      |   |       |   |  |   | (0.09  | )
|                                                                            |  |                                               |        |   |                        |   |        |                               |  |   |                           |   |  |      |        |   |      |   |        |   |  |   |        |  
|Net loss                                                                    |  | $                                             | (0.67  | ) |                        | $ | (0.45  | )                             |  | $ | (0.15                     | ) |  | $    | (0.03  | ) |      | $ | (0.05  | ) |  | $ | (0.18  | )
|                                                                            |  |                                               |        |   |                        |   |        |                               |  |   |                           |   |  |      |        |   |      |   |        |   |  |   |        |  
|                                                                            |  |                                               |        |   |                        |  
|BALANCE SHEET DATA:                                                         |  |                                               |        |   |                        |   |        |                               |  |   |                           |   |  |      |        |   |      |   |        |   |  |   |        |  
|Working capital (deficit)                                                   |  | $                                             | (5,710 | ) |                        | $ | (721   | )                             |  | $ | 2,502                     |   |  | $    | 120    |   |      | $ | (3,589 | ) |  | $ | (4,098 | )
|Total assets                                                                |  |                                               | 4,605  |   |                        |   | 8,232  |                               |  |   | 8,114                     |   |  |      | 8,182  |   |      |   | 6,448  |   |  |   | 6,225  |  
|Total long-term debt and capital lease obligations                          |  |                                               | 2,585  |   |                        |   | 2,403  |                               |  |   | 2,402                     |   |  |      | 2,432  |   |      |   | 2,375  |   |  |   | 2,364  |  
|Stockholders deficit                                                       |  | $                                             | (9,196 | ) |                        | $ | (4,132 | )                             |  | $ | (803                      | ) |  | $    | (743   | ) |      | $ | (4,117 | ) |  | $ | (4,725 | )

No dividends were paid during any of the periods presented above.



20



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##### Table of Contents

|ITEM7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------ | -------------------------------------------------------------------------------------

This report includes forward-looking statements, the realization of which may be impacted by certain important factors discussed previously under
Item 1A Risk Factors.

OVERVIEW

CompCare manages the delivery of a continuum of psychiatric and substance abuse services to commercial, Medicare, and Medicaid members on behalf of health plans, government organizations, third-party claims
administrators, and commercial and other group purchasers of behavioral healthcare services. Our managed care operations include administrative service agreements, fee-for-service agreements, and capitation contracts. The customer base for our
services includes both employers and health plans that contract with governmental entities. Our clinical services are provided primarily by unrelated contracted providers on a fee for service or subcapitated basis.

In January 2008, CompCare appointed John Hill as its new Chief Executive Officer and President and charged him with the responsibility of improving
CompCares financial performance. Following a review of operations and all client contracts, Mr. Hill formulated a plan to better streamline our processes and to focus on financial objectives. We quickly implemented the plan and CompCare
began to re-organize its operations in the second quarter of 2008. We completed this restructuring in the fourth quarter of 2008. As a result of the automation of some manual processes, the streamlining of workflows, and improving the sales pipeline
opportunities by hiring a Senior Vice President of Business Development, we expect much better operating results in 2009 as compared to 2008.

The reorganization plan also included a shift in the sales and marketing approach of the Company to improve margins. In concert with the addition of a Senior Vice President of Business Development, we began pursuing Administrative Services
Only contracts and broadened our product offerings. The Company began utilizing consultants, association memberships, and endorsements to increase its market presence. ASO contracts are non-risk and provide management with more certainty in
generating profits. We further expanded our product offering to include specialty case management services in areas such as Attention Deficit Disorder and Autism and an analytic service that provides our clients with actionable information so
patients can be coordinated cost effectively. We expect these efforts to broaden our sales pipeline.

In the summer of 2008, we formed a
majority owned subsidiary in Puerto Rico with an island based provider system. CompCare de Puerto Rico was awarded its first HMO contract in the fall and began providing mental health services in December. On January 1, 2009, CompCare de Puerto
Rico added psychotropic drug management to that contract. With the new governmental administration in Puerto Rico, we believe that new opportunities will begin to appear and with our local partner, we are well positioned to grow our business.

On January 20, 2009, CompCare acquired Core. This acquisition dramatically expands CompCares marketing capabilities, both
domestically and internationally, as well as providing CompCare with a substantially expanded product line to be marketed as companion products to its already existing line of healthcare offerings.

Core is a company specializing in the healthcare sector and is a national leader in product sourcing and the direct response market. Core markets a
variety of health-related products under its Medquip brand name and insurance and discounted health products branded as Core Advantage through a multiple of distribution channels. In addition to traditional distribution channels, the
Company directs its distribution into highly targeted ethnic markets. In particular, CompCare services Medicare/Medicaid and affordable healthcare solution market segments  segments that are all booming in this economic climate.

As a direct result of CompCares acquisition of Core, the Company can expect strong revenue growth and sustainable increased margins.
All CompCares overheads are covered by its existing contracted revenues, thus all new sales generated by the Company will have a visible impact to the bottom line. In addition, CompCares existing back office and fulfillment capabilities
will be able to easily support the additional sales.



21



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##### Table of Contents

The following table sets forth our operating (loss) income for the years ended December 31, 2008 and
2007, the seven months ended December 31, 2006 and 2005 and the fiscal years ended May 31, 2006 and 2005 (amounts in thousands):



|                                        |  |                        |        |   |                                |   |        |                          |  |   |             |   |  |      |        |   |      |   |        |   |  |   |        |  
|--------------------------------------- |  | ---------------------- | ------ | - | ------------------------------ | - | ------ | ------------------------ |  | - | ----------- | - |  | ---- | ------ | - | ---- | - | ------ | - |  | - | ------ | -
|                                        |  | YearEnded December 31, |        |   | Seven MonthsEnded December 31, |   |        | Fiscal YearEnded May 31, | 
|                                        |  | 2008                   |        |   | 2007                           |   |        | 2006                     |  |   | 2005        |   |  | 2006 |        |   | 2005 |  
|                                        |  |                        |        |   |                                |   |        |                          |  |   | (unaudited) |   |  |      |        |   |      |  
|Operating revenues:                     |  |                        |        |   |                                |   |        |                          |  |   |             |   |  |      |        |   |      |   |        |   |  |   |        |  
|Capitated contracts                     |  | $                      | 34,117 |   |                                | $ | 36,295 |                          |  | $ | 9,829       |   |  | $    | 14,618 |   |      | $ | 23,044 |   |  | $ | 22,062 |  
|Non-capitated sources                   |  |                        | 1,039  |   |                                |   | 1,105  |                          |  |   | 486         |   |  |      | 649    |   |      |   | 912    |   |  |   | 2,411  |  
|                                        |  |                        |        |   |                                |   |        |                          |  |   |             |   |  |      |        |   |      |   |        |   |  |   |        |  
|Total operating revenues                |  |                        | 35,156 |   |                                |   | 37,400 |                          |  |   | 10,315      |   |  |      | 15,267 |   |      |   | 23,956 |   |  |   | 24,473 |  
|                                        |  |                        |        |   |                                |  
|Operating expenses:                     |  |                        |        |   |                                |   |        |                          |  |   |             |   |  |      |        |   |      |   |        |   |  |   |        |  
|Healthcare operating expenses:          |  |                        |        |   |                                |   |        |                          |  |   |             |   |  |      |        |   |      |   |        |   |  |   |        |  
|Claims expense (1)                      |  |                        | 30,492 |   |                                |   | 30,315 |                          |  |   | 7,575       |   |  |      | 10,820 |   |      |   | 16,250 |   |  |   | 16,379 |  
|Other healthcare operating expenses (1) |  |                        | 6,004  |   |                                |   | 6,475  |                          |  |   | 2,138       |   |  |      | 2,594  |   |      |   | 4,312  |   |  |   | 4,919  |  
|                                        |  |                        |        |   |                                |   |        |                          |  |   |             |   |  |      |        |   |      |   |        |   |  |   |        |  
|Total healthcare operating expenses     |  |                        | 36,496 |   |                                |   | 36,790 |                          |  |   | 9,713       |   |  |      | 13,414 |   |      |   | 20,562 |   |  |   | 21,298 |  
|General and administrative expenses     |  |                        | 3,742  |   |                                |   | 4,032  |                          |  |   | 1,767       |   |  |      | 1,959  |   |      |   | 3,316  |   |  |   | 3,078  |  
|Recovery of doubtful accounts           |  |                        | (49    | ) |                                |   | (4     | )                        |  |   | (136        | ) |  |      | (36    | ) |      |   | (88    | ) |  |   | (4     | )
|Depreciation and amortization           |  |                        | 153    |   |                                |   | 154    |                          |  |   | 62          |   |  |      | 51     |   |      |   | 87     |   |  |   | 96     |  
|                                        |  |                        |        |   |                                |   |        |                          |  |   |             |   |  |      |        |   |      |   |        |   |  |   |        |  
|                                        |  |                        |        |   |                                |  
|Total operating expenses                |  |                        | 40,342 |   |                                |   | 40,972 |                          |  |   | 11,406      |   |  |      | 15,388 |   |      |   | 23,877 |   |  |   | 24,468 |  
|                                        |  |                        |        |   |                                |   |        |                          |  |   |             |   |  |      |        |   |      |   |        |   |  |   |        |  
|Operating (loss) income                 |  | $                      | (5,186 | ) |                                | $ | (3,572 | )                        |  | $ | (1,091      | ) |  | $    | (121   | ) |      | $ | 79     |   |  | $ | 5      |  
|                                        |  |                        |        |   |                                |   |        |                          |  |   |             |   |  |      |        |   |      |   |        |   |  |   |        |  



|(1) | Claims expense reflects the costs of revenue of capitated contracts, and other healthcare operating expenses reflects the cost of revenue of capitated and non-capitated contracts.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

RESULTS OF OPERATIONS  YEAR ENDED
DECEMBER 31, 2008 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 2007.

The decrease in capitated contract revenue from $36.3 million to $34.1 million is primarily attributable to the loss of one client in Texas and two
customers in Indiana, which accounted for approximately $5.7 million in revenue for the year ended December 31, 2007 compared to $37,000 for the year ended December 31, 2008. This was partially offset by additional business from existing
clients in Indiana, Maryland, and Michigan, which contributed an additional $3.7 million. The decrease in non-capitated revenue is primarily attributable to the loss of business from customers in Indiana and Texas.

Claims expense on capitated contracts increased approximately $177,000, or 0.6%, for the year ended December 31, 2008 as compared to the year ended
December 31, 2007. Claims expense as a percentage of capitated revenues increased from 83.5% for the year ended December 31, 2007 to 89.4% for the year ended December 31, 2008 due to a high medical loss ratio experienced with our
major Indiana client. Other healthcare operating expenses, which are incurred to service both capitated and non-capitated contracts, decreased approximately $471,000, or 7.3%, due to staff decreases in response to the loss of revenues in Indiana and
Pennsylvania. As a percentage of total revenue, other healthcare operating expenses decreased from 17.3% for the year ended December 31, 2007 to 17.1% for the year ended December 31, 2008.

General and administrative expenses decreased by $290,000, or 7.2%, for the year ended December 31, 2008 as compared to the year ended
December 31, 2007. This decrease is primarily attributable to the $416,000 severance benefit of two years salary paid in 2007 to our former Chief Executive Officer upon her resignation pursuant to her employment agreement following the
January 12, 2007 change in ownership of Woodcliff. General and administrative expense as a percentage of operating revenue decreased from 10.8% for the year ended December 31, 2007 to 10.6% for the year ended December 31, 2008.



22



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##### Table of Contents

RESULTS OF OPERATIONS  SEVEN MONTHS
ENDED DECEMBER 31, 2006 AS COMPARED TO THE SEVEN MONTHS ENDED DECEMBER 31, 2005.

The decrease in capitated contract revenue is primarily attributable to the termination of our Connecticut contract, the loss of which
accounted for $3.4 million less revenue for the seven months ended December 31, 2006 versus 2005 and the termination of a Texas contract, the loss of which accounted for $3.2 million less revenue for the same periods. This was partially offset
by additional business from existing clients in Pennsylvania, Texas, Michigan and Maryland. The decrease in non-capitated revenue is primarily attributable to the loss of a management services only customer in Michigan offset by additional business
in Texas and Florida and a new client in Connecticut.

Claims expense on capitated contracts decreased approximately $3.2 million or 30.0%
for the seven months ended December 31, 2006 as compared to the seven months ended December 31, 2005. The reduction is due to the loss of capitated revenue as mentioned above. Claims expense as a percentage of capitated revenues increased
from 74.0% for the period ended December 31, 2005 to 77.1% for the period ended December 31, 2006. Other healthcare operating expenses, which are incurred to service both capitated and non-capitated contracts, decreased approximately
$456,000, or 17.6%, due to staff reductions in response to the loss of revenues in Michigan, Connecticut and Texas. As a percentage of total revenue, other healthcare operating expenses increased from 17.0% for the period ended December 31,
2005 to 20.7% for the period ended December 31, 2006.

General and administrative expenses decreased by $192,000, or 9.8%, for the
seven months ended December 31, 2006 as compared to the seven months ended December 31, 2005. This decrease is primarily attributable to indirect costs of the June 2005 sale of Series A Preferred Stock, increased costs for marketing
consultants engaged to obtain additional commercial business, and legal expenses associated with our 2005 Annual Meeting and changes to the corporate charter in the period ended December 31, 2005. General and administrative expense as a
percentage of operating revenue increased from 12.8% for the period ended December 31, 2005 to 17.1% for the period ended December 31, 2006.

RESULTS OF OPERATIONS  FISCAL YEAR ENDED MAY 31, 2006 AS COMPARED TO
THE FISCAL YEAR ENDED MAY 31, 2005.

Capitated contract
revenues increased 4.5%, or approximately $1.0 million, to $23.0 million for the year ended May 31, 2006 compared to $22.0 million for the year ended May 31, 2005. This increase in revenue is primarily attributable to additional business
from existing clients in Indiana and new customers in Pennsylvania and Maryland, but was partially offset by the termination of our Connecticut contract, the loss of which accounted for $1.9 million less revenue in fiscal 2006 than in fiscal 2005.
Non-capitated revenue declined 62.2%, or $1.5 million, to $0.9 million for the fiscal year ended May 31, 2006, compared to $2.4 million for the fiscal year ended May 31, 2005. The decrease is primarily attributable to the loss of two
management services only customers in Michigan and an ASO client in Texas.

Claims expense on capitated contracts decreased approximately
$129,000, or 0.8%, for the fiscal year ended May 31, 2006 as compared to the fiscal year ended May 31, 2005. The reduction is due to decreased utilization of covered services. Claims expense as a percentage of capitated revenues decreased
from 74.2% for the fiscal year ended May 31, 2005, to 70.5% for the fiscal year ended May 31, 2006. Other healthcare operating expenses, which are incurred to service both capitated and non-capitated contracts, decreased approximately
$607,000, or 12.3%, for the fiscal year ended May 31, 2006 as compared to the fiscal year ended May 31, 2005, due to staff reductions in response to the loss of revenues in Michigan, Connecticut and Texas. As a percentage of total revenue,
other healthcare operating expenses decreased from 20.1% for fiscal 2005 to 18.0% for fiscal 2006.

General and administrative expenses
increased by $238,000, or 7.7%, for the fiscal year ended May 31, 2006 as compared to the fiscal year ended May 31, 2005. This increase is primarily attributable to indirect costs of the June 2005 sale of Series A Preferred Stock,
increased costs for marketing consultants engaged to obtain additional commercial business, and legal expenses associated with our 2005 Annual Meeting and changes to the corporate charter. General and administrative expense as a percentage of
operating revenue increased from 12.6% for the fiscal year ended May 31, 2005 to 13.8% for the fiscal year ended May 31, 2006.



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EFFECTS OF INFLATION

To minimize the effect of inflation, some of our multi-year revenue contracts contain provisions for annual rate increases that average approximately
three percent per year. Our largest expense, the cost of care provided by our contracted providers, is frequently tied to standard Medicaid, CHIP, and Medicare reimbursement rates set by governmental entities. To the extent these standard rates are
periodically increased to reflect the effects of inflation, we may be adversely affected by rising prices, absent a sufficient compensating increase in our revenues.

SEASONALITY OF BUSINESS

Historically, we have
experienced increased member utilization during the months of March, April and May, and consistently low utilization by members during the months of June, July, and August. Such variations in member utilization impact our costs of care during these
months, generally having a positive impact on our gross margins and operating profits during the June through August period and a negative impact on our gross margins and operating profits during the months of March through May.

LIQUIDITY AND CAPITAL RESOURCES

During the year ended December 31, 2008, net cash and cash equivalents decreased by $5.2 million. Net cash used in operations totaled $5.5 million,
attributable primarily to payment of claims on our Indiana, Pennsylvania, and Maryland contracts which have experienced high utilization of services by members. Approximately $1.5 million of the total cash usage was due to a timing difference in the
monthly capitation remittance from our large Indiana client, which the Company received in January 2009. In addition, approximately $0.7 million in cash was used to pay accrued claims payable relating to three contracts that terminated during the
quarter ended December 31, 2007, and $416,000 was used to make a contractually required severance payment to our former Chief Executive Officer. Cash used in investing activities is comprised of $48,000 in additions to property and equipment
offset by $27,000 in proceeds from payments received on notes receivable. Cash provided by financing activities consists primarily of $158,000 in net proceeds from the issuance of common stock and $200,000 from the issuance of a convertible
promissory note, providing additional funds for working capital purposes. Other cash flows from financing activities consist of repayment of debt of $55,000.

At December 31, 2008, we had $1.1 million in cash, a working capital deficit of $5.7 million, and a stockholders deficit of $9.2 million. To conserve cash during the third and fourth quarters of 2008, we
instituted reductions in the usage of consultants and temporary employees and eliminated permanent staffing positions. In addition, we implemented a 10% salary reduction for employees at the vice president level and above and reduced outside
directors fees by 10%. We also requested rate increases from several of our existing clients.

In January 2009, we underwent a merger
with Core. As a combined company, we have been able to raise additional capital, as demonstrated in February 2009 with the infusion of $1.6 million in cash that will be used for working capital purposes and the reduction of accrued claims payable
(see Note 19 Subsequent Events to the audited, consolidated financial statements included elsewhere in this report). We believe we will have access to additional capital in the future as well, if needed. We believe the addition of Core
will increase our sales pipeline for selling opportunities and create additional distribution channels for products we can offer, from which we expect additional positive cash flow. Together with new managed behavioral healthcare business in
Michigan and Puerto Rico, we believe we will generate sufficient working capital to sustain current operations and meet our current obligations during the next twelve months.

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 and sustain
profitability and positive cash flow. Although considerable variability is inherent in such estimates, we believe that our unpaid claims liability is adequate, however, actual results could differ from the estimates.



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COMMITMENTS AND CONTRACTUAL OBLIGATIONS

The following is a schedule at December 31, 2008 of our long-term contractual commitments, future minimum lease payments under non-cancelable
operating lease arrangements, and other long-term obligations:



|                                               |  |                        |       |                |     |            |       |            |    |              |  
|---------------------------------------------- |  | ---------------------- | ----- | -------------- | --- | ---------- | ----- | ---------- | -- | ------------ | -
|                                               |  | Payments Due by Period
|                                               |  | Total                  |       | LessThan 1Year |     | 1  3Years |       | 4  5Years |    | After 5Years
|                                               |  | (Amounts in thousands)
|Long-term Debt Obligations (a)                 |  | $                      | 2,244 |                |    |            | 2,244 |            |   |              | 
|Promissory Notes Payable                       |  |                        | 200   |                |    |            | 200   |            |   |              | 
|Capital Lease Obligations and related interest |  |                        | 136   |                | 69  |            | 67    |            |   |              | 
|Operating Lease Obligations                    |  |                        | 1,050 |                | 516 |            | 523   |            | 11 |              | 
|                                               |  |                        |       |                |     |            |       |            |    |              |  
|                                               |  |                        |       |                |    
|Total                                          |  | $                      | 3,630 |                | 585 |            | 3,034 |            | 11 |              | 
|                                               |  |                        |       |                |     |            |       |            |    |              |  



|(a) | Excludes 71/2% in interest payable semi-annually in April and October (see Note 12  Long-term Debt to the audited, consolidated financial statements).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

CRITICAL ACCOUNTING ESTIMATES

Our discussion and analysis of our financial condition and results of operations is based upon our 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 but 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 revenue recognition, accrued claims payable and claims expense, premium deficiencies, goodwill and
stock compensation expense 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).

REVENUE RECOGNITION

We provide managed behavioral healthcare and substance abuse services to recipients, primarily through subcontracts with HMOs. Revenue under the vast
majority of these agreements is earned and recognized monthly based on the number of covered members as reported to us by our clients regardless of whether services actually provided are lesser or greater than anticipated when we entered into such
contracts (generally referred to as capitation arrangements). The information regarding the number of covered members is supplied by our clients and we review membership eligibility records and other reported information to verify its accuracy in
calculating the amount of revenue to be recognized. Consequently, the vast majority of our revenue is determined by the monthly receipt of covered member information and the associated payment from the client, thereby removing uncertainty and
precluding us from needing to make assumptions to estimate monthly revenue amounts.

We may experience adjustments to our revenues to
reflect changes in the number and eligibility status of members subsequent to when revenue is recognized. Subsequent adjustments to our revenue have not been material in the past.

ACCRUED CLAIMS PAYABLE AND CLAIMS EXPENSE

Healthcare operating expenses are composed of claims expense and other healthcare operating expenses. Claims expense includes amounts paid to hospitals, physician groups, and other licensed behavioral healthcare
professionals. Other healthcare operating expenses include items such as information systems, provider contracting, case management and quality assurance, attributable to both capitated and non-capitated contracts.



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The cost of behavioral health services is recognized in the period in which an eligible member actually
receives services and includes an estimate of IBNR. We contract with various healthcare providers including hospitals, physician groups and other managed care organizations either on a discounted fee-for-service or a per-case basis. We determine
that a member has received services when we receive a claim within the contracted timeframe with all required billing elements correctly completed by the service provider. We then determine whether (1) the member is eligible to receive such
services, (2) the service provided is medically necessary and is covered by the benefit plans certificate of coverage, and (3) the service has been authorized by one of our employees. If all of these requirements are met, the claim
is entered into our claims system for payment and the associated cost of behavioral health services is recognized. If the claim is denied, the service provider is notified and has appeal rights under their contract with us.

Accrued claims payable consists primarily of reserves established for reported claims and claims IBNR which are unpaid through the respective balance
sheet dates. Our policy is to record managements best estimate of IBNR. The IBNR liability is estimated monthly using an actuarial paid completion factor methodology and is continually reviewed and adjusted, if necessary, to reflect any change
in the estimated liability as more information becomes available. In deriving a range of estimates, management considers qualitative factors, authorization information, and an actuarial model that incorporates past claims payment experience,
enrollment data and key assumptions such as trends in healthcare costs and seasonality. The accrued claims payable ranges were between $6.4 and $6.9 million at December 31, 2008 and between $4.9 and $5.5 million at December 31, 2007. To
determine the best estimates, management reviews utilization statistics, authorized healthcare service data, calculated completion factors, and other data available at and subsequent to the balance sheet dates. The best estimates at
December 31, 2008 and 2007 were $6.8 million and $5.5 million, respectively. Approximately $3.4 million of the $6.8 million accrued claims payable balance at December 31, 2008 is attributable to our major Indiana Medicaid client. We have
used the same methodology and assumptions for estimating the IBNR portion of the accrued claims liability for the last three periods.

The
following table provides a reconciliation of the beginning and ending balance of accrued claims payable for the years ended December 31, 2008 and 2007 and the seven months ended December 31, 2006:



|                                 |  |                         |        |   |                                    |        |   |  |       |  
|-------------------------------- |  | ----------------------- | ------ | - | ---------------------------------- | ------ | - |  | ----- | -
|                                 |  | Year Ended December 31, |        |   | Seven MonthsEndedDecember 31, 2006 |       
|                                 |  | 2008                    |        |   | 2007                               |        |  
|                                 |  | (Amounts in thousands)  |       
|Beginning accrued claims payable |  | $                       | 5,464  |   |                                    | 2,746  |   |  | 2,790 |  
|Claims expense:                  |  |                         |        |   |                                    |        |   |  |       |  
|Current period                   |  |                         | 30,579 |   |                                    | 30,674 |   |  | 7,576 |  
|Prior period                     |  |                         | (87    | ) |                                    | (359   | ) |  | (1    | )
|                                 |  |                         |        |   |                                    |        |   |  |       |  
|Total claims expense             |  |                         | 30,492 |   |                                    | 30,315 |   |  | 7,575 |  
|                                 |  |                         |       
|Claims payments:                 |  |                         |        |   |                                    |        |   |  |       |  
|Current period                   |  |                         | 23,788 |   |                                    | 25,210 |   |  | 4,830 |  
|Prior period                     |  |                         | 5,377  |   |                                    | 2,387  |   |  | 2,789 |  
|                                 |  |                         |        |   |                                    |        |   |  |       |  
|Total claims payments            |  |                         | 29,165 |   |                                    | 27,597 |   |  | 7,619 |  
|                                 |  |                         |        |   |                                    |        |   |  |       |  
|Ending accrued claims payable    |  | $                       | 6,791  |   |                                    | 5,464  |   |  | 2,746 |  
|                                 |  |                         |        |   |                                    |        |   |  |       |  

Changes in prior year claims expense were primarily due to changes in utilization patterns and
changes in claim submission timeframes by providers. Management considers these changes in claims expenses to be immaterial when compared to the total claims expenses incurred in prior years.

Accrued claims payable at December 31, 2008, 2007 and 2006 is comprised of approximately $1.6 million, $1.1 million and $0.7 million, respectively,
of submitted and approved claims which had not yet been paid, and $5.2 million, $4.4 million and $2.0 million for IBNR claims, respectively.



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Many aspects of our business are not predictable with consistency, and therefore, estimating IBNR claims
involves a significant amount of management judgment. Actual claims incurred could differ from the estimated accrued claims payable amount presented. The following are factors that would have an impact on our future operations and financial
condition:



| |  |  | Changes in utilization patterns
| | - |  | -------------------------------



| |  |  | Changes in healthcare costs
| | - |  | ---------------------------



| |  |  | Changes in claims submission timeframes by providers
| | - |  | ----------------------------------------------------



| |  |  | Success in renegotiating contracts with healthcare providers
| | - |  | ------------------------------------------------------------



| |  |  | Occurrence of catastrophes
| | - |  | --------------------------



| |  |  | Changes in benefit plan design and
| | - |  | ----------------------------------



| |  |  | The impact of present or future state and federal regulations.
| | - |  | --------------------------------------------------------------

A 5% increase in assumed healthcare cost trends from those used in our calculations of IBNR at December 31, 2008 could increase our claims expense by approximately $127,000 as illustrated in the table below:



|                            |  |                                     |          |  
|--------------------------- |  | ----------------------------------- | -------- | -
|Change in Healthcare Costs: |  |                                     |          |  
|                            | 
|(Decrease) Increase         |  | (Decrease)Increasein Claims Expense |         
|(5)%                        |  | $                                   | (129,000 | )
|5%                          |  | $                                   | 127,000  |  

PREMIUM DEFICIENCIES

We accrue losses under our capitated contracts when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.
We perform this loss accrual analysis on a specific contract basis taking into consideration such factors as future contractual revenue, projected future healthcare and maintenance costs, and each contracts specific terms related to future
revenue increases as compared to expected increases in healthcare costs. The projected future healthcare and maintenance costs are estimated based on historical trends and our estimate of future cost increases.

At any time prior to the end of a contract or contract renewal, if a capitated contract is not meeting its financial goals, we generally have the ability
to cancel the contract with 60 to 90 days written notice. Prior to cancellation, we will usually submit a request for a rate increase accompanied by supporting utilization data. Although our clients have historically been generally receptive
to such requests, no assurance can be given that such requests will be fulfilled in the future in our favor. If a rate increase is not granted, we have the ability, in most cases, to terminate the contract and limit our risk to a short-term period.

On a quarterly basis, we perform a review of our portfolio of contracts for the purpose of identifying loss contracts (as defined in the
American Institute of Certified Public Accountants Audit and Accounting Guide  Health Care Organizations) and developing a contract loss reserve, if applicable, for succeeding periods. At December 31, 2008, we believe no contract loss
reserve for future periods is necessary. At December 31, 2008 and 2007, no contract loss reserve for future periods was necessary.

GOODWILL

We evaluate at least annually the amount of our recorded goodwill by performing impairment tests
that compare the carrying amount to an estimated fair value. Management considers both the income and market approaches in the fair value determination. In estimating the fair value under the income approach, management makes its best assumptions
regarding future cash flows and applies a discount rate to the cash flows to yield a present, fair value of equity. The market approach is based primarily on reference to transactions including the Companys common stock and the quoted market
prices of the Companys common stock. As a result of such tests, management believes there is no material risk of loss from impairment of goodwill. However, actual results may differ significantly from managements assumptions, resulting
in a potentially adverse impact to our consolidated financial statements.



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STOCK COMPENSATION EXPENSE

We issue stock-based awards to our employees and members of our Board of Directors. Effective June 1, 2006, we adopted Statement of Financial
Accounting Standards (SFAS) No. 123R Share-Based Payment and elected to apply the modified-prospective method to measure compensation cost for stock options at fair value on the grant date and recognize compensation cost
on a straight-line basis over the service period for those options expected to vest. We use the Black-Scholes option pricing model, which requires certain variables for input to calculate the fair value of a stock award on the grant date. These
variables include the expected volatility of our stock price, award exercise behaviors, the risk free interest rate, and expected dividends. We use significant judgment in estimating expected volatility of the stock, exercise behavior and forfeiture
rates.

Expected Volatility

We estimate the volatility of the share price by using historical data of our traded stock in combination with our expectation of the extent of fluctuation in future stock prices. We believe our historical volatility
is more representative of future stock price volatility and as such it has been given greater weight in estimating future volatility.

Expected Term

A variety of factors are considered in determining the expected term of options granted. Options
granted are grouped by their homogeneity based on the optionees position, whether managerial or clerical, and length of service and turnover rate. Where possible, we analyze exercise and post-vesting termination behavior. For any group without
sufficient information, we estimate the expected term of the options granted by averaging the vesting term and the contractual term of the options.

Expected Forfeiture Rate

We generally separate our option awards into two groups: employee and non-employee awards.
The historical data of each group are analyzed independently to estimate the forfeiture rate of options at the time of grant. These estimates are revised in subsequent periods if actual forfeitures differ from estimated forfeitures.

RECENT ACCOUNTING PRONOUNCEMENTS

Effective June 1, 2006, we adopted the fair value recognition provisions of SFAS 123R, as previously discussed in Critical Accounting Estimates immediately preceding.

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, (FIN 48) which clarifies the accounting for uncertainty in income taxes. FIN 48 requires that companies recognize in the consolidated financial statements the impact of a tax position, if that position is more likely
than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The provisions of FIN 48 are
effective for fiscal years beginning after December 15, 2006. We adopted FIN 48 effective January 1, 2007 with no impact on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (SFAS 157) which defines fair value,
establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The statement is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. We have adopted this statement and incorporated its requirements into our disclosures and periodic tests of impairment of carrying values.

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities
(SFAS 159). SFAS 159 provides that companies may elect to measure many financial instruments and certain other items at fair value on a contract-by-contract basis, with changes in fair value recognized in earnings each reporting period.
The election, called the fair value option, will enable some companies to reduce the variability in reported earnings caused by measuring related assets and liabilities differently. SFAS 159 is effective as of the beginning of a
companys first fiscal year that begins after November 15, 2007. SFAS 159 did not have a significant impact on our consolidated financial statements.



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In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS
141(R)). SFAS 141(R) replaces SFAS No. 141, Business Combinations, but retains the requirement that the purchase method of accounting for acquisitions be used for all business combinations. SFAS 141(R) expands on the
disclosures previously required by SFAS 141, better defines the acquirer and the acquisition date in a business combination, and establishes principles for recognizing and measuring the assets acquired (including goodwill), the liabilities assumed
and any non-controlling interests in the acquired business. SFAS 141(R) also requires an acquirer to record an adjustment to income tax expense for changes in valuation allowances or uncertain tax positions related to an acquired business. SFAS
141(R) is effective for all business combinations with an acquisition date in the first annual period following December 15, 2008; early adoption is not permitted. We will adopt this statement as of January 1, 2009. We are currently
evaluating the impact SFAS 141(R) will have on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51 (SFAS 160). SFAS 160 requires that non-controlling (or minority) interests in subsidiaries be reported in the equity section
of the companys balance sheet, rather than in a mezzanine section of the balance sheet between liabilities and equity. SFAS 160 also changes the manner in which the net income of the subsidiary is reported and disclosed in the controlling
companys income statement. SFAS 160 also establishes guidelines for accounting for changes in ownership percentages and for deconsolidation. SFAS 160 is effective for financial statements for fiscal years beginning on or after December 1,
2008 and interim periods within those years. The adoption of SFAS 160 is not expected to have a material impact on our financial statements.

LEGAL PROCEEDINGS

From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. As of the date of this report, we are not currently involved in any legal proceeding that we believe would have a material adverse effect on our business, financial condition or
operating results.



|ITEM7A. | 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.



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|ITEM8. | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------ | --------------------------------------------------------

Index to Consolidated Financial Statements

Years Ended December 31, 2008 and 2007,

Seven Months Ended December 31, 2006, and

Fiscal Year Ended May 31, 2006



|                                                                                                                                                                    |  |      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----
|Report of Kirkland, Russ, Murphy & Tapp P.A.                                                                                                                        |  | 31   
|Consolidated Balance Sheets, December 31, 2008 and 2007                                                                                                             |  | 32   
|Consolidated Statements of Operations, Years Ended December 31, 2008 and 2007, Seven Months Ended December 
31, 2006, and Fiscal Year Ended May 31, 2006            |  | 33   
|Consolidated Statements of Stockholders Deficit, Years Ended December 
31, 2008 and 2007, Seven Months Ended December 31, 2006, and Fiscal Year Ended May 31, 2006 |  | 34   
|Consolidated Statements of Cash Flows, Years Ended December 31, 2008 and 2007, Seven Months Ended December 
31, 2006, and Fiscal Year Ended May 31, 2006            |  | 35   
|Notes to Consolidated Financial Statements                                                                                                                          |  | 36-59



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Comprehensive Care Corporation

We have audited the accompanying consolidated balance sheets of Comprehensive Care Corporation and Subsidiaries as of December 31,
2008 and 2007 and the related consolidated statements of operations, stockholders deficit and cash flows for the years ended December 31, 2008 and 2007, the seven months ended December 31, 2006, and the fiscal year ended May 31,
2006. 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 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no such opinion. 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 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 December 31, 2008 and 2007 and the consolidated results of their operations and their cash flows for the years ended December 31, 2008 and 2007, the
seven months ended December 31, 2006, and the fiscal year ended May 31, 2006, in conformity with U.S. generally accepted accounting principles.



|                                      
|--------------------------------------
|/s/ Kirkland, Russ, Murphy & Tapp P.A.
|                                      
|Clearwater, Florida                   
|March 24, 2009                        



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CONSOLIDATED BALANCE SHEETS



|                                                                                                                           |  |                        |         |   |                  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                           |  | December 31,2008       |         |   | December 31,2007 |  
|                                                                                                                           |  | (Amounts in thousands) |        
|ASSETS                                                                                                                     |  |                        |         |   |                  |   |         |  
|Current assets:                                                                                                            |  |                        |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                  |  | $                      | 1,136   |   |                  | $ | 6,313   |  
|Accounts receivable, less allowance for doubtful accounts of $2 and $0, respectively                                       |  |                        | 1,581   |   |                  |   | 35      |  
|Other current assets                                                                                                       |  |                        | 336     |   |                  |   | 407     |  
|                                                                                                                           |  |                        |         |   |                  |   |         |  
|Total current assets                                                                                                       |  |                        | 3,053   |   |                  |   | 6,755   |  
|                                                                                                                           |  |                       
|Property and equipment, net                                                                                                |  |                        | 235     |   |                  |   | 333     |  
|Note receivable                                                                                                            |  |                        |        |   |                  |   | 17      |  
|Goodwill, net                                                                                                              |  |                        | 991     |   |                  |   | 991     |  
|Other assets                                                                                                               |  |                        | 326     |   |                  |   | 136     |  
|                                                                                                                           |  |                        |         |   |                  |   |         |  
|Total assets                                                                                                               |  | $                      | 4,605   |   |                  | $ | 8,232   |  
|                                                                                                                           |  |                        |         |   |                  |   |         |  
|                                                                                                                           |  |                       
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                      |  |                        |         |   |                  |   |         |  
|Current liabilities:                                                                                                       |  |                        |         |   |                  |   |         |  
|Accounts payable and accrued liabilities                                                                                   |  | $                      | 1,953   |   |                  | $ | 1,918   |  
|Accrued claims payable                                                                                                     |  |                        | 6,791   |   |                  |   | 5,464   |  
|Income taxes payable                                                                                                       |  |                        | 19      |   |                  |   | 94      |  
|                                                                                                                           |  |                        |         |   |                  |   |         |  
|Total current liabilities                                                                                                  |  |                        | 8,763   |   |                  |   | 7,476   |  
|                                                                                                                           |  |                        |         |   |                  |   |         |  
|                                                                                                                           |  |                       
|Long-term liabilities:                                                                                                     |  |                        |         |   |                  |   |         |  
|Long-term debt                                                                                                             |  |                        | 2,444   |   |                  |   | 2,244   |  
|Other liabilities                                                                                                          |  |                        | 2,589   |   |                  |   | 2,644   |  
|                                                                                                                           |  |                        |         |   |                  |   |         |  
|Total long-term liabilities                                                                                                |  |                        | 5,033   |   |                  |   | 4,888   |  
|                                                                                                                           |  |                        |         |   |                  |   |         |  
|Total liabilities                                                                                                          |  |                        | 13,796  |   |                  |   | 12,364  |  
|                                                                                                                           |  |                        |         |   |                  |   |         |  
|                                                                                                                           |  |                       
|Noncontrolling interest                                                                                                    |  |                        | 5       |   |                  |   |        |  
|                                                                                                                           |  |                       
|Stockholders deficit:                                                                                                     |  |                        |         |   |                  |   |         |  
|Preferred stock, $50.00 par value; authorized 18,740 shares; 14,400 issued                                                 |  |                        | 720     |   |                  |   | 720     |  
|Common stock, $0.01 par value; authorized 30,000,000 shares; issued and outstanding 8,327,766, and 7,702,766, respectively |  |                        | 83      |   |                  |   | 77      |  
|Additional paid-in capital                                                                                                 |  |                        | 57,919  |   |                  |   | 57,637  |  
|Accumulated deficit                                                                                                        |  |                        | (67,918 | ) |                  |   | (62,566 | )
|                                                                                                                           |  |                        |         |   |                  |   |         |  
|Total stockholders deficit                                                                                                |  |                        | (9,196  | ) |                  |   | (4,132  | )
|                                                                                                                           |  |                        |         |   |                  |   |         |  
|Total liabilities and stockholders deficit                                                                                |  | $                      | 4,605   |   |                  | $ | 8,232   |  
|                                                                                                                           |  |                        |         |   |                  |   |         |  

See accompanying report of independent registered public accounting firm and notes to the
consolidated financial statements.



32



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##### Table of Contents

CONSOLIDATED STATEMENTS OF
OPERATIONS

(Amounts in thousands, except per share data)



|                                                               |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  
|-------------------------------------------------------------- |  | ----------------------- | ------ | - | -------------------------------- | ------ | - | --------------------------- | ------ | - |  | ------ | -
|                                                               |  | Year Ended December 31, |        |   | SevenMonthsEndedDecember 31,2006 |        |   | Fiscal YearEndedMay 31,2006 |       
|                                                               |  | 2008                    |        |   | 2007                             |        |   |                            
|Operating Revenues                                             |  | $                       | 35,156 |   |                                  | 37,400 |   |                             | 10,315 |   |  | 23,956 |  
|                                                               |  |                         |        |  
|Costs and Expenses:                                            |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  
|Healthcare operating expenses                                  |  |                         | 36,496 |   |                                  | 36,790 |   |                             | 9,713  |   |  | 20,562 |  
|General and administrative expenses                            |  |                         | 3,742  |   |                                  | 4,032  |   |                             | 1,767  |   |  | 3,316  |  
|Recovery of doubtful accounts                                  |  |                         | (49    | ) |                                  | (4     | ) |                             | (136   | ) |  | (88    | )
|Depreciation and amortization                                  |  |                         | 153    |   |                                  | 154    |   |                             | 62     |   |  | 87     |  
|                                                               |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  
|                                                               |  |                         | 40,342 |   |                                  | 40,972 |   |                             | 11,406 |   |  | 23,877 |  
|                                                               |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  
|                                                               |  |                         |        |  
|Operating (loss) income before items shown below               |  |                         | (5,186 | ) |                                  | (3,572 | ) |                             | (1,091 | ) |  | 79     |  
|Other income (expense):                                        |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  
|Gain from sale of available-for-sale securities                |  |                         |       |   |                                  | 29     |   |                             |       |   |  |       |  
|Gain from property insurance claim                             |  |                         |       |   |                                  |       |   |                             | 17     |   |  |       |  
|(Loss) gain on sale of assets                                  |  |                         | (9     | ) |                                  | 3      |   |                             | 2      |   |  |       |  
|Loss from software development                                 |  |                         |       |   |                                  |       |   |                             |       |   |  | (123   | )
|Loss on impairment  investment in marketable securities       |  |                         |       |   |                                  |       |   |                             |       |   |  | (17    | )
|Other non-operating income, net                                |  |                         | 14     |   |                                  | 192    |   |                             | 254    |   |  | 66     |  
|Interest income                                                |  |                         | 26     |   |                                  | 147    |   |                             | 58     |   |  | 78     |  
|Interest expense                                               |  |                         | (192   | ) |                                  | (190   | ) |                             | (113   | ) |  | (186   | )
|                                                               |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  
|                                                               |  |                         |        |  
|Loss from continuing operations before income taxes            |  |                         | (5,347 | ) |                                  | (3,391 | ) |                             | (873   | ) |  | (103   | )
|Income tax expense                                             |  |                         | 5      |   |                                  | 72     |   |                             | 43     |   |  | 78     |  
|                                                               |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  
|Loss from continuing operations                                |  |                         | (5,352 | ) |                                  | (3,463 | ) |                             | (916   | ) |  | (181   | )
|Loss from discontinued operations                              |  |                         |       |   |                                  |       |   |                             | (20    | ) |  |       |  
|                                                               |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  
|Net loss                                                       |  | $                       | (5,352 | ) |                                  | (3,463 | ) |                             | (936   | ) |  | (181   | )
|                                                               |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  
|                                                               |  |                         |        |  
|Loss per common share - basic:                                 |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  
|Loss from continuing operations                                |  | $                       | (0.67  | ) |                                  | (0.45  | ) |                             | (0.14  | ) |  | (0.03  | )
|Loss from discontinued operations                              |  |                         |       |   |                                  |       |   |                             | (0.01  | ) |  |       |  
|                                                               |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  
|Net loss                                                       |  | $                       | (0.67  | ) |                                  | (0.45  | ) |                             | (0.15  | ) |  | (0.03  | )
|                                                               |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  
|                                                               |  |                         |        |  
|Loss per common share - diluted:                               |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  
|Loss from continuing operations                                |  | $                       | (0.67  | ) |                                  | (0.45  | ) |                             | (0.14  | ) |  | (0.03  | )
|Loss from discontinued operations                              |  |                         |       |   |                                  |       |   |                             | (0.01  | ) |  |       |  
|                                                               |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  
|Net loss                                                       |  | $                       | (0.67  | ) |                                  | (0.45  | ) |                             | (0.15  | ) |  | (0.03  | )
|                                                               |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  
|                                                               |  |                         |        |  
|Weighted average common shares outstanding:                    |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  
|Basic                                                          |  |                         | 7,954  |   |                                  | 7,697  |   |                             | 6,445  |   |  | 5,808  |  
|                                                               |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  
|Diluted                                                        |  |                         | 7,954  |   |                                  | 7,697  |   |                             | 6,445  |   |  | 5,808  |  
|                                                               |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  
|                                                               |  |                         |        |  
|Dilutive common shares without respect to anti-dilutive effect |  |                         | 12,608 |   |                                  | 12,196 |   |                             | 11,274 |   |  | 10,464 |  
|                                                               |  |                         |        |   |                                  |        |   |                             |        |   |  |        |  

See accompanying report of independent registered public accounting firm and notes to the
consolidated financial statements.



33



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##### Table of Contents

CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT

(In thousands)



|                                                      |  |                 |  |              |     |                          |       |                    |   |    |                           |        |  |         |   |  |        |  
|----------------------------------------------------- |  | --------------- |  | ------------ | --- | ------------------------ | ----- | ------------------ | - | -- | ------------------------- | ------ |  | ------- | - |  | ------ | -
|                                                      |  | PREFERRED STOCK |  | COMMON STOCK |     | ADDITIONALPAID-INCAPITAL |       | ACCUMULATEDDEFICIT |   |    | TOTALSTOCKHOLDERSDEFICIT |       
|                                                      |  | SHARES          |  | AMOUNT       |     | SHARES                   |       | AMOUNT             |   |    |                          
|Balance, May 31, 2005                                 |  |                |  | $            |    |                          | 5,583 |                    | $ | 56 |                           | 53,813 |  | (57,986 | ) |  | (4,117 | )
|Net loss                                              |  |                |  |              |    |                          |      |                    |   |   |                           |       |  | (181    | ) |  | (181   | )
|Shares issued in connection with private transactions |  | 14              |  |              | 720 |                          |      |                    |   |   |                           | 2,650  |  |        |   |  | 3,370  |  
|Compensatory stock issued to non-employees            |  |                |  |              |    |                          | 34    |                    |   |   |                           | 53     |  |        |   |  | 53     |  
|Exercise of stock options                             |  |                |  |              |    |                          | 282   |                    |   | 3  |                           | 129    |  |        |   |  | 132    |  
|                                                      |  |                 |  |              |     |                          |       |                    |   |    |                           |        |  |         |   |  |        |  
|Balance, May 31, 2006                                 |  | 14              |  | $            | 720 |                          | 5,899 |                    | $ | 59 |                           | 56,645 |  | (58,167 | ) |  | (743   | )
|Net loss                                              |  |                |  |              |    |                          |      |                    |   |   |                           |       |  | (936    | ) |  | (936   | )
|Shares issued in connection with private transactions |  |                |  |              |    |                          | 1,739 |                    |   | 17 |                           | 768    |  |        |   |  | 785    |  
|Compensatory stock issued to non-employees            |  |                |  |              |    |                          | 17    |                    |   | 1  |                           | 33     |  |        |   |  | 34     |  
|Expense of stock options                              |  |                |  |              |    |                          |      |                    |   |   |                           | 57     |  |        |   |  | 57     |  
|                                                      |  |                 |  |              |     |                          |       |                    |   |    |                           |        |  |         |   |  |        |  
|Balance, December 31, 2006                            |  | 14              |  | $            | 720 |                          | 7,655 |                    | $ | 77 |                           | 57,503 |  | (59,103 | ) |  | (803   | )
|Net loss                                              |  |                |  |              |    |                          |      |                    |   |   |                           |       |  | (3,463  | ) |  | (3,463 | )
|Compensatory stock issued to non-employees            |  |                |  |              |    |                          | 10    |                    |   |   |                           | 25     |  |        |   |  | 25     |  
|Exercise of stock options                             |  |                |  |              |    |                          | 38    |                    |   |   |                           | 19     |  |        |   |  | 19     |  
|Expense of stock options                              |  |                |  |              |    |                          |      |                    |   |   |                           | 90     |  |        |   |  | 90     |  
|                                                      |  |                 |  |              |     |                          |       |                    |   |    |                           |        |  |         |   |  |        |  
|Balance, December 31, 2007                            |  | 14              |  | $            | 720 |                          | 7,703 |                    | $ | 77 |                           | 57,637 |  | (62,566 | ) |  | (4,132 | )
|Net loss                                              |  |                |  |              |    |                          |      |                    |   |   |                           |       |  | (5,352  | ) |  | (5,352 | )
|Shares issued in connection with private transactions |  |                |  |              |    |                          | 500   |                    |   | 5  |                           | 120    |  |        |   |  | 125    |  
|Exercise of stock options                             |  |                |  |              |    |                          | 125   |                    |   | 1  |                           | 32     |  |        |   |  | 33     |  
|Expense of stock options                              |  |                |  |              |    |                          |      |                    |   |   |                           | 130    |  |        |   |  | 130    |  
|                                                      |  |                 |  |              |     |                          |       |                    |   |    |                           |        |  |         |   |  |        |  
|Balance, December 31, 2008                            |  | 14              |  | $            | 720 |                          | 8,328 |                    | $ | 83 |                           | 57,919 |  | (67,918 | ) |  | (9,196 | )
|                                                      |  |                 |  |              |     |                          |       |                    |   |    |                           |        |  |         |   |  |        |  

See accompanying report of independent registered public accounting firm and notes to the
consolidated financial statements.



34



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##### Table of Contents

CONSOLIDATED STATEMENTS OF
CASH FLOWS

(Amounts in thousands)



|                                                                                                                 |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|---------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | --------------------------------- | ------ | - | --------------------------- | ----- | - |  | ------ | -
|                                                                                                                 |  | Year Ended December 31, |        |   | Seven MonthsEndedDecember 31,2006 |        |   | Fiscal YearEndedMay 31,2006 |      
|                                                                                                                 |  | 2008                    |        |   | 2007                              |        |   |                            
|Cash flows from operating activities:                                                                            |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|Loss from continuing operations                                                                                  |  | $                       | (5,352 | ) |                                   | (3,463 | ) |                             | (916  | ) |  | (181   | )
|Adjustments to reconcile loss from continuing operations to net cash (used in) provided by operating activities: |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|Depreciation and amortization                                                                                    |  |                         | 153    |   |                                   | 154    |   |                             | 62    |   |  | 87     |  
|Asset writedown  eye care memberships                                                                           |  |                         |       |   |                                   | 62     |   |                             |      |   |  | 63     |  
|Asset write-off                                                                                                  |  |                         |       |   |                                   | 3      |   |                             |      |   |  |       |  
|Loss on impairment  investment in marketable securities                                                         |  |                         |       |   |                                   |       |   |                             |      |   |  | 17     |  
|Loss from software development                                                                                   |  |                         |       |   |                                   |       |   |                             |      |   |  | 123    |  
|Loss on sale of assets                                                                                           |  |                         | 9      |   |                                   | (3     | ) |                             | (2    | ) |  |       |  
|Gain from sale of available-for-sale securities                                                                  |  |                         |       |   |                                   | (29    | ) |                             |      |   |  |       |  
|Gain from property insurance claim                                                                               |  |                         |       |   |                                   |       |   |                             | (17   | ) |  |       |  
|Amortization of deferred revenue                                                                                 |  |                         |       |   |                                   |       |   |                             | (3    | ) |  | (58    | )
|Non cash expense  stock issued                                                                                  |  |                         |       |   |                                   | 29     |   |                             | 22    |   |  | 53     |  
|Compensation expense  stock options and warrants issued                                                         |  |                         | 130    |   |                                   | 90     |   |                             | 57    |   |  |       |  
|Changes in assets and liabilities:                                                                               |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|Accounts receivable, net                                                                                         |  |                         | (1,546 | ) |                                   | 128    |   |                             | (10   | ) |  | (40    | )
|Accounts receivable  managed care reinsurance contract                                                          |  |                         |       |   |                                   |       |   |                             |      |   |  | 372    |  
|Other current assets, and other assets                                                                           |  |                         | (129   | ) |                                   | 388    |   |                             | 279   |   |  | (425   | )
|Accounts payable and accrued liabilities                                                                         |  |                         | 17     |   |                                   | 734    |   |                             | 2     |   |  | (23    | )
|Accrued claims payable                                                                                           |  |                         | 1,327  |   |                                   | 2,718  |   |                             | (44   | ) |  | (940   | )
|Income taxes payable                                                                                             |  |                         | (75    | ) |                                   | 44     |   |                             | 2     |   |  | 18     |  
|Other liabilities                                                                                                |  |                         |       |   |                                   | (29    | ) |                             | 29    |   |  | (665   | )
|                                                                                                                 |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|Net cash (used in) provided by continuing operations                                                             |  |                         | (5,466 | ) |                                   | 826    |   |                             | (539  | ) |  | (1,599 | )
|Net cash used in discontinued operations                                                                         |  |                         |       |   |                                   | (20    | ) |                             |      |   |  | (55    | )
|                                                                                                                 |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|Net cash (used in) provided by continuing and discontinued operations                                            |  |                         | (5,466 | ) |                                   | 806    |   |                             | (539  | ) |  | (1,654 | )
|Cash flows from investing activities:                                                                            |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|Net proceeds from sale of available-for-sale securities                                                          |  |                         |       |   |                                   | 30     |   |                             |      |   |  |       |  
|Net proceeds from sale of property and equipment                                                                 |  |                         | 2      |   |                                   | 3      |   |                             | 2     |   |  |       |  
|Proceeds from property insurance claim                                                                           |  |                         |       |   |                                   |       |   |                             | 35    |   |  |       |  
|Payment received on notes receivable                                                                             |  |                         | 27     |   |                                   | 25     |   |                             | 10    |   |  |       |  
|Additions to property and equipment, net                                                                         |  |                         | (48    | ) |                                   | (58    | ) |                             | (160  | ) |  | (25    | )
|                                                                                                                 |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|Net cash used in investing activities                                                                            |  |                         | (19    | ) |                                   |       |   |                             | (113  | ) |  | (25    | )
|                                                                                                                 |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|                                                                                                                 |  |                         |        |  
|Cash flows from financing activities:                                                                            |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|Proceeds from the issuance of common and preferred stock                                                         |  |                         | 158    |   |                                   | 19     |   |                             | 785   |   |  | 3,502  |  
|Proceeds from noncontrolling interest                                                                            |  |                         | 5      |   |                                   |       |   |                             |      |   |  |       |  
|Proceeds from the issuance of debt                                                                               |  |                         | 200    |   |                                   |       |   |                             |      |   |  |       |  
|Repayment of other liabilities                                                                                   |  |                         | (55    | ) |                                   | (55    | ) |                             | (53   | ) |  | (55    | )
|                                                                                                                 |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|Net cash provided by (used in) financing activities                                                              |  |                         | 308    |   |                                   | (36    | ) |                             | 732   |   |  | 3,447  |  
|                                                                                                                 |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|Net (decrease) increase in cash and cash equivalents                                                             |  |                         | (5,177 | ) |                                   | 770    |   |                             | 80    |   |  | 1,768  |  
|Cash and cash equivalents at beginning of period                                                                 |  |                         | 6,313  |   |                                   | 5,543  |   |                             | 5,463 |   |  | 3,695  |  
|                                                                                                                 |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|Cash and cash equivalents at end of period                                                                       |  | $                       | 1,136  |   |                                   | 6,313  |   |                             | 5,543 |   |  | 5,463  |  
|                                                                                                                 |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|Supplemental disclosures of cash flow information:                                                               |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|Cash paid during the year for:                                                                                   |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|Interest                                                                                                         |  | $                       | 192    |   |                                   | 190    |   |                             | 98    |   |  | 187    |  
|                                                                                                                 |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|Income taxes                                                                                                     |  | $                       | 88     |   |                                   | 30     |   |                             | 41    |   |  | 60     |  
|                                                                                                                 |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|Noncash financing and investing activities:                                                                      |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  
|Property acquired under capital leases                                                                           |  | $                       | 6      |   |                                   | 60     |   |                             | 34    |   |  | 131    |  
|                                                                                                                 |  |                         |        |   |                                   |        |   |                             |       |   |  |        |  

See accompanying report of independent registered public accounting firm and notes to the
consolidated financial statements.



35



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##### Table of Contents

NOTE 1  DESCRIPTION OF THE
COMPANYS BUSINESS AND BASIS OF PRESENTATION

Comprehensive Care Corporation (the Company, CompCare, we,
us, or our) 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. We manage the delivery of a continuum of psychiatric
and substance abuse services to commercial, Medicare, Medicaid and CHIP members on behalf of health plans, government organizations, third-party claims administrators, and commercial and other group purchasers of behavioral healthcare services. We
also provide prior and concurrent authorization for physician-prescribed psychotropic medications for a major Medicaid HMO in Michigan and a Medicare health plan in Puerto Rico. The managed care operations include administrative service agreements,
fee-for-service agreements, and capitation contracts. The customer base for its services includes both private and governmental entities. Our services are provided primarily by unrelated vendors on a subcontract basis.

Our Board of Directors approved on May 21, 2007 a change in the Companys fiscal year end from May 31 to December 31, effective
December 31, 2006. The seven months ended December 31, 2006 was our transition period for financial reporting purposes.

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. Certain prior period amounts have been reclassified to conform to the current year presentation.

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. Estimates and assumptions are of particular importance in our accounting for revenue recognition, accrued claims payable, premium deficiencies, goodwill, and stock compensation expense.
Actual results could differ from these estimates.

REVENUE RECOGNITION

Our managed care activities are performed under the terms of agreements with health maintenance organizations, 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 our clients and we review membership eligibility records and other reported information to verify its accuracy to
determine the amount of revenue to be recognized. For the years ended December 31, 2008 and 2007 such agreements accounted for 97.0%, or $34.1 million, and 97.0%, or $36.3 million, respectively, of revenue. For the seven months ended
December 31, 2006 such agreements accounted for 95.3%, or $9.8 million of revenue. For the fiscal year ended May 31, 2006 such agreements accounted for 96.2%, or $23.0 million of revenue. The remaining balance of our revenues is earned on
a fee-for-service basis and is recognized as services are rendered.

HEALTHCARE EXPENSE RECOGNITION

Healthcare operating expense is recognized in the period in which an eligible member actually receives services and includes an estimate of
the cost of behavioral health services that have been incurred but not yet reported. See Accrued Claims Payable for a discussion of claims incurred but not yet reported. We contract with various healthcare providers including hospitals,
physician groups and other licensed behavioral healthcare professionals either on a discounted fee-for-service or a per-case basis. We determine that a member has received services when we receive a claim within the contracted timeframe with all
required billing elements correctly completed by the service provider. We then determine that the member is eligible to receive such services, the service provided is medically necessary and is covered by the benefit plans certificate of
coverage, and the service is authorized by one of our employees. If all of these requirements are met, the claim is entered into our claims system for payment.



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PREMIUM DEFICIENCIES

We accrue losses under our capitated contracts when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.
We perform this loss accrual analysis on a specific contract basis taking into consideration such factors as future contractual revenue, projected future healthcare and maintenance costs, and each contracts specific terms related to future
revenue increases as compared to expected increases in healthcare costs. The projected future healthcare and maintenance costs are estimated based on historical trends and our estimate of future cost increases.

At any time prior to the end of a contract or contract renewal, if a capitated contract is not meeting its financial goals, we generally have the ability
to cancel the contract with 60 to 90 days written notice. Prior to cancellation, the Company will usually submit a request for a rate increase accompanied by supporting utilization data. Although our clients have historically been generally
receptive to such requests, no assurance can be given that such requests will be fulfilled in the future in our favor. If a rate increase is not granted, we have the ability, in most cases, to terminate the contract and limit our risk to a
short-term period.

On a quarterly basis, we perform a review of our portfolio of contracts for the purpose of identifying loss contracts
(as defined in the American Institute of Certified Public Accountants Audit and Accounting Guide  Health Care Organizations) and developing a contract loss reserve, if applicable, for succeeding periods. At December 31, 2008 and 2007, no
contract loss reserve for future periods was necessary.

CASH AND CASH EQUIVALENTS

At December 31, 2008 and 2007, cash and cash equivalents consisted entirely of funds on deposit in savings and checking accounts at major
financial institutions.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Expenditures for renewals and improvements are capitalized to the property accounts. Replacements and
maintenance and repairs that do not improve or extend the life of the respective assets are expensed as incurred. Depreciation expense is computed using the straight-line method over the estimated useful lives ranging from 2 to 12 years. Leasehold
improvements are amortized over the shorter of the lease term or the assets useful life. Amortization of assets acquired under capital leases is included in depreciation expense. Depreciation and amortization expense was $153,000 and $154,000
for the years ended December 31, 2008 and 2007, respectively. Depreciation and amortization expense for the seven months ended December 31, 2006 was $62,000. For the fiscal year ended May 31, 2006, depreciation and amortization
expense was $87,000.

GOODWILL

Goodwill represents the cost in excess of the fair value of net assets acquired in purchase transactions. Pursuant to SFAS No. 142, Goodwill and Other Intangible Assets, goodwill is not amortized but is periodically
evaluated for impairment to carrying amount, with decreases in carrying amount recognized immediately. We review goodwill for impairment annually, or more frequently if changes in circumstances or the occurrence of events suggest impairment exists.
The tests for impairment of goodwill require us to make estimates about fair value, which are based on discounted projected future cash flows and the quoted market price of our common stock. We performed an impairment test as of December 31,
2008, 2007 and 2006, and determined that no impairment of goodwill had occurred as of such dates.

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 us. 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 accrued claims payable amount reported. Although considerable variability is inherent in such estimates, management believes that the unpaid claims liability is adequate.



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NON-CONTROLLING INTEREST

Non-controlling interest on our balance sheet as of December 31, 2008 represents the minority owners interest in our newly formed, majority
owned subsidiary, CompCare de Puerto Rico, Inc. and incorporates adjustments to reflect the minority owners share of operating results for 2008. CompCare de Puerto Rico, Inc. is 51% owned by Comprehensive Behavioral Care, Inc. and 49% owned by
a major behavioral health services company based in San Juan, Puerto Rico.

OTHER LIABILITIES

Other liabilities include accrued reinsurance claims payable liabilities representing amounts payable to providers under state reinsurance programs.

INCOME TAXES

Under the asset and liability method of SFAS No. 109, Accounting for Income Taxes, 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.

In June 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in income taxes. FIN 48
requires that companies recognize in the consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. We adopted FIN 48 on January 1,
2007, the beginning of our 2007 fiscal year, with no impact on our consolidated financial statements.

STOCK OPTIONS

We grant stock options to our employees and non-employee directors (grantees) allowing grantees to purchase our common stock
pursuant to shareholder approved stock option plans. Prior to June 1, 2006, as permitted by SFAS No. 148, Accounting for Stock-Based Compensation-Transitional Disclosure, we elected to follow Accounting Principles Board Opinion
No. 25, (APB 25) Accounting for Stock Issued to Employees and related interpretations in accounting for our employee stock options. Under APB 25, in the event that the exercise price of our employee stock options is less
than the market price of the underlying stock on the date of grant, compensation expense is recognized. Because all options granted under our employee stock option plans had an exercise price equal to the market value of the underlying common stock
on the date of grant, no stock-based employee compensation cost was reflected in net loss.

Effective June 1, 2006, we adopted SFAS
No. 123(R), Share-Based Payment, using the modified prospective method, which requires companies to measure compensation cost for stock options issued to employees or non-employee directors at fair value on the grant date and
recognize compensation cost over the service period for those options expected to vest. We use a Black-Scholes valuation model to determine the fair value of options on the grant date, which is the same model previously utilized for footnote
disclosures required under SFAS No. 148, Accounting for Stock-Based Compensation-Transitional Disclosure. The following table illustrates the effect on net loss and loss per share if we had applied the fair value recognition
provisions of SFAS No. 123R to stock-based employee compensation.



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|                                                                                                                                    |  |                                               |       |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------- | ----- | -
|                                                                                                                                    |  | FISCAL
YEARENDEDMAY 31, 2006                  |      
|                                                                                                                                    |  | (in thousandsexcept for pershare information) |      
|Net loss, as reported                                                                                                               |  | $                                             | (181  | )
|Deduct:                                                                                                                             |  |                                               |       |  
|Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                               | (212  | )
|                                                                                                                                    |  |                                               |       |  
|Pro forma net loss                                                                                                                  |  | $                                             | (393  | )
|                                                                                                                                    |  |                                               |       |  
|                                                                                                                                    | 
|Loss per common share:                                                                                                              |  |                                               |       |  
|Basic  as reported                                                                                                                 |  | $                                             | (0.03 | )
|                                                                                                                                    |  |                                               |       |  
|Basic  pro forma                                                                                                                   |  | $                                             | (0.07 | )
|                                                                                                                                    |  |                                               |       |  
|                                                                                                                                    | 
|Diluted  as reported                                                                                                               |  | $                                             | (0.03 | )
|                                                                                                                                    |  |                                               |       |  
|Diluted  pro forma                                                                                                                 |  | $                                             | (0.07 | )
|                                                                                                                                    |  |                                               |       |  

The weighted average fair value of options granted in fiscal year 2006 was $1.42. For purposes of
pro forma disclosures, the estimated fair value of the options is amortized to expense over the options vesting period.

PER
SHARE DATA

In calculating basic loss per share, net loss is divided by the weighted average number of common
shares outstanding for the period. For the periods presented, diluted loss per share is equivalent to basic loss per share. The following table sets forth the computation of basic and diluted loss per share in accordance with Statement No. 128,
Earnings Per Share:



|                                           |  |                                                      |        |   |                                   |        |   |                             |       |   |  |       |  
|------------------------------------------ |  | ---------------------------------------------------- | ------ | - | --------------------------------- | ------ | - | --------------------------- | ----- | - |  | ----- | -
|                                           |  | Year Ended December 31,                              |        |   | SevenMonths EndedDecember 31,2006 |        |   | Fiscal YearEndedMay 31,2006 |      
|                                           |  | 2008                                                 |        |   | 2007                              |        |   |                            
|                                           |  | (Amounts in thousands, except per share information) |       
|Numerator:                                 |  |                                                      |        |   |                                   |        |   |                             |       |   |  |       |  
|Loss from continuing operations            |  | $                                                    | (5,352 | ) |                                   | (3,463 | ) |                             | (916  | ) |  | (181  | )
|Loss from discontinued operations          |  |                                                      |       |   |                                   |       |   |                             | (20   | ) |  |      |  
|                                           |  |                                                      |        |   |                                   |        |   |                             |       |   |  |       |  
|Net loss - Common Stockholders             |  | $                                                    | (5,352 | ) |                                   | (3,463 | ) |                             | (936  | ) |  | (181  | )
|                                           |  |                                                      |        |   |                                   |        |   |                             |       |   |  |       |  
|                                           |  |                                                      |        |  
|Denominator:                               |  |                                                      |        |   |                                   |        |   |                             |       |   |  |       |  
|Weighted average shares - basic            |  |                                                      | 7,954  |   |                                   | 7,697  |   |                             | 6,445 |   |  | 5,808 |  
|Effect of dilutive securities:             |  |                                                      |        |   |                                   |        |   |                             |       |   |  |       |  
|Employee stock options                     |  |                                                      |       |   |                                   |       |   |                             |      |   |  |      |  
|Warrants                                   |  |                                                      |       |   |                                   |       |   |                             |      |   |  |      |  
|                                           |  |                                                      |        |   |                                   |        |   |                             |       |   |  |       |  
|Weighted average shares - diluted          |  |                                                      | 7,954  |   |                                   | 7,697  |   |                             | 6,445 |   |  | 5,808 |  
|                                           |  |                                                      |        |   |                                   |        |   |                             |       |   |  |       |  
|                                           |  |                                                      |        |  
|Loss per common share  basic and diluted: |  |                                                      |        |   |                                   |        |   |                             |       |   |  |       |  
|Loss from continuing operations            |  | $                                                    | (0.67  | ) |                                   | (0.45  | ) |                             | (0.14 | ) |  | (0.03 | )
|Loss from discontinued operations          |  |                                                      |       |   |                                   |       |   |                             | (0.01 | ) |  |      |  
|                                           |  |                                                      |        |   |                                   |        |   |                             |       |   |  |       |  
|Net loss                                   |  | $                                                    | (0.67  | ) |                                   | (0.45  | ) |                             | (0.15 | ) |  | (0.03 | )
|                                           |  |                                                      |        |   |                                   |        |   |                             |       |   |  |       |  



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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.

For cash and cash equivalents, restricted cash,
and the note receivable, the carrying amount approximates fair value. Our financial assets and liabilities other than cash are not traded in an open market and therefore require us to estimate their fair value. Pursuant to the disclosure
requirements prescribed by FAS 107, we use a present value technique, which is a type of income approach, to measure the fair value of these financial instruments. The rate used for discounting expected cash flows is a risk-free rate adjusted for
systematic and unsystematic risk.

The carrying amounts and fair values of our financial instruments at December 31, 2008 and 2007 are
as follows:



|                          |  |                        |       |                   |       |                |       |           |      
|------------------------- |  | ---------------------- | ----- | ----------------- | ----- | -------------- | ----- | --------- | -----
|                          |  | December 31, 2008      |       | December 31, 2007
|                          |  | CarryingAmount         |       | FairValue         |       | CarryingAmount |       | FairValue
|                          |  | (Amounts in thousands)
|Assets                    |  |                        |       |                   |       |                |       |           |      
|Cash and cash equivalents |  | $                      | 1,136 |                   | 1,136 |                | 6,313 |           | 6,313
|Restricted cash           |  |                        | 1     |                   | 1     |                | 1     |           | 1    
|Note receivable           |  |                        | 17    |                   | 17    |                | 44    |           | 44   
|Liabilities               |  |                        |       |                   |       |                |       |           |      
|Promissory note           |  |                        | 200   |                   | 200   |                |      |           |     
|Debentures                |  |                        | 2,244 |                   | 2,223 |                | 2,244 |           | 2,096

NOTE 3  LIQUIDITY

During the year ended December 31, 2008, net cash and cash equivalents decreased by $5.2 million. Net cash used in continuing operations totaled $5.5
million. Cash used in investing activities is comprised of $48,000 in additions to property and equipment offset by $27,000 in proceeds from payments received on notes receivable. Cash provided by financing activities consists primarily of $158,000
in net proceeds from the issuance of common stock and $200,000 from the issuance of a convertible promissory note. Other cash flows from financing activities consist of repayment of debt of $55,000. In January 2009, the Company underwent a merger
with Core, which had previously purchased a 49% interest in the Company. The addition of Core increases the Companys sales pipeline for selling opportunities and creates additional distribution channels for product offerings from which
additional positive cash flow is expected. In February 2009, the Company raised additional capital of $1.6 million for working capital purposes and the payment of accrued claims payable. Together with new managed behavioral health care business in
Michigan and Puerto Rico, management believes the Company will generate sufficient working capital to sustain current operations and meet its current obligations during the next twelve months.

NOTE 4  SOURCES OF REVENUE

Our revenue can be segregated into the following significant categories (amounts in thousands):



|                        |  |                         |        |                                   |   |                             |  |   |        |  |   |       
|----------------------- |  | ----------------------- | ------ | --------------------------------- | - | --------------------------- |  | - | ------ |  | - | ------
|                        |  | Year Ended December 31, |        | Seven MonthsEndedDecember 31,2006 |   | Fiscal YearEndedMay 31,2006
|                        |  | 2008                    |        | 2007                              |   |                            
|Capitated contracts     |  | $                       | 34,117 |                                   | $ | 36,295                      |  | $ | 9,829  |  | $ | 23,044
|Non-capitated contracts |  |                         | 1,039  |                                   |   | 1,105                       |  |   | 486    |  |   | 912   
|                        |  |                         |        |                                   |   |                             |  |   |        |  |   |       
|Total                   |  | $                       | 35,156 |                                   | $ | 37,400                      |  | $ | 10,315 |  | $ | 23,956
|                        |  |                         |        |                                   |   |                             |  |   |        |  |   |       

Capitated revenues include contracts under which we assume the financial risk for the costs of
member behavioral healthcare services in exchange for a fixed, per member per month fee. For non-capitated contracts, we may manage behavioral healthcare programs or perform various managed care functions, such as clinical care management, provider
network development, and claims processing without assuming financial risk for member behavioral healthcare costs.



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NOTE 5  MAJOR CONTRACTS/CUSTOMERS

(1) Effective December 31, 2008, we ceased providing behavioral health services to approximately 11,000 members of a Medicare Advantage HMO in the state of Maryland.
We had previously served 39,000 of this HMOs members in Pennsylvania until the contract for the membership in this state ended on July 31, 2008, due to the HMOs selection of another behavioral health vendor. Services provided to
members in both states accounted for $6.1 million, or 17.3%, and $5.5 million, or 14.7%, of our operating revenues for the years ended December 31, 2008 and 2007, respectively.

(2) On December 31, 2008, we experienced the loss of a major contract to provide behavioral healthcare services to approximately 278,000 Medicaid and Commercial members in Indiana. The contract generated $17.8
million, or 50.6%, and $15.0 million, or 40.2%, of our revenues for the years ended December 31, 2008 and 2007, respectively.

(3) We currently
furnish behavioral healthcare services to approximately 243,000 members of a health plan providing Medicaid, Medicare, and CHIP benefits across three states. Services are provided on a fee-for-service and administrative services only
(ASO) basis. The contracts accounted for $3.7 million, or 10.6%, of revenue for the year ended December 31, 2008, $4.3 million, or 11.6%, for the year ended December 31, 2007, $1.5 million, or 14.1%, for the seven months ended
December 31, 2006, and $2.3 million, or 9.5%, for the fiscal year ended May 31, 2006, respectively. The health plan has been a customer since June of 2002. The initial contract was for a one-year period and has been automatically renewed
on an annual basis. Termination by either party may occur with 90 days written notice to the other party.

In general, our contracts with our 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.

NOTE 6  ACCOUNTS RECEIVABLE

Accounts receivable
of $1.6 million at December 31, 2008 and $35,000 at December 31, 2007 consists of trade receivables resulting from services rendered under managed care capitation contracts.

NOTE 7  OTHER CURRENT ASSETS

Other
current assets consist of the following:

|                                |  |                        |     |                  |   |    
|------------------------------- |  | ---------------------- | --- | ---------------- | - | ---
|                                |  | December 31,2008       |     | December 31,2007
|                                |  | (Amounts in thousands)
|Accounts receivable  other     |  | $                      | 6   |                  | $ | 32 
|Restricted cash                 |  |                        | 1   |                  |   | 1  
|Prepaid insurance               |  |                        | 99  |                  |   | 160
|Note receivable (1)             |  |                        | 17  |                  |   | 27 
|Other prepaid fees and expenses |  |                        | 213 |                  |   | 187
|                                |  |                        |     |                  |   |    
|Total other current assets      |  | $                      | 336 |                  | $ | 407
|                                |  |                        |     |                  |   |    

| | 
| | 

| | (1) | Represents the current portion of a promissory note received in July 2006 as settlement of a dispute between the Company and a software vendor that had been engaged to design, but
was unable to complete, a new managed care information system. The difference between the present value of the note and our investment of approximately $200,000 was recorded in the accompanying fiscal 2006 consolidated statement of operations as a
loss from software development. The current portion of the receivable is a component of other current assets while the non-current portion of approximately $0 and 17,000 appears as a note receivable in the accompanying consolidated
balance sheets at December 31, 2008 and 2007, respectively.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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NOTE 8  OTHER ASSETS

Other assets consist of the following:



|                                        |  |                        |     |                  |   |    
|--------------------------------------- |  | ---------------------- | --- | ---------------- | - | ---
|                                        |  | December 31,2008       |     | December 31,2007
|                                        |  | (Amounts in thousands)
|Deferred costs  NCQA accreditation     |  | $                      | 164 |                  | $ | 42 
|Deferred costs  provider credentialing |  |                        | 82  |                  |   | 90 
|Deposits                                |  |                        | 80  |                  |   | 4  
|                                        |  |                        |     |                  |   |    
|Total other assets                      |  | $                      | 326 |                  | $ | 136
|                                        |  |                        |     |                  |   |    

NOTE 9  PROPERTY AND EQUIPMENT,
NET

Property and equipment, net, consists of the following:



|                                               |  |                        |        |   |                  |        |  
|---------------------------------------------- |  | ---------------------- | ------ | - | ---------------- | ------ | -
|                                               |  | December 31,2008       |        |   | December 31,2007 |       
|                                               |  | (Amounts in thousands) |       
|Furniture and equipment                        |  | $                      | 1,286  |   |                  | 2,131  |  
|Leasehold improvements                         |  |                        | 58     |   |                  | 61     |  
|Capitalized leases                             |  |                        | 233    |   |                  | 282    |  
|                                               |  |                        |        |   |                  |        |  
|                                               |  |                        | 1,577  |   |                  | 2,474  |  
|Less accumulated depreciation and amortization |  |                        | (1,342 | ) |                  | (2,141 | )
|                                               |  |                        |        |   |                  |        |  
|Total property and equipment, net              |  | $                      | 235    |   |                  | 333    |  
|                                               |  |                        |        |   |                  |        |  

NOTE 10  ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following:



|                                                |  |                        |       |                  |   |      
|----------------------------------------------- |  | ---------------------- | ----- | ---------------- | - | -----
|                                                |  | December 31,2008       |       | December 31,2007
|                                                |  | (Amounts in thousands)
|Accounts payable                                |  | $                      | 540   |                  | $ | 360  
|Accrued salaries and wages                      |  |                        | 246   |                  |   | 685  
|Accrued vacation                                |  |                        | 122   |                  |   | 139  
|Accrued legal and audit                         |  |                        | 537   |                  |   | 207  
|Short-term portion of capital lease obligations |  |                        | 64    |                  |   | 54   
|Other accrued liabilities                       |  |                        | 444   |                  |   | 473  
|                                                |  |                        |       |                  |   |      
|Total accounts payable and accrued liabilities  |  | $                      | 1,953 |                  | $ | 1,918
|                                                |  |                        |       |                  |   |      



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NOTE 11  CAPITAL LEASES

We use capital leases to finance the acquisition of certain computer and telephone equipment. Terms of the leases range from three to five years.



|                                                                       |  |                        |     |                  |   |    
|---------------------------------------------------------------------- |  | ---------------------- | --- | ---------------- | - | ---
|                                                                       |  | December 31,2008       |     | December 31,2007
|                                                                       |  | (Amounts in thousands)
|Classes of property:                                                   |  |                        |     |                  |   |    
|Computer equipment                                                     |  | $                      | 96  |                  | $ | 138
|Telephone equipment                                                    |  |                        | 137 |                  |   | 144
|                                                                       |  |                        |     |                  |   |    
|Total equipment cost                                                   |  |                        | 233 |                  |   | 282
|Less: accumulated depreciation                                         |  |                        | 131 |                  |   | 126
|                                                                       |  |                        |     |                  |   |    
|Net book value                                                         |  | $                      | 102 |                  | $ | 156
|                                                                       |  |                        |     |                  |   |    
|                                                                       |  |                       
|Future minimum lease payments under the capital leases are as follows: |  |                        |     |                  |   |    
|                                                                       |  |                       
|Year ended December 31, 2009                                           |  | $                      | 74  |                  |   |    
|Year ended December 31, 2010                                           |  |                        | 47  |                  |   |    
|Year ended December 31, 2011                                           |  |                        | 20  |                  |   |    
|                                                                       |  |                        |     |                  |   |    
|Total minimum lease payments                                           |  |                        | 141 |                  |   |    
|Less: amount representing interest                                     |  |                        | 14  |                  |   |    
|                                                                       |  |                        |     |                  |   |    
|Total obligations under capital leases                                 |  |                        | 127 |                  |   |    
|Less: current installments of capital lease obligations                |  |                        | 64  |                  |   |    
|                                                                       |  |                        |     |                  |   |    
|Longterm obligation under capital leases                              |  | $                      | 63  |                  |   |    
|                                                                       |  |                        |     |                  |   |    

NOTE 12  LONG-TERM DEBT

Long-term debt consists of the following:



|                                                                                                                   |  |                        |       |                  |      
|------------------------------------------------------------------------------------------------------------------ |  | ---------------------- | ----- | ---------------- | -----
|                                                                                                                   |  | December 31,2008       |       | December 31,2007
|                                                                                                                   |  | (Amounts in thousands)
|81/2% convertible
promissory note due August 2011, interest payable monthly (1)                                    |  |                        | 200   |                  |     
|71/2% convertible
subordinated debentures due April, 2010, interest payable semi-annually in April and October (2) |  | $                      | 2,244 |                  | 2,244
|                                                                                                                   |  |                        |       |                  |      
|Total long-term debt                                                                                               |  | $                      | 2,444 |                  | 2,244
|                                                                                                                   |  |                        |       |                  |      



|(1) | The promissory note is convertible at the option of the note holder into 800,000 shares of restricted common stock at a conversion price of $0.25 per share.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | At December 31, 2008, the debentures are convertible into 15,873 shares of common stock at a conversion price of $141.37 per share.
|--- | -----------------------------------------------------------------------------------------------------------------------------------



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NOTE 13  INCOME TAXES

Provision for income taxes consists of the following (amounts in thousands):



|                           |  |                         |   |                                   |    |                             |    |  |   
|-------------------------- |  | ----------------------- | - | --------------------------------- | -- | --------------------------- | -- |  | --
|                           |  | Year Ended December 31, |   | Seven MonthsEndedDecember 31,2006 |    | Fiscal YearEndedMay 31,2006
|                           |  | 2008                    |   | 2007                              |    |                            
|Current:                   |  |                         |   |                                   |    |                             |    |  |   
|Federal                    |  | $                       |  |                                   |   |                             |   |  |  
|State                      |  |                         | 5 |                                   | 72 |                             | 43 |  | 78
|                           |  |                         |   |                                   |    |                             |    |  |   
|Provision for income taxes |  | $                       | 5 |                                   | 72 |                             | 43 |  | 78
|                           |  |                         |   |                                   |    |                             |    |  |   

Reconciliation between the provision for income tax and the amount computed by applying the
statutory Federal income tax rate (34%) to loss before income tax is as follows (amounts in thousands):



|                                                              |  |                         |        |   |                                   |        |   |                             |      |   |  |     |  
|------------------------------------------------------------- |  | ----------------------- | ------ | - | --------------------------------- | ------ | - | --------------------------- | ---- | - |  | --- | -
|                                                              |  | Year Ended December 31, |        |   | Seven MonthsEndedDecember 31,2006 |        |   | Fiscal YearEndedMay 31,2006 |     
|                                                              |  | 2008                    |        |   | 2007                              |        |   |                            
|Income tax benefit at the statutory tax rate                  |  | $                       | (1,818 | ) |                                   | (1,153 | ) |                             | (303 | ) |  | (35 | )
|State income tax (benefit) expense, net of federal tax effect |  |                         | (248   | ) |                                   | (51    | ) |                             | 4    |   |  | 74  |  
|Change in valuation allowance                                 |  |                         | 2,039  |   |                                   | 1,218  |   |                             | 351  |   |  | (16 | )
|Non-deductible items                                          |  |                         | 41     |   |                                   | 48     |   |                             | (3   | ) |  | 38  |  
|                                                              |  |                         |        |  
|Other                                                         |  |                         | (9     | ) |                                   | 10     |   |                             | (6   | ) |  | 17  |  
|                                                              |  |                         |        |   |                                   |        |   |                             |      |   |  |     |  
|Provision for income taxes                                    |  | $                       | 5      |   |                                   | 72     |   |                             | 43   |   |  | 78  |  
|                                                              |  |                         |        |   |                                   |        |   |                             |      |   |  |     |  

Significant components of our deferred income taxes are as follows:



|                                                         |  |              |        |   |      |        |  
|-------------------------------------------------------- |  | ------------ | ------ | - | ---- | ------ | -
|                                                         |  | December 31, |       
|                                                         |  | 2008         |        |   | 2007 |       
|Deferred Tax Assets:                                     |  |              |        |   |      |        |  
|Net operating loss carryforwards                         |  | $            | 4,861  |   |      | 2,917  |  
|Accrued expenses                                         |  |              | 208    |   |      | 124    |  
|Loss on impairment  investment in marketable securities |  |              |       |   |      | 40     |  
|Employee benefits                                        |  |              | 47     |   |      | 53     |  
|Other, net                                               |  |              | 168    |   |      | 93     |  
|                                                         |  |              |        |   |      |        |  
|Total Deferred Tax Assets                                |  |              | 5,284  |   |      | 3,227  |  
|Valuation Allowance                                      |  |              | (5,135 | ) |      | (3,096 | )
|                                                         |  |              |        |   |      |        |  
|Net Deferred Tax Assets                                  |  |              | 149    |   |      | 131    |  
|                                                         |  |             
|Deferred Tax Liabilities:                                |  |              |        |   |      |        |  
|Goodwill amortization                                    |  |              | (149   | ) |      | (131   | )
|                                                         |  |              |        |   |      |        |  
|Net Deferred Tax                                         |  | $            |       |   |      |       |  
|                                                         |  |              |        |   |      |        |  

In June 2005, we completed a private placement transaction that constituted a change of
ownership under IRS Section 382 rules, which impose limitations on the ability to deduct prior period net operating losses on current federal tax returns. As a result, our ability to use our net operating losses incurred prior to
June 14, 2005 is limited to approximately $400,000 per year.



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On January 12, 2007, the sale of Woodcliffs majority interest in the Company to Hythiam
constituted a second change of ownership under IRS Section 382 rules. In the event that the Company has two or more ownership changes, Section 1.382-5(d) also describes a potential impact on the limitation for any losses
attributable to the period preceding the earlier ownership change. We have determined that this change of ownership does not change the limitation of approximately $400,000 per year for net operating losses incurred prior to June 14, 2005, the
date of the first change in control. Furthermore, our ability to use net operating losses incurred between June 15, 2005 and January 12, 2007 is limited to approximately $490,000 per year. Net operating losses for periods prior to
June 15, 2005 and for the subsequent period of June 15, 2005 to January 12, 2007 may be deducted simultaneously subject to the applicable limitations.

The purchase by Core of Hythiams ownership interest resulted in a third change in control of the Company. See Note 19 Subsequent Events. As a result, any losses incurred prior to January 20,
2009 are now subject to a lesser limitation, which approximates $361,000 per year. Any unused portion of such limitation can be carried forward to the following year. We may be subject to further limitation in the event that we issue or agree to
issue substantial amounts of additional equity.

At December 31, 2008, the Companys federal net operating loss carryforwards
total approximately $12.8 million, of which $8.8 million is not subject to Section 382 limitations from the first two change in control transactions. These losses were incurred in the years ended May 31, 2002 through December 31,
2008, and expire in years 2022 through 2028. The Company may be unable to utilize some or all of its allowable tax deductions or losses, depending upon factors including the availability of sufficient taxable income from which to deduct such losses
during limited carryover periods.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various
state jurisdictions. Tax years that remain subject to examinations by tax authorities are 2007, 2006, and 2005.

After consideration of all
the evidence, both positive and negative, management has determined that a valuation allowance at December 31, 2008 and 2007 was necessary to fully offset the deferred tax assets based on the likelihood of future realization.

NOTE 14  EMPLOYEE BENEFIT PLAN

We offer 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 our 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 $15,500 during 2008, subject to limitations on the highly compensated employees to ensure the Plan is non-discriminatory. Our plan year ends at May 31.
Company contributions are discretionary and are determined by the Companys management. Our employer matching contributions to the Plan were $4,316 and $8,906 in 2008 and 2007, respectively. We did not make a matching contribution during the
seven months ended December 31, 2006 or during the 2006 fiscal year.

NOTE 15  PREFERRED STOCK,
COMMON STOCK, AND STOCK OWNERSHIP PLANS

PREFERRED STOCK

As of December 31, 2008, there were 4,340 remaining shares of preferred stock
authorized and available to issue, and 14,400 outstanding shares of Series A Preferred Stock. All of the outstanding Series A Preferred shares were issued in June 2005 as a result of the sale of Series A Preferred Stock to Woodcliff for
approximately $3.4 million in net cash proceeds. The Series A Preferred Stock, acquired by Hythiam in January 2007, was recently acquired by Core in January 2009. On January 20, 2009, Core converted the Series A Preferred Stock into 4,553,136
shares of common stock. See Note 19 Subsequent Events.

On January 20, 2009, as part of the Merger Agreement between Core
and CompCare, we issued 1,675 shares of newly designated Series B-1 Convertible Preferred Stock and 2,665 shares of Series B-2 Convertible Preferred Stock in exchange for all of Cores Class B Common Stock. The Series B-1 Convertible Preferred
Stock is senior to the Series B-2 Convertible Preferred Stock, which in turn is senior to our common stock. The Series B-1 and Series B-2 Convertible Preferred Stock have other rights and preferences more fully described in Exhibit 99.2 to our Form
8-K dated January 16, 2009 and filed January 23, 2009, available at www.sec.gov. Also see Note 19 Subsequent Events.



45



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##### Table of Contents

COMMON STOCK

Authorized shares of common stock reserved for possible issuance for convertible debentures, convertible preferred stock, convertible note payable, stock options, and warrants are as follows at December 31, 2008:



|                                                  |  |          
|------------------------------------------------- |  | ---------
|Convertible debentures(a)                         |  | 15,873   
|Convertible preferred stock(b)                    |  | 4,553,136
|Convertible promissory note payable(c)            |  | 800,000  
|Outstanding stock options(d)                      |  | 847,500  
|Outstanding warrants(e)                           |  | 306,000  
|Possible future issuance under stock option plans |  | 1,198,668
|                                                  |  |          
|Total                                             |  | 7,721,177
|                                                  |  |          

| | 
| | 

| | (a) | The debentures are convertible into 15,873 shares of common stock at a conversion price of $141.37 per share.
| | --- | -------------------------------------------------------------------------------------------------------------

| | (b) | The Series A Convertible Preferred Stock is convertible into 4,553,136 shares of common stock at a conversion rate of 316.19 common shares for each preferred share.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | The note payable is convertible into 800,000 shares of common stock at a conversion price of $0.25 per share.
| | --- | -------------------------------------------------------------------------------------------------------------

| | (d) | Options to purchase our common stock have been issued to employees and non-employee Board of Director members with exercise prices ranging from $0.25 to $2.16.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | Warrants to purchase our common stock have been issued to certain individuals or vendors in exchange for consulting services. All such warrants were issued in lieu of cash
compensation and have five-year terms with an exercise price of $1.25.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

STOCK OWNERSHIP PLANS

We grant stock options to our employees and non-employee directors (grantees) allowing grantees to purchase our common stock
pursuant to shareholder-approved stock option plans. We currently have two active incentive plans, the 1995 Incentive Plan and the 2002 Incentive Plan (collectively, the Plans), that provide for the granting of stock options, stock
appreciation rights, limited stock appreciation rights, restricted preferred stock, and common stock grants to eligible employees and consultants. 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. Vesting generally occurs after six months for one-half of the options and after 12 months for the remaining options. The exercise price for
ISOs must equal or exceed the fair market value of the shares on the date of grant. 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 1,000,000 under the 2002 Incentive Plan and 1,000,000 under the 1995 Incentive Plan. As of December 31, 2008, under the 2002 Incentive Plan, there were 422,000 options available for grant and 538,000 options outstanding, of which 305,500
were exercisable. Additionally, as of December 31, 2008, under the 1995 Incentive Plan, there were 184,500 options outstanding and exercisable. There are no further options available for grant under the 1995 Incentive Plan.

We also have a non-qualified stock option plan for our non-employee directors. Each non-qualified stock option is exercisable at a price equal to the
average of the closing bid and asked prices of the common stock in the over-the-counter market for the most recent preceding day there was a sale of the stock prior to the grant date. Grants of options vest in accordance with vesting schedules
established by our Board of Directors Compensation and Stock Option Committee. Upon joining the Board, directors receive an initial grant of 25,000 options. Annually, directors are granted 15,000 options on the date of the Companys
annual meeting. As of December 31, 2008, under the directors plan, there were 776,668 shares available for option grants and 125,000 options outstanding and exercisable.



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A summary of activity for the year ended December 31, 2008 is as follows:



|                                 |  |           |   |  |                               |      |                                           |      |                          |   |  
|-------------------------------- |  | --------- | - |  | ----------------------------- | ---- | ----------------------------------------- | ---- | ------------------------ | - | -
|Options                          |  | Shares    |   |  | Weighted-AverageExercisePrice |      | Weighted-AverageRemainingContractual Term |      | AggregateIntrinsic Value
|Outstanding at December 31, 2007 |  | 1,070,375 |   |  | $                             | 1.27 |                                           |      |                          |   |  
|Granted                          |  | 300,000   |   |  |                               | 0.54 |                                           |      |                          |   |  
|Exercised                        |  | (125,000  | ) |  |                               | 0.26 |                                           |      |                          |   |  
|Forfeited or expired             |  | (397,875  | ) |  |                               | 1.85 |                                           |      |                          |   |  
|                                 |  |           |   |  |                               |      |                                           |      |                          |   |  
|Outstanding at December 31, 2008 |  | 847,500   |   |  | $                             | 0.88 |                                           | 6.34 |                          | $ | 
|                                 |  |           |   |  |                               |      |                                           |      |                          |   |  
|Exercisable at December 31, 2008 |  | 615,000   |   |  | $                             | 1.00 |                                           | 5.28 |                          | $ | 

The following table summarizes information about options granted, exercised, and vested for the
years ended December 31, 2008 and 2007, the seven months ended December 31, 2006 and for the fiscal year ended May 31, 2006.



|                                           |  |                         |         |                                   |   |                             |  |   |         |  |   |        
|------------------------------------------ |  | ----------------------- | ------- | --------------------------------- | - | --------------------------- |  | - | ------- |  | - | -------
|                                           |  | Year Ended December 31, |         | Seven MonthsEndedDecember 31,2006 |   | Fiscal YearEndedMay 31,2006
|                                           |  | 2008                    |         | 2007                              |   |                            
|Options granted                            |  |                         | 300,000 |                                   |   | 145,000                     |  |   | 125,000 |  |   | 314,666
|                                           |  |                         |         |                                  
|Weighted-average grant-date fair value     |  | $                       | 0.47    |                                   | $ | 0.76                        |  | $ | 1.31    |  | $ | 1.42   
|                                           |  |                         |         |                                  
|Options exercised                          |  |                         | 125,000 |                                   |   | 37,500                      |  |   |        |  |   | 282,166
|                                           |  |                         |         |                                  
|Total intrinsic value of exercised options |  | $                       | 50,080  |                                   | $ | 13,160                      |  | $ |        |  | $ | 411,009
|                                           |  |                         |         |                                  
|Fair value of vested options               |  | $                       | 132,212 |                                   | $ | 78,346                      |  | $ | 59,268  |  | $ | 187,033

At December 31, 2008, there was approximately $65,000 of total unrecognized compensation cost
related to unvested options, which was recognized in January 2009 due to accelerated vesting provisions triggered by the January 20, 2009 change in control resulting from the Core transaction. See Note 19, Subsequent Events. Total
recognized compensation costs during the year ended December 31, 2008 were approximately $130,000. No compensation cost related to employees was recognized prior to June 1, 2006. We recognized approximately $19,000 of tax benefits
attributable to stock-based compensation expense recorded during the year ended December 31, 2008. This benefit was fully offset by a valuation allowance of the same amount due to the likelihood of future realization.

The following table lists the assumptions utilized in applying the Black-Scholes valuation model. We use historical data and management judgment to
estimate the expected term of the option. Expected volatility is based on the historical volatility of our traded stock. We have not declared dividends in the past nor do we expect to do so in the near future, and as such we assume no expected
dividend. The risk-free rate is based on the U.S. Treasury yield curve with the same expected term as that of the option at the time of grant.



|                                                                             |  |                         |   |  |                                   |   |  |                             |   |  |       |  
|---------------------------------------------------------------------------- |  | ----------------------- | - |  | --------------------------------- | - |  | --------------------------- | - |  | ----- | -
|                                                                             |  | Year Ended December 31, |   |  | Seven MonthsEndedDecember 31,2006 |   |  | Fiscal YearEndedMay 31,2006 |  
|                                                                             |  | 2008                    |   |  | 2007                              |   |  |                            
|Volatility factor of the expected market price of the Companys common stock |  | 125.0% - 130.0          | % |  | 110.0                             | % |  | 93.0                        | % |  | 100.8 | %
|Expected life (in years) of the options                                      |  | 5-6                     |   |  | 3                                 |   |  | 5                           |   |  | 5     |  
|Risk-free interest rate                                                      |  | 2.6% - 3.2              | % |  | 4.8                               | % |  | 4.6                         | % |  | 4.5   | %
|Dividend yield                                                               |  | 0                       | % |  | 0                                 | % |  | 0                           | % |  | 0     | %



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A summary of our stock option activity and related information for the years ended December 31, 2008 and 2007, the
seven months ended December 31, 2006, and the fiscal year ended May 31, 2006, and is as follows:



|                                    |  |           |   |  |                               |     
|----------------------------------- |  | --------- | - |  | ----------------------------- | ----
|                                    |  | Shares    |   |  | WeightedAverageExercise Price
|Outstanding as of May 31, 2005      |  | 1,343,956 |   |  | $                             | 1.08
|                                    |  |           |   |  |                               |     
|Granted                             |  | 314,666   |   |  |                               | 1.82
|Exercised                           |  | (282,166  | ) |  |                               | 0.47
|Forfeited                           |  | (190,049  | ) |  |                               | 1.41
|                                    |  |           |   |  |                               |     
|Outstanding as of May 31, 2006      |  | 1,186,407 |   |  | $                             | 1.36
|                                    |  |           |   |  |                               |     
|Granted                             |  | 125,000   |   |  |                               | 1.88
|Exercised                           |  |          |   |  |                               |    
|Forfeited                           |  | (2,700    | ) |  |                               | 1.15
|                                    |  |           |   |  |                               |     
|Outstanding as of December 31, 2006 |  | 1,308,707 |   |  | $                             | 1.41
|                                    |  |           |   |  |                               |     
|Granted                             |  | 145,000   |   |  |                               | 1.05
|Exercised                           |  | (37,500   | ) |  |                               | 0.51
|Forfeited                           |  | (345,832  | ) |  |                               | 1.82
|                                    |  |           |   |  |                               |     
|Outstanding as of December 31, 2007 |  | 1,070,375 |   |  | $                             | 1.27
|                                    |  |           |   |  |                               |     
|Granted                             |  | 300,000   |   |  |                               | 0.54
|Exercised                           |  | (125,000  | ) |  |                               | 0.26
|Forfeited                           |  | (397,875  | ) |  |                               | 1.85
|                                    |  |           |   |  |                               |     
|Outstanding as of December 31, 2008 |  | 847,500   |   |  | $                             | 0.88
|                                    |  |           |   |  |                               |     

A summary of options outstanding and exercisable as of December 31, 2008 is as follows:



|                   |  |                    |                 |                               |   |                                          |  |                    |  |                                                     |  |   |     
|------------------ |  | ------------------ | --------------- | ----------------------------- | - | ---------------------------------------- |  | ------------------ |  | --------------------------------------------------- |  | - | ----
|OptionsOutstanding |  | ExercisePriceRange |                 | Weighted-AverageExercisePrice |   | Weighted-AverageRemainingContractualLife |  | OptionsExercisable |  | Weighted-AverageExercise Price ofExercisableOptions
|166,000            |  | $                  | 0.25 - $ 0.43   |                               | $ | 0.37                                     |  | 6.44               |  | 116,000                                             |  | $ | 0.34
|152,000            |  | $                  | 0.51 -$ 0.55    |                               | $ | 0.54                                     |  | 6.99               |  | 52,000                                              |  | $ | 0.51
|184,500            |  | $                  | 0.5625 - $ 0.66 |                               | $ | 0.61                                     |  | 4.74               |  | 102,000                                             |  | $ | 0.57
|156,500            |  | $                  | 0.78 - $ 1.11   |                               | $ | 1.06                                     |  | 8.00               |  | 156,500                                             |  | $ | 1.06
|158,000            |  | $                  | 1.40 - $ 1.80   |                               | $ | 1.65                                     |  | 6.13               |  | 158,000                                             |  | $ | 1.65
|30,500             |  | $                  | 1.95 - $ 2.16   |                               | $ | 2.12                                     |  | 4.75               |  | 30,500                                              |  | $ | 2.12
|                   |  |                    |                 |                               |   |                                          |  |                    |  |                                                     |  |   |     
|847,500            |  | $                  | 0.25 - $ 2.16   |                               | $ | 0.88                                     |  | 6.34               |  | 615,000                                             |  | $ | 1.00
|                   |  |                    |                 |                               |   |                                          |  |                    |  |                                                     |  |   |     

WARRANTS

We periodically issue warrants to purchase common stock as compensation for the services of consultants and marketing employees. At December 31, 2008, 306,000 warrants to purchase common stock for $1.25 per share
were outstanding, having been issued in prior years to two consultants and two employees as compensation for introducing strategic business partners to the Company. All such warrants have five-year terms and expire in February 2010. No warrants were
issued during the years ended December 31, 2008 and 2007, the seven months ended December 31, 2006, or the fiscal year ended May 31, 2006.



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NOTE 16  COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

We lease certain office space and equipment under leases expiring in 2012. The Texas office lease contains 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 approximately $259,000 and $269,000, respectively, for the years ended December 31, 2008 and 2007. For the seven months ended December 31, 2006, total rental expense was
$210,000. For the fiscal year ended May 31, 2006, total rental expense was $500,000.

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 December 31, 2008:

Calendar Year



|                             |  |                        |      
|---------------------------- |  | ---------------------- | -----
|                             |  | Operating Leases      
|                             |  | (Amounts in thousands)
|2009                         |  | $                      | 516  
|2010                         |  |                        | 501  
|2011                         |  |                        | 22   
|2012                         |  |                        | 11   
|                             |  |                        |      
|Total minimum lease payments |  | $                      | 1,050
|                             |  |                        |      

OTHER COMMITMENTS AND CONTINGENCIES



|(1) | Related to our discontinued hospital operations, Medicare guidelines allow the Medicare fiscal intermediary to re-open previously filed cost reports. Our fiscal 1999 cost report,
the final year we were required to file a cost report, is being reviewed, in which case the intermediary may determine that additional amounts are due to or from Medicare. Management believes cost reports for fiscal years prior to fiscal 1999 are
closed and considered final.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | We have insurance for a broad range of risks as it relates to our business operations. We maintain managed care errors and omissions, professional and general liability coverage.
These policies are written on a claims-made basis and are subject to a $10,000 per claim self-insured retention. The managed care errors and omissions and professional liability policies include limits of liability of $1 million per claim and $3
million in the aggregate. The general liability has a limit of liability of $5 million per claim and $5 million in the aggregate. We are responsible for claims within the self-insured retentions or if the policy limits are exceeded. Management is
not aware of any claims that could have a material adverse impact on our consolidated financial statements.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 17 
RELATED PARTY TRANSACTIONS

In February 2006, CBC entered into an agreement with Hythiam
whereby we would have the exclusive right to market Hythiams substance abuse disease management program to CBCs current and certain mutually agreed upon prospective clients. The program is an integrated disease management approach
designed to offer less restrictive levels of care in order to minimize repeat detoxifications. Under the agreement, CBC will pay Hythiam license and service fees for each enrollee who is treated. As of December 31, 2008, there had been no
material transactions resulting from this agreement.

In January 2009 we entered into an agreement with Hythiam to provide administrative
services for Hythiams newly launched specialty products and programs for autism and ADD. Hythiam will pay us a fee per member per month for claims processing and other related services. The agreement is for an initial term of one year
with options for renewal.

During 2007, CBC contracted with Integra Health Management, Inc. (IHM), a company that provides
behavioral and medical health management and consultative services to healthcare payers. IHM was founded by one of our former directors, Michael Yuhas, who also serves as its current Chief Executive Officer. During the years ended December 31,
2008 and 2007, CBC paid IHM $94,620 and $28,212, respectively, for monitoring and care coordination of intensive case management patients. In addition, IHM provided $115,967 and $15,000 of information technology consulting services to CBC for the
years ended December 31, 2008 and 2007, respectively.



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##### Table of Contents

We have accelerated our Sarbanes-Oxley Act compliance efforts in order to meet management attestation
requirements for financial reporting internal controls as of December 31, 2008. Hythiam has paid for consulting services to accomplish our management review of such internal controls. Because this effort has benefited us, we will reimburse
Hythiam a portion of the cost. In addition, we have benefited by being included under certain of Hythiams insurance policies. At December 31, 2008 and 2007, $91,000 and $80,000, respectively, is included in accounts payable and accrued
liabilities to cover expected reimbursements to Hythiam for these costs.

In March 2009, we executed new employment agreements with our
Chief Executive Officer, our new Chief Financial Officer, and our Chief Accounting Officer. The agreements are for terms of three years and contain provisions that include salary deferral, signing bonuses, and incentive compensation, among other
items. Each contract also stipulates payments due each employee upon termination due to a change in control. See Note 19, Subsequent Events.

In connection with the January 2009 purchase by Core of the Hythiam owned CompCare securities, our then Chief Financial Officer, Robert J. Landis, entered into a temporary waiver of the change in control provisions of
his employment agreement with the Company. Such provisions relate to payments that would be made to him upon certain events following a change in control of the Company, as defined in his employment agreement. The waiver terminated on March 5,
2009, the date on which Mr. Landis and the Company entered into a new employment agreement.



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##### Table of Contents

NOTE 18  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

CALENDAR 2008



|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  
|------------------------------------------------------------ |  | --------------------------------------------- | ------ | --- | --------- | ------ | - | ------- | ------ | --- | -------- | ----- | - |  | ------ | -
|                                                             |  | Quarter Ended                                 |        |     | YearTotal |       
|                                                             |  | 3/31/08                                       |        |     | 6/30/08   |        |   | 9/30/08 |        |     | 12/31/08 |       |  
|                                                             |  | (Amounts in thousands, except per share data) |       
|Operating revenues                                           |  | $                                             | 9,333  |     |           | 9,582  |   |         | 8,400  |     |          | 7,841 |   |  | 35,156 |  
|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  
|Gross (loss) profit                                          |  |                                               | (406   | )   |           | (2,125 | ) |         | 933    |     |          | 258   |   |  | (1,340 | )
|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  
|General and administrative expenses                          |  |                                               | 948    |     |           | 1,518  |   |         | 529    |     |          | 747   |   |  | 3,742  |  
|Recovery of doubtful accounts                                |  |                                               |       |     |           |       |   |         |       |     |          | (49   | ) |  | (49    | )
|Depreciation and amortization                                |  |                                               | 40     |     |           | 40     |   |         | 39     |     |          | 34    |   |  | 153    |  
|Other expense                                                |  |                                               | 35     |     |           | 41     |   |         | 41     |     |          | 44    |   |  | 161    |  
|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  
|Income (loss) from continuing operations before income taxes |  |                                               | (1,429 | )   |           | (3,724 | ) |         | 324    |     |          | (518  | ) |  | (5,347 | )
|Income tax expense                                           |  |                                               | 3      |     |           | 3      |   |         | (4     | )   |          | 3     |   |  | 5      |  
|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  
|Net (loss) income from continuing operations                 |  | $                                             | (1,432 | )   |           | (3,727 | ) |         | 328    |     |          | (521  | ) |  | (5,352 | )
|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  
|                                                             |  |                                               |        |     |          
|Basic (loss) income per common share                         |  | $                                             | (0.19  | )   |           | (0.48  | ) |         | 0.04   |     |          | (0.07 | ) |  | (0.67  | )
|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  
|                                                             |  |                                               |        |     |          
|Diluted (loss) income per common share                       |  | $                                             | (0.19  | )   |           | (0.48  | ) |         | 0.03   |     |          | (0.07 | ) |  | (0.67  | )
|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  
|                                                             |  |                                               |        |     |          
|Weighted Average Common Shares Outstanding  basic           |  |                                               | 7,727  |     |           | 7,828  |   |         | 7,928  |     |          | 7,928 |   |  | 7,954  |  
|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  
|                                                             |  |                                               |        |     |          
|Weighted Average Common Shares Outstanding  diluted         |  |                                               | 7,727  |     |           | 7,828  |   |         | 12,524 |     |          | 7,928 |   |  | 7,954  |  
|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  
|                                                             |  |                                              
|CALENDAR 2007                                                |  |                                               |        |     |           |        |  
|                                                             |  | Quarter Ended                                 |        |     | YearTotal |       
|                                                             |  | 3/31/07                                       |        |     | 6/30/07   |        |   | 9/30/07 |        |     | 12/31/07 |       |  
|                                                             |  | (Amounts in thousands, except per share data) |       
|Operating revenues                                           |  | $                                             | 8,701  |     |           | 9,159  |   |         | 9,760  |     |          | 9,780 |   |  | 37,400 |  
|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  
|Gross profit (loss)                                          |  |                                               | 438    |     |           | (189   | ) |         | 386    |     |          | (25   | ) |  | 610    |  
|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  
|General and administrative expenses                          |  |                                               | 1,081  | (a) |           | 931    |   |         | 1,201  | (b) |          | 819   |   |  | 4,032  |  
|(Recovery of) provision for doubtful accounts                |  |                                               | (10    | )   |           | 2      |   |         | 4      |     |          |      |   |  | (4     | )
|Depreciation and amortization                                |  |                                               | 38     |     |           | 38     |   |         | 38     |     |          | 40    |   |  | 154    |  
|Other expense (income)                                       |  |                                               | 23     |     |           | (29    | ) |         | 1      |     |          | (176  | ) |  | (181   | )
|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  
|Loss from continuing operations before income taxes          |  |                                               | (694   | )   |           | (1,131 | ) |         | (858   | )   |          | (708  | ) |  | (3,391 | )
|Income tax expense                                           |  |                                               | 10     |     |           | 14     |   |         | 15     |     |          | 33    |   |  | 72     |  
|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  
|Loss from continuing operations                              |  |                                               | (704   | )   |           | (1,145 | ) |         | (873   | )   |          | (741  | ) |  | (3,463 | )
|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  
|                                                             |  |                                               |        |     |          
|Basic loss per common share                                  |  | $                                             | (0.09  | )   |           | (0.15  | ) |         | (0.11  | )   |          | (0.10 | ) |  | (0.45  | )
|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  
|                                                             |  |                                               |        |     |          
|Diluted loss per common share                                |  | $                                             | (0.09  | )   |           | (0.15  | ) |         | (0.11  | )   |          | (0.10 | ) |  | (0.45  | )
|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  
|                                                             |  |                                               |        |     |          
|Weighted Average Common Shares Outstanding  basic           |  |                                               | 7,681  |     |           | 7,703  |   |         | 7,703  |     |          | 7,703 |   |  | 7,697  |  
|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  
|                                                             |  |                                               |        |     |          
|Weighted Average Common Shares Outstanding  diluted         |  |                                               | 7,681  |     |           | 7,703  |   |         | 7,703  |     |          | 7,703 |   |  | 7,697  |  
|                                                             |  |                                               |        |     |           |        |   |         |        |     |          |       |   |  |        |  



|(a) | Includes $418,000 of expenses related to the proposed merger with Hythiam.
|--- | --------------------------------------------------------------------------

|(b) | Includes $ 416,000 of severance benefits due the Companys former Chief Executive Officer.
|--- | ------------------------------------------------------------------------------------------



51



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|                                                          |  |                                               |       |       |                      |       |       |                    |       |   |                  |        |  
|--------------------------------------------------------- |  | --------------------------------------------- | ----- | ----- | -------------------- | ----- | ----- | ------------------ | ----- | - | ---------------- | ------ | -
|PERIOD JUNE 1 THROUGH DECEMBER 31, 2006                   |  | QuarterEnded8/31/06                           |       |       | QuarterEnded11/30/06 |       |       | MonthEnded12/31/06 |       |   | SevenMonthsTotal |       
|                                                          |  | (Amounts in thousands, except per share data) |      
|Operating revenues                                        |  | $                                             | 4,036 |       |                      | 4,646 |       |                    | 1,633 |   |                  | 10,315 |  
|                                                          |  |                                               |       |       |                      |       |       |                    |       |   |                  |        |  
|Gross profit (loss)                                       |  |                                               | 418   |       |                      | 202   |       |                    | (18   | ) |                  | 602    |  
|                                                          |  |                                               |       |       |                      |       |       |                    |       |   |                  |        |  
|General and administrative expenses                       |  |                                               | 762   |       |                      | 727   |       |                    | 278   |   |                  | 1,767  |  
|(Recovery of) provision for doubtful accounts             |  |                                               | (138  | ) (c) |                      | 3     |       |                    | (1    | ) |                  | (136   | )
|Depreciation and amortization                             |  |                                               | 23    |       |                      | 29    |       |                    | 10    |   |                  | 62     |  
|Other expense (income)                                    |  |                                               | 23    |       |                      | (246  | ) (d) |                    | 5     |   |                  | (218   | )
|                                                          |  |                                               |       |       |                      |       |       |                    |       |   |                  |        |  
|Loss from continuing operations before income taxes       |  |                                               | (252  | )     |                      | (311  | )     |                    | (310  | ) |                  | (873   | )
|Income tax expense                                        |  |                                               | 23    |       |                      | 15    |       |                    | 5     |   |                  | 43     |  
|                                                          |  |                                               |       |       |                      |       |       |                    |       |   |                  |        |  
|Net loss from continuing operations                       |  |                                               | (275  | )     |                      | (326  | )     |                    | (315  | ) |                  | (916   | )
|Loss from discontinued operations                         |  |                                               |      |       |                      | 20    |       |                    |      |   |                  | 20     |  
|                                                          |  |                                               |       |       |                      |       |       |                    |       |   |                  |        |  
|Net loss                                                  |  | $                                             | (275  | )     |                      | (346  | )     |                    | (315  | ) |                  | (936   | )
|                                                          |  |                                               |       |       |                      |       |       |                    |       |   |                  |        |  
|                                                          |  |                                               |       |      
|Basic loss per common share for continuing operations     |  | $                                             | (0.05 | )     |                      | (0.05 | )     |                    | (0.04 | ) |                  | (0.14  | )
|Basic loss per common share for discontinued operations   |  |                                               |      |       |                      | (0.00 | )     |                    |      |   |                  | (0.01  | )
|                                                          |  |                                               |       |       |                      |       |       |                    |       |   |                  |        |  
|Net loss                                                  |  | $                                             | (0.05 | )     |                      | (0.05 | )     |                    | (0.04 | ) |                  | (0.15  | )
|                                                          |  |                                               |       |       |                      |       |       |                    |       |   |                  |        |  
|                                                          |  |                                               |       |      
|Diluted loss per common share for continuing operations   |  | $                                             | (0.05 | )     |                      | (0.05 | )     |                    | (0.04 | ) |                  | (0.14  | )
|Diluted loss per common share for discontinued operations |  |                                               |      |       |                      | (0.00 | )     |                    |      |   |                  | (0.01  | )
|                                                          |  |                                               |       |       |                      |       |       |                    |       |   |                  |        |  
|Net loss                                                  |  | $                                             | (0.05 | )     |                      | (0.05 | )     |                    | (0.04 | ) |                  | (0.15  | )
|                                                          |  |                                               |       |       |                      |       |       |                    |       |   |                  |        |  
|                                                          |  |                                               |       |      
|Weighted Average Common Shares Outstanding  basic        |  |                                               | 5,902 |       |                      | 6,582 |       |                    | 7,655 |   |                  | 6,445  |  
|                                                          |  |                                               |       |       |                      |       |       |                    |       |   |                  |        |  
|                                                          |  |                                               |       |      
|Weighted Average Common Shares Outstanding  diluted      |  |                                               | 5,902 |       |                      | 6,582 |       |                    | 7,655 |   |                  | 6,445  |  
|                                                          |  |                                               |       |       |                      |       |       |                    |       |   |                  |        |  



|(c) | Includes a $150,000 recovery of an account written off in 1999.
|--- | ---------------------------------------------------------------

|(d) | Includes recognition of $250,000 of insurance policy proceeds due the Company.
|--- | ------------------------------------------------------------------------------

FISCAL 2006



|                                                             |  |                                               |       |     |                  |        |   |         |        |     |         |       |     |  |        |  
|------------------------------------------------------------ |  | --------------------------------------------- | ----- | --- | ---------------- | ------ | - | ------- | ------ | --- | ------- | ----- | --- |  | ------ | -
|                                                             |  | Quarter Ended                                 |       |     | Fiscal YearTotal |       
|                                                             |  | 8/31/05                                       |       |     | 11/30/05         |        |   | 2/28/06 |        |     | 5/31/06 |       |    
|                                                             |  | (Amounts in thousands, except per share data) |      
|Operating revenues                                           |  | $                                             | 6,301 |     |                  | 6,756  |   |         | 5,585  |     |         | 5,314 |     |  | 23,956 |  
|                                                             |  |                                               |       |     |                  |        |   |         |        |     |         |       |     |  |        |  
|Gross profit                                                 |  |                                               | 583   |     |                  | 979    |   |         | 1,006  |     |         | 826   | (g) |  | 3,394  |  
|                                                             |  |                                               |       |     |                  |        |   |         |        |     |         |       |     |  |        |  
|General and administrative expenses                          |  |                                               | 876   | (e) |                  | 829    |   |         | 768    |     |         | 843   |     |  | 3,316  |  
|(Recovery of) provision for doubtful accounts                |  |                                               | (34   | )   |                  | (2     | ) |         | (55    | )   |         | 3     |     |  | (88    | )
|Depreciation and amortization                                |  |                                               | 22    |     |                  | 22     |   |         | 21     |     |         | 22    |     |  | 87     |  
|Other expense                                                |  |                                               | 5     |     |                  | 5      |   |         | 127    | (f) |         | 45    |     |  | 182    |  
|                                                             |  |                                               |       |     |                  |        |   |         |        |     |         |       |     |  |        |  
|(Loss) income from continuing operations before income taxes |  |                                               | (286  | )   |                  | 125    |   |         | 145    |     |         | (87   | )   |  | (103   | )
|Income tax expense                                           |  |                                               | 11    |     |                  | 17     |   |         | 16     |     |         | 34    |     |  | 78     |  
|                                                             |  |                                               |       |     |                  |        |   |         |        |     |         |       |     |  |        |  
|Net (loss) income from continuing operations                 |  | $                                             | (297  | )   |                  | 108    |   |         | 129    |     |         | (121  | )   |  | (181   | )
|                                                             |  |                                               |       |     |                  |        |   |         |        |     |         |       |     |  |        |  
|                                                             |  |                                               |       |     |                 
|Basic (loss) income per common share                         |  | $                                             | (0.05 | )   |                  | 0.02   |   |         | 0.02   |     |         | (0.02 | )   |  | (0.03  | )
|                                                             |  |                                               |       |     |                  |        |   |         |        |     |         |       |     |  |        |  
|                                                             |  |                                               |       |     |                 
|Diluted (loss) income per common share                       |  | $                                             | (0.05 | )   |                  | 0.01   |   |         | 0.01   |     |         | (0.02 | )   |  | (0.03  | )
|                                                             |  |                                               |       |     |                  |        |   |         |        |     |         |       |     |  |        |  
|                                                             |  |                                               |       |     |                 
|Weighted Average Common Shares Outstanding  basic           |  |                                               | 5,682 |     |                  | 5,815  |   |         | 5,851  |     |         | 5,883 |     |  | 5,808  |  
|                                                             |  |                                               |       |     |                  |        |   |         |        |     |         |       |     |  |        |  
|                                                             |  |                                               |       |     |                 
|Weighted Average Common Shares Outstanding  diluted         |  |                                               | 5,682 |     |                  | 10,591 |   |         | 10,443 |     |         | 5,883 |     |  | 5,808  |  
|                                                             |  |                                               |       |     |                  |        |   |         |        |     |         |       |     |  |        |  



|(e) | Includes $69,000 of expenses attributable to the sale of the Series A Preferred Stock.
|--- | --------------------------------------------------------------------------------------

|(f) | Includes a $102,000 loss from software development.
|--- | ---------------------------------------------------

|(g) | Includes a $62,500 asset write down of eye care memberships.
|--- | ------------------------------------------------------------



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NOTE 19  SUBSEQUENT EVENTS

AGREEMENT AND PLAN OF MERGER

On
January 20, 2009, we entered into an Agreement and Plan of Merger (the Merger) with Core Corporate Consulting Group, Inc. (Core), a privately held Delaware corporation. The merger was accomplished by merging Core into
our wholly-owned subsidiary, CompCare Acquisition, Inc., with Core continuing as the surviving corporation and becoming a wholly-owned direct subsidiary of CompCare.

In a related transaction on January 20, 2009, Core purchased 14,400 shares of our Series A Convertible Preferred Stock and 1,739,130 shares of common stock of the Company owned by Woodcliff. The Series A
Preferred Stock purchased by Core represented 100% of the outstanding shares of such stock. Prior to the Merger, Core converted all of its Series A Preferred Stock into 4,553,136 shares of common stock of the Company, and by virtue of this
transaction owned approximately 49% of the outstanding shares of our common stock. In February 2009, we cancelled the stock certificates representing the 1,739,130 common shares acquired from Hythiam and the 4,553,136 common shares resulting from
the Series A Preferred Stock conversion.

To accomplish the Merger, we acquired all of the capital stock of Core by issuing shares of our
common stock and newly designated Series B-1 and Series B-2 Convertible Preferred Stock:



| |  |  | All 10,294,725 outstanding shares of Cores Class A Common Stock were exchanged for shares of CompCare common stock, par value $0.01 per share, on a
one-for-one basis, and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Each outstanding share of Cores Class B Common Stock (aggregating 11,800,000 shares) was exchanged for (a) 0.000141949153 shares of CompCares
Series B-1 Convertible Preferred Stock, par value $50.00 per share, and (b) 0.000225847458 shares of CompCares Series B-2 Convertible Preferred Stock, par value $50.00 per share. The exchange of Core Class B Common Stock resulted in the
issuance of 1,675 CompCare Series B-1 Convertible Preferred shares and 2,665 CompCare Series B-2 Convertible Preferred shares.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In accordance with the Certificate of Designation of the Series B-1 and B-2 Convertible Preferred Stock, the preferred shares will become convertible into other securities of the Company upon the availability of authorized securities into
which they could be converted. Such authorized securities will become available upon the effectiveness of an action by written consent of a majority of shareholders of CompCare to increase the number of authorized common and preferred shares, which
is expected to become effective in March or April of 2009. A third series of preferred stock, Series C Convertible Preferred Stock, par value $50.00 per share, was also designated. The Series B-1 Convertible Preferred Stock will be convertible into
an aggregate of 14,400 shares of Series C Convertible Preferred Stock at the rate of one share of Series B-1 Convertible Preferred Stock for 8.597015 shares of Series C Convertible Preferred Stock. The Series C Convertible Preferred Stock is in turn
convertible into common stock of the Company at the rate of approximately 316.2767396 shares of CompCare common stock for each share of Series C Convertible Preferred Stock, or approximately 4,554,379 shares of CompCare common stock. The Series B-2
Convertible Preferred Stock will be convertible into an aggregate of 7,246,871 shares of CompCare common stock at a rate of one Series B-2 share for approximately 2,719.273546 shares of CompCare common stock. Such conversion features are immediately
available to the holders of the Series B-1 and B-2 shares after the effective date.

Pursuant to SFAS 141R, the acquisition will be
accounted for as a Reverse Acquisition under 141R paragraph A12. As such, the legal form of the transaction is ignored, and the target company, being Core, is treated as the acquiring company for financial
reporting purposes and CompCare is treated as the target company. As such, the fair value of CompCares common shares is recognized, together with adjustments necessary to reflect CompCares net tangible and identifiable
intangible assets at their fair value with any remainder assigned to goodwill. A pro-forma balance sheet of the consolidated entity as if the Merger occurred on December 31, 2008 and pro forma income statement as if the Merger occurred on
January 1, 2008 are as follows:



53



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Comprehensive Care Corporation

Unaudited Pro Forma Balance Sheet - December 31, 2008



|                                         |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  
|---------------------------------------- |  | ----------------------- | ------------------- |  | --------------------------- | --------------------------- |  | -------------------- | --- | --------------- | --------------- | ------ | ---------------------------- | -------------------- | - |  | --------------- | --------- |  | --- | ----- |  | ------ | -
|(In Thousands)                           |  | CoreHistorical31-Dec-08 |                     |  | CompCareHistorical31-Dec-08 |                             |  | Pro Forma Adjustment |     |                 | Core (g)Consol. |        |                              | Pro Forma Adjustment |   |  | ProFormaConsol. |          
|                                         |  |                         | CorePrivateOffering |  |                             | PurchaseHythiamInterest (b) |  |                      |     | CoreAcquisition |                 |        | ReverseAcquisitionAdjustment |                      |  
|Assets                                   |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  
|Current assets:                          |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  
|Cash and cash equivalents                |  | 501                     |                     |  | 1,136                       |                             |  | 1,000                | (a) |                 | (1,500          | ) (b)  |                              | 1,137                |   |  |                 |           |  |     |       |  | 1,137  |  
|Net accounts receivable                  |  |                        |                     |  | 1,581                       |                             |  |                      |     |                 |                 |        |                              | 1,581                |   |  |                 |           |  |     |       |  | 1,581  |  
|Other current assets                     |  |                        |                     |  | 336                         |                             |  |                      |     |                 |                 |        |                              | 336                  |   |  |                 |           |  |     |       |  | 336    |  
|                                         |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  
|Total current assets                     |  | 501                     |                     |  | 3,053                       |                             |  | 1,000                |     |                 | (1,500          | )      |                              | 3,054                |   |  |                |           |  |    |       |  | 3,054  |  
|                                         |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  
|                                         |  |                         |                     |  |                             |                             |  |                     
|Property and equipment, net              |  |                        |                     |  | 235                         |                             |  |                      |     |                 |                 |        |                              | 235                  |   |  |                 |           |  |     |       |  | 235    |  
|Unallocated assets                       |  |                        |                     |  |                            |                             |  |                      |     |                 | 13,258          | (c)(d) |                              | 13,258               |   |  |                 |           |  |     |       |  | 13,258 |  
|Goodwill, net                            |  | 2                       |                     |  | 991                         |                             |  |                      |     |                 | (991            | ) (e)  |                              | 2                    |   |  |                 |           |  |     |       |  | 2      |  
|Other assets                             |  |                        |                     |  | 326                         |                             |  |                      |     |                 |                 |        |                              | 326                  |   |  |                 |           |  |     |       |  | 326    |  
|                                         |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  
|Total assets                             |  | 503                     |                     |  | 4,605                       |                             |  | 1,000                |     |                 | 10,767          |        |                              | 16,875               |   |  |                |           |  |    |       |  | 16,875 |  
|                                         |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  
|                                         |  |                         |                     |  |                             |                             |  |                     
|Liabilities and Equity                   |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  
|Current liabilities:                     |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  
|Accounts payable and accrued liabilities |  | 148                     |                     |  | 1,972                       |                             |  |                      |     |                 |                 |        |                              | 2,120                |   |  |                |           |  |     |       |  | 2,120  |  
|Accrued claims payable                   |  |                        |                     |  | 6,791                       |                             |  |                      |     |                 |                 |        |                              | 6,791                |   |  |                 |           |  |     |       |  | 6,791  |  
|                                         |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  
|Total current liabilities                |  | 148                     |                     |  | 8,763                       |                             |  |                     |     |                 |                |        |                              | 8,911                |   |  |                |           |  |    |       |  | 8,911  |  
|                                         |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  
|                                         |  |                         |                     |  |                             |                             |  |                     
|Long-term liabilities:                   |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  
|Long-term debt                           |  |                        |                     |  | 2,444                       |                             |  |                      |     |                 |                 |        |                              | 2,444                |   |  |                 |           |  |     |       |  | 2,444  |  
|Other liabilities                        |  |                        |                     |  | 2,589                       |                             |  |                      |     |                 |                 |        |                              | 2,589                |   |  |                 |           |  |     |       |  | 2,589  |  
|                                         |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  
|Total long-term liabilities              |  |                        |                     |  | 5,033                       |                             |  |                     |     |                 |                 |        |                              | 5,033                |   |  |                |           |  |    |       |  | 5,033  |  
|                                         |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  
|Total liabilities                        |  | 148                     |                     |  | 13,796                      |                             |  |                     |     |                 |                 |        |                              | 13,944               |   |  |                |           |  |    |       |  | 13,944 |  
|                                         |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  
|                                         |  |                         |                     |  |                             |                             |  |                     
|Stockholders equity (deficit)           |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  
|Preferred stock                          |  |                        |                     |  | 720                         |                             |  |                      |     |                 | (720            | ) (e)  |                              |                     |   |  | 217             | (h)       |  |     |       |  | 217    |  
|Common stock                             |  | 18                      |                     |  | 83                          |                             |  | 4                    | (a) |                 | (83             | ) (e)  |                              | 22                   |   |  | 86              | (i)       |  | 61  | (j)   |  | 169    |  
|Treasury stock                           |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  | 17              | (i)       |  | (17 | ) (k) |  |       |  
|Additional paid-in capital               |  | 498                     |                     |  | 57,919                      |                             |  | 996                  | (a) |                 | (57,919         | ) (e)  |                              | 1,494                |   |  | 1,251           | (h) (i)   |  | (44 | ) (j) |  | 2,701  |  
|Accumulated deficit                      |  | (161                    | )                   |  | (67,918                     | )                           |  |                      |     |                 | 67,918          | (e)    |                              | (161                 | ) |  |                |           |  |     |       |  | (161   | )
|                                         |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  
|Total stockholders equity (deficit)     |  | 355                     |                     |  | (9,196                      | )                           |  | 1,000                |     |                 | 9,196           |        |                              | 1,355                |   |  | 1,571           |           |  |    |       |  | 2,926  |  
|Noncontrolling Interest                  |  |                        |                     |  | 5                           |                             |  |                     |     |                 | 1,571           | (f)    |                              | 1,576                |   |  | (1,571          | ) (h) (i) |  |    |       |  | 5      |  
|                                         |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  
|Total liabilities and equity             |  | 503                     |                     |  | 4,605                       |                             |  | 1,000                |     |                 | 10,767          |        |                              | 16,875               |   |  |                |           |  |    |       |  | 16,875 |  
|                                         |  |                         |                     |  |                             |                             |  |                      |     |                 |                 |        |                              |                      |   |  |                 |           |  |     |       |  |        |  



54



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Notes:



|(a) | Represents an issuance of 4,000,000 shares of Core Corporate Consulting Group, Inc. (Core) at $0.001 par value for $1,000,000 through a private transaction, as if it had been
completed on December 31, 2008. There was no significant cost related to the transaction.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Reflects the purchase of Hythiams 48.85% interest in CompCare for $1,500,000, as if it had been completed on December 31, 2008.
|--- | --------------------------------------------------------------------------------------------------------------------------------

|(c) | The valuation of intangible assets such as customer contracts, provider network, and NCQA certification has not been completed yet.
|--- | -----------------------------------------------------------------------------------------------------------------------------------

|(d) | Represents the excess amount of the acquisition cost and the fair value of noncontrolling interest over the carrying value of CompCares net assets acquired, as if the purchase
had been completed on December 31, 2008:
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                 |  |                  |  
|------------------------------------------------ |  | ---------------- | -
|                                                 |  | ($ In Thousands) |  
|Total assets                                     |  | 4,605            |  
|Less:                                            |  |                  |  
|Goodwill, net                                    |  | (991             | )
|Total liabilities                                |  | (13,796          | )
|Total noncontrolling interest                    |  | (5               | )
|                                                 |  |                  |  
|Carrying value of CompCares net assets acquired |  | (10,187          | )
|                                                 |  |                  |  
|                                                 | 
|                                                 |  | ($ In Thousands) |  
|Implied purchase price                           |  | 3,071            |  
|Less:                                            |  |                  |  
|Carrying value of CompCares net assets acquired |  | (10,187          | )
|                                                 |  |                  |  
|Unallocated assets                               |  | 13,258           |  
|                                                 |  |                  |  



|(e) | Elimination of CompCares historical balances.
|--- | ----------------------------------------------

|(f) | Represents the estimated fair value of net assets acquired attributable to noncontrolling interest, as if the acquisition had been completed on December 31, 2008.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(g) | Cores consolidated balance sheet as if it was prepared on December 31, 2008. Except for identifiable intangible assets, CompCares assets and liabilities approximate
fair value.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(h) | Reflects the issuance of 1,675 shares of Series B-1 Convertible Preferred Stock at $50 par value, and 2,665 shares of Series B-2 Convertible Preferred Stock at $50 par value to
acquire Core.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(i) | Reflects the issuance of 10,294,725 shares of common stock at $0.01 par value and the reacquisition of 1,739,130 shares of common stock owned by Core.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|(j) | Represents the adjustment to reflect the equity structure of CompCare (Accounting Acquiree) in a reverse acquisition, as if the acquisition had been completed on December 31,
2008.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(k) | Cancels 1,739,130 shares of CompCare common stock reacquired during the acquisition of Core.
|--- | --------------------------------------------------------------------------------------------



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##### Table of Contents

Comprehensive Care Corporation

Unaudited Pro Forma Statement of Operations

For the Twelve Months Ended December 31, 2008



|                                                      |  |                         |        |   |                             |   |        |                    |  |       |                         |  |        |                      |  |   |                 |   |  |                              |     |  |                 |       |  |   |        |  
|----------------------------------------------------- |  | ----------------------- | ------ | - | --------------------------- | - | ------ | ------------------ |  | ----- | ----------------------- |  | ------ | -------------------- |  | - | --------------- | - |  | ---------------------------- | --- |  | --------------- | ----- |  | - | ------ | -
|                                                      |  | CoreHistorical31-Dec-08 |        |   | CompCareHistorical31-Dec-08 |   |        | PrivateTransaction |  |       | PurchaseHythiamInterest |  |        | CompletedTransaction |  |   | CoreAcquisition |   |  | ReverseAcquisitionAdjustment |     |  | ProFormaConsol. |      
|(In thousands, except per share data)                 |  |                         |        |   |                             |   |        |                    |  |       |                         |  |        |                      |  |   |                 |   | 
|Revenues                                              |  |                         |       |   |                             |   | 35,156 |                    |  |       |                         |  |        |                      |  |   | 35,156          |   |  |                              |     |  |                 |       |  |   | 35,156 |  
|Operating expenses:                                   |  |                         |        |   |                             |   |        |                    |  |       |                         |  |        |                      |  |   |                 |   |  |                              |     |  |                 |       |  |   |        |  
|Healthcare operating expenses                         |  |                         |       |   |                             |   | 36,496 |                    |  |       |                         |  |        |                      |  |   | 36,496          |   |  |                              |     |  |                 |       |  |   | 36,496 |  
|General administrative expense                        |  |                         | 161    |   |                             |   | 3,742  |                    |  |       |                         |  |        |                      |  |   | 3,904           |   |  |                              |     |  |                 |       |  |   | 3,904  |  
|Other operating expense                               |  |                         |       |   |                             |   | 104    |                    |  |       |                         |  | 640    | (b)                  |  |   | 744             |   |  |                              |     |  |                 |       |  |   | 744    |  
|                                                      |  |                         |        |   |                             |   |        |                    |  |       |                         |  |        |                      |  |   |                 |   |  |                              |     |  |                 |       |  |   |        |  
|Total operating expenses                              |  |                         | 161    |   |                             |   | 40,342 |                    |  |      |                         |  | 640    |                      |  |   | 41,144          |   |  |                             |     |  |                |       |  |   | 41,144 |  
|                                                      |  |                         |        |   |                             |   |        |                   
|Loss from operations                                  |  |                         | (161   | ) |                             |   | (5,186 | )                  |  |      |                         |  | (640   | )                    |  |   | (5,988          | ) |  |                             |     |  |                |       |  |   | (5,988 | )
|                                                      |  |                         |        |   |                             |   |        |                   
|Other non-operating income, net                       |  |                         |       |   |                             |   | 5      |                    |  |       |                         |  |        |                      |  |   | 5               |   |  |                              |     |  |                 |       |  |   | 5      |  
|Interest income                                       |  |                         |       |   |                             |   | 26     |                    |  |       |                         |  |        |                      |  |   | 26              |   |  |                              |     |  |                 |       |  |   | 26     |  
|Interest expense                                      |  |                         |       |   |                             |   | (192   | )                  |  |       |                         |  |        |                      |  |   | (192            | ) |  |                              |     |  |                 |       |  |   | (192   | )
|                                                      |  |                         |        |   |                             |   |        |                    |  |       |                         |  |        |                      |  |   |                 |   |  |                              |     |  |                 |       |  |   |        |  
|Loss before income taxes from continuing operations   |  |                         | (161   | ) |                             |   | (5,347 | )                  |  |      |                         |  | (640   | )                    |  |   | (6,149          | ) |  |                             |     |  |                |       |  |   | (6,149 | )
|Provision for income taxes                            |  |                         |       |   |                             |   | 5      |                    |  |       |                         |  |        |                      |  |   | 5               |   |  |                              |     |  |                 |       |  |   | 5      |  
|                                                      |  |                         |        |   |                             |   |        |                    |  |       |                         |  |        |                      |  |   |                 |   |  |                              |     |  |                 |       |  |   |        |  
|Net loss from continuing operations                   |  |                         | (161   | ) |                             |   | (5,352 | )                  |  |      |                         |  | (640   | )                    |  |   | (6,154          | ) |  |                             |     |  |                |       |  |   | (6,154 | )
|                                                      |  |                         |        |   |                             |   |        |                    |  |       |                         |  |        |                      |  |   |                 |   |  |                              |     |  |                 |       |  |   |        |  
|                                                      |  |                         |        |   |                             |   |        |                   
|Net loss from continuing operations per common share: |  |                         |        |   |                             |   |        |                    |  |       |                         |  |        |                      |  |   |                 |   |  |                              |     |  |                 |       |  |   |        |  
|Basic and diluted ($)                                 |  | $                       | (0.01  | ) |                             | $ | (0.67  | )                  |  |       |                         |  |        |                      |  | $ | (0.28           | ) |  |                              |     |  |                 |       |  | $ | (0.75  | )
|Weighted average shares outstanding:                  |  |                         |        |   |                             |   |        |                    |  |       |                         |  |        |                      |  |   |                 |   |  |                              |     |  |                 |       |  |   |        |  
|Basic and diluted                                     |  |                         | 17,600 |   |                             |   | 7,954  |                    |  | 4,000 | (a)                     |  | (7,954 | ) (c)                |  |   | 21,600          |   |  | 10,295                       | (d) |  | (21,600         | ) (e) |  |   | 16,510 |  
|                                                      |  |                         |        |   |                             |   |        |                    |  |       |                         |  |        |                      |  |   |                 |   |  |                              |     |  | 7,954           | (e)   |  |   |        |  
|                                                      |  |                         |        |   |                             |   |        |                    |  |       |                         |  |        |                      |  |   |                 |   |  |                              |     |  | (1,739          | ) (f) |  |   |        |  



56



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Notes:



|(a) | Represents an issuance of 4,000,000 shares of Core Corporate Consulting Group, Inc. (Core) at $0.001 par value for $1,000,000 through a private transaction, as if it had been
completed on December 31, 2008. There was no significant cost related to the transaction.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Represents the estimated amortization of intangible assets acquired, as if the transaction had been completed on January 1, 2008. The estimated useful life is assumed at 3
years. The amortization is being recognized using the straight-line method.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Reflects the elimination of CompCares historical balances, as if the transaction had been completed on January 1, 2008.
|--- | ------------------------------------------------------------------------------------------------------------------------

|(d) | Represents the issuance of 10,294,725 shares of CompCare common stock in connection with Core acquisition, as if it had been completed on January 1, 2008.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | Represents the adjustment to reflect the equity structure of CompCare (Accounting Acquiree) in a reverse acquisition, as if the acquisition had been completed on January 1,
2008.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | Cancels 1,739,130 shares of CompCare common stock reacquired during the acquisition, as if the cancellation had been done on January 1, 2008.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

CHANGE IN DIRECTORS AND OFFICERS

In connection with Cores purchase of the CompCare securities from Woodcliff and not as the result of any disagreement with the Company, Steven R.
Peskin, M.D., Michel A. Sucher, M.D., and Michael Yuhas resigned as directors of the Company, effective January 16, 2009. Dr. Sucher was the Chair of the Compensation and Stock Option Committee and Dr. Peskin was the Chair of the
Nominating and Corporate Governance Committee.

In connection with the closing of the Merger and not as the result of any disagreement with
the Company, Michael Bakst, Ph.D. and Vijay Chevli resigned as directors of the Company on January 20, 2009. Mr. Chevli was the Chair of the Audit Committee and Special Committee of the Board.

On January 21, 2009, we appointed the following persons as directors of the Company: Arnold B. Finestone, Sharon Kay Ray. Joshua I. Smith, and
Arthur K. Yeap. On the same day, Mr. Finestone was appointed Chairman of the Board, Mr. Smith was named Vice Chairman of the Board, and the Audit and Compensation & Stock Option Committees were reconstituted. The Audit Committee
is now comprised of Mr. Finestone (Chairman), Mr. Smith and Mr. Yeap, and the Compensation and Stock Option Committee is comprised of Ms. Ray, Mr. Finestone, and Mr. Yeap (Chairman).

On March 27, 2009 we executed a new employment agreement with our Chief Executive Officer, John M. Hill. The effective date of the contract is
January 1, 2009. Mr. Hill will report directly to the Companys Board of Directors. The material terms of his employment agreement will include a term of three years and a base salary of $390,000 per annum increased by an amount no
less than an amount equal to the percentage increase in the consumer price index for the Tampa, Florida metropolitan area. This compensation may, at the election of the Company, be accrued, in whole or in part, until such time as the Company
receives financing and/or generates sufficient revenues with which to pay Mr. Hill his stated compensation, after the payment by the Company of its operating expenses, but no longer than the end of each tax year. In addition, Mr. Hill will
be entitled to a special bonus in the amount equal to one percent of the Companys pre-tax profits from the preceding year (as determined by the application of generally accepted accounting principles), up to the first $1,000,000 of such
profits; plus an additional sum equal to two percent of the Companys pre-tax profits for all sums over $1,000,000. In the event Mr. Hills employment is terminated without cause twelve months from a change in control, the
Company shall pay to Mr. Hill a lump sum amount equal to the aggregate of (i) accrued unpaid salary, if any; (ii) accrued but unpaid expenses, if any; (iii) accrued but unpaid bonuses, if any; (iv) unissued warrants, if any;
and (v) the total compensation which would have been paid to Mr. Hill through five full years of compensation from the date of termination.

On February 26, 2009, Giuseppe (Joe) Crisafi was appointed as the Companys Chief Financial Officer and as a Director. Mr. Crisafi will report jointly to the Companys Chief Executive Officer and
the Board of Directors. The material terms of his employment agreement include a term of three years and a base salary of $390,000 per annum increased by an amount no less than an amount equal to the percentage increase in the consumer price index
for the metropolitan area of Mr. Crisafis place of residence. This compensation may, at the election of the Company, be accrued, in whole or in part, until such time as the Company receives financing and/or generates sufficient revenues
with which to pay Mr. Crisafi his stated compensation, after the payment by the Company of its operating expenses, but no longer than the end of each tax year. In addition, Mr. Crisafi will be entitled to a special bonus in the amount
equal to one percent of the Companys pre-tax profits from the preceding year (as determined by the application of generally accepted accounting principles), up to the first $1,000,000 of such profits; plus an additional sum equal to two
percent of the Companys pre-tax profits for all sums over $1,000,000. In the event Mr. Crisafis employment is terminated without cause twelve months from a change in control, the Company shall pay to Mr. Crisafi a lump sum
amount equal to the aggregate of (i) accrued unpaid salary, if any; (ii) accrued but unpaid expenses, if any; (iii) accrued but unpaid bonuses, if any; (iv) unissued warrants, if any; and (v) the total compensation which
would have been paid to Mr. Crisafi through five full years of compensation from the date of termination.

On February 26, 2009,
Robert J. Landis was appointed as the Companys Chief Accounting Officer (CAO). Mr. Landis will report directly to the Companys Chief Financial Officer. The material terms of his employment agreement will include a term of three
years and a base salary of $191,500 per annum increased by an amount no less than an amount equal to the percentage increase in the consumer price index for the Tampa, Florida metropolitan area. In addition, Mr. Landis will receive a signing
bonus of $20,000 plus 500,000 CompCare Shares. In the event Mr. Landis employment is terminated without cause twelve months from a change in control, the Company shall pay to Mr. Landis a lump sum amount equal to the aggregate of
(i) accrued unpaid salary, if any; (ii) accrued but unpaid expenses, if any; (iii) accrued but unpaid bonuses, if any; (iv) unissued warrants, if any; and (v) the total compensation which would have been paid to
Mr. Landis through three full years of compensation from the date of termination.

As a result of a corporate reorganization and not
as the result of any disagreement with the Company, Robert J. Landis resigned as a director of the Company, effective February 25, 2009.



58



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ADDITIONAL FINANCING

In February 2009 we obtained additional equity financing in the amount of $1.6 million through the sale of 6.4 million shares of our unregistered
common stock to two investors. We intend to use the net proceeds from the sale of the securities for working capital and in sales and marketing to help accelerate new business. For further information, see our Form 8-K dated February 25, 2009
and filed March 3, 2009, available at www.sec.gov.

CANCELLATION OF EQUITY SECURITIES

Pursuant to a resolution approved at a meeting of our Board of Directors held on February 26, 2009, we authorized our transfer agent
to cancel 6,292,266 common shares held by our wholly owned subsidiary, Core Corporate Consulting Group, Inc.

INCREASE IN
AUTHORIZED SHARES

We expect to mail in April 2009 an Information Statement to stockholders of record
January 9, 2009 notifying shareholders of an action taken by written consent by the holders of 58.2% of our outstanding voting capital stock to amend the Companys Restated Certificate of Incorporation to increase the number of authorized
shares of the our common stock from 30,000,000 shares to 100,000,000 shares and to increase the number of authorized shares of our preferred stock from 60,000 shares to 1,000,000 shares.



|ITEM9A. | CONTROLS AND PROCEDURES
|------- | -----------------------

Our management, under the
supervision of our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) and for assessing the effectiveness of our internal control
over financial reporting. Our internal control system is designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements in accordance with United
States generally accepted accounting principles (GAAP).

There were no changes in our internal controls over financial
reporting during the year ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our internal control over financial reporting is supported by written policies and procedures that:



| |  |  | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that our receipts
and expenditures are being made only in accordance with authorizations of our management and our Board of Directors; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material
effect on our financial statements.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2008 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Managements assessment included an evaluation of the
design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting. Based on this assessment, our management, under the supervision of our CEO and CFO, concluded
that, as of December 31, 2008, our internal control over financial reporting was effective.

This annual report does not include an
attestation report of the Companys registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the companys registered public accounting firm pursuant
to temporary rules of the Securities and Exchange Commission that permit the company to provide only managements report in this annual report.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. In addition, projections of any evaluation
of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.



59



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##### Table of Contents

PART III



|ITEM10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|------- | ------------------------------------------------------

The following table lists our current executive officers and directors as well as the executive officers and directors serving at December 31, 2008. Each current director is serving a term that will expire at the Companys next
annual meeting. There are no family relationships among any of our directors or executive officers.



|                        |  |     |  |                                                                                                                          
|----------------------- |  | --- |  | -------------------------------------------------------------------------------------------------------------------------
|NAME                    |  | AGE |  | POSITION                                                                                                                 
|John M. Hill            |  | 58  |  | President, Chief Executive Officer, and Director                                                                         
|Giuseppe Crisafi        |  | 39  |  | Chief Financial Officer and Director(1)                                                                                  
|Robert J. Landis        |  | 49  |  | Director,(2)Chairman of the Board of Directors,(3)Chief Financial Officer,(3)Treasurer,(3)and Chief Accounting Officer(3)
|Steven R. Peskin, M.D.  |  | 52  |  | Director(4)                                                                                                              
|Michel A. Sucher, M.D.  |  | 61  |  | Director(4)                                                                                                              
|Michael Yuhas           |  | 57  |  | Director(4)                                                                                                              
|Vijay Chevli            |  | 38  |  | Director(5)(6)                                                                                                           
|Michael D. Bakst, Ph.D. |  | 63  |  | Director(5)                                                                                                              
|Joshua I. Smith         |  | 67  |  | Director(7), Audit Committee Member                                                                                      
|Arnold B. Finestone     |  | 78  |  | Chairman of the Board of Directors,(7)(8), Audit Committee Chairman, Compensation and Stock
Option Committee Member      
|Sharon Kay Ray          |  | 50  |  | Director(7), Compensation and Stock Option Committee Member                                                              
|Arthur K. Yeap          |  | 53  |  | Director(7), Audit Committee Member, Compensation and Stock Option Committee
Chairman                                    



|(1) | Mr. Crisafi was appointed as our Chief Financial Officer and as a Director on February 26, 2009.
|--- | ------------------------------------------------------------------------------------------------

|(2) | Resigned February 25, 2009.
|--- | ---------------------------

|(3) | Mr. Landis served as Chairman of the Board until January 20, 2009 and as our Chief Financial Officer and Treasurer until February 25, 2009. Mr. Landis was
appointed Chief Accounting Officer on February 26, 2009.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Resigned January 16, 2009.
|--- | --------------------------

|(5) | Resigned January 20, 2009.
|--- | --------------------------

|(6) | During 2008, Mr. Chevli served as our Audit Committee Financial Expert as that term is defined in the rules of the Securities and Exchange Commission.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Appointed January 21, 2009 by our Board of Directors.
|--- | -----------------------------------------------------

|(8) | Effective January 21, 2009, Mr. Finestone serves as our Chairman of the Board of Directors and as our Audit Committee Financial Expert.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

JOHN M. HILL

John M.
Hill has served as our President and Chief Executive Officer since January 2008 and as a director since February 2008. From 2005 until joining CompCare, Mr. Hill served as Director of Channel Sales for Healthmedia, Inc., an internet-based
provider of behavior change services designed to increase compliance, reduce medical utilization and enhance productivity for health plans, employees, pharmaceutical companies and behavioral health organizations. From 2002 to 2005, Mr. Hill was
Vice President of Ultrasis Group Plc., a London-based provider of web-based and computer-delivered interactive behavioral healthcare products and associated services. From 1998 to 2001, Mr. Hill had been with ValueOptions, a national managed
behavioral healthcare company, where he served in a number of executive roles, including President. Mr. Hill earned a Bachelor of Science degree in Psychology from Towson State University in Towson, Maryland, and attended the University of
Maryland and Johns Hopkins University for graduate level education in Social Work and Health Administration.

GIUSEPPE CRISAFI, MBA, CPA

Giuseppe (Joe) Crisafi, was appointed as our Chief Financial Officer and as a Director on February 26, 2009. Mr. Crisafi has over 20 years
experience in Finance and has worked in a number of industries internationally, including healthcare, banking, public accounting and utilities. Prior to joining CompCare, Mr. Crisafi served as a Director and the Chief Financial Officer of Core
Corporate Consulting Group, Inc. from November 2008 to January 2009. He also served as the Chief Financial Officer of The Amacore Group, Inc. from September 2007 to August 2008. During the period January 2007 to September 2007, Mr. Crisafi
provided specialist consulting services to Madison Partners, a public accounting firm in Australia. From August 2005 to December 2006 he was Vice President of Finance at Lehman Brothers. He operated his own consulting practice from November 2000 to
September 2003. Prior to starting his own consulting practice, Mr. Crisafi was a Director at KPMG, where he worked for 10 years in the Forensic, Risk



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Management, Corporate Finance and Corporate Turnaround divisions. Mr. Crisafi holds an MBA degree from Columbia University, a Diploma in Applied
Investment & Finance awarded by the Securities Institution of Australia, and a Bachelors of Economics degree from Monash University. He is a CPA in the United States and a Chartered Accountant in both Australia and the United Kingdom.

ROBERT J. LANDIS, MBA, CPA

Mr. Landis currently serves as the Chief Accounting Officer and served as Chairman of our Board of Directors from January 2000 to January 2009, and as our Chief Financial Officer and Treasurer from July 1998 to February 2009.
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. Further, Mr. Landis serves on the Board of Directors and on the audit committee of Nyer Medical Group, Inc.,
a publicly-traded company engaged in the ownership and operation of pharmacies. Mr. Landis, a Certified Public Accountant, received a Bachelors Degree in Business Administration from the University of Southern California and a
Masters Degree in Business Administration from California State University at Northridge.

ARNOLD B. FINESTONE

Arnold B. Finestone was appointed to our Board of Directors on January 21, 2009 and serves as the Chairman of the Board. He is a business management
consultant and has served on the Boards of public companies and start-up business ventures since 1985. From 1982 to 1985, he was President of Dartco, Inc., a subsidiary of Dart & Kraft Inc., which was engaged in marketing and manufacturing
of high-performance engineering plastics for consumer, industrial, and military uses. From 1970 to 1982, he served as Executive Vice President of the ChemicalPlastics Group of Dart Industries and Dart & Kraft, Inc. From 1957 to 1970,
he was Vice President and Director of Planning, Development and Marketing for Foster Grant, Inc.

JOSHUA SMITH

Joshua Smith was appointed to our Board of Directors on January 21, 2009 and serves as the Companys Vice Chairman. He is a nationally renowned
entrepreneur and lecturer and has served as the Chairman and Managing Partner of The Coaching Group since 1998. In this capacity he is the coach and senior advisor/consultant to chief executive officers of portfolio companies.
Mr. Smith also currently serves on the board of directors for Caterpillar, Inc., FedEx Corp., the U.S. Chamber of Commerce, and Allstate Insurance Corp. In July 2008, Mr. Smith launched Biz Talk With Josh, a small and emerging business and
entrepreneurship talk show, on CBS Radio. As recently as 2003, Mr. Smith chaired the special Task Force on Minority Business Reform for the State of Maryland, and subsequently served as an advisor to the Maryland Governors Commission on
Minority Business Reform. He was also appointed by former President George H.W. Bush to serve in the following capacities: Chairman of the U.S. Commission on Minority Business Development from 1989 to 1992; the Executive Committee of the 1990
Economic Summit of Industrialized Nations; the Board of Trustees of the John F. Kennedy Center for the Performing Arts; and the George H.W. Bush Memorial Library Board of Trustees.

SHARON KAY RAY

Sharon Kay Ray was appointed as a director of the Company on January 21,
2009. Since March 1989 she has served as a regional marketing representative for Novo Nordisk, a multi-national pharmaceutical company, and as a special marketing consultant for a number of public and non-public corporations.

ARTHUR K. YEAP

Arthur K. Yeap joined our Board of
Directors on January 21, 2009. Since 1983, Mr. Yeap has served as Chief Executive Officer of Novo Group, consultants and manufacturers of customer audio and video products for professional use. He also has been a principal investigator on
the staff of the University of California at Berkley, engaged in research for advanced military and consumer uses for the Internet. From 1996 to 1999, he was Director of Marketing, Consumer Products, for ITV Corporation. From 1995 to 1996
Mr. Yeap was Chief Engineer for WYSIWYG networks.

Section 16(a) Beneficial Ownership Reporting Compliance

Under Section 16(a) of the Securities Exchange Act of 1934, as amended, an officer, director or greater than 10% stockholder of our outstanding
common stock must file with the SEC initial reports of ownership and reports of changes in ownership of our equity securities. Such persons are required by SEC regulations to furnish us with copies of all such reports they file. Based solely upon a
review of Section 16(a) reports furnished to us, we believe all such entities or persons subject to the Section 16(a) reporting requirements have complied with applicable filing requirements during 2008.



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Code of Ethics

We have adopted a code of ethics applicable to all of our employees, including our principal executive officer, principal financial officer, and persons performing similar functions. The text of this code of ethics
can be found on our website at www.compcare-shareholders.com. We intend to post notice of any waiver from, or amendment to, any provision of our code of ethics on our website.

Audit Committee

At December 31, 2008, our Audit Committee consisted of Vijay Chevli (Chairman),
Steven R. Peskin, M.D., and Michael D, Bakst. Effective January 21, 2009, our Audit Committee is comprised of Arnold B. Finestone, (Chairman), Joshua I. Smith, and Arthur K. Yeap. The Board of Directors has determined that all members of the
Committee were independent as defined in Section 121(A) of the American Stock Exchanges listing standards and that Mr. Finestone qualifies as an audit committee financial expert, as defined by Item 401(h)(2) of
Regulation S-K. The Audit Committee held seven meetings during the year ended December 31, 2008.

Compensation and Stock Option Committee

At December 31, 2008, our Compensation and Stock Option Committee consisted of Michel Sucher, M.D. (Chairman), Michael Yuhas, and
Michael D. Bakst. Effective January 21, 2009, our Compensation and Stock Option Committee is comprised of Arthur K. Yeap (Chairman), Sharon Kay Ray, and Arnold B. Finestone. The Compensation and Stock Option Committee held three meetings during
the year ended December 31, 2008.



|ITEM11. | EXECUTIVE COMPENSATION
|------- | ----------------------

COMPENSATION DISCUSSION
AND ANALYSIS

We believe our long-term success is dependent on a leadership team with the integrity, skills, and dedication necessary
to oversee a growing organization on a day-to-day basis. In addition, the leadership team must have the vision to anticipate and respond to future market and regulatory developments. Our executive compensation program is designed to enable us to
attract, motivate and retain a senior management team with the collective and individual abilities to meet these challenges. The programs primary objective is to align executives efforts with the long-term interests of stockholders by
enhancing our reputation, financial success and capabilities.

The primary components of executive compensation for our named executive
officers includes a base salary and provision for an annual incentive bonus. These components are designed, in the aggregate, to be competitive with comparable organizations and to align the financial incentives for the executives with the short and
long term interests of stockholders.

The Compensation and Stock Option Committee (Compensation Committee) establishes the
compensation packages of the executive officers. The members of the Compensation Committee are independent as defined by the American Stock Exchange listing standards.

Overview and Philosophy

The Compensation 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 Compensation Committees
compensation philosophy is to provide rewards that (1) are linked to both Company performance and individual performance, (2) align employee interests with stockholder 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 strategies.

The following key principles guide the Compensation Committee in structuring compensation targets and packages of executive officers and key management:



| |  |  | Total annual compensation will 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 includes 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 contributions as well as overall Company results toward identified business results.
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | Competitive position of both base salary and total compensation within the healthcare industry.
| | - |  | -----------------------------------------------------------------------------------------------



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Determination of Compensation

The Compensation Committee determines the total compensation levels for our executive officers by considering several factors, including each executive officers role and responsibilities, how the executive
officer is performing against those responsibilities, our performance, and the competitive market data applicable to each executive officers position.

In arriving at specific levels of compensation for executive officers, the Compensation Committee has relied on:



| |  |  | the recommendations of our Chief Executive Officer, or CEO, and our Chief Financial Officer, or CFO (but not with respect to their own compensation levels),
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | benchmarks provided by generally available compensation surveys, and
| | - |  | --------------------------------------------------------------------



| |  |  | the experience of Compensation Committee members and their knowledge of compensation paid by comparable companies or companies of similar size or generally engaged
in the healthcare services business.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We seek an appropriate relationship between executive pay and corporate performance
that focuses on customer service, fairness to employees, and the generation of a reasonable return for our stockholders, all within the parameters of good corporate governance. Executive officers are entitled to customary benefits generally
available to all Company employees, including group medical, dental and life insurance, and a 401(k) plan. In recognition of the importance of the role played by our key executive officers in the success of our business, we have entered into
employment agreements and severance arrangements with these key executive officers to provide them with the employment security and severance deemed necessary to retain them.

Components of Executive Compensation

Base Salary. Base salaries provide our executive officers with a
degree of financial certainty and stability, and are 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 that are of similar size.
We seek to provide base salaries sufficient to attract and retain highly qualified executives. The Compensation Committee establishes the base salaries of our executive officers, and salaries are reviewed in the case of executive promotions or other
significant changes in responsibilities. In each case, the Compensation Committee takes into account competitive salary practices, scope of responsibilities, the results previously achieved by the executive and his or her development potential.

The Compensation Committee has the responsibility to determine increases or decreases in base salaries on an individual basis. Our
objective is to reward performance consistent with our overall financial performance in the context of competitive practice, including changes to an executive officers scope of responsibilities, in combination with general market trends. No
formulaic base salary increases are provided to the named executive officers.

In addition to complying with the executive compensation
policy and the requirements of applicable employment agreements, compensation for each of the executive officers during the year ended December 31, 2008, was based on the executives performance of his or her duties and responsibilities,
the performance of the Company, both financial and otherwise, and the success of the executive in managing, developing and executing our business development, sales and marketing, financing and strategic plans, as appropriate.

Annual Incentive Bonus. Certain executive officers are eligible to receive cash bonuses based on the degree of the Companys achievement of financial and
other objectives, which are established annually by the Board of Directors. An executives performance against the objectives is evaluated annually by the Board, most often after the yearly financial results of the Company have been audited.
The primary purpose of our annual performance incentive awards is to motivate our executives to meet or exceed our short-term and long-term performance objectives. Our annual cash bonuses are designed to reward our executive officers for their
contributions toward corporate objectives.

During 2008, our Chief Executive Officer, John M. Hill, was eligible to receive an annual
performance bonus of $20,000 for each $100,000 improvement in the Companys actual earnings before interest, taxes, depreciation and amortization (EBITDA) compared with the Companys budgeted EBITDA. Mr. Hill was also
eligible to receive a bonus for meeting individual performance objectives. The Board of Directors is responsible for evaluating Mr. Hills performance against any performance objective that is not quantitatively based. Any bonus paid was
not to exceed of $307,500 in total per year.

In 2009, Mr. Hill will be entitled to a special bonus in an amount equal to one percent
of the Companys pre-tax profits for 2009, up to the first $1,000,000 of such profits, plus an additional sum equal to two percent of the Companys pre-tax profits for all sums over $1,000,000.

Our Chief Financial Officer during 2008, Robert J. Landis, was eligible to receive an annual
performance bonus calculated as the greater of $20,000 or 21/2% of the Companys EBITDA. The calculation of EBITDA will
include any expense from the performance bonus, and no bonus will be paid in the event that EBITDA is calculated to be a loss, which occurred in 2008. Mr. Landis employment agreement, effective for 2009 and future years, does not contain
a provision for an annual incentive bonus.



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Our new Chief Financial Officer, Giuseppe Crisafi, will be entitled to a special bonus in an amount equal
to one percent of the Companys pre-tax profits for 2009, up to the first $1,000,000 of such profits, plus an additional sum equal to two percent of the Companys pre-tax profits for all sums over $1,000,000.

Richard Powers, the Companys Senior Vice President for Business Development, is not eligible to receive an annual incentive bonus, but rather is
able to earn sales commissions for bringing new business to the Company.

Stock, stock options, and similar equity instruments. Equity participation
is a key component of our executive compensation program. Under our 2002 Incentive Compensation Plan (the Plan), as amended, we are permitted to award our common stock, preferred stock, stock options, stock appreciation rights,
restricted stock, and restricted stock units to officers, employees, and consultants. To date, common stock and stock options have been the sole means of providing equity participation. Equity awards are designed to retain executive officers and
encourage recipients to pursue continued growth and success of the Company to increase the value of their equity awards, thus aligning their financial interests with those of our stockholders. Stock options are intended to enable us to attract and
retain key personnel and provide an effective incentive for management to create stockholder value over the long term since the option value depends on appreciation in the price of our common stock.

Our Chief Executive Officer was granted 100,000 options upon his hiring in January 2008. In accordance with his former employment agreement, he received
50,000 options on the first anniversary of his start date. In certain instances, stock options may be granted to executive officers upon hiring as part of an employment package intended to attract top candidates. In the past we have not timed stock
option grants in coordination with the release of material nonpublic information, nor do we plan to do so in the future. Stock option grants to employees are at the discretion of the Compensation Committee, which utilizes recommendations from
management in determining awards. Stock option exercise prices are determined in accordance with the Plan, which specifies that the exercise price will be equal to fair market value of a share of our common stock on the date of grant. Such grants
provide an incentive for our executives and other employees to increase our market value, as represented by our market price, as well as serving as a method for motivating and retaining our executives.

We have adopted SFAS 123R Share-Based Payment, which requires that we show expense in our financial statements equivalent to the fair value
of stock options granted. The expense is a negative consequence that has resulted in a reduction in recent option grants, for those grants at the discretion of the Compensation Committee. We expect that future grants of discretionary stock options
will be limited due to the effects of SFAS 123R.

In determining to provide long-term incentive awards in the form of stock options, the
Compensation Committee considers cost and dilution impact, market trends relating to long-term incentive compensation and other relevant factors. The Compensation Committee believes that an award of stock options more closely aligns the interests of
the recipient with those of our stockholders because the recipient will only realize a return on the option if our stock price increases over the term of the option.



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Summary Compensation Table

The following table sets forth the cash and non-cash compensation for our named executive officers during the 2008 calendar year.



|                                                             |  |               |  |                        |  |                |        |  |                     |  |                                         |  |                  |            |  |                       
|------------------------------------------------------------ |  | ------------- |  | ---------------------- |  | -------------- | ------ |  | ------------------- |  | --------------------------------------- |  | ---------------- | ---------- |  | ----------------------
|Name and Principal Position                                  |  | Year          |  | Salary($)              |  | Bonus($)       |        |  | OptionAwards($) (1) |  | Non-EquityIncentive PlanCompensation($) |  | Other($)         |            |  | Total($)              
|                                                             |  |               |  |                        |  |                |       
|John HillPresident and Chief Executive Officer               |  | 2008          |  | 179,769                |  |               |        |  | 23,460              |  |                                        |  | 65,257           | (2)        |  | 268,486               
|                                                             |  |               |  |                        |  |                |       
|Robert J. LandisChief Accounting Officer                     |  | 20082007 2007 |  | 176,462190,000 175,385 |  | 10,00020,000  | (3)(3) |  | 7,16829,053 3,982   |  |                                      |  | 6,7117,892 6,400 | (4)(4) (4) |  | 200,341246,945 185,767
|                                                             |  |               |  |                        |  |                |       
|Richard PowersSenior Vice President for Business Development |  | 2008          |  | 102,846                |  |               |        |  | 17,305              |  |                                        |  | 2,727            |            |  | 122,878               



|(1) | Amounts reflect compensation expense recognized in our financial statements during the calendar years indicated for stock option awards in 2008 and in previous years calculated in
accordance with SFAS 123R Share-Based Payment. As such, these amounts do not correspond to the compensation actually realized by each officer. Amounts have not been reduced by estimates of forfeitures related to service based vesting
conditions, and are computed using the Black-Sholes option pricing model, which incorporates various assumptions about volatility, expected dividend yield, expected life, and applicable interest rates. See Critical Accounting Estimates 
Stock Compensation Expense in Managements Discussion and Analysis and Note 15 Preferred Stock, Common Stock, and Stock Ownership Plans to our consolidated, audited financial statements for further information regarding the
assumptions used to value stock options. There were no forfeitures during calendar 2008,2007, or 2006 by executive officers.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Amount is comprised of $6,000 in auto allowance payments, $32,647 of reimbursed relocation expenses, $13,846 of reimbursed living allowance costs, and a $12,763 payment to offset
income taxes on taxable reimbursed relocation expenses.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Amount represents a performance cash bonus paid at the discretion of the Compensation and Stock Option Committee.
|--- | -----------------------------------------------------------------------------------------------------------------

|(4) | Represents a yearly auto allowance and Company matching contributions to the executive officers defined contribution plan.
|--- | ---------------------------------------------------------------------------------------------------------------------------

Executive Employment Agreements

Chief Executive Officer

On March 27, 2009, we executed an employment agreement with our Chief Executive Officer, John M. Hill, effective January 1,
2009. Mr. Hills employment contract has a term of three years and includes a base salary of $390,000 per annum increased by an amount no less than an amount equal to the percentage increase in the consumer price index for the Tampa,
Florida metropolitan area. This compensation may, at the election of the Company, be accrued, in whole or in part, until such time as the Company receives financing and/or generates sufficient revenues with which to pay Mr. Hill his stated
compensation, after the payment by the Company of its operating expenses, but no longer than the end of each tax year. In addition, Mr. Hill will be entitled to a special bonus in the amount equal to one percent of the Companys pre-tax
profits during 2009 (as determined by the application of generally accepted accounting principles), up to the first $1,000,000 of such profits; plus an additional sum equal to two percent of the Companys pre-tax profits for all sums over
$1,000,000. In the event Mr. Hills employment is terminated without cause twelve months from a change in control, the Company shall pay to Mr. Hill a lump sum amount equal to the aggregate of (i) accrued unpaid salary, if
any; (ii) accrued but unpaid expenses, if any; (iii) accrued but unpaid bonuses, if any; (iv) unissued warrants, if any; and (v) the total compensation which would have been paid to Mr. Hill through five full years of
compensation from the date of termination.

Chief Financial Officer

On March 12, 2009, we executed an employment agreement with our Chief Financial Officer, Joe Crisafi, who was appointed on February 26, 2009. Mr. Crisafis employment contract has a term of three
years and includes a base salary of $390,000 per annum increased by an amount no less than an amount equal to the percentage increase in the consumer price index for the metropolitan area of Mr. Crisafis place of residence. This
compensation may, at the election of the Company, be accrued, in whole or in part, until such time as the Company receives financing and/or generates sufficient revenues with which to pay Mr. Crisafi his stated compensation,



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after the payment by the Company of its operating expenses, but no longer than the end of each tax year. In addition, Mr. Crisafi will be entitled to a
special bonus in the amount equal to one percent of the Companys pre-tax profits during 2009 (as determined by the application of generally accepted accounting principles), up to the first $1,000,000 of such profits; plus an additional sum
equal to two percent of the Companys pre-tax profits for all sums over $1,000,000. In the event Mr. Crisafis employment is terminated without cause twelve months from a change in control, the Company shall pay to
Mr. Crisafi a lump sum amount equal to the aggregate of (i) accrued unpaid salary, if any; (ii) accrued but unpaid expenses, if any; (iii) accrued but unpaid bonuses, if any; (iv) unissued warrants, if any; and (v) the
total compensation which would have been paid to Mr. Crisafi through five full years of compensation from the date of termination.

Chief
Accounting Officer

We entered into an employment agreement with Robert J. Landis effective March 5, 2009. The agreement includes a
term of three years and a base salary of $191,500 per annum increased by an amount no less than an amount equal to the percentage increase in the consumer price index for the Tampa, Florida metropolitan area. In addition, Mr. Landis will
receive a signing bonus of $20,000 plus 500,000 CompCare Shares. In the event Mr. Landis employment is terminated without cause twelve months from a change in control, the Company shall pay to Mr. Landis a lump sum amount equal to
the aggregate of (i) accrued unpaid salary, if any; (ii) accrued but unpaid expenses, if any; (iii) accrued but unpaid bonuses, if any; (iv) unissued warrants, if any; and (v) the total compensation which would have been
paid to Mr. Landis through three full years of compensation from the date of termination.

Senior Vice President for Business Development

Mr. Powers compensation is $140,000 per year. He is eligible to receive sales commissions in accordance with an offer letter
dated February 22, 2008. Sales commission amounts are dependent upon the type of business sold, whether risk or ASO, and whether commercial or public sector. Our agreement with Mr. Powers includes no severance provisions.

Confidentiality agreements

We require that
each employee, including all officers, sign a confidentiality agreement stating that as long as the employee works for us, and after the employees termination for any reason, the employee may not disclose in any manner our proprietary
confidential information.

There are no non-compete provisions within the employment agreements of any of our officers.

Indemnification matters

In connection with
our indemnification program for executive officers and directors, Mr. Hill, Mr. Landis, and Mr. Crisafi, as well as nine current, key management employees, directors, or subsidiary directors, 24 former directors, and 16 former
executive officers, are entitled to indemnification. We consider it desirable to provide each indemnitee with specified assurances that we can and will honor our obligations under the Indemnification Agreements, including a policy of insurance to
provide for directors and officers liability coverage.



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Grants of Plan Based Awards

The table below sets forth information with respect to options granted to our named executive officers during 2008.



|                                                              |  |           |  |                                                                 |  |                           |  |                                           
|------------------------------------------------------------- |  | --------- |  | --------------------------------------------------------------- |  | ------------------------- |  | ------------------------------------------
|Name and Principal Position                                   |  | GrantDate |  | All Other Option Awards:Number of Securities Underlying Options |  | ExercisePrice($/share)(1) |  | Grant DateFair Value ofOption Awards($)(2)
|John M. Hill President and CEO                                |  | 01/14/08  |  | 100,000                                                         |  | 0.55                      |  | 48,720                                    
|                                                              |  |           |  |                                                                
|Robert J. Landis Chief Accounting Officer                     |  | 02/19/08  |  | 15,000                                                          |  | 0.65                      |  | 8,280                                     
|                                                              |  |           |  |                                                                
|Richard Powers Senior Vice President for Business Development |  | 03/05/08  |  | 75,000                                                          |  | 0.66                      |  | 41,970                                    



|(1) | The options to purchase our common stock are exercisable at a price equal to the closing price of the stock on the date of grant.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(2) | The grant date fair value of stock options is calculated using the Black-Scholes option pricing model, which incorporates various assumptions including expected volatility, expected
life of the options and applicable interest rates. See Critical Accounting Estimates  Stock Compensation Expense in Managements Discussion and Analysis and Note 15 Preferred Stock, Common Stock, and Stock Ownership
Plans to our consolidated, audited financial statements for further information regarding the assumptions used to value stock options.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Outstanding Equity Awards at Year-end

The following table sets forth all outstanding equity awards held by our named
executive officers as of December 31, 2008.



|                 |                |                                                |                  |                         |  |                      |  |         
|---------------- | -------------- | ---------------------------------------------- | ---------------- | ----------------------- |  | -------------------- |  | --------
|Name             |                | Number of shares underlyingunexercised
options |                  | OptionExercise Price($) |  | OptionExpirationDate
|                 | Exercisable(#) |                                                | Unexercisable(#) |                         | 
|John M Hill      |                |                                               |                  | 100,000                 |  | 0.5500               |  | 01/14/18
|                 |                |                                                |                  |                         |  |                      |  |         
|Total            |                |                                               |                  | 100,000                 |  |                      |  |         
|                 |                |                                                |                  |                         |  |                      |  |         
|                 |                |                                                |                  |                        
|Robert J. Landis |                | 75,000                                         |                  |                        |  | 0.5625               |  | 07/06/09
|                 |                | 50,000                                         |                  |                        |  | 0.2500               |  | 01/02/11
|                 |                | 25,000                                         |                  |                        |  | 0.5100               |  | 11/07/12
|                 |                | 25,000                                         |                  |                        |  | 1.4000               |  | 02/07/13
|                 |                | 25,000                                         |                  |                        |  | 1.7000               |  | 01/23/14
|                 |                | 25,000                                         |                  |                        |  | 1.4500               |  | 03/11/15
|                 |                | 25,000                                         |                  |                        |  | 1.7800               |  | 10/28/15
|                 |                | 25,000                                         |                  |                        |  | 1.8000               |  | 11/17/16
|                 |                | 7,500                                          |                  | 7,500                   |  | 0.6500               |  | 02/19/18
|                 |                |                                                |                  |                         |  |                      |  |         
|Total            |                | 282,500                                        |                  | 7,500                   |  |                      |  |         
|                 |                |                                                |                  |                         |  |                      |  |         
|                 |                |                                                |                  |                        
|Richard Powers   |                |                                               |                  | 75,000                  |  | 0.6600               |  | 03/05/18
|                 |                |                                                |                  |                         |  |                      |  |         
|Total            |                |                                               |                  | 75,000                  |  |                      |  |         
|                 |                |                                                |                  |                         |  |                      |  |         

All unexercisable options became vested and exercisable on January 20, 2009, due to the change in control of
the Company resulting from the purchase by Core of the Hythiam interest in CompCare.

Option Exercises and Stock Vested

No stock options were exercised by any of our named executive officers during the year ended December 31, 2008. We did not issue restricted stock,
restricted stock units, or similar instruments during the year ended December 31, 2008.



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Potential Payments upon Termination or Change in Control

Potential payments upon termination

In the event our CEOs employment is terminated without cause twelve months from a change in control, the Company shall pay to Mr. Hill a lump sum amount equal to the aggregate of (i) accrued but unpaid salary, if any;
(ii) accrued but unpaid expenses, if any; (iii) accrued but unpaid bonuses, if any; (iv) unissued warrants, if any; and (v) the total compensation which would have been paid to Mr. Hill through five full years of
compensation from the date of termination.

In the event our CFOs employment is terminated without cause twelve months from a change
in control, the Company shall pay to Mr. Crisafi a lump sum amount equal to the aggregate of (i) accrued but unpaid salary, if any; (ii) accrued but unpaid expenses, if any; (iii) accrued but unpaid bonuses, if any;
(iv) unissued warrants, if any; and (v) the total compensation which would have been paid to Mr. Crisafi through five full years of compensation from the date of termination.

In the event our CAOs employment is terminated without cause twelve months from a change in control, the Company shall pay to Mr. Landis a
lump sum amount equal to the aggregate of (i) accrued but unpaid salary, if any; (ii) accrued but unpaid expenses, if any; (iii) accrued but unpaid bonuses, if any; (iv) unissued warrants, if any; and (v) the total
compensation which would have been paid to Mr. Landis through three full years of compensation from the date of termination.

Unvested
stock options for all employees, including named executives, would vest immediately upon a change in control.

Director Compensation

The following table provides information regarding compensation paid to non-employee directors during the twelve-month period ended
December 31, 2008.



|                            |  |                     |  |                    |  |                      |  |            
|--------------------------- |  | ------------------- |  | ------------------ |  | -------------------- |  | -----------
|Name                        |  | Fees PaidIn Cash($) |  | Fees Earned($) (1) |  | Option Awards($) (2) |  | Total($)(3)
|Steven R. Peskin, M.D. (4)  |  | 23,125              |  | 23,125             |  | 9,636                |  | 32,761     
|Michel Sucher, M.D. (4)     |  | 15,248              |  | 15,248             |  | 9,636                |  | 24,884     
|Michael Yuhas (4)           |  | 15,500              |  | 15,500             |  | 9,636                |  | 25,136     
|Vijay Chevli (5)            |  | 30,375              |  | 28,500             |  | 9,636                |  | 38,136     
|Michael D. Bakst, Ph.D. (5) |  | 14,250              |  | 14,250             |  | 11,649               |  | 25,899     



|(1) | Amounts represent fees earned for service as a director on our Board of Directors and as a member of one or more Board committees. Fees were paid quarterly in advance.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Amounts reflect compensation expense recognized in our financial statements during calendar 2008 resulting from grants of stock options to non-employee directors in 2007(no grants
to non-employee directors were made during 2008). As such, these amounts do not represent compensation actually realized by each director during the year. Fair value was calculated using the Black-Scholes option pricing model, which incorporates
various assumptions including expected volatility, expected life of the options and applicable interest rates. See Critical Accounting Estimates  Stock Compensation Expense in Managements Discussion and Analysis and Note 15
Preferred Stock, Common Stock, and Stock Ownership Plans to our consolidated, audited financial statements for further information regarding the assumptions used to value stock options. Outstanding stock option awards, by non-employee
director as of December 31, 2008, were as follows:
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                        |  |                         |  |                                                             |       
|----------------------- |  | ----------------------- |  | ----------------------------------------------------------- | ------
|Name:                   |  | Options Outstanding (#) |  | Aggregate Grant DateFair Market Value ofOptions Outstanding
|Steven R. Peskin, M.D.  |  | 25,000                  |  | $                                                           | 19,167
|Michel Sucher, M.D.     |  | 25,000                  |  |                                                             | 19,167
|Michael Yuhas           |  | 25,000                  |  |                                                             | 19,167
|Vijay Chevli            |  | 25,000                  |  |                                                             | 19,167
|Michael D. Bakst, Ph.D. |  | 25,000                  |  |                                                             | 14,753



|(3) | The Total Column is the sum of the Fees Earned column and the Option Awards column, which is the total expense recognized in our financial statements.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Resigned January 16, 2009 as the result of a change in control of the Company.
|--- | ------------------------------------------------------------------------------

|(5) | Resigned January 20, 2009 as the result of a change in control of the Company.
|--- | ------------------------------------------------------------------------------



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Members of the Board of Directors who are also officers or employees of the Company receive no
compensation for serving as directors. During 2008, non-employee directors were compensated with a $15,000 annual retainer paid quarterly. Additionally, non-employee directors serving as a chairman of a Board committee were further compensated as
follows:



|                                              |  |                 |      
|--------------------------------------------- |  | --------------- | -----
|Committee:                                    |  | Annual Retainer
|Audit Committee                               |  | $               | 7,500
|                                              | 
|Compensation Committee                        |  |                 | 2,500
|                                              | 
|Nominating and Corporate Governance Committee |  |                 | 2,500
|                                              | 
|Special Committee (if convened)               |  |                 | 7,500

Our new Core directors will receive a stipend of $1,000 a month for their services to the Board.

Limitations on the deductibility of compensation

Section 162(m) of the Internal Revenue Code of 1986, as amended (the Tax Code), places a limit of $1.0 million on the amount of compensation that we can deduct in any one year with respect to each of
our five most highly paid executive officers. However, certain performance-based compensation as defined by Section 162(m) of the Tax Code is not subject to the deduction limit. The Board of Directors believes that all anticipated compensation
during the year ended December 31, 2008 will satisfy the requirements of Section 162(m) of the Tax Code and, as such, would be deductible for federal income tax purposes. Further, our Compensation Committee believes that the deductibility
of officer compensation in excess of the $1.0 million threshold is not likely to be an issue for us to address in the foreseeable future.

Compensation
committee interlocks and insider participation

No member of the Compensation Committee was at any time during the past year an officer
or employee of the Company, was formerly an officer of the Company or any of our subsidiaries, or had any employment relationship with us.

During 2008,
none of our executive officers served as:



| |  |  | a member of the Compensation Committee (or other committee of the Board of Directors performing equivalent functions or, in the absence of any such committee, the
entire Board of Directors) of another entity, one of whose executive officers served on our Compensation Committee;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a director of another entity one of whose executive officers served on our compensation committee; or
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | a member of the Compensation Committee (or other committee of the Board of Directors performing equivalent functions or, in the absence of any such committee, the
entire Board of Directors) of another entity, one of whose executive officers served as a director of the Company.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

COMPENSATION
COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth in this
annual report on Form 10-K with management and based on such discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis section be included herein.

Submitted by the Compensation Committee:

Arthur K. Yeap, Chairman

Sharon Kay Ray

Arnold B. Finestone

Dated: March 16, 2009



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|ITEM12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|------- | ----------------------------------------------------------------------------------------------

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 December 31, 2008:



|                                                        |  |                                                                                          |  |                                                                          |      |                                                                                                                                         |          
|------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ---- | --------------------------------------------------------------------------------------------------------------------------------------- | ---------
|                                                        |  | (a)                                                                                      |  | (b)                                                                      |      | (c)                                                                                                                                    
|Plan category                                           |  | Number of securities tobe issued upon
exerciseof outstanding options,warrants and rights |  | Weighted-averageexercise price ofoutstanding options,warrants and rights |      | Number of securities remainingavailable for future
issuanceunder equity compensationplans (excluding securitiesreflected in column
(a))
|Equity compensation plans approved by shareholders      |  | 847,500                                                                                  |  | $                                                                        | 0.88 |                                                                                                                                         | 1,198,668
|Equity compensation plans not approved by shareholders* |  | 306,000                                                                                  |  |                                                                          | 1.25 |                                                                                                                                         |         
|                                                        |  |                                                                                          |  |                                                                          |      |                                                                                                                                         |          
|Total                                                   |  | 1,153,500                                                                                |  | $                                                                        | 1.08 |                                                                                                                                         | 1,198,668
|                                                        |  |                                                                                          |  |                                                                          |      |                                                                                                                                         |          



|* | Consists of 306,000 warrants to purchase common stock of the Company that were issued in a prior fiscal year to two consultants and two employees as compensation for introducing
strategic business partners to the Company. All such warrants were issued in lieu of cash compensation and have five-year terms with an exercise price of $1.25.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Security Ownership of Certain Beneficial Owners

The following table sets forth, as of March 23,
2009, the name, address, stock ownership and voting power of each person or group of persons known by us who is not a director or a named executive officer of the Company to own beneficially more than 5% of the outstanding shares of our common
stock. Unless otherwise indicated, each of the stockholders has sole voting and investment power with respect to shares beneficially owned.



|                                                                                                                                       |  |                         |     |  |                                           |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | --- |  | ----------------------------------------- | -
|Name And Address of Beneficial Owner                                                                                                   |  | SharesBeneficiallyOwned |     |  | Percent of Voting CommonStock
Outstanding |  
|Howard Jenkins c/o Comprehensive Care Corporation, 3405
W. Dr. Martin Luther King, Jr. Blvd., Suite 101, Tampa, Florida 33607          |  | 8,000,000               |     |  | 33.4                                      | %
|                                                                                                                                       |  |                        
|Benjamin B. West c/o Comprehensive Care Corporation,
3405 W. Dr. Martin Luther King, Jr. Blvd., Suite 101, Tampa, Florida 33607        |  | 4,000,000               | (1) |  | 16.7                                      | %
|                                                                                                                                       |  |                        
|Peggy A. Husted c/o Comprehensive Care Corporation, 3405
W. Dr. Martin Luther King, Jr. Blvd., Suite 101, Tampa, Florida 33607         |  | 3,250,312               | (2) |  | 12.0                                      | %
|                                                                                                                                       |  |                        
|William B. Barlow c/o Comprehensive Care Corporation,
3405 W. Dr. Martin Luther King, Jr. Blvd., Suite 101, Tampa, Florida 33607       |  | 2,500,000               | (3) |  | 10.5                                      | %
|                                                                                                                                       |  |                        
|Harry Ross c/o Comprehensive Care Corporation, 3405 W.
Dr. Martin Luther King, Jr. Blvd., Suite 101, Tampa, Florida 33607              |  | 2,400,000               | (4) |  | 9.7                                       | %
|                                                                                                                                       |  |                        
|Anako Enterprises, Inc. c/o Comprehensive Care
Corporation, 3405 W. Dr. Martin Luther King, Jr. Blvd., Suite 101, Tampa, Florida 33607 |  | 2,000,314               | (5) |  | 7.7                                       | %
|                                                                                                                                       |  |                        
|Joshua I. Smith c/o Comprehensive Care Corporation, 3405
W. Dr. Martin Luther King, Jr. Blvd., Suite 101, Tampa, Florida 33607         |  | 1,500,000               | (6) |  | 6.2                                       | %



|(1) | Information obtained from Form 13G dated January 20, 2009, filed by Mr. West on January 30, 2009.
|--- | -------------------------------------------------------------------------------------------------

|(2) | Information obtained from Form 13G dated January 20, 2009, filed by Ms. Husted on January 30, 2009.
|--- | ---------------------------------------------------------------------------------------------------

|(3) | Information obtained from Form 13G dated January 20, 2009, filed by Mr. Barlow on January 30, 2009.
|--- | ---------------------------------------------------------------------------------------------------

|(4) | Information obtained from Form 13D dated September 3, 2008 filed by Mr. Ross on September 5, 2008.
|--- | --------------------------------------------------------------------------------------------------

|(5) | Information obtained from Form 13G dated January 20, 2009, filed by Anako Enterprises, Inc. on January 30, 2009. Anako Enterprises, Inc. is controlled by a single
shareholder, Mr. Stephen E. Kaye.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Information obtained from Form 13G dated January 20, 2009, filed by Mr. Smith on January 30, 2009.
|--- | --------------------------------------------------------------------------------------------------



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##### Table of Contents

Security Ownership of Management

The following table sets forth, as of March 23, 2009, information concerning the beneficial ownership of common stock by each director of the Company and the named executive officers listed in the Summary
Compensation Table included elsewhere herein, and all directors and executive officers as a group. 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.



|                                                                |  |                          |  |                                    |  
|--------------------------------------------------------------- |  | ------------------------ |  | ---------------------------------- | -
|Name of Beneficial Owner                                        |  | Shares BeneficiallyOwned |  | Percent of Common StockOutstanding |  
|Robert J. Landis(1)                                             |  | 897,000                  |  | 3.7                                | %
|John M. Hill(2)                                                 |  | 150,000                  |  | *                                  |  
|Giuseppe Crisafi                                                |  | 0                        |  | *                                  |  
|Arnold B. Finestone(3)                                          |  | 200,000                  |  | *                                  |  
|Joshua I. Smith(4)                                              |  | 1,500,000                |  | 6.3                                | %
|Sharon Kay Ray(5)                                               |  | 200,000                  |  | *                                  |  
|Arthur K. Yeap(6)                                               |  | 200,000                  |  | *                                  |  
|                                                                |  |                         
|All directors and executive officers as a group (seven persons) |  | 3,147,000                |  | 12.9                               | %
|                                                                | 

| | * | Less than 1%.
| | - | -------------

| | (1) | Includes 607,000 shares of common stock held directly and 290,000 shares subject to options that are presently
exercisable.
| | --- | ---------------------------------------------------------------------------------------------------------------------------

| | (2) | Includes 150,000 shares subject to options that are presently exercisable.
| | --- | --------------------------------------------------------------------------

| | (3) | Includes 200,000 shares of common stock held directly. Excludes 25,000 shares subject to options that are not
exercisable within 60 days of March 23, 2009.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Includes 1,500,000 shares of common stock held directly. Excludes 25,000 shares subject to options that are not
exercisable within 60 days of March 23, 2009.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | Includes 200,000 shares of common stock held directly. Excludes 25,000 shares subject to options that are not
exercisable within 60 days of March 23, 2009.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | (6) | Includes 200,000 shares of common stock held directly. Excludes 25,000 shares subject to options that are not
exercisable within 60 days of March 23, 2009.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|------- | -------------------------------------------------------------------------

Transactions with Related Persons

In February 2006, CBC entered into an agreement with Hythiam whereby we would have the
exclusive right to market Hythiams substance abuse disease management program to CBCs current and certain mutually agreed upon prospective clients. The program is an integrated disease management approach designed to offer less
restrictive levels of care in order to minimize repeat detoxifications. Under the agreement, we will pay Hythiam license and service fees for each enrollee who is treated. There were no transactions resulting from this agreement during the year
ended December 31, 2008 or 2007, the seven months ended December 31, 2006, or the fiscal year ended May 31, 2006.

In
January 2009, we entered into an agreement with Hythiam to provide administrative services for Hythiams newly launched specialty products and programs for autism and ADD. Hythiam will pay us a fee per member per month for claims
processing and other related services. The agreement is for an initial term of one year with options for renewal.



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During 2007, CBC contracted with Integra Health Management, Inc. (IHM), a company that
provides behavioral and medical health management and consultative services to healthcare payers. IHM was founded by one of our former directors, Michael Yuhas, who also serves as its current Chief Executive Officer. During the years ended
December 31, 2008 and 2007, CBC paid IHM $94,620 and $28,212, respectively, for monitoring and care coordination of intensive case management patients. In addition, IHM provided $115,967 and $15,000 of information technology consulting services
to CBC for the years ended December 31, 2008 and 2007, respectively.

We have accelerated our Sarbanes-Oxley Act compliance efforts in
order to meet management attestation requirements for financial reporting internal controls as of December 31, 2007. Hythiam has paid for consulting services to accomplish our management review of such internal controls. Because this effort has
benefited us, we will reimburse Hythiam a portion of the cost. In addition, we have benefited by being included under certain of Hythiams insurance policies. At December 31, 2008 and 2007, $90,592 and $80,000, respectively, are included
in accounts payable and accrued liabilities to cover expected reimbursements to Hythiam for these costs.

In March 2009, we executed new
employment agreements with our Chief Executive Officer, our new Chief Financial Officer, and our Chief Accounting Officer. The agreements are for terms of three years and contain provisions that include salary deferral, signing bonuses, and
incentive compensation, among other items. Each contract also stipulates payments due each employee upon termination due to a change in control.

In connection with the January 2009 purchase by Core of the Hythiam owned CompCare securities, our then Chief Financial Officer, Robert J. Landis, entered into a temporary waiver of the change in control provisions of his employment
agreement with the Company. Such provisions relate to payments that would be made to him upon certain events following a change in control of the Company, as defined in his employment agreement. The waiver terminated on March 5, 2009, the day
that the Company and Mr. Landis entered into a new employment agreement.

During the year ended December 31, 2008, two executive
officers served on our Board of Directors and also on the Board of Directors for each of our wholly-owned subsidiary corporations.

Although the Company does not have a separate, written policy over the review and approval of related party transactions, the Companys authority guidelines that delineate the responsibilities of management and the Board of Directors
state that all related party transactions shall be reviewed and approved by the Board. Such review procedures require management to conduct an initial review of the transaction and submit its recommendation to the full Board. The Board will then
review managements recommendation, and based on such factors as materiality, business purpose, comparability to other arms-length transactions, and effect on the Companys business, will approve or deny managements request to enter
into the transaction or relationship.

Director Independence

Although we are not listed on the American Stock Exchange, we have used the definition of independent set forth in Section 121(A) of the American Stock Exchange listing standards for the purpose of
determining the independence of our directors and members of a committee of our Board of Directors. Such standards define an independent director, generally, as one who is not employed by the Company, receives no compensation other than as a
director, is not related to a Company officer, and is not an officer or owner of a business having transactions with us that exceed five percent of our gross revenues.

The following is a list of individuals that served as a director at any point during the twelve-month period covered by this report and that were considered independent:

Michael D. Bakst, Ph.D.

Vijay Chevli

Steven R. Peskin, M.D.

Michel
Sucher, M.D.

Michael Yuhas

There were no transactions, relationships, or arrangements considered by the Board of Directors in determining that a director is independent other than those described immediately above under the caption Transactions with Related
Persons.



|ITEM14. | PRINCIPAL ACCOUNTING FEES AND SERVICES
|------- | --------------------------------------

Audit and Related Fees

The firm of Kirkland, Russ, Murphy & Tapp P.A. (KRMT) currently serves as our independent registered public
accounting firm to perform audits. The firm of Rose, Snyder and Jacobs prepared our income tax returns for the tax period ended May 31, 2008. The Audit Committee approved 100% of the services described below for audit, tax and related fees.



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Audit Fees. The aggregate fees billed by KRMT for the audit of our annual consolidated financial statements
and review of the financial statements included in the Companys quarterly reports on Form 10-Q for the year ended December 31, 2008 and 2007 were $101,000 and $95,450, respectively. The aggregate fees billed by KRMT for professional
services rendered in connection with the audit of our consolidated financial statements and review of the financial statements included in the Companys quarterly reports on Form 10-Q during the seven month transition period ended
December 31, 2006 were $80,450.

Audit-Related Fees. The aggregate fees billed by KRMT for assurance and related services related to the
performance of the audit or review of the Companys consolidated financial statements and not described above under Audit Fees were $17,000 for the year ended December 31, 2008, $20,500 for the year ended December 31,
2007, and $14,700 for the seven months ended December 31, 2006. Audit-related services principally include audits of certain of our subsidiaries and our 401(k) plan.

Tax Fees. During the year ended December 31, 2008, KRMT billed $16,450 to the Company for preparing the Companys tax returns for the tax year ended December 31, 2007. During the year
ended December 31, 2007, KRMT billed $31,690 to the Company for preparing the Companys tax returns for the tax year ended May 31, 2007. For the seven months ended December 31, 2006, KRMT billed $26,575 for preparing the
Companys fiscal 2006 tax returns.

All Other Fees. The aggregate fees billed by KRMT for professional services other than services
described under Audit Fees, Audit-Related Fees and Tax Fees above were $4,000 and $1,650 for the years ended December 31, 2008 and 2007, respectively, primarily for assurance services related to our bond
indenture. During the seven months ended December 31, 2006, such fees were $4,675, also for assurance services related to our bond indenture.

The
Audit Committee does not believe the provision of non-audit services by the independent accountant impairs the ability of such accountant to maintain independence with regard to the Company.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

The Audit Committees policy is to pre-approve all audit and permissible non-audit services provided by the Companys independent auditors in
order to assure that the provision of such services does not impair the auditors independence. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one
year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. Management is required to periodically report to the Audit Committee regarding the extent of services provided
by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. During the year ended December 31, 2008, all services were pre-approved by the Audit Committee in accordance with this policy.



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PART IV



|ITEM15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|------- | ------------------------------------------



|    |  |    |  |                                                                                                                                                                                  |  |                                                                                                                                                                                    
|--- |  | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | 1. |  | Consolidated Financial Statements - Included in Part II of this report:                                                                                                         
|    |  |   
|    |  |    |  | Report of Independent Registered Public Accounting Firm                                                                                                                         
|    |  |   
|    |  |    |  | Consolidated Balance Sheets, December 31, 2008 and 2007                                                                                                                         
|    |  |   
|    |  |    |  | Consolidated Statements of Operations for the years ended December 31, 2008 and 2007, the seven months ended
December 31, 2006 and fiscal year ended May 31, 2006               
|    |  |   
|    |  |    |  | Consolidated Statements of Stockholders Deficit for the years ended December 31, 2008 and 2007, the seven months ended
December 31, 2006 and the fiscal year ended May 31, 2006
|    |  |   
|    |  |    |  | Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007, the seven months ended
December 31, 2006, and the fiscal year ended May 31, 2006          
|    |  |   
|    |  |    |  | Notes to Consolidated Financial Statements                                                                                                                                      
|    |  |   
|    |  | 2. |  | 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:                                                                                                                                                                       
|    |  |    | 
|    |  |    |  | Exhibit Number                                                                                                                                                                   |  | Description and Reference                                                                                                                                                          
|    |  |    |  | 3.1                                                                                                                                                                              |  | Restated Certificate of Incorporation as amended on November 3, 2005 and March 23, 2006.(15)                                                                                       
|    |  |    | 
|    |  |    |  | 3.2                                                                                                                                                                              |  | Amended and Restated Bylaws, as amended July 20, 2000.(7)                                                                                                                          
|    |  |    | 
|    |  |    |  | 3.3                                                                                                                                                                              |  | Bylaw amendment.(5)                                                                                                                                                                
|    |  |    | 
|    |  |    |  | 3.4                                                                                                                                                                              |  | Bylaw amendment, effective October 28, 2005.(14)                                                                                                                                   
|    |  |    | 
|    |  |    |  | 3.5                                                                                                                                                                              |  | Certificate of Designation, Preferences, and Rights of Series A Convertible Preferred Stock of Comprehensive Care Corporation.(5)                                                  
|    |  |    | 
|    |  |    |  | 3.6                                                                                                                                                                              |  | Bylaw Amendment, effective January 12, 2007 (filed herewith).                                                                                                                      
|    |  |    | 
|    |  |    |  | 3.7                                                                                                                                                                              |  | Certificate of Designation, Rights and Preferences of Series B-1 Convertible Preferred Stock and Series B-2 Convertible Preferred Stock of the Company, dated January 16, 2009.(18)
|    |  |    | 
|    |  |    |  | 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.(11)                                                                                                                                              
|    |  |    | 
|    |  |    |  | 10.1                                                                                                                                                                             |  | Form of Stock Option Agreement. *(2)                                                                                                                                               
|    |  |    | 
|    |  |    |  | 10.2                                                                                                                                                                             |  | Form of Indemnity Agreement as amended March 24, 1994. *(3)                                                                                                                        
|    |  |    | 
|    |  |    |  | 10.3                                                                                                                                                                             |  | Comprehensive Care Corporation 1995 Incentive Plan, as amended on November 17, 1998.(8)                                                                                            
|    |  |    | 
|    |  |    |  | 10.4                                                                                                                                                                             |  | Amended and Restated Non-Employee Directors Stock Option Plan. *(4)                                                                                                               
|    |  |    | 
|    |  |    |  | 10.5                                                                                                                                                                             |  | Amendment No. 1 to Comprehensive Care Corporation Amended and Restated Non-Employee Directors Stock Option Plan, effective as of March 23, 2006.*(15)                             
|    |  |    | 
|    |  |    |  | 10.6                                                                                                                                                                             |  | Employment Agreement as amended February 7, 2003 between the Company and Robert J. Landis. *(6)                                                                                    
|    |  |    | 
|    |  |    |  | 10.7                                                                                                                                                                             |  | Employment Agreement amendment dated June 14, 2005 between the Company and Robert J. Landis. *(5)                                                                                  
|    |  |    | 
|    |  |    |  | 10.8                                                                                                                                                                             |  | Employment Agreement waiver dated June 14, 2005 between the Company and Robert J. Landis. *(5)                                                                                     
|    |  |    | 
|    |  |    |  | 10.9                                                                                                                                                                             |  | Employment Agreement as amended February 7, 2003 between the Company and Mary Jane Johnson. *(6)                                                                                   
|    |  |    | 
|    |  |    |  | 10.10                                                                                                                                                                            |  | Employment Agreement amendment dated June 14, 2005 between the Company and Mary Jane Johnson. *(5)                                                                                 
|    |  |    | 
|    |  |    |  | 10.11                                                                                                                                                                            |  | Employment Agreement waiver dated June 14, 2005 between the Company and Mary Jane Johnson.*(5)                                                                                     
|    |  |    | 
|    |  |    |  | 10.12                                                                                                                                                                            |  | Employment Agreement dated June 3, 2002 between the Company and Thomas C. Clay. *(9)                                                                                               
|    |  |    | 
|    |  |    |  | 10.13                                                                                                                                                                            |  | Comprehensive Care Corporation 2002 Incentive Plan as amended. *(10)                                                                                                               
|    |  |    | 
|    |  |    |  | 10.14                                                                                                                                                                            |  | Stock Purchase Agreement dated June 14, 2005 between the Company and Woodcliff Healthcare Investment Partners LLC.(5)                                                              
|    |  |    | 
|    |  |    |  | 10.15                                                                                                                                                                            |  | Registration Rights Agreement dated June 14, 2005 between the Company and Woodcliff Healthcare Investment Partners LLC.(5)                                                         
|    |  |    | 
|    |  |    |  | 10.16                                                                                                                                                                            |  | Marketing Agreement by and between the Company and Health Alliance Network, Inc.(12)                                                                                               
|    |  |    | 
|    |  |    |  | 10.17                                                                                                                                                                            |  | Sublease Agreement dated May 22, 2006 between Comprehensive Behavioral Care, Inc. and AT&T Corporation(13)                                                                         



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| |  |  |  |       |  |                                                                                                                                                                            
| |  |  |  | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 
| |  |  |  | 10.18 |  | Lease Agreement between Comprehensive Behavioral Care, Inc. and Highwoods/Florida Holdings, L.P., dated November 12, 2008.(17)                                             
| |  |  | 
| |  |  |  | 10.19 |  | Merger Agreement, dated as of January 20, 2009, among Comprehensive Care Corporation, CompCare Acquisition, Inc. and Core Corporate Consulting Group, Inc.(18)             
| |  |  | 
| |  |  |  | 10.20 |  | Employment Agreement Waiver dated January 20, 2009 between the Company and Robert J. Landis. *(18)                                                                         
| |  |  | 
| |  |  |  | 10.21 |  | Employment Agreement dated March 27, 2009 between the Company and John M. Hill (filed herewith).*                                                                          
| |  |  | 
| |  |  |  | 10.22 |  | Employment Agreement dated March 12, 2009 between the Company and Giuseppe Crisafi (filed herewith).*                                                                      
| |  |  | 
| |  |  |  | 10.23 |  | Employment Agreement dated March 5, 2009 between the Company and Robert J. Landis (filed herewith).*                                                                       
| |  |  | 
| |  |  |  | 14.1  |  | Code of Business Conduct and Ethics (Revised).(16)                                                                                                                         
| |  |  | 
| |  |  |  | 21.1  |  | List of the Companys active subsidiaries (filed herewith).                                                                                                                
| |  |  | 
| |  |  |  | 23.1  |  | Consent of Kirkland, Russ, Murphy & Tapp P.A. (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 8-K dated November 9, 1995.
| | --- | ---------------------------------------------------------------------

| | (5) | Filed as an exhibit to the Companys Form 8-K dated June 14, 2005.
| | --- | ------------------------------------------------------------------

| | (6) | Filed as an exhibit to the Companys Form 8-K dated February 7, 2003.
| | --- | ---------------------------------------------------------------------

| | (7) | Filed as an exhibit to the Companys Form 10-K for the fiscal year ended May 31, 2000.
| | --- | --------------------------------------------------------------------------------------

| | (8) | Filed as an exhibit to the Companys Form 8-K dated November 25, 1998.
| | --- | ----------------------------------------------------------------------

| | (9) | Filed as an exhibit to the Companys Form 8-K dated June 7, 2002.
| | --- | -----------------------------------------------------------------

| | (10) | Filed as Appendix A to the Companys definitive proxy statement on Schedule 14A filed on January 28, 2005.
| | ---- | ----------------------------------------------------------------------------------------------------------

| | (11) | Filed as an exhibit to Form S-8 (File No. 333-108561) filed on September 5, 2003.
| | ---- | ---------------------------------------------------------------------------------

| | (12) | Filed as an exhibit to the Companys Form 8-K, dated August 3, 2005.
| | ---- | --------------------------------------------------------------------

| | (13) | Filed as an exhibit to the Companys Form 8-K, dated May 26, 2006.
| | ---- | ------------------------------------------------------------------

| | (14) | Filed as an exhibit to the Companys Form 8-K, dated November 3, 2005.
| | ---- | ----------------------------------------------------------------------

| | (15) | Filed as an exhibit to the Companys Form 10-K for the fiscal year ended May 31, 2006.
| | ---- | --------------------------------------------------------------------------------------

| | (16) | Filed as an exhibit to the Companys Form 10-K for the year ended December 31, 2007.
| | ---- | ------------------------------------------------------------------------------------

| | (17) | Filed as an exhibit to the Companys Form 8-K, dated November 12, 2008.
| | ---- | -----------------------------------------------------------------------

| | (18) | Filed as an exhibit to the Companys Form 8-K, dated January 16, 2009.
| | ---- | ----------------------------------------------------------------------



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##### Table of Contents

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, March 27, 2009.

COMPREHENSIVE CARE CORPORATION



|   |  |                                                                    
|-- |  | -------------------------------------------------------------------
|By |  | /s/ JOHN M. HILL                                                   
|   |  | John M. Hill                                                       
|   |  | Chief Executive Officer and President (Principal Executive Officer)
|   | 
|By |  | /s/ GIUSEPPE CRISAFI                                               
|   |  | Giuseppe Crisafi                                                   
|   |  | Chief Financial Officer (Principal Financial Officer)              
|   | 
|By |  | /s/ ROBERT J. LANDIS                                               
|   |  | Robert J. Landis                                                   
|   |  | Chief Accounting Officer (Principal 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/ JOHN M. HILL     |  | Chief Executive Officer, President, and Director |  | March 27, 2009
|John M. Hill         |  | (Principal Executive Officer)                    |  |               
|                     |  |                                                 
|/s/ GIUSEPPE CRISAFI |  | Chief Financial Officer and Director             |  | March 27, 2009
|Giuseppe Crisafi     |  | (Principal Financial Officer)                    |  |               
|                     |  |                                                 
|/s/ ARNOLD FINESTONE |  |                                                  |  | March 27, 2009
|Arnold Finestone     |  | Director                                         |  |               
|                     |  |                                                 
|/s/ ARTHUR K. YEAP   |  |                                                  |  | March 27, 2009
|Arthur K. Yeap       |  | Director                                         |  |               
|                     |  |                                                 
|/s/ JOSHUA I. SMITH  |  |                                                  |  | March 27, 2009
|Joshua I. Smith      |  | Director                                         |  |               



76