##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-K

|  |  |                                                                                                                                
|- |  | -------------------------------------------------------------------------------------------------------------------------------
|x |  | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended May 31, 2003or  
|  |  |                                                                                                                                
|o |  | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from      to

Commission file number 1-9927

COMPREHENSIVE CARE CORPORATION

(Exact name of Registrant as specified in its charter)


|                                                                                          |  |                                             
|----------------------------------------------------------------------------------------- |  | --------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization)                   |  | 95-2594724
(IRS Employer
Identification No.)
|                                                                                          |  |                                             
|200 South Hoover Blvd., Suite 200
Tampa, Florida
(Address of principal executive offices) |  | 33609
(Zip Code)                            

(813) 288-4808
(Registrants telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

|                                                                                           |  |                                                 
|------------------------------------------------------------------------------------------ |  | ------------------------------------------------
|Title of each class                                                                        |  | Name of each exchange on which registered       
|                                                                                           |  |                                                 
|Common Stock, Par Value $.01 per share
7 1/2% Convertible Subordinated Debentures due 2010 |  | Over The Counter Bulletin Board
Over-the-Counter

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act
Rule 12b-2).  Yes o  No x

The aggregate market value of voting stock held by non-affiliates of the
Registrant at September 3, 2003, was $8,468,955 based on the average bid and ask
price of the Common Stock on September 3, 2003, as reported on the Over The
Counter Bulletin Board.

At
September 3, 2003, the Registrant had 3,939,049 shares of Common Stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.





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TABLE OF CONTENTS



|                                                 |  |  |  |  |  |  |  | 
|------------------------------------------------ |  |  |  |  |  |  |  | 
|PART I                                          
|GOVERNMENT REGULATION                           
|ACCREDITATION                                   
|MANAGEMENT INFORMATION SYSTEMS                  
|ADMINISTRATION AND EMPLOYEES                    
|MARKETING AND SALES                             
|AVAILABLE INFORMATION                           
|PART II.                                        
|Consolidated Balance Sheets                     
|Consolidated Statements of Operations           
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
|Consolidated Statements of Cash Flows           
|PART III                                        
|Part IV                                         
|SIGNATURES                                      
|Exhibit Index                                   
|Ex-14 Code of Business Ethics                   
|Ex-21 List of Company's Subsidiaries            
|EX-23 Consent of Eisner LLP                     
|EX-31.1 Section 302 Certification of the CEO    
|EX-31.2 Section 302 Certification of the CFO    
|EX-32.1 Section 906 Certification of the CEO    
|EX-32.2 Section 906 Certification of the CFO    



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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES




PART I

Item 1. BUSINESS

Organizational History

Comprehensive Care Corporation
® (referred to herein as the Company,
CompCare"®(1), we, our or us) is a Delaware Corporation organized in
1969. Unless the context otherwise requires, all references to the Company
include the Companys principal operating subsidiary, Comprehensive Behavioral
Care, Inc.SM(2) (CBC) and subsidiary corporations.

CompCare, through its operating subsidiaries, manages the delivery of
psychiatric and substance abuse services to commercial, Medicare, and Medicaid
members on behalf of employers, health plans, including health maintenance
organizations (HMOs) and preferred provider organizations (PPOs),
government organizations, third-party claims administrators, and commercial and
other group purchasers of behavioral healthcare services. Current services
include a broad spectrum of inpatient and outpatient mental health and
substance abuse therapy, counseling, and supportive interventions.

Recent Developments



| |  | During June 2003, we implemented one new client contract to provide
behavioral healthcare benefits to approximately 97,000 members in
Michigan. We estimate that annual revenues from this contract will be
$1.5 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The State of Texas has passed legislation that will reduce the amount of
funds allocated to our clients to cover behavioral healthcare services to
Medicaid and Childrens Health Insurance Program (CHIP) recipients in
the State of Texas. Such legislation is subject to pending bills that, if
passed, could restore some of the benefits to these programs. Under the
recently passed legislation, the outpatient behavioral healthcare benefits
available to adult Medicaid and CHIP recipients will be provided by the
HMOs and their subcontractors, including the Company, on a very limited
basis while the inpatient benefits for CHIP recipients may not be covered
by the HMOs and their subcontractors. For the fiscal year ended May 31,
2003, we had operating revenue of $3.7 million and $4.5 million,
respectively, specific to contracts covering Texas CHIP and Texas Medicaid
recipients. These changes to Texas Medicaid and CHIP programs could have
a material, adverse impact on our operations. However, we believe certain
of our clients will continue to require the types of services we provide
to mitigate their exposure to treat serious medical conditions that may
result from the lack of adequate behavioral healthcare benefits. We are
closely monitoring developments in Texas, but currently cannot predict
what financial impact, if any, these changes may have on our business.

Business General

The services we provide are delivered through management service
agreements (MSOs), administrative service agreements (ASOs), and capitated
contracts. MSOs and ASOs are contractual obligations under which the Company
does not assume any financial risk or responsibility for the members
behavioral health care costs. We may provide various managed care functions
under MSO and ASO arrangements, including clinical care management, provider
network development, customer service, claims processing, and information
systems reporting. The scope of services under MSO arrangements is slightly
narrower in comparison to those services we perform under ASO arrangements.
Under capitated contracts, the primary payer of healthcare services prepays us
a fixed, per member per month (PMPM) fee for covered psychiatric and
substance abuse services regardless of actual member utilization and the
Company assumes the financial risk for the members health care costs.
Programs are contracted through inpatient facilities as well as through
experienced outpatient practitioners.

We currently manage programs through which services are provided to
recipients in fourteen states. Current programs and services include fully
integrated, capitated behavioral healthcare services, Employee Assistance
Programs (EAPs), case management/utilization review services, administrative
services management (ASOs), provider sponsored health plan development,
behavioral corrections programs, preferred provider network development,
management and physician advisor reviews and overall care management services.
We also provide prior and concurrent authorization for physician-prescribed
psychotropic medications for a major Medicaid HMO in



---

|(1) |  | CompCare is a registered trademark of Comprehensive Care Corporation.           
|--- |  | --------------------------------------------------------------------------------
|   
|(2) |  | Comprehensive Behavioral Care, Inc. is a registered service mark of the
Company.

2



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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Michigan under that states mandated pharmacy management program. Members are
generally directed to CompCare by their employer, health plan, or physician and
receive an initial authorization for an assessment. Based upon the initial
assessment, a treatment plan is established for the member. Fully integrated
capitated lives (i.e. where the company has contractual, financial risk)
totaled approximately 789,000 and 805,000 at May 31, 2003 and 2002,
respectively. ASO lives were approximately 337,000 and 375,000 at May 31, 2003
and 2002, respectively. EAP lives were approximately 2,000 at May 31, 2003 and
2002.

Our objective is to provide easily accessible, high quality behavioral
healthcare services and products and to manage costs through measures such as
the monitoring of hospital inpatient admissions and the review of
authorizations for various types of outpatient therapy. The goal is to combine
access to quality behavioral healthcare services with effective management
controls in order to ensure the most cost-effective use of healthcare
resources.

Sources of Revenue

We provide managed behavioral healthcare and substance abuse services to
recipients, primarily through subcontracts with HMOs who have historically
carved out these functions to managed behavioral healthcare organizations
(MBHOs) like CompCare. We generally receive a negotiated amount on a per
member per month (PMPM) or capitated basis in exchange for providing these
services. We then contract directly with behavioral healthcare providers who
receive a pre-determined, fee-for-service rate or case rate. Behavioral
healthcare providers include psychiatrists, clinical psychologists, therapists,
other licensed healthcare professionals, and hospitals. As of May 31, 2003, we
have approximately 12,000 behavioral healthcare practitioners in our network
who are primarily located in the five states in which the Company has its
principal contracts. Under such full-risk capitation arrangements, profit is a
function of utilization and the amount of claims payments made to our network
providers. Alternatively, we may subcontract with a provider company on a
sub-capitated basis. In cases where we have made sub-capitation arrangements,
the outside company manages service delivery through CompCares approved and
credentialed network that is guided by stringent quality standards.

During Fiscal 2003, we provided services under capitated arrangements for
commercial, Medicare, Medicaid, and Childrens Health Insurance Program
patients in Florida and Texas, commercial and Medicaid patients in Michigan,
Medicaid patients in Connecticut, and commercial patients in Arizona, Georgia,
Indiana, Kentucky, Minnesota, New York, North Carolina, Ohio, South Carolina,
and Wisconsin.

In Fiscal 2003, our new business included two commercial contracts in
Indiana, two new Medicaid contracts in Michigan, one new Medicare contract in
Texas, and contracts with one new client in Florida that cover individuals
under both commercial and Medicaid plans. Additionally, we added one new EAP
client with membership in eight states. We perform periodic reviews of our
current client contracts to determine profitability. In the event a contract
is not profitable, we may seek to revise the terms of the contract or to
terminate the agreement in accordance with the specific contract terms.

Growth Strategy

Our objective is to expand our presence in both existing and new managed
behavioral healthcare markets by obtaining new contracts with health plans,
corporations, government agencies, and other payers through CompCares
reputation of providing quality managed behavioral healthcare services with the
most cost-effective use of healthcare resources. Our principal means for
pursuing public sector business is through the submission of proposals in
response to formal, competitive bidding proceedings that are initiated by
health plans or government agencies. We intend, where feasible, to expand our
commercial business during the upcoming fiscal year through new marketing
initiatives directed at employer groups and, also, HMOs that contract directly
with employers. Additionally, we continue to develop products that will bring
our core competencies to new market areas such as child welfare, behavioral
pharmacy management and preferred provider organization product management for
health plans and self-insured employers. The success of our growth strategy is
dependent upon our ability to competitively bid on new contracts, comply with
conditions contained in requests for proposals, obtain required licenses, if
any, in new markets, establish provider networks in new markets and negotiate
favorable agreements with our providers.

Competition

The behavioral healthcare industry is very competitive and provides
products and services that are price sensitive. We believe that there are
approximately 150 managed behavioral healthcare companies providing service
3Table of ContentsCOMPREHENSIVE CARE CORPORATION AND SUBSIDIARIESfor an estimated 227 million
covered lives in the United States. Several competitors have revenues,
financial resources, and membership substantially larger than ours. We also compete with
small local and regional companies at times. Competition is built
around pricing, the overall quality of service provided, the extent
and quality of the provider network, and the technical capacity of
the behavioral healthcare organization.
GOVERNMENT REGULATIONRegulatory Monitoring and ComplianceCompCare is subject to extensive and evolving state and federal
regulations relating to the nations mental health system as well as changes in
Medicaid and Medicare reimbursement that could have an effect on the
profitability of our contracts. These regulations range from licensure and
compliance with regulations related to insurance companies and other
risk-assuming entities, to licensure and compliance with regulations related to
healthcare providers. These laws and regulations may vary considerably among
states. As a result, CompCare may be subject to the specific regulatory
approach adopted by each state for regulation of managed care companies and for
providers of behavioral healthcare treatment services. The Company holds
licenses or certificates to perform utilization review and third party
administrator (TPA) services in certain states. Certain of the services
provided by our managed behavioral healthcare subsidiaries may be subject to
such licensing requirements in other states. There can be no assurance that
additional utilization review or TPA licenses will not be required or, if
required, that CompCare will qualify to obtain such licenses. In many states,
entities that assume risk under contract with licensed insurance companies or
health plans who retain ultimate financial responsibility have not been
considered by state regulators to be conducting an insurance or HMO business.
As a result, we have not sought licensure as either an insurer or HMO in
certain states. If the regulatory positions of these states were to change,
our business could be materially affected until such time as CompCare meets the
regulatory requirements. Currently, we cannot quantify the potential effects of
additional regulation of the managed care industry, but such costs will have an
adverse effect on future operations to the extent that they are not able to be
recouped in future managed care contracts.As of May 31, 2003, we managed approximately 813,000 lives in connection
with behavioral and substance abuse services covered through Medicaid and/or
Childrens Health Insurance Programs (CHIPS) in Connecticut, Florida,
Michigan and Texas. Any changes in Medicaid funding could ultimately affect our
reimbursement and overall profitability. We are aware that the State of Texas
has passed legislation that will reduce the amount of funds allocated to our
clients to cover behavioral healthcare services to CHIP recipients in the State
of Texas. Such legislation is subject to pending bills that, if passed, could
restore some of the benefits to these programs. Under the recently passed
legislation, the outpatient behavioral healthcare benefits available to adult
Medicaid and CHIP recipients will be provided by the HMOs and their
subcontractors, including the Company, on a very limited basis while the
inpatient benefits for CHIP recipients may not be covered by the HMOs and their
subcontractors. For the fiscal year ended May 31, 2003, we had operating
revenue of $3.7 million and $4.5 million, respectively, specific to contracts
covering Texas CHIP and Texas Medicaid recipients. These changes to Texas
Medicaid and CHIP programs could have a material, adverse impact on our
operations. However, we believe certain of our clients will continue to
require the types of services we provide to mitigate their exposure to treat
serious medical conditions that may result from the lack of adequate behavioral
healthcare benefits. We are closely monitoring developments in Texas, but
currently cannot predict what financial impact, if any, these changes may have
on our business.CompCare is subject to the requirements of the Health Insurance
Portability and Accountability Act of 1996 (HIPAA). The purpose of the HIPAA
provisions is to improve the efficiency and effectiveness of the healthcare
system through standardization of the electronic data interchange of certain
administrative and financial transactions and, also, to protect the security
and privacy of protected health information. Entities subject to HIPAA include
some healthcare providers and all healthcare plans. To meet the specific
requirements of HIPAA, we will incur costs to insure the adequacy and security
of our healthcare information system and communication networks. Additionally,
we will incur costs to implement a new clinical information system that will
process the specific transaction codes required by HIPAA for claims, payment,
enrollment, eligibility, or to become compliant with security and privacy
rules, which may be more stringent for providers of certain behavioral
healthcare services (see Management Information Systems below). The expected
timetable for us to be compliant is currently October 2003 for transaction code
changes due to our October 2002 filing of a formal compliance plan. The
Company has met the deadline for compliance with the privacy rules, which was
April 14, 2003. Additionally, we have filed our Electronic Health Care
Transactions and Code Sets Standards Model Compliance Plan with the Centers for
Medicare and Medicaid Services. While these efforts will be ongoing, we expect
to meet all compliance rules and timetables with respect to the HIPAA
regulations. Failure to do so may result in penalties and have a material
adverse effect on the Companys ability to retain its customers or to gain new
business.4Table of ContentsCOMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
ACCREDITATIONTo develop standards that effectively evaluate the structure and function
of medical and quality management systems in managed care organizations, the
National Committee on Quality Assurance, (NCQA) has developed an extensive
review and development process in conjunction with the managed care industry,
healthcare purchasers, state regulators, and consumers. The Standards for
Accreditation of Managed Behavioral Healthcare Organizations used by NCQA
reviewers to evaluate a managed behavioral healthcare organization address the
following areas: quality improvement; utilization management; credentialing;
members rights and responsibilities; preventative-care guidelines; and medical
records. These standards validate that a managed behavioral healthcare
organization is founded on principles of quality and is continuously improving
the clinical care and services it provides. NCQA utilizes Health Plan
Employer Data and Information Set (HEDIS), which is a core set of performance
measurements developed to respond to complex but clearly defined employer needs
as standards for patient care and customer satisfaction. CompCares Southeast
Region operation was awarded a one-year NCQA accreditation in July 1999 and
Full Accreditation in December 2001. Effective July 22, 2002, CompCares Full
Accreditation award extends the NCQA accreditation to July 22, 2005 and covers
membership in Connecticut, Florida, Georgia, and Michigan. Full Accreditation
is granted for a period of three years to those plans that have excellent
programs for continuous quality improvement and that meet NCQAs rigorous
standards.We believe our NCQA accreditation is beneficial to our clients and their
members we serve. Additionally, NCQA accreditation may be an important
consideration to our prospective clients.
MANAGEMENT INFORMATION SYSTEMSWe currently use a fully integrated, three-tier, managed care information
system. During recent months, we determined that a significant investment
would be required to upgrade our current version of this software to comply
with HIPAA regulations. As a result, during Fiscal 2003, we requested and
reviewed several proposals from various vendors and subsequently entered into a
Letter of Intent with a new vendor to design a new, customized management
information system at a cost below the current vendors estimate that will
enable us to meet HIPAA compliance. Additionally, the new software is expected
to streamline the Companys entire clinical and claims functions and offer
service improvements to our participating providers. The new vendor will also
assist CompCare staff in developing an interim solution to meet the HIPAA
compliance rules that become effective in October 2003, before the expected
go-live date for the new system of February 1, 2004. We expect to incur
approximately $0.4 million of one-time costs to customize the new system and
activate the licenses needed for this and other, related third-party software.
We believe the system currently being designed will readily support continued
growth and meet our future business needs.As is the case with our current system, the new system will allow all
CompCare locations to connect to the Companys frame relay telecommunications
network, allowing automated call-path routing for overlap coverage at peak call
times. Major care management functions such as information assessment, service
plans, initial authorizations, extension requests, termination summaries,
appeals, credentialing, billing, and claim/encounter processing are supported
by built-in decision aids to correctly adjudicate patient-specific
transactions.
ADMINISTRATION AND EMPLOYEESOur 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. We currently
employ 120 full-time and part-time employees.
MARKETING AND SALESOur business development staff is responsible for generating new sales
leads and for preparing proposals and responses to formal commercial and public
sector Requests for Proposals (RFPs). The Companys Chief Development Officer
manages marketing initiatives, along with the Companys President and Chief
Executive Officer. Regional and administrative operations personnel strengthen
the Companys marketing efforts by providing a local presence. Sales
expectations are integrated into the performance requirements for executive
staff and local sales personnel.5Table of ContentsCOMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
AVAILABLE INFORMATIONThe Companys shareholder website is www.compcare-shareholders.com. The
Company makes available free of charge, through a link to the Securities and
Exchange Commissions (SEC) internet site our annual, quarterly, and current
reports, and any amendments to these reports, as well as any beneficial
ownership reports of officers and directors filed electronically on Forms 3, 4,
and 5. All such reports will be available as soon as reasonably practicable
after electronically filing such reports with the SEC. Information contained on
our website or linked through our website is not part of this report on Form
10-K.CORPORATE GOVERNANCECorporate governance is typically defined as the system that allocates
duties and authority among a companys stockholders, board of directors and
management. The stockholders elect the board and vote on extraordinary
matters; the board is the companys governing body, responsible for hiring,
overseeing and evaluating management, particularly the Chief Executive Officer
(CEO); and management runs the companys day-to-day operations. Our
certificate of incorporation provides for a staggered board of five directors
separated into three classes. Our Board of Directors currently consists of
four directors. The Company is in an ongoing process to try to fill the one
remaining vacancy. The current Board members include two independent
directors. The primary responsibilities of the Board of Directors are
oversight, counseling and direction to the Companys management in the
long-term interests of the Company and its stockholders. The Boards detailed
responsibilities include: (a) selecting, regularly evaluating the performance
of, and approving the compensation of the Chief Executive Officer and other
senior executives; (b) reviewing and, where appropriate, approving the
Companys major financial objectives, strategic and operating plans and
actions; (c) overseeing the conduct of the Companys business to evaluate
whether the business is being properly managed; and (d) overseeing the
processes for maintaining the Companys integrity with regard to its financial
statements and other public disclosures and compliance with law and ethics.
The Board of Directors has delegated to the Chief Executive Officer, working
with the Companys other executive officers, the authority and responsibility
for managing the Companys business in a manner consistent with the Companys
standards and practices, and in accordance with any specific plans,
instructions or directions of the Board. The Chief Executive Officer and
management are responsible for seeking the advice and, in appropriate
situations, the approval of the Board with respect to extraordinary actions to
be undertaken by the Company.Audit CommitteeThe Board of Directors has constituted an Audit Committee comprised of two
independent directors, as that term is defined under the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the Act).
Mr. Eugene L. Froelich is the Chairman of the Audit Committee and is the Audit
Committee Financial Expert. The Audit Committee has responsibility for the
appointment, compensation, retention and oversight of the Companys independent
auditors; establishing procedures for the receipt, retention and treatment of
complaints regarding accounting, internal controls or auditing matters, and
procedures for the submission of confidential, anonymous concerns by employees
regarding questionable accounting or auditing matters.The Audit Committee has, as required by the Act and Section 301 of
the Sarbanes-Oxley Act of 2002, adopted a whistleblower policy providing for
the receipt, retention and treatment of complaints received by the Company
regarding accounting, internal accounting controls or auditing matters and the
confidential, anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters.Code of ConductThe Board of Directors has adopted a Code of Conduct applicable to all
officers, directors and employees of the Company which provides, among other
things, for honest and ethical conduct; avoidance of conflicts of interest,
including the disclosure of any material transaction or relationship that could
be expected to give rise to a conflict; full, fair, accurate, and timely and
understandable disclosure in reports filed by the Company with the Securities
and Exchange Commission; internal reporting of Code of Conduct violations; and
accountability for any violations.6Table of ContentsCOMPREHENSIVE CARE CORPORATION AND SUBSIDIARIESCompensation CommitteeThe Compensation Committee reviews the Companys compensation programs and
exercises authority with respect to the payment of salaries and incentive
compensation to the Companys executive officers. The Compensation Committee
also administers the Companys 1995 and 2002 Stock Option Plans.Item 2. PROPERTIESWe do not own any real property. The following table sets forth certain
information regarding our leased properties as of May 31, 2003. All leases are
triple net leases, under which CompCare bears all costs of operations,
including insurance, taxes, and utilities.

|                                                                    |                                                                          |               |  |              |  |  |                |        | 
|------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------------- |  | ------------ |  |  | -------------- | ------ | 
|                                                                    |                                                                          |               |  |              |  |  | Monthly Rental
|Name and Location                                                   |                                                                          | Lease Expires |  | (in Dollars)
|                                                                    |                                                                          |               |  |             
|Corporate Headquarters, Regional, Administrative,
And Other Offices |                                                                          |               |  |              |  |  |                |       
|                                                                    | Tampa, Florida, Corporate Headquarters and
Southeastern Regional
offices |               |  | 2006         |  |  | $              | 22,813 | 
|                                                                    | Grand Prairie, Texas                                                     |               |  | 2004         |  |  |                | 6,474  | 
|                                                                    | Bloomfield Hills, Michigan                                               |               |  | 2004         |  |  |                | 9,237  | 

Item 3. LEGAL PROCEEDINGS

We had previously reported that the Company had filed an Offer in
Compromise (Offer) with the Internal Revenue Service (IRS) to settle a
tax dispute that began in August 1998 when the IRS notified the Company that
it was disallowing $12.4 million of tax refunds previously received by the
Company specific to its Fiscal 1985 and 1986 income tax returns as amended.
In January 2003, the Company reported the IRS had accepted its Offer, which
gave the Company the option of paying approximately $2.6 million over two
years or paying approximately $2.2 million within 90 days of the letter of
acceptance in addition to a $50,000 down payment made by the Company at the
time its Offer was submitted to IRS. In February 2003, the Company concluded
the IRS settlement by making a cash payment of approximately $2.2 million to
the IRS to fully settle the previously accrued tax liability of $12.1 million.
Coincident with the IRS settlement, the Company reached an agreement with its
former tax advisor requiring the tax advisor to refund $525,000 of the
original $2.5 million of fees previously paid by the Company. The Company
received the $525,000 refund in February 2003.

As a result of the resolution of this matter, the Company extinguished the
$12.1 million liability and recorded a non-operating gain in the quarter ended
February 28, 2003 of approximately $7.7 million. The gain is net of settlement
expenses consisting primarily of professional fees and $2.0 million of the
aforementioned, unrecovered tax advisor fees. The gain represented $1.97
earnings per share ($1.77 diluted earnings per share). No taxable income
resulted from the settlement of the liability. Additionally, the IRS
settlement requires that the Federal net operating loss carryforwards of
approximately $42.0 million resulting from losses incurred in fiscal years
ended May 31, 1995 through May 31, 2001, and a minimum tax credit carryover of
approximately $0.7 million, are no longer available to the Company.

From time to time, the Company and its subsidiaries may be parties to and
their property is subject to ordinary, routine litigation incidental to their
business, in which case claims may exceed insurance policy limits and
the Company or anyone of its subsidiaries may have exposure to a
liability that is not covered by insurance. Management is not aware
of any such lawsuits that could have a material adverse impact on the
Companys financial statements.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of the fiscal year covered by this report, no
matters were submitted to a vote of security holders of the Company.

7



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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES




PART II.

Item 5. MARKET FOR COMPANYS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



| |                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our Common Stock is traded on the Over The Counter Bulletin Board
(OTC-BB) under the symbol CHCR. The following table sets forth the
range of high and low closing prices for the Common Stock, as reported by
the OTC-BB, for the fiscal quarters indicated:

|            |  |                |  |     |      |       |  |   |      |  |  | 
|----------- |  | -------------- |  | --- | ---- | ----- |  | - | ---- |  |  | 
|            |  |                |  |     |      | Price
|            |  |                |  |     |      |      
|Fiscal Year |  | High           |  | Low
|            |  |                |  |    
|2003        |  | First Quarter  |  | $   | 1.65 |       |  | $ | 0.75 | 
|            |  | Second Quarter |  |     | 1.01 |       |  |   | 0.32 | 
|            |  | Third Quarter  |  |     | 2.38 |       |  |   | 0.65 | 
|            |  | Fourth Quarter |  | $   | 3.05 |       |  | $ | 2.01 | 
|2002        |  | First Quarter  |  | $   | 0.61 |       |  | $ | 0.25 | 
|            |  | Second Quarter |  |     | 0.55 |       |  |   | 0.24 | 
|            |  | Third Quarter  |  |     | 0.96 |       |  |   | 0.43 | 
|            |  | Fourth Quarter |  | $   | 1.85 |       |  | $ | 0.70 | 



|(a) |  | As of September 3, 2003,
the Company had 1,416 common stockholders of
record.                                                                                                                                                                                                                                           
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | The Company did not pay any cash dividends on its Common Stock during any
quarter of Fiscal 2003 2002, or 2001 and does not contemplate the
initiation of payment of any cash dividends in the foreseeable future (see
Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS).

Item 6. SELECTED FINANCIAL DATA

Prior to Fiscal 1993, CompCare principally engaged in the ownership,
operation, and management of psychiatric and substance abuse programs in
company owned, leased, or unaffiliated hospitals. During Fiscal 1999, we
completed our plan to dispose of our hospital business segment.

Fiscal 2003 results include a $7.7 million, non-operating gain related to
the IRS settlement (see Note 13  Income Taxes to the audited, consolidated
financial statements). Additionally, Fiscal 2003 results included a $470,000
non-operating gain related to the Medi-Cal settlement (see Note 16 
Commitments and Contingencies to the audited, consolidated financial
statements). As a result, CompCare reported net income of $7.5 million, or
$1.91 earnings per share ($1.72 diluted earnings per share) and an operating
loss of $608,000, for the year ended May 31, 2003 compared to the net loss of
$770,000, or $0.20 loss per share (basic and diluted), and an operating loss of
$774,000, for the fiscal year ended May 31, 2002. Excluding the $8.2 million
of non-operating gains from net income would have resulted in a $729,000 net
loss ($0.19 loss per basic and diluted share) for the fiscal year ended May 31,
2003.

The selected consolidated financial data that follows should be read in
conjunction with the consolidated financial statements and accompanying notes
appearing elsewhere in this report. Reclassifications of prior year amounts
have been made to conform to the current years presentation.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

|                                                                         |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |        |  
|------------------------------------------------------------------------ | ----------------------------------------------------- | - | ------------------ | ------ | ---- | - | --------------------------------------------- | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | - | - | ------ | ------ | -
|                                                                         |                                                       |   | Year Ended May 31,
|                                                                         |                                                       |   |                   
|                                                                         |                                                       |   | 2003               |        | 2002 |   | 2001                                          |        | 2000 |   | 1999   
|                                                                         |                                                       |   |                    |        |      |   |                                               |        |      |   |        
|                                                                         |                                                       |   |                    |        |      |   | (Amounts in thousands, except per share data) |        |      |   |        
|Statement of Operations Data:                                            |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|Operating revenues                                                       |                                                       | $ | 32,267             |        |      | $ | 27,625                                        |        |      | $ | 18,192  |        |   | $ | 17,719  |        |   | $ | 39,029 |       
|Costs and expenses:                                                      |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|                                                                         | Healthcare operating expenses                         |   |                    | 29,201 |      |   |                                               | 24,625 |      |   |         | 15,326 |   |   |         | 15,801 |   |   |        | 29,778 |  
|                                                                         | General and administrative expenses                   |   |                    | 3,459  |      |   |                                               | 3,544  |      |   |         | 3,842  |   |   |         | 6,974  |   |   |        | 9,148  |  
|                                                                         | Provision for (recovery of) doubtful accounts         |   |                    | 20     |      |   |                                               | (112   | )    |   |         | (439   | ) |   |         | (606   | ) |   |        | 1,641  |  
|                                                                         | Depreciation and amortization                         |   |                    | 195    |      |   |                                               | 342    |      |   |         | 656    |   |   |         | 794    |   |   |        | 1,037  |  
|                                                                         | Restructuring expenses                                |   |                    |       |      |   |                                               |       |      |   |         | (30    | ) |   |         | 831    |   |   |        | 600    |  
|                                                                         |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|                                                                         |                                                       |   | 32,875             |        |      |   | 28,399                                        |        |      |   | 19,355  |        |   |   | 23,794  |        |   |   | 42,204 |       
|                                                                         |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|Operating loss from continuing operations before items
shown below       |                                                       |   | (608               | )      |      |   | (774                                          | )      |      |   | (1,163  | )      |   |   | (6,075  | )      |   |   | (3,175 | )     
|Other income (expenses):                                                 |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|                                                                         | Net gain on IRS settlement                            |   |                    | 7,717  |      |   |                                               |       |      |   |         |       |   |   |         |       |   |   |        |       |  
|                                                                         | Gain on settlement of other liability                 |   |                    | 470    |      |   |                                               |       |      |   |         |       |   |   |         |       |   |   |        |       |  
|                                                                         | Loss in connection with prepayment of note receivable |   |                    |       |      |   |                                               |       |      |   |         | (496   | ) |   |         |       |   |   |        |       |  
|                                                                         | Gain on sale of assets                                |   |                    | 4      |      |   |                                               |       |      |   |         |       |   |   |         | 9      |   |   |        | 2      |  
|                                                                         | Loss on sale of assets                                |   |                    | (5     | )    |   |                                               |       |      |   |         |       |   |   |         | (1     | ) |   |        | (4     | )
|                                                                         | Reduction in accrued interest expense                 |   |                    |       |      |   |                                               |       |      |   |         | 290    |   |   |         |       |   |   |        |       |  
|                                                                         | Other non operating income                            |   |                    | 34     |      |   |                                               | 40     |      |   |         | 332    |   |   |         | 204    |   |   |        | 41     |  
|                                                                         | Interest income                                       |   |                    | 47     |      |   |                                               | 88     |      |   |         | 163    |   |   |         | 399    |   |   |        | 309    |  
|                                                                         | Interest expense                                      |   |                    | (181   | )    |   |                                               | (178   | )    |   |         | (208   | ) |   |         | (289   | ) |   |        | (281   | )
|                                                                         |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|Income (loss) from continuing operations before income taxes             |                                                       |   | 7,478              |        |      |   | (824                                          | )      |      |   | (1,082  | )      |   |   | (5,753  | )      |   |   | (3,108 | )     
|Income tax expense (benefit)                                             |                                                       |   | 20                 |        |      |   | 1                                             |        |      |   | 35      |        |   |   | 13      |        |   |   | (146   | )     
|                                                                         |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|Income (loss) from continuing operations                                 |                                                       |   | 7,458              |        |      |   | (825                                          | )      |      |   | (1,117  | )      |   |   | (5,766  | )      |   |   | (2,962 | )     
|Discontinued operations:                                                 |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|Loss from operations                                                     |                                                       |   |                   |        |      |   |                                              |        |      |   |        |        |   |   |        |        |   |   | (334   | )     
|Loss on disposal, including operating loss of $282                       |                                                       |   |                   |        |      |   |                                              |        |      |   |        |        |   |   |        |        |   |   | (698   | )     
|                                                                         |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|Income (loss) before cumulative effect of change in
accounting principle |                                                       |   | 7,458              |        |      |   | (825                                          | )      |      |   | (1,117  | )      |   |   | (5,766  | )      |   |   | (3,994 | )     
|Cumulative effect of change in accounting principle                      |                                                       |   |                   |        |      |   | 55                                            |        |      |   |        |        |   |   |        |        |   |   |       |       
|                                                                         |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|Net income (loss)                                                        |                                                       |   | 7,458              |        |      |   | (770                                          | )      |      |   | (1,117  | )      |   |   | (5,766  | )      |   |   | (3,994 | )     
|Dividends on convertible Preferred Stock                                 |                                                       |   |                   |        |      |   |                                              |        |      |   |        |        |   |   |        |        |   |   | (55    | )     
|                                                                         |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|Net income (loss) attributable to common stockholders                    |                                                       | $ | 7,458              |        |      | $ | (770                                          | )      |      | $ | (1,117  | )      |   | $ | (5,766  | )      |   | $ | (4,049 | )     
|                                                                         |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|Basic earnings per share:                                                |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|Income (loss) from continuing operations                                 |                                                       | $ | 1.91               |        |      | $ | (0.21                                         | )      |      | $ | (0.29   | )      |   | $ | (1.51   | )      |   | $ | (0.85  | )     
|Discontinued operations:                                                 |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|                                                                         | Loss from operations                                  |   |                    |       |      |   |                                               |       |      |   |         |       |   |   |         |       |   |   |        | (0.09  | )
|                                                                         | Loss on disposal                                      |   |                    |       |      |   |                                               |       |      |   |         |       |   |   |         |       |   |   |        | (0.20  | )
|Cumulative effect of change in accounting principle                      |                                                       |   |                   |        |      |   | 0.01                                          |        |      |   |        |        |   |   |        |        |   |   |       |       
|                                                                         |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|Net income (loss)                                                        |                                                       | $ | 1.91               |        |      | $ | (0.20                                         | )      |      | $ | (0.29   | )      |   | $ | (1.51   | )      |   | $ | (1.14  | )     
|                                                                         |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|Diluted earnings per share:                                              |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|Income (loss) from continuing operations                                 |                                                       | $ | 1.72               |        |      | $ | (0.21                                         | )      |      | $ | (0.29   | )      |   | $ | (1.51   | )      |   | $ | (0.85  | )     
|Discontinued operations:                                                 |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|                                                                         | Loss from operations                                  |   |                    |       |      |   |                                               |       |      |   |         |       |   |   |         |       |   |   |        | (0.09  | )
|                                                                         | Loss on disposal                                      |   |                    |       |      |   |                                               |       |      |   |         |       |   |   |         |       |   |   |        | (0.20  | )
|Cumulative effect of change in accounting principle                      |                                                       |   |                   |        |      |   | 0.01                                          |        |      |   |        |        |   |   |        |        |   |   |       |       
|                                                                         |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|Net income (loss)                                                        |                                                       | $ | 1.72               |        |      | $ | (0.20                                         | )      |      | $ | (0.29   | )      |   | $ | (1.51   | )      |   | $ | (1.14  | )     
|                                                                         |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|Balance Sheet Data:                                                      |                                                       |   |                    |        |      |   |                                               |        |      |   |         |        |   |   |         |        |   |   |        |       
|Working capital (deficit)                                                |                                                       | $ | (4,447             | )      |      | $ | (12,275                                       | )      |      | $ | (11,770 | )      |   | $ | (12,245 | )      |   | $ | (9,355 | )     
|Total assets                                                             |                                                       |   | 6,379              |        |      |   | 11,399                                        |        |      |   | 9,754   |        |   |   | 21,275  |        |   |   | 29,066 |       
|Long-term debt                                                           |                                                       |   | 2,244              |        |      |   | 2,244                                         |        |      |   | 2,244   |        |   |   | 2,244   |        |   |   | 2,253  |       
|Long-term debt including current maturities and debentures               |                                                       |   | 2,244              |        |      |   | 2,244                                         |        |      |   | 2,244   |        |   |   | 2,244   |        |   |   | 2,256  |       
|Stockholders deficit                                                    |                                                       | $ | (4,990             | )      |      | $ | (12,519                                       | )      |      | $ | (11,778 | )      |   | $ | (10,672 | )      |   | $ | (4,914 | )     

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Annual Report on Form 10-K includes forward-looking statements, the
realization of which may be impacted by certain important factors discussed
below under Risk Factors  Important Factors Related to Forward-Looking
Statements and Associated Risks.

General

Our Fiscal 2003 results include a $7.7 million, non-operating gain related
to the IRS settlement (see Note 13  Income Taxes to the audited,
consolidated financial statements). Additionally, results included a $470,000
non-operating gain related to the Medi-Cal settlement (see Note 16 
Commitments and Contingencies to the audited, consolidated financial
statements), $88,000 of revenue related to a favorable settlement of one
hospital cost report and the elimination of a $75,000 reserve for another cost
report, both pertaining to the Companys hospital business segment that was
discontinued in Fiscal 1999. As a result, CompCare reported net income of $7.5
million, or $1.91 earnings per share ($1.72 diluted earnings per share) and an
operating loss of $608,000, for the year ended May 31, 2003 compared to the net
loss of $770,000, or $0.20 loss per share (basic and diluted), and an operating
loss of $774,000, for the fiscal year ended May 31, 2002. Excluding the $8.2
million of non-operating gains from net income would have resulted in a
$729,000 net loss ($0.19 loss per basic and diluted share) for the fiscal year
ended May 31, 2003.

No tax provision for federal income taxes was recorded during the fiscal
year ended May 31, 2003, as the $7.7 million non-operating gain specific to the
IRS settlement is non-taxable. Additionally, management has determined that a
valuation allowance at May 31, 2003 and 2002, was necessary to fully offset any
deferred tax assets based on the likelihood of future realization.

|                                |                |   |              |      |              |   |        |      |  
|------------------------------- | -------------- | - | ------------ | ---- | ------------ | - | ------ | ---- | -
|                                |                |   | Consolidated |      | Consolidated
|                                |                |   | Operations   |      | Operations  
|                                |                |   | Fiscal 2003  |      | Fiscal 2002 
|                                |                |   |              |      |             
|Operating revenues              |                | $ | 32,267       |      |              | $ | 27,625 |     
|Healthcare operating expenses   |                |   | 29,201       |      |              |   | 24,625 |     
|General/administrative expenses |                |   | 3,459        |      |              |   | 3,544  |     
|Other operating expenses        |                |   | 215          |      |              |   | 230    |     
|                                |                |   |              |      |              |   |        |     
|                                |                |   | 32,875       |      |              |   | 28,399 |     
|                                |                |   |              |      |              |   |        |     
|                                | Operating loss |   | $            | (608 | )            |   | $      | (774 | )
|                                |                |   |              |      |              |   |        |     

Results of Operations Year Ended May 31, 2003 Compared to the Year Ended May 31, 2002.

We reported net income of approximately $7.5 million and an operating loss
of $608,000 for the fiscal year ended May 31, 2003 compared to a net loss of
$770,000 and an operating loss of $774,000 for the fiscal year ended May 31,
2002. Results for the fiscal year ended May 31, 2003 include a $7.7 million
non-operating gain in connection with the IRS settlement (see Note 13  Income
Taxes to the audited, consolidated financial statements) and a $470,000,
non-operating gain related to the Medi-cal settlement (see Note 16 
Commitments and Contingencies to the audited, consolidated financial
statements). For the fiscal year ended May 31, 2003, excluding the $8.2 million
non-operating gains from net income would have resulted in a $729,000 net loss
($0.19 loss per basic and diluted share). Additionally, results include
$88,000 of revenue related to a favorable settlement of one hospital cost
report and the elimination of a $75,000 reserve for another cost report, both
pertaining to our hospital business segment that was discontinued in Fiscal
1999. Operating revenues increased by 16.8%, or $4.6 million, to approximately
$32.3 million for the fiscal year ended May 31, 2003 compared to $27.6 million
for the fiscal year ended May 31, 2002. This increase is primarily
attributable to membership growth from existing business, one new contract
implemented during the fourth quarter of Fiscal 2002, and new Indiana business
that was implemented during January 2003. These increases were offset by the
loss of business from two major customers during Fiscal 2003 (see Note 4(1 and
3)  Major Customers/Contracts to the audited, consolidated financial
statements).

Healthcare operating expenses increased by approximately $4.6 million, or
18.6%, for the fiscal year ended May 31, 2003 as compared to the fiscal year
ended May 31, 2002. This increase is directly attributable to revenue growth as
described above. Healthcare operating expense as a percentage of operating
revenue increased by 1.4%

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

from 89.1% for the fiscal year ended May 31, 2002 to 90.5% for the fiscal
year ended May 31, 2003. This increase is primarily attributable to a change
in revenue mix resulting in increased Medicaid membership during Fiscal 2003
compared to Fiscal 2002.

General and administrative expenses decreased by $85,000, or 2.4%, for the
fiscal year ended May 31, 2003 as compared to the fiscal year ended May 31,
2002. This decrease is primarily attributable to net reductions in outside
professional service fees offset by staffing additions necessary to support new
revenue. General and administrative expense as a percentage of operating
revenue decreased from 12.8% for the fiscal year ended May 31, 2002 to 10.7%
for the fiscal year ended May 31, 2003.

Other operating expenses decreased by $15,000 for the fiscal year ended
May 31, 2003 compared to the fiscal year ended May 31, 2002. This decrease is
attributable to a decrease in depreciation expense offset by an increase in bad
debt expense in Fiscal 2003 compared to Fiscal 2002. The increase in bad debt
expense is primarily due to a $66,000 bad debt recovery in Fiscal 2002.

Results of Operations  Year Ended May 31, 2002 Compared to the Year Ended May 31, 2001.

We reported a net loss of $770,000 and an operating loss of $774,000 for
the fiscal year ended May 31, 2002 compared to the operating loss of $1.2
million for the fiscal year ended May 31, 2001. Operating revenues increased by
51.9%, or $9.4 million, to $27.6 million for the fiscal year ended May 31, 2002
compared to $18.2 million for the fiscal year ended May 31, 2001. This
increase was attributable to two major contracts implemented during Fiscal 2001
and membership growth from state sponsored childrens health insurance
programs.

Healthcare operating expenses increased by approximately $9.3 million, or
60.7%, for the fiscal year ended May 31, 2002 as compared to the fiscal year
ended May 31, 2001. This increase is directly attributable to revenue growth as
described above. Healthcare operating expense as a percentage of operating
revenue increased by 4.8%, from 84.3% for the fiscal year ended May 31, 2001 to
89.1% for the fiscal year ended May 31, 2002. This increase was primarily
attributable to a change in revenue mix resulting in increased Medicaid and
Medicare membership during Fiscal 2002 compared to Fiscal 2001.

General and administrative expenses decreased by approximately $0.3
million, or 7.8%, for the fiscal year ended May 31, 2002 as compared to the
fiscal year ended May 31, 2001. This decrease was attributable to our
continuing efforts to reduce general and administrative costs. General and
administrative expense as a percentage of operating revenue decreased from
21.1% for the fiscal year ended May 31, 2001 to 12.8% for the fiscal year ended
May 31, 2002.

Other operating expenses increased $43,000 for the fiscal year ended May
31, 2002 compared to the fiscal year ended May 31, 2001. This increase was
primarily attributable to the $327,000 reduction in the amount of recovery of
doubtful accounts year over year, offset by a $242,000 decrease in depreciation
expense, which results from assets being fully depreciated and, also, from
decreases in capital spending. Additionally, Fiscal 2002 results do not
include any amortization expense compared to $72,000 of amortization expense
recorded during the fiscal year ended May 31, 2001 (see Note 10 to the audited,
consolidated financial statements  Goodwill).

Seasonality of Business

Historically and during Fiscal 2003, we have experienced consistently low
utilization during our first fiscal quarter, which comprises the months of
June, July, and August, and increased utilization during our fourth fiscal
quarter, which comprises the months of March, April and May. Such variations
in utilization impact our costs of care during these months, generally having a
positive impact on our gross margins and operating profits during the first
fiscal quarter and a negative impact on our gross margins and operating profits
during the fourth quarter.

Liquidity and Capital Resources

During the fiscal year ended May 31, 2003, we completed a settlement with
the Internal Revenue Service and reached an agreement with our former tax
advisor with respect to the related tax advisor fees. Having concluded these
settlements, we recorded a non-operating gain of $7.7 million during the
quarter ended February 28, 2003, significantly reducing our working capital
deficiency and stockholders deficit (see Note 13  Income Taxes to the
audited, consolidated financial statements), which amount to $4.4 million and
$5.0 million, respectively, as of May 31, 2003. The IRS settlement required
us to make a cash payment in February 2003 of approximately $2.2 million,
11Table of ContentsCOMPREHENSIVE CARE CORPORATION AND SUBSIDIARIESwhich was offset in part by $525,000 collected from our former tax advisor. As
a result, cash and cash equivalents have decreased by approximately $1.8
million during the fiscal year ended May 31, 2003.Our unpaid claims liability is estimated using an actuarial paid
completion factor methodology and other statistical analyses. These estimates
are subject to the effects of trends in utilization and other factors. Any
significant increase in member utilization that falls outside of our
estimations would increase healthcare operating expenses and may impact our
ability to achieve profitability and positive cash flow. Although considerable
variability is inherent in such estimates, we believe that the unpaid claims
liability is adequate. However, actual results could differ from the $4.1
million claims payable amount reported as of May 31, 2003.During
Fiscal 2003, net cash used in operations amounted to $1.7 million,
which approximates the net amount paid by the Company to complete its
settlement with the Internal Revenue Service. Having concluded this
settlement, the Company recorded a non-operating gain of $7.7 million
during the fiscal year ended May 31, 2003, significantly reducing its
working capital deficiency and stockholders deficit, which
amount to $4.4 million and $5.0 million, respectively, as of May 31,
2003. Our capital needs during Fiscal 2004 will include a portion of the
$0.4 million required to implement a new, customized management information
system that will enable us to meet HIPAA requirements, streamline our entire
clinical and claims functions, and offer service improvements to our
participating providers (see Management Information Systems above). We are
currently pursuing sources of financing on terms that would support our future
capital needs and provide available funds for working capital in Fiscal 2004.
We cannot state with any degree of certainty whether any required additional
equity or debt financing will be available to us during Fiscal 2004 and, if
available, that the source of financing would be available on terms and
conditions acceptable to us. These conditions raise substantial doubt about
the Companys ability to continue as a going concern, which is dependent upon
our ability to continue to generate sufficient cash flow to meet our
obligations on a timely basis, obtaining additional financing as may be
required and, ultimately, attaining an operating profit.Summary of Significant Accounting PoliciesOur discussion and analysis of our financial condition and results of
operations is based upon the Companys consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires us to make significant estimates and judgments to develop the amounts
reflected and disclosed in the financial statements. 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 the following significant accounting policies involve our most
significant judgments and estimates that are material to our consolidated
financial statements:Accrued Claims Payable The accrued claims payable liability represents the
estimated ultimate net amounts owed for all behavioral healthcare services
provided through the respective balance sheet dates, including estimated
amounts for claims incurred but not yet reported (IBNR) to the Company. The
unpaid claims liability is estimated using an actuarial paid completion factor
methodology and other statistical analyses and is continually reviewed and
adjusted, if necessary, to reflect any change in the estimated liability.
These estimates are subject to the effects of trends in utilization and other
factors. However, actual claims incurred could differ from the estimated claims
payable amount reported as of May 31, 2003. Although considerable variability
is inherent in such estimates, we believe that the unpaid claims liability is
adequate.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 rely extensively on the accuracy
of the client remittance and other reported information to determine the amount
of revenue to be recognized. Such agreements accounted for 87.4%, or $28.2
million, of revenue for the fiscal year ended May 31, 2003. The balance of our
revenues is earned on a fee-for-service basis and is recognized as services are
rendered.Goodwill  As a result of the adoption of SFAS 142, effective June 1, 2001,
no amortization expense was recorded during the fiscal years ended May 31, 2003
or 2002 compared to approximately $72,000 of amortization expense recorded
during the fiscal year ended May 31, 2001. SFAS 141 requires the elimination
of any unamortized12Table of ContentsCOMPREHENSIVE CARE CORPORATION AND SUBSIDIARIESdeferred credits related to an excess of fair value of acquired assets over
cost from a business combination for which the acquisition date was before July
1, 2001 immediately upon adoption of SFAS 142. As of June 1, 2001, the Company
had an unamortized deferred credit of $55,000 that related to an acquisition in
1996. As a result, the Company recognized $55,000 as the cumulative effect of
a change in accounting principle during the quarter ended August 31, 2001.Changes in the carrying amount of goodwill are as follows:

|                                                                 |  |                           |         |      |  |      |         |  |  |   |           |  
|---------------------------------------------------------------- |  | ------------------------- | ------- | ---- |  | ---- | ------- |  |  | - | --------- | -
|                                                                 |  | Fiscal Year ended May 31,
|                                                                 |  |                          
|                                                                 |  | 2003                      |         | 2002 |  | 2001
|                                                                 |  |                           |         |      |  |     
|Balance as of the beginning of the fiscal year                   |  | $                         | 991,000 |      |  | $    | 936,000 |  |  | $ | 1,008,000 |  
|Amortization                                                     |  |                           |        |      |  |      |        |  |  |   | (72,000   | )
|Unamortized deferred credit written off and recognized in income |  |                           |        |      |  |      | 55,000  |  |  |   |          |  
|                                                                 |  |                           |         |      |  |      |         |  |  |   |           |  
|Balance as of the end of the fiscal year                         |  | $                         | 991,000 |      |  | $    | 991,000 |  |  | $ | 936,000   |  
|                                                                 |  |                           |         |      |  |      |         |  |  |   |           |  

Prior to the adoption of SFAS 142, we amortized goodwill on a straight-line
basis over estimated lives up to 20 years. Had we accounted for goodwill
consistent with the provisions of SFAS 142 in prior years, the Companys net
loss would have been affected as follows (in thousands, except per share
amounts):

|                                                                 |  |                           |       |      |  |      |       |   |  |   |        |  
|---------------------------------------------------------------- |  | ------------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ------ | -
|                                                                 |  | Fiscal Year Ended May 31,
|                                                                 |  |                          
|                                                                 |  | 2003                      |       | 2002 |  | 2001
|                                                                 |  |                           |       |      |  |     
|Reported net income (loss)                                       |  | $                         | 7,458 |      |  | $    | (770  | ) |  | $ | (1,117 | )
|Add back: Goodwill amortization                                  |  |                           |      |      |  |      |      |   |  |   | 72     |  
|Elimination: Cumulative effect of change in accounting principle |  |                           |      |      |  |      | (55   | ) |  |   |       |  
|                                                                 |  |                           |       |      |  |      |       |   |  |   |        |  
|Adjusted net income (loss)                                       |  | $                         | 7,458 |      |  | $    | (825  | ) |  | $ | (1,045 | )
|                                                                 |  |                           |       |      |  |      |       |   |  |   |        |  
|Basic earnings (loss) per share:                                 |  |                           |       |      |  |      |       |   |  |   |        |  
|Reported net income (loss)                                       |  | $                         | 1.91  |      |  | $    | (0.20 | ) |  | $ | (0.29  | )
|Goodwill amortization                                            |  |                           |      |      |  |      |      |   |  |   | 0.02   |  
|Cumulative effect of change in accounting principle              |  |                           |      |      |  |      | (0.01 | ) |  |   |       |  
|                                                                 |  |                           |       |      |  |      |       |   |  |   |        |  
|Adjusted net income (loss)                                       |  | $                         | 1.91  |      |  | $    | (0.21 | ) |  | $ | (0.27  | )
|                                                                 |  |                           |       |      |  |      |       |   |  |   |        |  
|Diluted earnings (loss) per share:                               |  |                           |       |      |  |      |       |   |  |   |        |  
|Reported net income (loss)                                       |  | $                         | 1.72  |      |  | $    | (0.20 | ) |  | $ | (0.29  | )
|Goodwill amortization                                            |  |                           |      |      |  |      |      |   |  |   | 0.02   |  
|Cumulative effect of change in accounting principle              |  |                           |      |      |  |      | (0.01 | ) |  |   |       |  
|                                                                 |  |                           |       |      |  |      |       |   |  |   |        |  
|Adjusted net income (loss)                                       |  | $                         | 1.72  |      |  | $    | (0.21 | ) |  | $ | (0.27  | )
|                                                                 |  |                           |       |      |  |      |       |   |  |   |        |  
|Weighted Average Common Shares Outstanding  basic               |  |                           | 3,905 |      |  |      | 3,860 |   |  |   | 3,818  |  
|                                                                 |  |                           |       |      |  |      |       |   |  |   |        |  
|Weighted Average Common Shares Outstanding  diluted             |  |                           | 4,343 |      |  |      | 3,860 |   |  |   | 3,818  |  
|                                                                 |  |                           |       |      |  |      |       |   |  |   |        |  

Risk Factors

Important Factors Related to Forward-Looking Statements and Associated Risks

This Annual Report on Form 10-K contains certain forward-looking
statements that are based on current expectations and involve a number of risks
and uncertainties. Factors that may materially affect revenues, expenses and
operating results include, without limitation, our success in (i) expanding the
managed behavioral healthcare operations, (ii) effective management in the
delivery of services, and (iii) risk and utilization in context of capitated
payouts.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Concentration of Risk

We currently have contracts with four health plans to provide behavioral
healthcare services under commercial, Medicaid, and CHIP plans to contracted
members in Connecticut, Florida, and Texas. These combined contracts represent
approximately 56.7% and 63.6% of our operating revenue for the fiscal year
ended May 31, 2003 and May 31, 2002, respectively, and include contracts that
terminated effective January 1, 2003, which accounted for a combined 11.7% and
17.0% of our operating revenue for the fiscal years ended May 31, 2003 and
2002, respectively (see Note 4(1) to the audited, consolidated financial
statements  Major Customers/Contracts) and agreements that terminated
effective February 28, 2003, which accounted for 4.8% and 3.6% of our operating
revenues during the fiscal years ended May 31, 2003 and 2002, respectively (see
Note 4(3) to the audited, consolidated financial statements  Major
Customers/Contracts). One HMO, whose contract with the Company accounted for
approximately $2.8 million, or 8.5%, of our operating revenue for the fiscal
year ended May 31, 2003 and is scheduled to renew in January 2004, has verbally
advised us that it is evaluating whether to manage its members behavioral
healthcare benefits in house (see Note 4(3) to the audited, consolidated
financial statements  Major Customers/Contracts). We have not received a
formal termination notice, nor has the customer advised the Company of a date
by which it will make known its decision. However, at this point in time, we
believe there exists a greater risk of non-renewal of this contract, the
realization of which rests solely with our customer. Although the loss of this customer could
have a material, adverse effect on the Companys financial condition and future results
of operations, we believe the Company will be able to reduce its internal cost of servicing
this account to minimize any effect on future results of operations. In general, 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 any one of these customers or changes in any of these States
Medicaid reimbursement rules could have a material, adverse effect on our
working capital and future results of operations (see Medicaid and Other State
Funded Programs below).

History of Operating Losses  Uncertainty of Future Profitability

For each of the fiscal years ending May 31, 2003, 2002 and 2001, we had
operating losses of approximately $608,000, $774,000 and $1,163,000,
respectively. The report of the Companys independent auditors with respect to
their examination of the Companys financial statements for the years ended May
31, 2003 and 2002 contains an explanatory paragraph relating to the preparation
of the Companys financial statements on a going concern basis and states
that the Companys working capital deficiency and stockholders deficit raise
substantial doubt about its ability to continue as a going concern. At May 31,
2003, the Companys total current liabilities exceeded its total current assets
by approximately $4.4 million and it had an accumulated deficit of
approximately $56.9 million, with a total stockholders deficit of approximately
$5.0 million. While our management has addressed the conditions giving rise to
the going concern uncertainty, there is no certainty that we will be
successful in implementing any of the plans of management to restore us to
profitability, to achieve and maintain positive cash flow on an ongoing basis,
or otherwise to ensure that we will be able to continue as a going concern.

Costs of Care  Estimated Claims Incurred But Not Reported

Our costs of care include estimated amounts for claims incurred but not
yet reported (IBNR) to CompCare. The IBNR is estimated using an actuarial
paid completion factor methodology and other statistical analyses that we
continually review and adjust, if necessary, to reflect any change in the
estimated liability. These estimates are subject to the effects of trends in
utilization and other factors. Although considerable variability is inherent
in such estimates, we believe that our unpaid claims liability is adequate.
However, actual results may differ materially from the estimated amounts
reported.

Need for Additional Funds; Uncertainty of Future Funding

We believe that our ability to increase business is dependent on our
ability to have available working capital and, therefore, we will require
additional funding. We are currently pursuing sources of financing on terms
that would support our capital needs and provide available funds for working
capital in Fiscal 2004. We cannot state with any degree of certainty whether
any required additional equity or debt financing will be available to us during
Fiscal 2004 and, if available, that the source of financing would be available
on terms and conditions acceptable to us.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Uncertainty of Pricing; Healthcare Reform and Related Matters

Managed care operations are at risk for costs incurred to supply agreed
upon levels of service. Failure to anticipate or control costs could have
material, adverse effects on the Company. Additionally, the business of
providing services on a full-risk capitation basis exposes CompCare to the
additional risk that contracts negotiated and entered into may ultimately be
determined to be unprofitable if utilization levels require us to deliver and
provide services at capitation rates which do not account for or factor in such
utilization levels.

We typically contract with small to medium sized HMOs who 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 fall under state supervision or otherwise be subject to state
discipline placing them at risk of losing membership to their competitors in
which case we may be unable to contract with any succeeding HMOs. They may
also determine to manage the behavioral healthcare benefits in house and, as
a result, discontinue contracting with the Company. Additionally, our clients
may be acquired by larger HMOs, in which case there can be no assurance that
the acquiring company would renew our contract.

Medicaid and Other State funded Programs

As of May 31, 2003, we managed approximately 627,000 lives in connection
with behavioral and substance abuse services covered through Medicaid in
Connecticut, Florida, Michigan and Texas. The aggregate number of Medicaid
lives was reduced by approximately 166,000 effective January 1, 2003 due to the
termination of the contracts described under Note 4(1)  Major
Contracts/Customers to the audited, consolidated financial statements. Any
changes in Medicaid reimbursement could ultimately affect the Company through
contract bidding and cost structures with the health plans first impacted by
such changes. The State of Texas has passed legislation that will reduce the
amount of funds allocated to our clients to cover behavioral healthcare
services to Medicaid and Childrens Health Insurance Program (CHIP)
recipients in the State of Texas. Such legislation is subject to pending bills
that, if passed, could restore some of the benefits to these programs. Under
the recently passed legislation, the outpatient behavioral healthcare benefits
available to adult Medicaid and CHIP recipients will be provided by the HMOs
and their subcontractors, including the Company, on a very limited basis while
the inpatient benefits for CHIP recipients may not be covered by the HMOs and
their subcontractors. For the fiscal year ended May 31, 2003, we had operating
revenue of $3.7 million and $4.5 million, respectively, specific to contracts
covering Texas CHIP and Texas Medicaid recipients. These changes to Texas
Medicaid and CHIP programs could have a material, adverse impact on our
operations. However, we believe certain of our clients will continue to
require the types of services we provide to mitigate their exposure to treat
serious medical conditions that may result from the lack of adequate behavioral
healthcare benefits. We are closely monitoring developments in Texas, but
currently cannot predict what financial impact, if any, these changes may have
on our business. Additionally, we cannot predict whether other states in which
we operate may pass legislation that would reduce our revenue through changes
in the reimbursement rates or in the number of eligible participants. In
either case, we may be unable to reduce our costs to a level that would allow
us to maintain current gross margins specific to our Medicaid and CHIPS
programs.

Seasonality of Business

Historically and during Fiscal 2003, we have experienced consistently low
utilization during our first fiscal quarter, which comprises the months of
June, July, and August, and increased utilization during our fourth fiscal
quarter, which comprises the months of March, April and May. Such variations
in utilization impact our costs of care during these months, generally having a
positive impact on our gross margins and operating profits during the first
fiscal quarter and a negative impact on our gross margins and operating profits
during the fourth quarter.

Regulatory compliance

CompCare is subject to extensive and evolving state and federal
regulations relating to the nations mental health system as well as changes in
Medicaid and Medicare reimbursement that could have an effect on the
profitability of our contracts. These regulations range from licensure and
compliance with regulations related to insurance companies and other
risk-assuming entities, to licensure and compliance with regulations related to
healthcare providers. These laws and regulations may vary considerably among
states. As a result, CompCare may be subject to the specific regulatory
approach adopted by each state for regulation of managed care companies and for
providers of behavioral healthcare treatment services.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

CompCare holds licenses or certificates to perform utilization review and
third party administrator (TPA) services in certain states. Certain of the
services provided by our managed behavioral healthcare subsidiaries may be
subject to such licensing requirements in other states. There can be no
assurance that additional utilization review or TPA licenses will not be
required or, if required, that CompCare will qualify to obtain such licenses.
In many states, entities that assume risk under contract with licensed
insurance companies or health plans 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. Currently, we cannot quantify the potential effects of additional
regulation of the managed care industry, but such costs will have an adverse
effect on future operations to the extent that they are not able to be recouped
in future managed care contracts.

CompCare is subject to the requirements of the Health Insurance
Portability and Accountability Act of 1996 (HIPAA). The purpose of the HIPAA
provisions is to improve the efficiency and effectiveness of the healthcare
system through standardization of the electronic data interchange of certain
administrative and financial transactions and, also, to protect the security
and privacy of protected health information. Entities subject to HIPAA include
some healthcare providers and all healthcare plans. To meet the specific
requirements of HIPAA, we will incur costs to insure the adequacy and security
of our healthcare information system and communication networks. Additionally,
we will incur costs to implement a new clinical information system that will
process the specific transaction codes required by HIPAA for claims, payment,
enrollment, eligibility, or to become compliant with security and privacy
rules, which may be more stringent for providers of certain behavioral
healthcare services (see Management Information Systems above). The expected
timetable for us to be compliant is currently October 2003 for transaction code
changes due to our October 2002 filing of a formal compliance plan. The
Company has met the deadline for compliance with the privacy rules, which was
April 14, 2003. Additionally, we have filed our Electronic Health Care
Transactions and Code Sets Standards Model Compliance Plan with the Centers for
Medicare and Medicaid Services. While these efforts will be ongoing, we expect
to meet all compliance rules and timetables with respect to the HIPAA
regulations. Failure to do so may result in penalties and have a material
adverse effect on the Companys ability to retain its customers or to gain new
business.

Dependence on Key Personnel

We currently rely heavily on several key executives and other management,
clinical and technical personnel for our business performance and development.
Recent new hires have included senior management personnel and other essential
employees that are assisting executive management with marketing efforts and
enhancements to our clinical system designs. Our future success will depend in
large part upon our continued ability to attract and retain highly skilled
employees.

Shares Eligible for Future Sale

As of
September 3, 2003, the Company has issued 1,105,724 options, with
exercise prices ranging from $0.25 to $4.00. A total of 867,083 options are
exercisable and in the money as of September 3, 2003 and, accordingly, could be
exercised and resold by optionees.

Anti-takeover Provisions

The Companys Restated Certificate of Incorporation provides for 60,000
authorized shares of Preferred Stock, the rights, preferences, qualifications,
limitations and restrictions of which may be fixed by our Board of Directors
without any vote or action by the stockholders that could have the effect of
diluting the Common Stock or reducing working capital that would otherwise be
available to the Company. As of May 31, 2003, there are 18,740 remaining shares
authorized and available to issue, and no outstanding shares of Preferred
Stock. The Companys Restated Certificate of Incorporation also provides for a
classified board of directors with directors divided into three classes serving
staggered terms. The Companys stock option plans generally provide for the
acceleration of vesting of options granted under such plans in the event of
certain transactions that result in a change of control of the Company.
Section 203 of the General Corporation Law of Delaware prohibits us from
engaging in certain business combinations with interested stockholders. These
provisions may have the effect of delaying or preventing a change in control of
the Company without action by the stockholders and therefore could adversely
affect the price of our Common Stock or the possibility of sale of shares to an
acquiring person.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Assumptions relating to the foregoing involve judgments that are difficult
to predict accurately and are subject to many factors that can materially
affect results. Budgeting and other management decisions are subjective in
many respects and thus susceptible to interpretations and periodic revisions
based on actual experience and business developments, the impact of which may
cause us to alter our budgets which may in turn affect the Companys results.
In light of the factors that can materially affect the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that our
objectives or plans will be achieved.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

While we currently have market risk sensitive instruments, we have no
significant exposure to changing interest rates as the interest rate on our
long-term debt is fixed. Additionally, we do not use derivative financial
instruments for investment or trading purposes and our investments are
generally limited to cash deposits.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Index to Consolidated Financial Statements

Years Ended May 31, 2003, 2002 and 2001

|                                                                                          |  |  |       | 
|----------------------------------------------------------------------------------------- |  |  | ----- | 
|Report of Eisner LLP                                                                      |  |  | 19    | 
|Consolidated Balance Sheets, May 31, 2003 and 2002                                        |  |  | 20    | 
|Consolidated Statements of Operations, Years Ended May 31, 2003, 2002 and 2001            |  |  | 21    | 
|Consolidated Statements of Stockholders Deficit, Years Ended May 31, 2003, 2002 and 2001 |  |  | 22    | 
|Consolidated Statements of Cash Flows, Years Ended May 31, 2003, 2002 and 2001            |  |  | 23    | 
|Notes to Consolidated Financial Statements                                                |  |  | 24-38 | 

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

INDEPENDENT AUDITORS REPORT

Board of Directors and Stockholders
Comprehensive Care Corporation

We have audited the accompanying consolidated balance sheets of
Comprehensive Care Corporation and subsidiaries as of May 31, 2003 and 2002,
and the related consolidated statements of operations, stockholders deficit
and cash flows for each of the three years in the period ended May 31, 2003.
These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Comprehensive Care Corporation and subsidiaries as of May 31, 2003 and 2002,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended May 31, 2003, in conformity with
accounting principles generally accepted in the United States of America.

As discussed in Note 3, the Companys working capital deficiency,
stockholders deficit, and continued losses from operations raise substantial
doubt about its ability to continue as a going concern. Managements plans as
to these matters are also described in Note 3. The accompanying consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

As discussed in Note 2, effective June 1, 2001, the Company adopted
Statement of Financial Accounting Standards No. 142 and changed its method of
accounting for goodwill.

/s/ Eisner LLP

New York, New York
July 25, 2003
19Table of Contents

COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES




Consolidated Balance Sheets

|                                            |                                                                                                             |   |                        |         |      |   |         |         |  
|------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | - | ---------------------- | ------- | ---- | - | ------- | ------- | -
|                                            |                                                                                                             |   | May 31,               
|                                            |                                                                                                             |   |                       
|                                            |                                                                                                             |   | 2003                   |         | 2002
|                                            |                                                                                                             |   |                        |         |     
|                                            |                                                                                                             |   | (Amounts in Thousands)
|ASSETS                                      |                                                                                                             |   |                        |         |      |   |         |        
|Current assets:                             |                                                                                                             |   |                        |         |      |   |         |        
|                                            | Cash and cash equivalents                                                                                   |   | $                      | 3,590   |      |   | $       | 5,340   |  
|                                            | Accounts receivable, less allowance for doubtful accounts of $27 and
$8                                     |   |                        | 75      |      |   |         | 324     |  
|                                            | Accounts receivable  managed care reinsurance contract                                                     |   |                        | 354     |      |   |         | 575     |  
|                                            | Other receivable                                                                                            |   |                        |        |      |   |         | 2,548   |  
|                                            | Other current assets                                                                                        |   |                        | 605     |      |   |         | 591     |  
|                                            |                                                                                                             |   |                        |         |      |   |         |        
|Total current assets                        |                                                                                                             |   | 4,624                  |         |      |   | 9,378   |        
|Property and equipment, net                 |                                                                                                             |   | 230                    |         |      |   | 291     |        
|Note receivable                             |                                                                                                             |   | 155                    |         |      |   | 159     |        
|Goodwill, net                               |                                                                                                             |   | 991                    |         |      |   | 991     |        
|Restricted cash                             |                                                                                                             |   | 328                    |         |      |   | 430     |        
|Other assets                                |                                                                                                             |   | 51                     |         |      |   | 150     |        
|                                            |                                                                                                             |   |                        |         |      |   |         |        
|Total assets                                |                                                                                                             | $ | 6,379                  |         |      | $ | 11,399  |        
|                                            |                                                                                                             |   |                        |         |      |   |         |        
|LIABILITIES AND STOCKHOLDERS DEFICIT       |                                                                                                             |   |                        |         |      |   |         |        
|Current liabilities:                        |                                                                                                             |   |                        |         |      |   |         |        
|                                            | Accounts payable and accrued liabilities                                                                    |   | $                      | 1,836   |      |   | $       | 2,891   |  
|                                            | Accrued claims payable                                                                                      |   |                        | 4,103   |      |   |         | 4,635   |  
|                                            | Accrued reinsurance claims payable                                                                          |   |                        | 3,117   |      |   |         | 2,019   |  
|                                            | Unbenefitted tax refunds received                                                                           |   |                        |        |      |   |         | 12,092  |  
|                                            | Income taxes payable                                                                                        |   |                        | 15      |      |   |         | 16      |  
|                                            |                                                                                                             |   |                        |         |      |   |         |        
|Total current liabilities                   |                                                                                                             |   | 9,071                  |         |      |   | 21,653  |        
|                                            |                                                                                                             |   |                        |         |      |   |         |        
|Long-term liabilities:                      |                                                                                                             |   |                        |         |      |   |         |        
|                                            | Long-term debt                                                                                              |   |                        | 2,244   |      |   |         | 2,244   |  
|                                            | Other liabilities                                                                                           |   |                        | 54      |      |   |         | 21      |  
|                                            |                                                                                                             |   |                        |         |      |   |         |        
|Total long-term liabilities                 |                                                                                                             |   | 2,298                  |         |      |   | 2,265   |        
|                                            |                                                                                                             |   |                        |         |      |   |         |        
|Total liabilities                           |                                                                                                             |   | 11,369                 |         |      |   | 23,918  |        
|                                            |                                                                                                             |   |                        |         |      |   |         |        
|Commitments and Contingencies (Note 16)     |                                                                                                             |   |                        |         |      |   |         |        
|Stockholders deficit:                      |                                                                                                             |   |                        |         |      |   |         |        
|                                            | Preferred stock, $50.00 par value; authorized 18,740 shares; none issued                                    |   |                        |        |      |   |         |        |  
|                                            | Common stock, $0.01 par value; authorized 12,500,000 shares; issued
and outstanding 3,936,549 and 3,878,552 |   |                        | 39      |      |   |         | 39      |  
|                                            | Additional paid-in-capital                                                                                  |   |                        | 51,928  |      |   |         | 51,842  |  
|                                            | Deferred compensation                                                                                       |   |                        | (16     | )    |   |         | (1      | )
|                                            | Accumulated deficit                                                                                         |   |                        | (56,941 | )    |   |         | (64,399 | )
|                                            |                                                                                                             |   |                        |         |      |   |         |        
|Total stockholders deficit                 |                                                                                                             |   | (4,990                 | )       |      |   | (12,519 | )      
|                                            |                                                                                                             |   |                        |         |      |   |         |        
|Total liabilities and stockholders deficit |                                                                                                             | $ | 6,379                  |         |      | $ | 11,399  |        
|                                            |                                                                                                             |   |                        |         |      |   |         |        

See accompanying notes.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES




Consolidated Statements of Operations

|                                                                         |                                                       |   |                                               |        |      |   |        |        |   |   |        |        |  
|------------------------------------------------------------------------ | ----------------------------------------------------- | - | --------------------------------------------- | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                         |                                                       |   | Year Ended May 31,                           
|                                                                         |                                                       |   |                                              
|                                                                         |                                                       |   | 2003                                          |        | 2002 |   | 2001  
|                                                                         |                                                       |   |                                               |        |      |   |       
|                                                                         |                                                       |   | (Amounts in thousands, except per share data)
|Operating Revenues                                                       |                                                       | $ | 32,267                                        |        |      | $ | 27,625 |        |   | $ | 18,192 |       
|Costs and Expenses:                                                      |                                                       |   |                                               |        |      |   |        |        |   |   |        |       
|                                                                         | Healthcare operating expenses                         |   |                                               | 29,201 |      |   |        | 24,625 |   |   |        | 15,326 |  
|                                                                         | General and administrative expenses                   |   |                                               | 3,459  |      |   |        | 3,544  |   |   |        | 3,842  |  
|                                                                         | Provision for (recovery of) doubtful accounts         |   |                                               | 20     |      |   |        | (112   | ) |   |        | (439   | )
|                                                                         | Depreciation and amortization                         |   |                                               | 195    |      |   |        | 342    |   |   |        | 656    |  
|                                                                         | Restructuring expenses                                |   |                                               |       |      |   |        |       |   |   |        | (30    | )
|                                                                         |                                                       |   |                                               |        |      |   |        |        |   |   |        |       
|                                                                         |                                                       |   | 32,875                                        |        |      |   | 28,399 |        |   |   | 19,355 |       
|                                                                         |                                                       |   |                                               |        |      |   |        |        |   |   |        |       
|Operating loss before items shown below                                  |                                                       |   | (608                                          | )      |      |   | (774   | )      |   |   | (1,163 | )     
|Other income (expense):                                                  |                                                       |   |                                               |        |      |   |        |        |   |   |        |       
|                                                                         | Net gain on IRS settlement                            |   |                                               | 7,717  |      |   |        |       |   |   |        |       |  
|                                                                         | Gain on settlement of other liability                 |   |                                               | 470    |      |   |        |       |   |   |        |       |  
|                                                                         | Loss in connection with prepayment of note receivable |   |                                               |       |      |   |        |       |   |   |        | (496   | )
|                                                                         | Gain on sale of assets                                |   |                                               | 4      |      |   |        |       |   |   |        |       |  
|                                                                         | Loss on disposal of assets                            |   |                                               | (5     | )    |   |        |       |   |   |        |       |  
|                                                                         | Reduction in accrued interest expense                 |   |                                               |       |      |   |        |       |   |   |        | 290    |  
|                                                                         | Other non-operating income, net                       |   |                                               | 34     |      |   |        | 40     |   |   |        | 332    |  
|                                                                         | Interest income                                       |   |                                               | 47     |      |   |        | 88     |   |   |        | 163    |  
|                                                                         | Interest expense                                      |   |                                               | (181   | )    |   |        | (178   | ) |   |        | (208   | )
|                                                                         |                                                       |   |                                               |        |      |   |        |        |   |   |        |       
|Income (loss) before items shown below                                   |                                                       |   | 7,478                                         |        |      |   | (824   | )      |   |   | (1,082 | )     
|Income tax expense                                                       |                                                       |   | 20                                            |        |      |   | 1      |        |   |   | 35     |       
|                                                                         |                                                       |   |                                               |        |      |   |        |        |   |   |        |       
|Income (loss) before cumulative effect of change in
accounting principle |                                                       |   | 7,458                                         |        |      |   | (825   | )      |   |   | (1,117 | )     
|Cumulative effect of change of accounting principle                      |                                                       |   |                                              |        |      |   | 55     |        |   |   |       |       
|                                                                         |                                                       |   |                                               |        |      |   |        |        |   |   |        |       
|Net income (loss)                                                        |                                                       | $ | 7,458                                         |        |      | $ | (770   | )      |   | $ | (1,117 | )     
|                                                                         |                                                       |   |                                               |        |      |   |        |        |   |   |        |       
|Earnings (loss) per common share  basic:                                |                                                       |   |                                               |        |      |   |        |        |   |   |        |       
|Income (loss) before cumulative effect of change in
accounting principle |                                                       | $ | 1.91                                          |        |      | $ | (0.21  | )      |   | $ | (0.29  | )     
|Cumulative effect of change in accounting principle                      |                                                       |   |                                              |        |      |   | 0.01   |        |   |   |       |       
|                                                                         |                                                       |   |                                               |        |      |   |        |        |   |   |        |       
|Net income (loss)                                                        |                                                       | $ | 1.91                                          |        |      | $ | (0.20  | )      |   | $ | (0.29  | )     
|                                                                         |                                                       |   |                                               |        |      |   |        |        |   |   |        |       
|Earnings (loss) per common share  diluted:                              |                                                       |   |                                               |        |      |   |        |        |   |   |        |       
|Income (loss) before cumulative effect of change in
accounting principle |                                                       | $ | 1.72                                          |        |      | $ | (0.21  | )      |   | $ | (0.29  | )     
|Cumulative effect of change in accounting principle                      |                                                       |   |                                              |        |      |   | 0.01   |        |   |   |       |       
|                                                                         |                                                       |   |                                               |        |      |   |        |        |   |   |        |       
|Net income (loss)                                                        |                                                       | $ | 1.72                                          |        |      | $ | (0.20  | )      |   | $ | (0.29  | )     
|                                                                         |                                                       |   |                                               |        |      |   |        |        |   |   |        |       
|Weighted average common shares outstanding:                              |                                                       |   |                                               |        |      |   |        |        |   |   |        |       
|Basic                                                                    |                                                       |   | 3,905                                         |        |      |   | 3,860  |        |   |   | 3,818  |       
|                                                                         |                                                       |   |                                               |        |      |   |        |        |   |   |        |       
|Diluted                                                                  |                                                       |   | 4,343                                         |        |      |   | 3,860  |        |   |   | 3,818  |       
|                                                                         |                                                       |   |                                               |        |      |   |        |        |   |   |        |       

See accompanying notes

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT

(In Thousands)


|                      |                                                                  |  |              |    |            |   |             |   |          |   |                     |    |         |   |         |        |   |   |     |     |   |   |         |        |  
|--------------------- | ---------------------------------------------------------------- |  | ------------ | -- | ---------- | - | ----------- | - | -------- | - | ------------------- | -- | ------- | - | ------- | ------ | - | - | --- | --- | - | - | ------- | ------ | -
|                      |                                                                  |  | Common Stock |    | Additional |   |             |   |          |   |                     |    |         |   |         |        |  
|                      |                                                                  |  |              |    | Paid-In    |   | Accumulated |   | Deferred |   | Total Stockholders'
|                      |                                                                  |  | Shares       |    | Amount     |   | Capital     |   | Deficit  |   | Compensation        |    | Deficit
|                      |                                                                  |  |              |    |            |   |             |   |          |   |                     |    |        
|Balance, May 31, 2000 |                                                                  |  | 3,818        |    |            | $ | 38          |   |          | $ | 51,812              |    |         | $ | (62,512 | )      |   | $ | (10 | )   |   | $ | (10,672 | )     
|                      | Net loss                                                         |  |              |   |            |   |             |  |          |   |                     |   |         |   |         | (1,117 | ) |   |     |    |   |   |         | (1,117 | )
|                      | Compensatory stock options granted                               |  |              |   |            |   |             |  |          |   |                     | 1  |         |   |         |       |   |   |     | (1  | ) |   |         |       |  
|                      | Amortization of deferred compensation                            |  |              |   |            |   |             |  |          |   |                     |   |         |   |         |       |   |   |     | 11  |   |   |         | 11     |  
|                      |                                                                  |  |              |    |            |   |             |   |          |   |                     |    |         |   |         |        |   |   |     |     |   |   |         |       
|Balance, May 31, 2001 |                                                                  |  | 3,818        |    |            | $ | 38          |   |          | $ | 51,813              |    |         | $ | (63,629 | )      |   | $ |    |     |   | $ | (11,778 | )     
|                      | Net loss                                                         |  |              |   |            |   |             |  |          |   |                     |   |         |   |         | (770   | ) |   |     |    |   |   |         | (770   | )
|                      | Compensatory stock options granted                               |  |              |   |            |   |             |  |          |   |                     | 1  |         |   |         |       |   |   |     | (1  | ) |   |         |       |  
|                      | Shares issued for executive compensation                         |  |              | 50 |            |   |             | 1 |          |   |                     | 25 |         |   |         |       |   |   |     |    |   |   |         | 26     |  
|                      | Exercise of stock options                                        |  |              | 11 |            |   |             |  |          |   |                     | 3  |         |   |         |       |   |   |     |    |   |   |         | 3      |  
|                      |                                                                  |  |              |    |            |   |             |   |          |   |                     |    |         |   |         |        |   |   |     |     |   |   |         |       
|Balance, May 31, 2002 |                                                                  |  | 3,879        |    |            | $ | 39          |   |          | $ | 51,842              |    |         | $ | (64,399 | )      |   | $ | (1  | )   |   | $ | (12,519 | )     
|                      | Net income                                                       |  |              |   |            |   |             |  |          |   |                     |   |         |   |         | 7,458  |   |   |     |    |   |   |         | 7,458  |  
|                      | Shares issued for executive compensation                         |  |              | 20 |            |   |             |  |          |   |                     | 20 |         |   |         |       |   |   |     |    |   |   |         | 20     |  
|                      | Compensatory stock options and warrants
granted to non-employees |  |              |   |            |   |             |  |          |   |                     | 48 |         |   |         |       |   |   |     | (22 | ) |   |         | 26     |  
|                      | Amortization of deferred compensation                            |  |              |   |            |   |             |  |          |   |                     |   |         |   |         |       |   |   |     | 7   |   |   |         | 7      |  
|                      | Exercise of stock options                                        |  |              | 38 |            |   |             |  |          |   |                     | 18 |         |   |         |       |   |   |     |    |   |   |         | 18     |  
|                      |                                                                  |  |              |    |            |   |             |   |          |   |                     |    |         |   |         |        |   |   |     |     |   |   |         |       
|Balance, May 31, 2003 |                                                                  |  | 3,937        |    |            | $ | 39          |   |          | $ | 51,928              |    |         | $ | (56,941 | )      |   | $ | (16 | )   |   | $ | (4,990  | )     
|                      |                                                                  |  |              |    |            |   |             |   |          |   |                     |    |         |   |         |        |   |   |     |     |   |   |         |       

See accompanying notes.

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Consolidated Statements of Cash Flows

|                                                                                                   |                                                                      |              |        |                        |     |      |       |       |     |   |        |         |     | 
|-------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ------------ | ------ | ---------------------- | --- | ---- | ----- | ----- | --- | - | ------ | ------- | --- | 
|                                                                                                   |                                                                      |              |        | Year Ended May 31,    
|                                                                                                   |                                                                      |              |        |                       
|                                                                                                   |                                                                      |              |        | 2003                   |     | 2002 |       | 2001 
|                                                                                                   |                                                                      |              |        |                        |     |      |       |      
|                                                                                                   |                                                                      |              |        | (Amounts in thousands)
|Cash flows from operating activities:                                                              |                                                                      |              |        |                        |     |      |       |       |     |   |        |        
|Net income (loss)                                                                                  |                                                                      | $            | 7,458  |                        |     | $    | (770  | )     |     | $ | (1,117 | )      
|Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities: |                                                                      |              |        |                        |     |      |       |       |     |   |        |        
|                                                                                                   | Depreciation and amortization                                        |              |        | 195                    |     |      |       | 342   |     |   |        | 656     |    
|                                                                                                   | Provision for doubtful accounts                                      |              |        | 20                     |     |      |       |      |     |   |        |        |    
|                                                                                                   | Cumulative effect of change in accounting principle                  |              |        |                       |     |      |       | (55   | )   |   |        |        |    
|                                                                                                   | Net gain from IRS settlement                                         |              |        | (7,717                 | )   |      |       |      |     |   |        |        |    
|                                                                                                   | Gain on settlement of other liability                                |              |        | (470                   | )   |      |       |      |     |   |        |        |    
|                                                                                                   | Loss in connection with prepayment of note receivable                |              |        |                       |     |      |       |      |     |   |        | 496     |    
|                                                                                                   | Gain on sale of assets                                               |              |        | (4                     | )   |      |       |      |     |   |        |        |    
|                                                                                                   | Loss on disposal of assets                                           |              |        | 5                      |     |      |       |      |     |   |        |        |    
|                                                                                                   | Compensation expense  stock issued                                  |              |        | 20                     |     |      |       |      |     |   |        |        |    
|                                                                                                   | Compensation expense  stock options and warrants issued             |              |        | 15                     |     |      |       |      |     |   |        | 11      |    
|                                                                                                   | Restructuring expenses                                               |              |        |                       |     |      |       |      |     |   |        | (30     | )  
|                                                                                                   | Reduction in accrued interest expense                                |              |        |                       |     |      |       |      |     |   |        | (290    | )  
|Changes in assets and liabilities:                                                                 |                                                                      |              |        |                        |     |      |       |       |     |   |        |        
|                                                                                                   | Accounts receivable                                                  |              |        | 229                    |     |      |       | 98    |     |   |        | (146    | )  
|                                                                                                   | Accounts receivable  managed care reinsurance contract              |              |        | 221                    |     |      |       | 208   |     |   |        | (783    | )  
|                                                                                                   | Accounts receivable  pharmacy and laboratory costs                  |              |        |                       |     |      |       |      |     |   |        | 10,469  |    
|                                                                                                   | Other receivable                                                     |              |        | 525                    |     |      |       |      |     |   |        |        |    
|                                                                                                   | Other current assets, restricted funds, and other non-current assets |              |        | 198                    |     |      |       | 284   |     |   |        | 746     |    
|                                                                                                   | Unbenefitted tax refunds received                                    |              |        | (2,258                 | )   |      |       |      |     |   |        |        |    
|                                                                                                   | Accounts payable and accrued liabilities                             |              |        | (687                   | )   |      |       | (397  | )   |   |        | (615    | )  
|                                                                                                   | Accrued claims payable                                               |              |        | (532                   | )   |      |       | 1,564 |     |   |        | 261     |    
|                                                                                                   | Accrued reinsurance claims payable                                   |              |        | 1,098                  |     |      |       | 1,236 |     |   |        | 783     |    
|                                                                                                   | Accrued pharmacy and laboratory costs payable                        |              |        |                       |     |      |       |      |     |   |        | (10,469 | )  
|                                                                                                   | Income taxes payable                                                 |              |        | (1                     | )   |      |       | (15   | )   |   |        | (13     | )  
|                                                                                                   | Other liabilities                                                    |              |        |                       |     |      |       | (8    | )   |   |        | (47     | )  
|                                                                                                   |                                                                      |              |        |                        |     |      |       |       |     |   |        |        
|                                                                                                   | Net cash (used in) provided by operating activities                  |              |        | (1,685                 | )   |      |       | 2,487 |     |   |        | (88     | )  
|Cash flows from investing activities:                                                              |                                                                      |              |        |                        |     |      |       |       |     |   |        |        
|                                                                                                   | Net proceeds from sale of property and equipment                     |              |        | 3                      |     |      |       |      |     |   |        |        |    
|                                                                                                   | Payment received on note for sale of property and equipment          |              |        | 4                      |     |      |       | 4     |     |   |        | 509     |    
|                                                                                                   | Additions to property and equipment                                  |              |        | (77                    | )   |      |       | (43   | )   |   |        | (48     | )  
|                                                                                                   |                                                                      |              |        |                        |     |      |       |       |     |   |        |        
|                                                                                                   | Net cash (used in) provided by investing activities                  |              |        | (70                    | )   |      |       | (39   | )   |   |        | 461     |    
|                                                                                                   |                                                                      |              |        |                        |     |      |       |       |     |   |        |        
|Cash flows from financing activities:                                                              |                                                                      |              |        |                        |     |      |       |       |     |   |        |        
|                                                                                                   | Proceeds from the issuance of Common Stock                           |              |        | 18                     |     |      |       | 3     |     |   |        |        |    
|                                                                                                   | Repayment of debt                                                    |              |        | (13                    | )   |      |       | (2    | )   |   |        |        |    
|                                                                                                   |                                                                      |              |        |                        |     |      |       |       |     |   |        |        
|                                                                                                   | Net cash provided by financing activities                            |              |        | 5                      |     |      |       | 1     |     |   |        |        |    
|                                                                                                   |                                                                      |              |        |                        |     |      |       |       |     |   |        |        
|Net (decrease) increase in cash and cash equivalents                                               |                                                                      |              | (1,750 | )                      |     |      | 2,449 |       |     |   | 373    |        
|Cash and cash equivalents at beginning of year                                                     |                                                                      |              | 5,340  |                        |     |      | 2,891 |       |     |   | 2,518  |        
|                                                                                                   |                                                                      |              |        |                        |     |      |       |       |     |   |        |        
|Cash and cash equivalents at end of year                                                           |                                                                      | $            | 3,590  |                        |     | $    | 5,340 |       |     | $ | 2,891  |        
|                                                                                                   |                                                                      |              |        |                        |     |      |       |       |     |   |        |        
|Supplemental disclosures of cash flow information:                                                 |                                                                      |              |        |                        |     |      |       |       |     |   |        |        
|                                                                                                   | Cash paid during the year for                                        |              |        |                        |     |      |       |       |     |   |        |         |    
|                                                                                                   |                                                                      | Interest     |        | $                      | 182 |      |       | $     | 179 |   |        | $       | 177 | 
|                                                                                                   |                                                                      |              |        |                        |     |      |       |       |     |   |        |        
|                                                                                                   |                                                                      | Income taxes |        | $                      | 22  |      |       | $     | 16  |   |        | $       | 37  | 
|                                                                                                   |                                                                      |              |        |                        |     |      |       |       |     |   |        |        

See accompanying notes.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Note 1  Description of the Companys Business

Comprehensive Care Corporation (the Company or CompCare) is a Delaware
Corporation organized in 1969. Unless the context otherwise requires, all
references to the Company include Comprehensive Behavioral Care, Inc. (CBC)
and subsidiary corporations. The Company, primarily through its wholly owned
subsidiary, CBC, provides managed care services in the behavioral health and
psychiatric fields, which is its only operating segment. The Company manages
the delivery of a continuum of psychiatric and substance abuse services to
commercial, Medicare, and Medicaid members on behalf of employers, health
plans, government organizations, third-party claims administrators, and
commercial and other group purchasers of behavioral healthcare services. The
managed care operations include administrative service agreements,
fee-for-service agreements, and capitation contracts. The customer base for
its services includes both corporate and governmental entities. The Companys
services are provided primarily by unrelated vendors on a subcontract or
subcapitated basis.

Note 2  Summary of Significant Accounting Policies

Consolidation

The consolidated financial statements include the accounts of
Comprehensive Care Corporation and its wholly owned subsidiaries. Significant
inter-company accounts and transactions have been eliminated in consolidation.

Use Of Estimates

The preparation of 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 financial statements and accompanying notes. Actual results could
differ from these estimates.

Revenue Recognition

The Companys managed care activities are performed under the terms of
agreements with health maintenance organizations (HMOs), preferred provider
organizations (PPOs), and other health plans or payers to provide contracted
behavioral healthcare services to subscribing participants. Revenue under a
substantial portion of these agreements is earned monthly based on the number
of qualified participants regardless of services actually provided (generally
referred to as capitation arrangements). The information regarding qualified
participants is supplied by the Companys clients and the Company relies
extensively on the accuracy of the client remittance and other reported
information to determine the amount of revenue to be recognized. Such
agreements accounted for 87.4%, or $28.2 million, of revenue for the fiscal
year ended May 31, 2003, 84.7%, or $23.4 million, of revenue for the fiscal
year ended May 31, 2002, and 79.2%, or $14.4 million, of revenue for the fiscal
year ended May 31, 2001. The balance of the Companys revenues is earned on a
fee-for-service basis and is recognized as services are rendered.

Healthcare Expense Recognition

The Company attempts to control its costs and risk by entering into
contractual relationships with healthcare providers including hospitals,
physician groups and other managed care organizations either on a
sub-capitated, a discounted fee-for-services, or a per-case basis. The
Companys capitation contracts typically exclude risk for chronic care
patients. The cost of healthcare services is recognized in the period that the
Company is obligated to provide such services. Certain contracted healthcare
providers assume the financial risk for participant care rendered by them and
they are compensated on a sub-capitated basis.

In cases where the Company retains the financial responsibility for
authorizations, hospital utilization, and the cost of other behavioral
healthcare services, the Company establishes an accrual for estimated claims
payable (see Accrued Claims Payable below).

Premium Deficiencies

Estimated future healthcare costs and expenses in excess of estimated
future premiums are recorded as a loss when determinable. No such deficiencies
existed at May 31, 2003 or May 31, 2002.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Cash and Cash Equivalents

Cash in excess of daily requirements is invested in short-term investments
with original maturities of three months or less. These investments aggregated
$2.4 million and $2.6 million at May 31, 2003 and 2002, respectively. These
investments are included in cash equivalents in the accompanying consolidated
balance sheets.

Restricted Cash

As of May 31, 2003 and 2002, non-current restricted accounts include $0.3
million of cash held in trust in connection with the Companys Directors and
Officers liability insurance policy. During Fiscal 2003, the Company
surrendered one license held by an inactive Michigan subsidiary and, as a
result, approximately $100,000 of previously restricted cash was released to
the Company.

Property and Equipment

Property and equipment are recorded at cost. Depreciation of furniture and
equipment is computed using the straight-line method over the estimated useful
lives of 3 to 12 years. Leasehold improvements are amortized over the term of
the related lease.

Goodwill

Goodwill includes costs in excess of fair value of the net assets acquired
in purchase transactions, less amortization.

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 141, Business
Combinations and No. 142, Goodwill and Other Intangible Assets, which
establishes new standards for the treatment of goodwill and other intangible
assets. SFAS 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. SFAS 142 is effective
for fiscal years beginning after December 31, 2001 and permits early adoption
for companies with a fiscal year beginning after March 15, 2001. SFAS 142
prescribes that amortization of goodwill will cease as of the adoption date.
The Company elected to adopt SFAS 142 effective June 1, 2001 and, as a result,
there has been no amortization expense recorded during Fiscal 2003 or 2002 (see
Note 10  Goodwill). In accordance with SFAS 142, the Company had performed
an impairment test within six months of the adoption date and determined that
no impairment of goodwill had occurred as of such date. In addition, the
Company performs an impairment test at least annually and whenever events and
circumstances occur that might affect the carrying value of goodwill. The
Company performed an annual impairment test as of May 31, 2003 and 2002 and
determined that no impairment of goodwill had occurred as of such dates.

Extinguishment of Debt

In April 2002, the FASB issued Statement No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This Statement eliminates the automatic classification of gain
or loss on extinguishment of debt as an extraordinary item and requires that
such gain or loss be evaluated for extraordinary classification under the
criteria of Accounting Principles Board No. 30, Reporting Results of
Operations. The Company adopted the provisions of SFAS 145 effective for its
fiscal year ended May 31, 2003 and has reflected gains on settlement of debt as
other income instead of as extraordinary items.

Accrued Claims Payable

The accrued claims payable liability represents the estimated ultimate net
amounts owed for all behavioral healthcare services provided through the
respective balance sheet dates, including estimated amounts for claims incurred
but not yet reported (IBNR) to the Company. The unpaid claims liability is
estimated using an actuarial paid completion factor methodology and other
statistical analyses and is continually reviewed and adjusted, if necessary, to
reflect any change in the estimated liability. These estimates are subject to
the effects of trends in utilization and other factors. However, actual claims
incurred could differ from the estimated claims payable amount reported as of
May 31, 2003. Although considerable variability is inherent in such estimates,
management believes that the unpaid claims liability is adequate.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Income Taxes

The Company calculates deferred taxes and related income tax expense using
the liability method. This method determines deferred taxes by applying the
current tax rate to net operating loss carryforwards and to the cumulative
temporary differences between the recorded carrying amounts and the
corresponding tax basis of assets and liabilities. A valuation allowance is
established for deferred tax assets unless their realization is considered more
likely than not. The Companys provision for income taxes is the sum of the
change in the balance of deferred taxes between the beginning and the end of
the period and income taxes currently payable or receivable.

Stock Options

In December 2002, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, which amends the
disclosure requirements of SFAS 123, Accounting for Stock-Based Compensation
and provides alternative methods of transition for a voluntary change to the
fair value method of accounting for stock-based employee compensation. As
permitted by SFAS 148, the Company has elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and
related interpretations in accounting for its employee stock options. Under
APB 25, in the event that the exercise price of the Companys employee stock
options is less than the market price of the underlying stock on the date of
grant, compensation expense is recognized. No stock-based employee
compensation cost is reflected in net income, as all options granted under the
Companys employee stock options plans had an exercise price equal to the
market value of the underlying common stock on the date of grant. The following
table illustrates the effect on net income (loss) and earnings (loss) per share
if the Company had applied the fair value recognition provisions of SFAS No.
123 to stock-based employee compensation.

|                                  |                       |                                                                                                                                     |       |                                                 |      |      |      |       |     |   |        |       |     |  
|--------------------------------- | --------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | ----- | ----------------------------------------------- | ---- | ---- | ---- | ----- | --- | - | ------ | ----- | --- | -
|                                  |                       |                                                                                                                                     |       | Year Ended May 31,                             
|                                  |                       |                                                                                                                                     |       |                                                
|                                  |                       |                                                                                                                                     |       | 2003                                            |      | 2002 |      | 2001 
|                                  |                       |                                                                                                                                     |       |                                                 |      |      |      |      
|                                  |                       |                                                                                                                                     |       | (in thousands except for per share information)
|Net income (loss), as reported    |                       | $                                                                                                                                   | 7,458 |                                                 |      | $    | (770 | )     |     | $ | (1,117 | )    
|Deduct:                           |                       |                                                                                                                                     |       |                                                 |      |      |      |       |     |   |        |      
|                                  |                       | Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax
effects |       |                                                 | (179 | )    |      |       | (15 | ) |        |       | (15 | )
|                                  |                       |                                                                                                                                     |       |                                                 |      |      |      |       |     |   |        |      
|Pro forma net income (loss)       |                       | $                                                                                                                                   | 7,279 |                                                 |      | $    | (785 | )     |     | $ | (1,132 | )    
|                                  |                       |                                                                                                                                     |       |                                                 |      |      |      |       |     |   |        |      
|Earnings (loss) per common share: |                       |                                                                                                                                     |       |                                                 |      |      |      |       |     |   |        |      
|                                  | Basic  as reported   |                                                                                                                                     | $     | 1.91                                            |      |      | $    | (0.20 | )   |   | $      | (0.29 | )  
|                                  |                       |                                                                                                                                     |       |                                                 |      |      |      |       |     |   |        |      
|                                  | Basic  pro forma     |                                                                                                                                     | $     | 1.86                                            |      |      | $    | (0.20 | )   |   | $      | (0.30 | )  
|                                  |                       |                                                                                                                                     |       |                                                 |      |      |      |       |     |   |        |      
|                                  | Diluted  as reported |                                                                                                                                     | $     | 1.72                                            |      |      | $    | (0.20 | )   |   | $      | (0.29 | )  
|                                  |                       |                                                                                                                                     |       |                                                 |      |      |      |       |     |   |        |      
|                                  | Diluted  pro forma   |                                                                                                                                     | $     | 1.68                                            |      |      | $    | (0.20 | )   |   | $      | (0.30 | )  
|                                  |                       |                                                                                                                                     |       |                                                 |      |      |      |       |     |   |        |      

The weighted average fair values of options granted were $0.72, $0.40, and
$0.14 in Fiscal 2003, 2002, and 2001, respectively. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options vesting period.

The fair value of these options was estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:

|                                                                             |  |                    |      |      |  |      |      |         |  |  |      |  
|---------------------------------------------------------------------------- |  | ------------------ | ---- | ---- |  | ---- | ---- | ------- |  |  | ---- | -
|                                                                             |  | Year Ended May 31,
|                                                                             |  |                   
|                                                                             |  | 2003               |      | 2002 |  | 2001
|                                                                             |  |                    |      |      |  |     
|Volatility factor of the expected market price of the
Companys Common Stock |  |                    | 95.0 | %    |  |      | 95.0 | %       |  |  | 95.0 | %
|Expected life (in years) of the options                                      |  |                    | 5    |      |  | 5    |      | 5 and 4
|Risk-free interest rate                                                      |  |                    | 4.0  | %    |  |      | 4.9  | %       |  |  | 5.8  | %
|Dividend yield                                                               |  |                    | 0    | %    |  |      | 0    | %       |  |  | 0    | %

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

The fair value of options granted to non-employee consultants is being
amortized to expense over the vesting period of the options.

Per Share data

In calculating basic earnings (loss) per share, net income (loss) is
divided by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflect the assumed exercise or conversion
of all dilutive securities, such as options, warrants, and convertible
debentures. No such exercise or conversion is assumed where the effect is
antidilutive, such as when there is a net loss. The following table sets forth
the computation of basic and diluted earnings (loss) per share in accordance
with Statement No. 128, Earnings Per Share (amounts in thousands, except per
share data):

|             |                                                                                                     |  |   |                           |  |      |   |       |   |  |   |        |   | 
|------------ | --------------------------------------------------------------------------------------------------- |  | - | ------------------------- |  | ---- | - | ----- | - |  | - | ------ | - | 
|             |                                                                                                     |  |   | Fiscal Year Ended May 31,
|             |                                                                                                     |  |   |                          
|             |                                                                                                     |  |   | 2003                      |  | 2002 |   | 2001 
|             |                                                                                                     |  |   |                           |  |      |   |      
|Numerator:   |                                                                                                     |  |   |                           |  |      |   |       |   |  |   |       
|             | Income (loss) before cumulative effect of change in accounting
principle                            |  | $ | 7,458                     |  |      | $ | (825  | ) |  | $ | (1,117 | )
|             | Cumulative effect of change in accounting principle                                                 |  |   |                          |  |      |   | 55    |   |  |   |       |  
|             |                                                                                                     |  |   |                           |  |      |   |       |   |  |   |        |  
|             | Numerator for diluted earnings (loss) per share available to Common
Stockholders                    |  | $ | 7,458                     |  |      | $ | (770  | ) |  | $ | (1,117 | )
|             |                                                                                                     |  |   |                           |  |      |   |       |   |  |   |        |  
|Denominator: |                                                                                                     |  |   |                           |  |      |   |       |   |  |   |       
|             | Weighted average shares                                                                             |  |   | 3,905                     |  |      |   | 3,860 |   |  |   | 3,818  |  
|             | Effect of dilutive securities:                                                                      |  |   |                           |  |      |   |       |   |  |   |        |  
|             | Employee stock options                                                                              |  |   | 437                       |  |      |   |      |   |  |   |       |  
|             | Warrants                                                                                            |  |   | 1                         |  |      |   |      |   |  |   |       |  
|             |                                                                                                     |  |   |                           |  |      |   |       |   |  |   |        |  
|             | Denominator for diluted earnings per share-adjusted weighted
average shares after assumed exercises |  |   | 4,343                     |  |      |   | 3,860 |   |  |   | 3,818  |  
|             |                                                                                                     |  |   |                           |  |      |   |       |   |  |   |        |  
|             | Basic earnings per share:                                                                           |  |   |                           |  |      |   |       |   |  |   |        |  
|             | Income (loss) before cumulative effect of change in accounting principle                            |  | $ | 1.91                      |  |      | $ | (0.21 | ) |  | $ | (0.29  | )
|             | Cumulative effect of change in accounting principle                                                 |  |   |                          |  |      |   | 0.01  |   |  |   |       |  
|             |                                                                                                     |  |   |                           |  |      |   |       |   |  |   |        |  
|             | Net income (loss)                                                                                   |  | $ | 1.91                      |  |      | $ | (0.20 | ) |  | $ | (0.29  | )
|             |                                                                                                     |  |   |                           |  |      |   |       |   |  |   |        |  
|             | Diluted earnings (loss) per share:                                                                  |  |   |                           |  |      |   |       |   |  |   |        |  
|             | Income (loss) before cumulative effect of change in accounting principle                            |  | $ | 1.72                      |  |      | $ | (0.21 | ) |  | $ | (0.29  | )
|             | Cumulative effect of change in accounting principle                                                 |  |   |                          |  |      |   | 0.01  |   |  |   |       |  
|             |                                                                                                     |  |   |                           |  |      |   |       |   |  |   |        |  
|             | Net income (loss)                                                                                   |  | $ | 1.72                      |  |      | $ | (0.20 | ) |  | $ | (0.29  | )
|             |                                                                                                     |  |   |                           |  |      |   |       |   |  |   |        |  

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, notes receivable, and restricted cash, the
carrying amount approximates fair value. For long-term debt, the fair value is
based on the estimated market price for the Debentures on the last day of the
fiscal year.

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The carrying amounts and fair values of the Companys financial instruments at May 31, 2003 and 2002, are as follows:

|                          |  |                        |       |       |  |          |       |       |  |   |       |  |  |   |       | 
|------------------------- |  | ---------------------- | ----- | ----- |  | -------- | ----- | ----- |  | - | ----- |  |  | - | ----- | 
|                          |  | 2003                   |       | 2002 
|                          |  |                        |       |      
|                          |  | Carrying               |       | Fair  |  | Carrying |       | Fair 
|                          |  | Amount                 |       | Value |  | Amount   |       | Value
|                          |  |                        |       |       |  |          |       |      
|                          |  | (Amounts in thousands)
|Assets                    |  |                        |       |       |  |          |       |       |  |   |       |  |  |   |       | 
|Cash and cash equivalents |  | $                      | 3,590 |       |  | $        | 3,590 |       |  | $ | 5,340 |  |  | $ | 5,340 | 
|Note receivable           |  |                        | 159   |       |  |          | 159   |       |  |   | 163   |  |  |   | 163   | 
|Restricted cash           |  |                        | 328   |       |  |          | 328   |       |  |   | 430   |  |  |   | 430   | 
|Liabilities               |  |                        |       |       |  |          |       |       |  |   |       |  |  |   |       | 
|Long-term debt            |  | $                      | 2,244 |       |  | $        | 2,328 |       |  | $ | 2,244 |  |  | $ | 1,534 | 

Note 3  Basis of Presentation

The accompanying consolidated financial statements are prepared on a going
concern basis. During the quarter ended February 28, 2003, the Company
completed a settlement with the Internal Revenue Service (IRS) and reached an
agreement with its former tax advisor with respect to the related tax advisor
fees (see Note 13  Income Taxes). Having concluded these settlements, the
Company recorded a non-operating gain of $7.7 million during the quarter ended
February 28, 2003, significantly reducing its working capital deficiency and
stockholders deficit, which amount to $4.4 million and $5.0 million,
respectively, as of May 31, 2003. The IRS settlement required the Company to
make a cash payment in February 2003 of approximately $2.2 million, which was
offset in part by $525,000 collected from its former tax advisor. As a result,
net cash used in operations during the year ended May 31, 2003 amounted to $1.7
million, which approximates the decrease in cash and cash equivalents during
such fiscal year.

The Company is currently pursuing sources of financing on terms that would
support the Companys capital needs and provide available funds for working
capital. Management cannot state with any degree of certainty whether any
required additional equity or debt financing will be available to it during
Fiscal 2004 and, if available, that the source of financing would be available
on terms and conditions acceptable to the Company. Further, the Company has
incurred operating losses during each of the years ended May 31, 2003, 2002 and
2001. These conditions raise substantial doubt about the Companys ability to
continue as a going concern, which is dependent upon its ability to continue to
generate sufficient cash flow to meet its obligations on a timely basis,
obtaining additional financing as may be required and, ultimately, attaining an
operating profit. The accompanying consolidated financial statements do not
include any adjustments that may result from the outcome of this uncertainty.

Note 4  Major Contracts/Customers



|(1) |  | During the fiscal year ended May 31, 2003, the Company had three
contracts with one HMO to provide behavioral healthcare services to
Florida members. The combined revenue from these contracts accounted for
11.7%, or $3.8 million, of the Companys operating revenues during the
fiscal year ended May 31, 2003 compared to 17.0%, or $4.7 million, for the
fiscal year ended May 31, 2002 and 17.6%, or $3.2 million, for the fiscal
year ended May 31, 2001. This HMO has been our customer since November
1998. On September 24, 2002, the Company received a written, 90-day
termination notice, dated September 20, 2002, from this client. As such,
these contracts covering Florida members terminated effective January 1,
2003. Additionally, the Company has one major contract with an affiliate
of this HMO (see Item 2 below).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The Company has one contract to provide behavioral healthcare services to
Connecticut members under contract with one HMO. For the fiscal year ended
May 31, 2003, this contract represented approximately 9.0%, or $2.9
million, of the Companys operating revenue compared to 12.7%, or $3.5
million and 3.2%, or $.6 million for the fiscal years ended May 31, 2002
and 2001, respectively. Additionally, this contract provides that the
Company, through its contract with this HMO, receives additional funds
directly from a state reinsurance program. During the fiscal years ended
May 31, 2003 and 2002, the Company filed reinsurance claims totaling
approximately $3.0 million and $3.8 million, respectively. Such claims
represent cost reimbursements and, as such, are not included in the
reported operating revenues and are accounted for as reductions of
healthcare operating expenses. As of May 31, 2003 and 2002, respectively,
the Company has reported $0.4 million and $0.6 million as accounts
receivablemanaged care reinsurance contracts, with $3.1 million and $2.0
million reported as accrued reinsurance claims payable, in the
accompanying balance sheet. In the event that the Company does not
collect the amounts receivable related to reinsurance amounts, the Company
could remain liable for the costs of the specific services provided to
members that qualify for such reimbursements. The difference between the
reinsurance receivable amount and the reinsurance

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|    |  | payable amount is related to timing differences between the authorization
date, the date the money is received by the Company, and the date the money
is paid to the provider. In certain cases, providers have submitted claims
for authorized services having incorrect service codes or otherwise incorrect
information that has caused payment to be denied by the Company. In such
cases, there are contractual and statutory provisions that allow the provider
to appeal a denied claim. If no appeal is received by the Company within the
prescribed amount of time, the Company may be required to remit the
reinsurance funds back to the appropriate party. For non-reinsurance claims
incurred but not reported under this contract, the Company estimates its
claims payable using a similar method as that used for other existing
contracts. This HMO has been a customer since March 2001. The original
contract term ended December 31, 2002 and, in accordance with its terms, was
automatically renewed for a one-year period ending December 31, 2003.                                                                                                                                                                                                                                                                                          
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(3) |  | During the fiscal year ended May 31, 2003, the Company had one contract
with one HMO, covering Medicaid, Medicare, and commercial business, to
provide behavioral healthcare services to Florida members. This agreement
represented approximately 15.6%, or $5.0 million, 21.4%, or $5.9 million,
and 19.5%, or $3.5 million, of the Companys operating revenue for the
fiscal years ended May 31, 2003, 2002 and 2001, respectively. This HMO has
been a customer since July 2000. On December 24, 2002, the Company entered
into a contract with another HMO that acquired the existing clients
Medicaid business. As a result, the Company continues service to the
Medicaid members through its new contract with the acquiring HMO that was
effective January 1, 2003. Medicaid business from the new HMO client
accounted for 8.5%, or $2.8 million, of the Companys operating revenues
during the fiscal year ended May 31, 2003. On December 31,
2002, the Company received a formal termination, effective February 28,
2003, from the existing HMO client with respect to the Medicare and
commercial business. In addition, the acquiring HMO, whose contract
with the Company is scheduled to renew in January 2004, has
verbally advised the Company that it is evaluating whether to manage
its members behavioral healthcare benefits in house.
|   
|(4) |  | The Company has contracts with one HMO to provide behavioral healthcare
services to contracted commercial, Medicaid, and Childrens Health
Insurance Program members in Texas. This business accounted for
approximately 7.5%, or $2.4 million, 7.3%, or $2.0 million, and 3.7%, or
$0.7 million, of the Companys operating revenues during the fiscal years
ended May 31, 2003, 2002 and 2001, respectively. This HMO has been a
customer of the Company since November 1998. The original contract term
was for one year and the contract provides for automatic one-year renewal
terms. During Fiscal 2003, this HMO customer added Medicaid members that
had been covered by another of the Companys HMO customers that had been
placed under conservatorship by the State of Texas. The combined
contracts of both HMO customers, including the business transferred to the
Companys current Texas client during Fiscal 2003, represented
approximately 11.9%, or $3.9 million, 12.2%, or $3.4 million, and 9.1%, or
$1.7 million, of the Companys operating revenues during the fiscal years
ended May 31, 2003, 2002 and 2001, respectively.                                                                                                                                                                                                              

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Although the loss of the customer listed under (1) above and the
commercial and Medicare business under (3) above could have a material, adverse
effect on the Companys financial condition and future results of operations,
the Company believes that it has reduced its internal cost of servicing these
accounts to minimize any effect on future results of operations.

In general, the Companys contracts with its customers are typically for
initial one-year terms, with automatic annual extensions. Such contracts
generally provide for cancellation by either party with 60 to 90 days written
notice.

Note 5  Accounts Receivable

Accounts receivable consists of the following:

|                                  |       |   |                        |     |      |   |     |     | 
|--------------------------------- | ----- | - | ---------------------- | --- | ---- | - | --- | --- | 
|                                  |       |   | May 31,               
|                                  |       |   |                       
|                                  |       |   | 2003                   |     | 2002
|                                  |       |   |                        |     |     
|                                  |       |   | (Amounts in thousands)
|Managed care capitation contracts |       | $ | 102                    |     |      | $ | 281 |    
|Other trade                       |       |   |                       |     |      |   | 51  |    
|                                  |       |   |                        |     |      |   |     |    
|                                  | Total |   | $                      | 102 |      |   | $   | 332 | 
|                                  |       |   |                        |     |      |   |     |    

The following table summarizes changes in the Companys allowance for doubtful
accounts for the years ended May 31, 2003, 2002 and 2001:

|                        |  |                        |    |            |  |             |    |          |  |              |   |             |  |   |     |   |  |   |    | 
|----------------------- |  | ---------------------- | -- | ---------- |  | ----------- | -- | -------- |  | ------------ | - | ----------- |  | - | --- | - |  | - | -- | 
|                        |  | Balance                |    | Additions  |  |             |    |          |  |              |   |             |  |   |     |  
|                        |  | Beginning              |    | Charged    |  |             |    |          |  | Write-off of |   | Balance End
|                        |  | of Year                |    | To Expense |  | Recoveries* |    | Accounts |  | of Year     
|                        |  |                        |    |            |  |             |    |          |  |             
|                        |  | (Amounts in thousands)
|Year ended May 31, 2003 |  | $                      | 8  |            |  | $           | 43 |          |  | $            |  |             |  | $ | (24 | ) |  | $ | 27 | 
|Year ended May 31, 2002 |  | $                      | 11 |            |  | $           | (3 | )        |  | $            |  |             |  | $ |    |   |  | $ | 8  | 
|Year ended May 31, 2001 |  | $                      | 13 |            |  | $           | 9  |          |  | $            |  |             |  | $ | (11 | ) |  | $ | 11 | 

*     Excludes $24,000 in 2003, $109,000 in 2002, and $448,000 in 2001 of recoveries from accounts previously written off.

Recoveries are reflected on the Companys statement of operations as a
reduction to the provision for doubtful accounts.

Note 6  Other Receivable

Other receivable at May 31, 2002 represented $2.5 million advanced to the
Companys former tax advisor to prepare a federal income tax refund claim that
is more fully described in Note 13  Income Taxes. During the quarter ended
February 28, 2003, the Company completed a settlement with the IRS and reached
an agreement with its former tax advisor requiring the tax advisor to repay
$525,000 to the Company, which was received in February 2003. As a result of
the resolution to the IRS matter, the Company extinguished the tax liability
and recorded a non-operating gain of approximately $7.7 million net of related
expenses, including approximately $2.0 million of unrecovered fees paid to its
former tax advisor.

Note 7  Other Current Assets

Other current assets consist of the following:

|                                |                            |   |                        |     |      |   |     |     | 
|------------------------------- | -------------------------- | - | ---------------------- | --- | ---- | - | --- | --- | 
|                                |                            |   | May 31,               
|                                |                            |   |                       
|                                |                            |   | 2003                   |     | 2002
|                                |                            |   |                        |     |     
|                                |                            |   | (Amounts in thousands)
|Accounts receivable  other     |                            | $ | 138                    |     |      | $ | 191 |    
|Prepaid insurance               |                            |   | 314                    |     |      |   | 295 |    
|Other prepaid fees and expenses |                            |   | 153                    |     |      |   | 105 |    
|                                |                            |   |                        |     |      |   |     |    
|                                | Total other current assets |   | $                      | 605 |      |   | $   | 591 | 
|                                |                            |   |                        |     |      |   |     |    

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Note 8  Property and Equipment

Property and equipment consists of the following:

|                              |  |                        |        |      |  |   |        |  
|----------------------------- |  | ---------------------- | ------ | ---- |  | - | ------ | -
|                              |  | May 31,               
|                              |  |                       
|                              |  | 2003                   |        | 2002
|                              |  |                        |        |     
|                              |  | (Amounts in thousands)
|Furniture and equipment       |  | $                      | 3,480  |      |  | $ | 3,399  |  
|Leasehold improvements        |  |                        | 49     |      |  |   | 49     |  
|Capitalized leases            |  |                        | 54     |      |  |   | 32     |  
|                              |  |                        |        |      |  |   |        |  
|                              |  |                        | 3,583  |      |  |   | 3,480  |  
|Less accumulated depreciation |  |                        | (3,353 | )    |  |   | (3,189 | )
|                              |  |                        |        |      |  |   |        |  
|Net property and equipment    |  | $                      | 230    |      |  | $ | 291    |  
|                              |  |                        |        |      |  |   |        |  

Note 9  Note Receivable

Note receivable consists of the following:

|                                                                                                                                                |  |                        |     |      |  |   |     |  
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | --- | ---- |  | - | --- | -
|                                                                                                                                                |  | May 31,               
|                                                                                                                                                |  |                       
|                                                                                                                                                |  | 2003                   |     | 2002
|                                                                                                                                                |  |                        |     |     
|                                                                                                                                                |  | (Amounts in Thousands)
|8% promissory note, payable in monthly installments of
approximately
$1,400, with a $146,000 principal payment due at maturity on
April 1, 2006 |  | $                      | 159 |      |  | $ | 163 |  
|Less current maturities                                                                                                                         |  |                        | (4  | )    |  |   | (4  | )
|                                                                                                                                                |  |                        |     |      |  |   |     |  
|                                                                                                                                                |  | $                      | 155 |      |  | $ | 159 |  
|                                                                                                                                                |  |                        |     |      |  |   |     |  

On August 31, 2000, the Company entered into a prepayment agreement and
note modification with Jefferson Hills Corporation (JHC) in connection with
the secured promissory note, which originated out of the sale in Fiscal 1999 of
the Companys Aurora, Colorado facility to JHC. The terms of the prepayment
agreement required JHC to immediately remit $500,000 to the Company as a
prepayment on the note. Additionally, the note was modified to reflect a
remaining balance due totaling $170,000 and to require JHC to make monthly
principal and interest payments until April 2006. One final principal payment
in the amount of approximately $146,000 will be due from JHC in April 2006. As
an inducement to JHC to make such prepayment, the Company credited JHC with an
aggregate of approximately $996,000. As a result, the Company recorded a
non-operating loss during the fiscal year ended May 31, 2001 of approximately
$496,000 in connection with this transaction.

Note 10  Goodwill

As a result of the adoption of SFAS 142, effective June 1, 2001, no
amortization expense was recorded during the fiscal years ended May 31, 2003 or
2002 compared to approximately $72,000 of amortization expense recorded during
the fiscal year ended May 31, 2001. SFAS 141 requires the elimination of any
unamortized deferred credits related to an excess of fair value of acquired
assets over cost from a business combination for which the acquisition date was
before July 1, 2001 immediately upon adoption of SFAS 142. As of June 1, 2001,
the Company had an unamortized deferred credit of $55,000 that related to an
acquisition in 1996. As a result, the Company recognized $55,000 as the
cumulative effect of a change in accounting principle during the quarter ended
August 31, 2001.

Changes in the carrying amount of goodwill are as follows:

|                                                                 |  |                           |         |      |  |      |         |  |  |   |           |  
|---------------------------------------------------------------- |  | ------------------------- | ------- | ---- |  | ---- | ------- |  |  | - | --------- | -
|                                                                 |  | Fiscal Year ended May 31,
|                                                                 |  |                          
|                                                                 |  | 2003                      |         | 2002 |  | 2001
|                                                                 |  |                           |         |      |  |     
|Balance as of the beginning of the fiscal year                   |  | $                         | 991,000 |      |  | $    | 936,000 |  |  | $ | 1,008,000 |  
|Amortization                                                     |  |                           |        |      |  |      |        |  |  |   | (72,000   | )
|Unamortized deferred credit written off and recognized in income |  |                           |        |      |  |      | 55,000  |  |  |   |          |  
|                                                                 |  |                           |         |      |  |      |         |  |  |   |           |  
|Balance as of the end of the fiscal year                         |  | $                         | 991,000 |      |  | $    | 991,000 |  |  | $ | 936,000   |  
|                                                                 |  |                           |         |      |  |      |         |  |  |   |           |  

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Prior to the adoption of SFAS 142, the Company amortized goodwill on a
straight-line basis over estimated lives up to 20 years. Had the Company
accounted for goodwill consistent with the provisions of SFAS 142 in prior
years, the Companys net loss would have been affected as follows (in
thousands, except per share amounts):

|                                                                 |  |                           |       |      |  |      |       |   |  |   |        |  
|---------------------------------------------------------------- |  | ------------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ------ | -
|                                                                 |  | Fiscal Year Ended May 31,
|                                                                 |  |                          
|                                                                 |  | 2003                      |       | 2002 |  | 2001
|                                                                 |  |                           |       |      |  |     
|Reported net income (loss)                                       |  | $                         | 7,458 |      |  | $    | (770  | ) |  | $ | (1,117 | )
|Add back: Goodwill amortization                                  |  |                           |      |      |  |      |      |   |  |   | 72     |  
|Elimination: Cumulative effect of change in accounting principle |  |                           |      |      |  |      | (55   | ) |  |   |       |  
|                                                                 |  |                           |       |      |  |      |       |   |  |   |        |  
|Adjusted net income (loss)                                       |  | $                         | 7,458 |      |  | $    | (825  | ) |  | $ | (1,045 | )
|                                                                 |  |                           |       |      |  |      |       |   |  |   |        |  
|Basic earnings (loss) per share:                                 |  |                           |       |      |  |      |       |   |  |   |        |  
|Reported net income (loss)                                       |  | $                         | 1.91  |      |  | $    | (0.20 | ) |  | $ | (0.29  | )
|Goodwill amortization                                            |  |                           |      |      |  |      |      |   |  |   | 0.02   |  
|Cumulative effect of change in accounting principle              |  |                           |      |      |  |      | (0.01 | ) |  |   |       |  
|                                                                 |  |                           |       |      |  |      |       |   |  |   |        |  
|Adjusted net income (loss)                                       |  | $                         | 1.91  |      |  | $    | (0.21 | ) |  | $ | (0.27  | )
|                                                                 |  |                           |       |      |  |      |       |   |  |   |        |  
|Diluted earnings (loss) per share:                               |  |                           |       |      |  |      |       |   |  |   |        |  
|Reported net income (loss)                                       |  | $                         | 1.72  |      |  | $    | (0.20 | ) |  | $ | (0.29  | )
|Goodwill amortization                                            |  |                           |      |      |  |      |      |   |  |   | 0.02   |  
|Cumulative effect of change in accounting principle              |  |                           |      |      |  |      | (0.01 | ) |  |   |       |  
|                                                                 |  |                           |       |      |  |      |       |   |  |   |        |  
|Adjusted net income (loss)                                       |  | $                         | 1.72  |      |  | $    | (0.21 | ) |  | $ | (0.27  | )
|                                                                 |  |                           |       |      |  |      |       |   |  |   |        |  
|Weighted Average Common Shares Outstanding  basic               |  |                           | 3,905 |      |  |      | 3,860 |   |  |   | 3,818  |  
|                                                                 |  |                           |       |      |  |      |       |   |  |   |        |  
|Weighted Average Common Shares Outstanding  diluted             |  |                           | 4,343 |      |  |      | 3,860 |   |  |   | 3,818  |  
|                                                                 |  |                           |       |      |  |      |       |   |  |   |        |  

Note 11  Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of the following:

|                                      |  |                        |       |      |  |   |       | 
|------------------------------------- |  | ---------------------- | ----- | ---- |  | - | ----- | 
|                                      |  | May 31,               
|                                      |  |                       
|                                      |  | 2003                   |       | 2002
|                                      |  |                        |       |     
|                                      |  | (Amounts in Thousands)
|Accounts payable                      |  | $                      | 379   |      |  | $ | 316   | 
|Accrued salaries and wages            |  |                        | 151   |      |  |   | 170   | 
|Accrued vacation                      |  |                        | 130   |      |  |   | 134   | 
|Accrued legal and audit               |  |                        | 149   |      |  |   | 180   | 
|Payable to third-party intermediaries |  |                        |      |      |  |   | 1,025 | 
|Other accrued liabilities             |  |                        | 1,026 |      |  |   | 1,038 | 
|Deferred compensation                 |  |                        | 1     |      |  |   | 28    | 
|                                      |  |                        |       |      |  |   |       | 
|                                      |  | $                      | 1,836 |      |  | $ | 2,891 | 
|                                      |  |                        |       |      |  |   |       | 

At May 31, 2002, the amounts payable to third-party intermediaries included a
$950,000 accrual related to the Medi-Cal matter that was settled during
Fiscal 2003 (see Note 16 under Other Commitments and Contingencies, Item
4). Additionally, the May 31, 2002 amount included a $75,000 cost report
reserve pertaining to the Companys hospital business segment that was
discontinued in Fiscal 1999. Such reserve was reversed into other
non-operating income in Fiscal 2003 as management does not anticipate any
further amounts being owed to hospital intermediaries in connection with the
one remaining cost report.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Note 12  Long-term Debt

Long-term debt consists of the following:

|                                                                                                                 |  |                        |       |      |  |   |       | 
|---------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ----- | ---- |  | - | ----- | 
|                                                                                                                 |  | May 31,               
|                                                                                                                 |  |                       
|                                                                                                                 |  | 2003                   |       | 2002
|                                                                                                                 |  |                        |       |     
|                                                                                                                 |  | (Amounts in Thousands)
|7 1/2% convertible subordinated debentures due April, 2010, interest
payable semi-annually in April and October* |  | $                      | 2,244 |      |  | $ | 2,244 | 
|                                                                                                                 |  |                        |       |      |  |   |       | 

*     The debentures are convertible into approximately 9,000 shares of Common
Stock at a conversion price of $248.12 per share.

Note 13  Income Taxes

Provision for income taxes consists of the following:

|         |  |                        |    |      |  |      |   |  |  |   |    | 
|-------- |  | ---------------------- | -- | ---- |  | ---- | - |  |  | - | -- | 
|         |  | Year Ended May 31,    
|         |  |                       
|         |  | 2003                   |    | 2002 |  | 2001
|         |  |                        |    |      |  |     
|         |  | (Amounts in thousands)
|Current: |  |                        |    |      |  |      |   |  |  |   |    | 
|Federal  |  | $                      |   |      |  | $    |  |  |  | $ |   | 
|State    |  |                        | 20 |      |  |      | 1 |  |  |   | 35 | 
|         |  |                        |    |      |  |      |   |  |  |   |    | 
|         |  | $                      | 20 |      |  | $    | 1 |  |  | $ | 35 | 
|         |  |                        |    |      |  |      |   |  |  |   |    | 

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

|                                                                |  |                        |        |      |  |      |      |   |  |   |      |  
|--------------------------------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                                                |  | Year Ended May 31,    
|                                                                |  |                       
|                                                                |  | 2003                   |        | 2002 |  | 2001
|                                                                |  |                        |        |      |  |     
|                                                                |  | (Amounts in thousands)
|Income tax provision (benefit) at the statutory tax rate        |  | $                      | 2,543  |      |  | $    | (280 | ) |  | $ | (317 | )
|State income tax provision (benefit), net of federal tax effect |  |                        | 296    |      |  |      | (33  | ) |  |   | (37  | )
|Non-taxable gain on IRS settlement                              |  |                        | (3,733 | )    |  |      |     |   |  |   |     |  
|Non-deductible items                                            |  |                        | 54     |      |  |      | 58   |   |  |   | 111  |  
|Benefit of net operating loss carryforward not recognized       |  |                        | 840    |      |  |      | 255  |   |  |   | 243  |  
|Other, net                                                      |  |                        | 20     |      |  |      | 1    |   |  |   | 35   |  
|                                                                |  |                        |        |      |  |      |      |   |  |   |      |  
|                                                                |  | $                      | 20     |      |  | $    | 1    |   |  | $ | 35   |  
|                                                                |  |                        |        |      |  |      |      |   |  |   |      |  

Significant components of the Companys deferred tax assets and deferred tax liabilities are as follows:

|                          |                                       |                                |   |                        |     |      |   |         |        |  
|------------------------- | ------------------------------------- | ------------------------------ | - | ---------------------- | --- | ---- | - | ------- | ------ | -
|                          |                                       |                                |   | May 31,               
|                          |                                       |                                |   |                       
|                          |                                       |                                |   | 2003                   |     | 2002
|                          |                                       |                                |   |                        |     |     
|                          |                                       |                                |   | (Amounts in thousands)
|Deferred Tax Assets:      |                                       |                                |   |                        |     |      |   |        
|                          | Net operating loss carryforwards      |                                | $ | 730                    |     |      | $ | 15,762  |       
|                          | Alternative minimum tax credits       |                                |   |                       |     |      |   | 667     |       
|                          | Payable to Third Party Intermediaries |                                |   |                       |     |      |   | 361     |       
|                          | Employee benefits and options         |                                |   | 79                     |     |      |   | 88      |       
|                          | Other, net                            |                                |   | 186                    |     |      |   | 283     |       
|                          |                                       |                                |   |                        |     |      |   |         |       
|                          |                                       | Total Deferred Tax Assets      |   |                        | 995 |      |   |         | 17,161 |  
|                          | Valuation Allowance                   |                                |   | (995                   | )   |      |   | (16,630 | )     
|                          |                                       |                                |   |                        |     |      |   |         |       
|                          | Net Deferred Tax Assets               |                                |   |                       |     |      |   | 531     |       
|                          |                                       |                                |   |                        |     |      |   |         |       
|Deferred Tax Liabilities: |                                       |                                |   |                        |     |      |   |        
|                          | Other receivables                     |                                |   | (--                    | )   |      |   | (531    | )     
|                          |                                       |                                |   |                        |     |      |   |         |       
|                          |                                       | Total Deferred Tax Liabilities |   |                        | (-- | )    |   |         | (531   | )
|                          |                                       |                                |   |                        |     |      |   |         |       
|Net Deferred Tax Assets   |                                       | $                              | 0 |                        |     | $    | 0 |        
|                          |                                       |                                |   |                        |     |      |   |         |       

The Company had filed an Offer in Compromise (Offer) with the Internal
Revenue Service (IRS) to settle a tax dispute that began in August 1998 when
the IRS notified the Company that it was disallowing $12.4 million of tax
refunds previously received by the Company specific to its Fiscal 1985 and 1986
income tax returns as amended. Of such amount, approximately $12.1 million had
been recorded as a liability, unbenefitted tax refunds received, pending
resolution of the appropriateness of the net operating loss carryback, which
gave rise to the refunds. In January 2003, the IRS accepted the Companys
Offer, which gave the Company the option of paying approximately $2.6 million
over two
33Table of ContentsCOMPREHENSIVE CARE CORPORATION AND SUBSIDIARIESyears or paying approximately $2.2 million within 90 days of the letter of
acceptance in addition to a $50,000 down payment made by the Company at the
time its Offer was submitted to IRS. In February 2003, the Company concluded
the IRS settlement by making a cash payment of approximately $2.2 million to
the IRS to fully settle the previously accrued tax liability of $12.1 million.
Coincident with the IRS settlement, the Company reached an agreement with its
former tax advisor requiring the tax advisor to refund $525,000 of the original
$2.5 million of fees previously paid by the Company. The Company received the
$525,000 refund in February 2003.As a result of the resolution of this matter, the Company extinguished the
$12.1 million liability and recorded a non-operating gain in the quarter ended
February 28, 2003 of approximately $7.7 million net of related expenses,
including $2.0 million representing the unrecovered portion of the $2.5 million
of fees previously paid to its tax advisor. The gain represented earnings per
share of $1.97 (diluted earnings per share of $1.77). No taxable income
resulted from the settlement of the liability.Additionally, the IRS settlement requires that the Federal net operating
loss carryforwards of approximately $42.0 million resulting from losses
incurred in fiscal years ended May 31, 1995 through May 31, 2001, and a minimum
tax credit carryover of approximately $0.7 million, are no longer available to
the Company. As a result, at May 31, 2003, the Companys Federal net
operating loss carryforwards total approximately $1.9 million resulting from
losses incurred in the fiscal years ended May 31, 2002 and May 31, 2003, which
expire in 2022 and 2023.The Company may be unable to utilize some or all of its allowable tax
deductions or losses, which depends upon factors including the availability of
sufficient taxable income from which to deduct such losses during limited
carryover periods. Further, the Companys ability to use any net operating
losses may be subject to limitation in the event that the Company issues or
agrees to issue substantial amounts of additional equity. The Company monitors
the potential for change of ownership and believes that its financing plans
as contemplated will not cause a change of ownership; however, no assurances
can be made that future events will not act to limit the Companys tax
benefits.After consideration of all the evidence, both positive and negative,
management has determined that a valuation allowance at May 31, 2003 and 2002,
was necessary to fully offset the deferred tax assets based on the likelihood
of future realization.Note 14  Employee Benefit PlanThe Company offers a 401(k) Plan (the Plan), which is a defined
contribution plan qualified under Section 401(k) of the Internal Revenue Code,
for the benefit of its eligible employees. All full-time and part-time
employees who have attained the age of 21 and have completed one thousand hours
of service are eligible to participate in the Plan. During Fiscal 2003, the
Plan was modified to comply with recent Internal Revenue Service (IRS)
guidelines. Each participant may contribute from 2% to 50% of his or her
compensation to the Plan subject to limitations on the highly compensated
employees to ensure the Plan is non-discriminatory. Company contributions are
discretionary and are determined by the Companys management. The Companys
employer matching contributions were approximately $9,000, $9,000, and $10,000
to the Plan in Fiscal 2003, 2002, and 2001, respectively.Note 15  Preferred Stock, Common Stock, and Stock Option PlansPreferred StockAs of May 31, 2003, there are 18,740 remaining shares authorized and
available to issue, and no outstanding shares of Preferred Stock. The Company
is authorized to issue shares of Preferred Stock, $50.00 par value, in one or
more series, each series to have such designation and number of shares as the
Board of Directors may fix prior to the issuance of any shares of such series.
Each series may have such preferences and relative participation, optional or
special rights with such qualifications, limitations or restrictions stated in
the resolution or resolutions providing for the issuance of such series as may
be adopted from time to time by the Board of Directors prior to the issuance of
any such series.34Table of ContentsCOMPREHENSIVE CARE CORPORATION AND SUBSIDIARIESCommon StockAuthorized shares of common stock reserved for possible issuance for
convertible debentures and stock options are as follows at May 31, 2003:

|                                                  |  |  |           | 
|------------------------------------------------- |  |  | --------- | 
|Convertible debentures                            |  |  | 9,044     | 
|Outstanding stock options                         |  |  | 1,109,224 | 
|Possible future issuance under stock option plans |  |  | 444,235   | 
|                                                  |  |  |           | 
|Total                                             |  |  | 1,562,503 | 
|                                                  |  |  |           | 

Stock Option Plans

The Company currently has two active incentive plans, the 1995 Incentive
Plan and the 2002 Incentive Plan (Plans), that provide for the granting of
stock options, stock appreciation rights, limited stock appreciation rights,
and restricted stock grants to eligible employees and consultants to the
Company. Grants issued under the Plans may qualify as Incentive Stock Options
(ISOs) under Section 422A of the Internal Revenue Code. Options for ISOs may
be granted for terms of up to ten years and are generally exercisable in
cumulative increments of 50% each six months. Options for Non-statutory Stock
Options (NSOs) may be granted for terms of up to 13 years. The exercise
price for ISOs must equal or exceed the fair market value of the shares on the
date of grant, and 65% in the case of other options. The Plans also provide
for the full vesting of all outstanding options under certain change of control
events. The maximum number of shares authorized for issuance is 500,000 under
the 2002 Incentive Plan and 1,000,000 under the 1995 Incentive Plan. As of May
31, 2003, there were 315,500 options available for grant and there were 184,500
options outstanding, of which 49,750 options were exercisable, under the 2002
Incentive Plan. Additionally, as of May 31, 2003, there were 400 options
available for grant and there were 867,225 options outstanding, of which
864,225 options were exercisable, under the 1995 Incentive Plan.

The Company also has a non-qualified stock option plan for its outside
directors (the Directors Plan). Each non-qualified stock option is
exercisable at a price equal to the Common Stocks fair market value as of the
date of grant. Initial grants vest annually in 25% increments beginning on the
first anniversary of the date of grant, provided the individual is still a
director on those dates. Annual grants will become 100% vested as of the first
annual meeting of the Companys stockholders following the date of grant,
provided the individual is still a director as of that date. Such annual
grants include options granted to non-employee directors for service on the
various committees of the Companys Board of Directors. An optionee who ceases
to be a director shall forfeit that portion of the option attributable to such
vesting dates on or after the date he or she ceases to be a director. The
maximum number of shares authorized for issuance under the Directors Plan is
250,000. As of May 31, 2003, there were 128,335 options available for grant and
there were 57,499 options outstanding, of which 10,833 options were
exercisable, under the Directors Plan.

A summary of the Companys stock option activity and related information for
the years ended May 31 is as follows:

|                               |  |        |           |                                |  |   |      | 
|------------------------------ |  | ------ | --------- | ------------------------------ |  | - | ---- | 
|                               |  | Shares |           | Weighted AverageExercise Price
|                               |  |        |           |                               
|Outstanding as of May 31, 2000 |  |        | 884,675   |                                |  | $ | 1.19 | 
|Granted                        |  |        | 181,000   |                                |  |   | 0.29 | 
|Forfeited                      |  |        | (177,150  | )                              |  |   | 2.05 | 
|                               |  |        |           |                                |  |   |      | 
|Outstanding as of May 31, 2001 |  |        | 888,525   |                                |  | $ | 0.84 | 
|Granted                        |  |        | 38,000    |                                |  |   | 0.45 | 
|Exercised                      |  |        | (11,250   | )                              |  |   | 0.27 | 
|Forfeited                      |  |        | (12,100   | )                              |  |   | 0.66 | 
|                               |  |        |           |                                |  |   |      | 
|Outstanding as of May 31, 2002 |  |        | 903,175   |                                |  | $ | 0.83 | 
|Granted                        |  |        | 247,999   |                                |  |   | 1.03 | 
|Exercised                      |  |        | (38,000   | )                              |  |   | 0.48 | 
|Forfeited                      |  |        | (3,950    | )                              |  |   | 2.40 | 
|                               |  |        |           |                                |  |   |      | 
|Outstanding as of May 31, 2003 |  |        | 1,109,224 |                                |  | $ | 0.88 | 
|                               |  |        |           |                                |  |   |      | 

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

A summary of options outstanding and exercisable as of May 31, 2003 follows:

|            |  |                 |          |          |         |                  |           |                     |           |                     |      |                   |                  |  |         |   |      |   |      |  | 
|----------- |  | --------------- | -------- | -------- | ------- | ---------------- | --------- | ------------------- | --------- | ------------------- | ---- | ----------------- | ---------------- |  | ------- | - | ---- | - | ---- |  | 
|            |  |                 |          |          |         |                  | Weighted- |                     | Weighted- |                     |      |                   |                  |  |         |   |     
|            |  |                 | Exercise |          | Average |                  | Average   |                     |           |                     |      |                   | Weighted-Average
|Options     |  | Price           |          | Exercise |         | Remaining        |           |                     |           |                     |      | Exercise Price of
|Outstanding |  | Range           |          | Price    |         | Contractual Life |           | Options Exercisable |           | Exercisable Options
|            |  |                 |          |          |         |                  |           |                     |           |                    
|334,500     |  | $0.25  $0.39   |          | $        | 0.27    |                  |           |                     | 7.13      |                     |      |                   | 334,500          |  |         | $ | 0.27 |  
|546,333     |  | $0.50  $0.61   |          | $        | 0.55    |                  |           |                     | 7.10      |                     |      |                   | 478,750          |  |         | $ | 0.55 |  
|127,666     |  | $1.00  $1.95   |          | $        | 1.51    |                  |           |                     | 9.58      |                     |      |                   | 10,833           |  |         | $ | 1.50 |  
|100,725     |  | $3.5625  $4.00 |          | $        | 3.93    |                  |           |                     | 5.53      |                     |      |                   | 100,725          |  |         | $ | 3.93 |  
|            |  |                 |          |          |         |                  |           |                     |           |                     |      |                   |                  |  |         |   |      |   |      | 
|1,109,224   |  |                 |          |          |         | $                | 0.88      |                     |           |                     | 7.25 |                   |                  |  | 924,808 |   |      | $ | 0.83 | 
|            |  |                 |          |          |         |                  |           |                     |           |                     |      |                   |                  |  |         |   |      |   |      | 

Note 16  Commitments and Contingencies

Lease Commitments

The Company leases certain facilities and equipment. The facility leases
contain escalation clauses based on the Consumer Price Index and provisions for
payment of real estate taxes, insurance, and maintenance and repair expenses.
Total rental expense for all operating leases was $0.6 million, $0.6 million,
and $0.7 million for fiscal years 2003, 2002, and 2001, respectively.

Future minimum payments, by year and in the aggregate, under
non-cancelable operating leases with initial or remaining terms of one year or
more, consist of the following at May 31, 2003:

|                             |  |                        |       | 
|---------------------------- |  | ---------------------- | ----- | 
|Fiscal Year                  |  | Operating Leases      
|                             |  |                       
|                             |  | (Amounts in thousands)
|2004                         |  | $                      | 514   | 
|2005                         |  |                        | 354   | 
|2006                         |  |                        | 346   | 
|2007                         |  |                        | 45    | 
|                             |  |                        |       | 
|Total minimum lease payments |  | $                      | 1,259 | 
|                             |  |                        |       | 

Other Commitments and Contingencies



|(1) |  | Contracts with two existing clients require the Company to maintain
performance bonds throughout the contract terms. At May 31, 2003, the
Company maintained performance bonds of $1,200,000 and $600,000 in
compliance with these requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The Company would remain liable to perform the services covered under
subcapitation agreements if the parties with which the Company
subcapitates were unable to fulfill their responsibilities under such
agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(3) |  | The Company is subject to the requirements of the Health Insurance
Portability and Accountability Act of 1996 (HIPAA). The purpose of the
HIPAA provisions is to improve the efficiency and effectiveness of the
healthcare system through standardization of the electronic data
interchange of certain administrative and financial transactions and,
also, to protect the security and privacy of protected health information.
Entities subject to HIPAA include some healthcare providers and all
healthcare plans. To meet the specific requirements of HIPAA, the Company
recently determined it would need to make a significant investment in its
current information system or in a new information system that would
better meet the future needs of the Company. As a result, the Company has
entered into a Letter of Intent with Qualifacts Systems, Inc.
(Qualifacts) to design a new, customized management information system
that will enable the Company to meet HIPAA requirements. The Company
expects to incur approximately $0.4 million of costs to customize the
Qualifacts system and activate the licenses needed for Qualifacts and
other, related third-party software.
|   
|(4) |  | On February 19, 1999, the California Superior Court denied the Companys
Petition for Writ of Mandate of an adverse administrative appeal decision
regarding application of the Maximum Inpatient Reimbursement Limitation to
Medi-Cal reimbursement paid to Brea Neuropsychiatric Hospital for its
fiscal periods 1983 through 1986. The Company owned                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES



| |  | this facility until its disposal in fiscal year 1991. The subject matter of
the Superior Court action involved the refusal of the administrative law
judge to order further reductions in the liability for costs associated with
treating high cost, long stay Medi-Cal patients, which are commonly referred
to as outliers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In July 2002, the Company entered into a Repayment Agreement with the
Department to resolve this liability, recorded at $950,000 at May 31, 2002,
at a substantially reduced amount. The terms of the Repayment Agreement
required the Company to either 1) pay one lump sum of $450,000 to the
Department on or before September 1, 2002 or 2) beginning September 1, 2002,
the Company would be required to make three monthly installment payments of
$160,000 each, with the last payment being due on or before November 1, 2002,
for a total of $480,000 as full and complete satisfaction of the outstanding
liability. As of November 30, 2002, after making three installment payments
to the Department of $160,000 each, the Company had fully satisfied its
obligations under the terms of the settlement agreement. As a result, the
Company recorded a non-operating gain of $470,000 on settlement of the
liability during the quarter ended November 30, 2002.

From time to time, the Company and its subsidiaries are also parties and
their property is subject to ordinary, routine litigation incidental to their
business, in which case claims may exceed insurance policy limits and the
Company or any one of its subsidiaries may have exposure to a liability that is
not covered by insurance. Management is not aware of any such lawsuits that
could have a material adverse impact on the Companys financial statements.

37



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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Note 17  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

|                                                     |  |                                               |       |             |  |         |       |         |  |       |        |        |  |   |       |      |  |   |        |  
|---------------------------------------------------- |  | --------------------------------------------- | ----- | ----------- |  | ------- | ----- | ------- |  | ----- | ------ | ------ |  | - | ----- | ---- |  | - | ------ | -
|FISCAL 2003                                          |  | Quarter Ended                                
|                                                     |  |                                               |       | Fiscal Year
|                                                     |  | 8/31/02                                       |       | 11/30/02    |  | 2/28/03 |       | 5/31/03 |  | Total
|                                                     |  |                                               |       |             |  |         |       |         |  |      
|                                                     |  | (Amounts in thousands, except per share data)
|Operating revenues                                   |  | $                                             | 8,307 |             |  | $       | 8,631 |         |  | $     | 8,061  |        |  | $ | 7,268 |      |  | $ | 32,267 |  
|                                                     |  |                                               |       |             |  |         |       |         |  |       |        |        |  |   |       |      |  |   |        |  
|Gross profit                                         |  |                                               | 954   |             |  |         | 871   |         |  |       | 834    |        |  |   | 407   |      |  |   | 3,066  |  
|                                                     |  |                                               |       |             |  |         |       |         |  |       |        |        |  |   |       |      |  |   |        |  
|General and administrative expenses                  |  |                                               | 888   |             |  |         | 952   |         |  |       | 771    |        |  |   | 848   |      |  |   | 3,459  |  
|Provision for (recovery of) doubtful accounts        |  |                                               | (8    | )           |  |         | (6    | )       |  |       | 19     |        |  |   | 15    |      |  |   | 20     |  
|Depreciation and amortization                        |  |                                               | 68    |             |  |         | 63    |         |  |       | 37     |        |  |   | 27    |      |  |   | 195    |  
|Net gain on IRS settlement                           |  |                                               |      |             |  |         |      |         |  |       | (7,717 | )      |  |   |      |      |  |   | (7,717 | )
|Gain on settlement of other liability                |  |                                               |      |             |  |         | (470  | )       |  |       |       |        |  |   |      |      |  |   | (470   | )
|Other expense                                        |  |                                               | 39    |             |  |         | 25    |         |  |       | 18     |        |  |   | 39    |      |  |   | 121    |  
|                                                     |  |                                               |       |             |  |         |       |         |  |       |        |        |  |   |       |      |  |   |        |  
|Net income (loss)                                    |  | $                                             | (33   | )           |  | $       | 307   | (a)     |  | $     | 7,706  | (b)(c) |  | $ | (522  | )(d) |  | $ | 7,458  |  
|                                                     |  |                                               |       |             |  |         |       |         |  |       |        |        |  |   |       |      |  |   |        |  
|Earnings (loss) per share  basic                    |  | $                                             | (0.01 | )           |  | $       | 0.08  |         |  | $     | 1.97   |        |  | $ | (0.13 | )    |  | $ | 1.91   |  
|                                                     |  |                                               |       |             |  |         |       |         |  |       |        |        |  |   |       |      |  |   |        |  
|Earnings (loss) per share  diluted                  |  | $                                             | (0.01 | )           |  | $       | 0.07  |         |  | $     | 1.71   |        |  | $ | (0.13 | )    |  | $ | 1.72   |  
|                                                     |  |                                               |       |             |  |         |       |         |  |       |        |        |  |   |       |      |  |   |        |  
|Weighted Average Common Shares Outstanding  basic   |  |                                               | 3,879 |             |  |         | 3,898 |         |  |       | 3,908  |        |  |   | 3,929 |      |  |   | 3,905  |  
|                                                     |  |                                               |       |             |  |         |       |         |  |       |        |        |  |   |       |      |  |   |        |  
|Weighted Average Common Shares Outstanding  diluted |  |                                               | 3,879 |             |  |         | 4,254 |         |  |       | 4,509  |        |  |   | 3,929 |      |  |   | 4,343  |  
|                                                     |  |                                               |       |             |  |         |       |         |  |       |        |        |  |   |       |      |  |   |        |  



| | (a) |  | Includes a $470,000 gain on settlement of the Medi-Cal liability (see
Note 16  Commitments and Contingencies).                                                                                                                           
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Includes the $7.7 million gain in settlement of the IRS matter (see
Note 13  Income Taxes).                                                                                                                                              
|
| | (c) |  | Includes $88,000 of operating revenue related to a favorable cost
report settlement that was completed during the fiscal year ended May
31, 2003 pertaining to the Companys hospital business segment that was
discontinued in Fiscal 1999.
|
| | (d) |  | Includes $75,000 of operating revenue related to the elimination of
the Companys reserve for cost report settlements (see (c) above).                                                                                                      

|                                                                         |  |                                               |       |             |  |         |       |         |  |       |       |   |  |   |       |   |  |   |        |  
|------------------------------------------------------------------------ |  | --------------------------------------------- | ----- | ----------- |  | ------- | ----- | ------- |  | ----- | ----- | - |  | - | ----- | - |  | - | ------ | -
|FISCAL 2002                                                              |  | Quarter Ended                                
|                                                                         |  |                                               |       | Fiscal Year
|                                                                         |  | 8/31/01                                       |       | 11/30/01    |  | 2/28/02 |       | 5/31/02 |  | Total
|                                                                         |  |                                               |       |             |  |         |       |         |  |      
|                                                                         |  | (Amounts in thousands, except per share data)
|Operating revenues                                                       |  | $                                             | 6,126 |             |  | $       | 6,470 |         |  | $     | 7,110 |   |  | $ | 7,919 |   |  | $ | 27,625 |  
|                                                                         |  |                                               |       |             |  |         |       |         |  |       |       |   |  |   |       |   |  |   |        |  
|Gross profit                                                             |  |                                               | 916   |             |  |         | 946   |         |  |       | 1,017 |   |  |   | 121   |   |  |   | 3,000  |  
|                                                                         |  |                                               |       |             |  |         |       |         |  |       |       |   |  |   |       |   |  |   |        |  
|General and administrative expenses                                      |  |                                               | 826   |             |  |         | 873   |         |  |       | 874   |   |  |   | 971   |   |  |   | 3,544  |  
|Recovery of doubtful accounts                                            |  |                                               | (14   | )           |  |         | (71   | )       |  |       | (3    | ) |  |   | (24   | ) |  |   | (112   | )
|Depreciation and amortization                                            |  |                                               | 101   |             |  |         | 87    |         |  |       | 80    |   |  |   | 74    |   |  |   | 342    |  
|Other expense                                                            |  |                                               | 4     |             |  |         | 24    |         |  |       | 20    |   |  |   | 3     |   |  |   | 51     |  
|                                                                         |  |                                               |       |             |  |         |       |         |  |       |       |   |  |   |       |   |  |   |        |  
|Income (loss) before cumulative effect of change in
accounting principle |  |                                               | (1    | )           |  |         | 33    |         |  |       | 46    |   |  |   | (903  | ) |  |   | (825   | )
|Cumulative effect of change in accounting principle                      |  |                                               | 55    |             |  |         |      |         |  |       |      |   |  |   |      |   |  |   | 55     |  
|                                                                         |  |                                               |       |             |  |         |       |         |  |       |       |   |  |   |       |   |  |   |        |  
|Net income (loss)                                                        |  | $                                             | 54    | (a)         |  | $       | 33    | (b)     |  | $     | 46    |   |  | $ | (903  | ) |  | $ | (770   | )
|                                                                         |  |                                               |       |             |  |         |       |         |  |       |       |   |  |   |       |   |  |   |        |  
|Basic and diluted earnings (loss) per share:                             |  |                                               |       |             |  |         |       |         |  |       |       |   |  |   |       |   |  |   |        |  
|Income (loss) before cumulative effect of change in
accounting principle |  | $                                             |      |             |  | $       | 0.01  |         |  | $     | 0.01  |   |  | $ | (0.23 | ) |  | $ | (0.21  | )
|Cumulative effect of change in accounting principle                      |  |                                               | 0.01  |             |  |         |      |         |  |       |      |   |  |   |      |   |  |   | 0.01   |  
|                                                                         |  |                                               |       |             |  |         |       |         |  |       |       |   |  |   |       |   |  |   |        |  
|Net income (loss)                                                        |  | $                                             | 0.01  |             |  | $       | 0.01  |         |  | $     | 0.01  |   |  | $ | (0.23 | ) |  | $ | (0.20  | )
|                                                                         |  |                                               |       |             |  |         |       |         |  |       |       |   |  |   |       |   |  |   |        |  
|Weighted Average Common Shares Outstanding  basic                       |  |                                               | 3,834 |             |  |         | 3,867 |         |  |       | 3,867 |   |  |   | 3,871 |   |  |   | 3,860  |  
|                                                                         |  |                                               |       |             |  |         |       |         |  |       |       |   |  |   |       |   |  |   |        |  
|Weighted Average Common Shares Outstanding  diluted                     |  |                                               | 3,989 |             |  |         | 3,988 |         |  |       | 4,187 |   |  |   | 3,871 |   |  |   | 3,860  |  
|                                                                         |  |                                               |       |             |  |         |       |         |  |       |       |   |  |   |       |   |  |   |        |  



| | (a) |  | Includes a $55,000 cumulative effect of change in accounting
principle (see Note 10  Goodwill).
| | --- |  | --------------------------------------------------------------------------------------------------
|
| | (b) |  | Includes a $66,000 bad debt recovery specific to one contract that
terminated in 1999             

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

None.




PART III

Items 10. executive officers and Directors of the company

The executive officers and directors of the Company are as follows:

|                   |  |     |    |          |  |                                                                                             
|------------------ |  | --- | -- | -------- |  | --------------------------------------------------------------------------------------------
|Name               |  | Age |    | Position
|                   |  |     |    |         
|Mary Jane Johnson  |  |     | 53 |          |  | President(1)(2),
Chief Executive Officer(1)(2), and
Director(1)(2)                          
|Robert J. Landis   |  |     | 44 |          |  | Chairman of the Board of Directors(1)(2),
Chief Financial Officer(1)(2), and
Treasurer(1)(2)
|Thomas Clay        |  |     | 55 |          |  | Chief Development
Officer(2)                                                                
|Paul R. McCarthy   |  |     | 46 |          |  | Chief Operating
Officer(2)                                                                  
|Cathy J. Welch     |  |     | 43 |          |  | Secretary(1)(2),
Vice President of Finance/Controller(1)(2)                                 
|Eugene L. Froelich |  |     | 61 |          |  | Director(3)                                                                                 
|Howard A. Savin    |  |     | 57 |          |  | Director(3)                                                                                 



---

|(1) |  | Comprehensive Care Corporation.                                                                                                                                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Comprehensive Behavioral Care, Inc.
(Principal subsidiary of the Company).                                                                                                                                                            
|   
|(3) |  | Mr. Froelich and Dr. Savin are each independent directors, and Mr. Froelich
is the Audit Committee Financial Expert as that term is defined under General
Rules and Regulations under the Securities Exchange Act of 1934, as amended.

MARY JANE JOHNSON, RN, MBA, age 53. Ms. Johnson has served as President
and Chief Executive Officer since January 2000. In April 1999, Ms. Johnson was
elected a Class I director with her current term expiring at the 2003 Annual
Meeting. Since joining the Company in August 1996, Ms. Johnson has also served
as Chief Operating Officer of Comprehensive Care Corporation, an appointment
that was effective July 1999, and as Chief Executive Officer for the Companys
principal subsidiary, Comprehensive Behavioral Care, Inc., since August 1998.
Ms. Johnson served as Executive Director for Merit Behavioral Care from 1993 to
1996. Ms. Johnson, a Registered Professional Nurse, has a Bachelors Degree in
Nursing from the State University of New York and a Masters Degree in Business
Administration from Adelphi University.

ROBERT J. LANDIS, CPA, MBA, age 44. Mr. Landis has served as Chairman of
the Board of Directors since January 2000 and as Chief Financial Officer and
Treasurer since July 1998. In April 1999, Mr. Landis was elected a Class III
director with his current term expiring at the 2004 Annual Meeting. Mr. Landis
served as Treasurer of Maxicare Health Plans, Inc., a health maintenance
organization, from November 1988 to July 1998. Mr. Landis also serves on the
Board of Directors and on the audit committee of Global Axcess Corporation, a
company that owns and operates automatic teller machines, whose common stock is
publicly traded on the Over The Counter Bulletin Board. Mr. Landis, a Certified
Public Accountant, received a Bachelors Degree in Business Administration from
the University of Southern California and a Masters Degree in Business
Administration from California State University at Northridge.

THOMAS CLAY, MSW, age 55. Mr. Clay has been employed by CompCare since
December 1999 and currently serves as the Chief Development Officer for
Comprehensive Behavioral Care, Inc. (CBC) having served as President, Public
Sector Services since June 2002. Mr. Clay previously served as CBCs Senior
Vice President of Clinical Operations from October 2000 through May 2002.
During 1997, until joining the Company, Mr. Clay worked as a behavioral
healthcare consultant specializing in adapting managed care technology to
public sector services for providers and behavioral healthcare organizations.
From January 1991 through July 1997, Mr. Clay served in a variety of executive
positions for Tarrant County Mental Health Mental Retardation Services in Fort
Worth, Texas. Mr. Clay received a Master of Social Work degree from Tulane
University and a Bachelor of Arts Degree in Psychology from the University of
Texas at Austin.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

PAUL R. MCCARTHY, Ph.D., age 46. Dr. McCarthy rejoined the Company in June
2002 to serve as Chief Operating Officer for Comprehensive Behavioral Care,
Inc. From January 2000 through May 2002, Dr. McCarthy was employed by Cigna
Behavioral Health (Cigna) in Tampa, Florida where as Director of Regional
Operations he was responsible for the oversight of operational and financial
aspects for two of Cignas largest operating units. Prior to joining Cigna,
Dr. McCarthy was employed by the Company from February 1998 through January
2000. Dr. McCarthy has also served as Vice President of Quality Improvement and
Outcomes Management for Green Spring Health Services/Magellan Health Services
from February 1996 through February 1998. Dr. McCarthy holds a Masters
Degree in Psychology from Villanova University and a Ph.D. from Pennsylvania
State University.

CATHY J. WELCH, CPA, age 43. Ms. Welch has been employed by the Company
since February 1998, having served as Controller since February 1999 and Vice
President of Finance and Controller since July 1999. In January 2000, Ms.
Welch was appointed to the position of Corporate Secretary for the Company.
Prior to her employment with CompCare, Ms. Welch served in a variety of
financial positions for Columbia/HCA hospitals from November 1993 through June
1997. Ms. Welch, a Certified Public Accountant, received a Bachelor of Arts
Degree in Business Administration from the University of South Florida.

EUGENE L. FROELICH, CPA, age 61. In January 2003, the Board of Directors
appointed Mr. Froelich to fill an existing vacancy for a Class II Director
until the expiration date of the term for this director seat, which is
currently the 2005 Annual Meeting. Additionally, Mr. Froelich is the Chairman
of the Companys Audit Committee and he is the Audit Committee Financial Expert
as that term is defined under General Rules and Regulations under the
Securities Exchange Act of 1934, as amended. He also serves on the Companys
Compensation Committee. Mr. Froelich has more than 30 years of financial
experience and has served as an executive to several publicly held healthcare,
entertainment, and high tech corporations and is currently working as a
consultant in these industries. From April 2001 to October 2001, Mr. Froelich
served as Chief Financial Officer of Futurelink Corp., a publicly traded
company, engaged in the technology information sector. Futurelink Corp. had
filed for protection under Chapter 11 of the federal bankruptcy code in August
2001 and, following such filing, Mr. Froelich voluntarily resigned his position
with Futurelink Corp. From July 2000 to April 2001, Mr. Froelich was Chief
Financial Officer of Wizshop.com, a private company, engaged in the Internet
retail business. From 1998 to 2000, Mr. Froelich acted as an independent
consultant and advisor to various corporations. During the period from 1989 to
1998, Mr. Froelich was Chief Financial Officer and Executive Vice President of
Maxicare Health Plans, Inc. (Maxicare), a publicly traded corporation
operating under Chapter 11 of the federal bankruptcy code at the time Mr.
Froelich joined Maxicare in 1989.

HOWARD A. SAVIN, Ph.D., age 57. In June 2002, Dr. Savin was appointed as
a Class II director, with his current term expiring at the 2005 Annual Meeting,
to fill an existing vacancy of the Board of Directors. Additionally, Dr. Savin
is the Chairman of the Companys Compensation Committee and he serves on the
Companys Audit Committee. Dr. Savin is currently Senior Vice President of
Clinical Affairs at the Devereux Foundation, an organization engaged in
providing high-quality human services to children, adults, and families with
special needs that derive from behavioral, psychological, intellectual or
neurological impairments. Dr. Savin has served the Devereux Foundation in this
capacity since July 1995. From November 1993 to December 1994, Dr. Savin served
as Vice President of Medco Behavioral Care Corp., which later became Merit
Behavioral Health and Magellan. Dr. Savin holds a Masters Degree in Psychology
from the University of Bridgeport and a Ph.D. from the University of Georgia.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Item 11. EXECUTIVE COMPENSATION

The following provides certain information concerning compensation earned by
the Companys Chief Executive Officer and its other executive officers whose
total
salary and bonus for Fiscal 2003 exceed $100,000 (together, these persons are
sometimes referred to as the named executives).

|       |  |                   |  |                             |  |                    |         |                  |        |                     |         |                        |   |             |        |                  |       |              |   |                  |   |            |        |           |   |            |   |           |   |  |       |     |     |     |  | 
|------ |  | ----------------- |  | --------------------------- |  | ------------------ | ------- | ---------------- | ------ | ------------------- | ------- | ---------------------- | - | ----------- | ------ | ---------------- | ----- | ------------ | - | ---------------- | - | ---------- | ------ | --------- | - | ---------- | - | --------- | - |  | ----- | --- | --- | --- |  | 
|       |  |                   |  |                             |  |                    |         |                  |        | Annual Compensation |         | Long-term Compensation
|       |  |                   |  |                             |  |                    |         |                  |        |                     |         |                       
|       |  |                   |  |                             |  |                    |         |                  |        |                     |         |                        |   |             |        |                  |       |              |   |                  |   |            |        |           |   | Securities |   | Long-term |   |  |       |    
|Fiscal |  |                   |  |                             |  |                    |         |                  |        |                     |         |                        |   |             |        |                  |       | Other Annual |   | Restricted Stock |   | Underlying |        | Incentive |   | All Other 
|Year   |  | Name and Position |  | Salary ($)                  |  | Bonus ($)          |         | Compensation ($) |        | Award(s) ($)        |         | Options/SARS (#)       |   | Payouts ($) |        | Compensation ($)
|       |  |                   |  |                             |  |                    |         |                  |        |                     |         |                        |   |             |        |                 
|2003   |  | Mary Jane Johnson |  | President(1,2), Chief       |  |                    | 175,000 |                  |        |                     |        |                        |   |             | 6,500  | (7)              |       |              |  |                  |   |            | 50,000 |           |   |            |  |           |   |  | 445   | (8)
|2002   |  | Mary Jane Johnson |  | Executive Officer(1,2), and |  |                    | 175,000 |                  |        |                     | 110,200 | (4)                    |   |             | 6,500  | (7)              |       |              |  |                  |   |            |       |           |   |            |  |           |   |  | 937   | (8)
|2001   |  | Mary Jane Johnson |  | Director                    |  |                    | 175,000 |                  |        |                     | 50,000  | (3)                    |   |             | 11,517 | (6)              |       |              |  |                  |   |            | 50,000 |           |   |            |  |           |   |  | 1,314 | (8)
|2003   |  | Robert Landis     |  | Chairman of the Board of    |  |                    | 172,981 |                  |        |                     | 15,250  | (3)                    |   |             | 5,700  | (10)             |       |              |  |                  |   |            | 50,000 |           |   |            |  |           |   |  | 908   | (8)
|2002   |  | Robert Landis     |  | Directors(1,2), Chief       |  |                    | 175,000 |                  |        |                     | 59,945  | (5)                    |   |             | 6,500  | (10)             |       |              |  |                  |   |            |       |           |   |            |  |           |   |  | 888   | (8)
|2001   |  | Robert Landis     |  | Financial Officer(1,2),     |  |                    | 175,000 |                  |        |                     | 50,000  | (3)                    |   |             | 3,000  | (10)             |       |              |  |                  |   |            | 50,000 |           |   |            |  |           |   |  | 741   | (8)
|       |  |                   |  |                             |  | and Treasurer(1,2) |         |                  |        |                     |         |                        |   |             |        |                  |       |              |   |                  |   |            |        |           |   |            |   |           |   |  |       |     |     |    
|2003   |  | Thomas Clay       |  | Chief Development           |  |                    | 117,692 |                  |        |                     |        |                        |   |             | 1,800  | (11)             |       |              |  |                  |   |            | 20,000 |           |   |            |  |           |   |  | 993   | (8)
|2002   |  | Thomas Clay       |  | Officer(2)                  |  |                    | 111,000 |                  |        |                     | 2,550   | (9)                    |   |             | 19,386 | (11)             |       |              |  |                  |   |            | 10,000 |           |   |            |  |           |   |  | 611   | (8)
|2001   |  | Thomas Clay       |  |                             |  |                    |         |                  | 97,269 |                     |         |                        |  |             |        |                  | 8,485 | (11)         |   |                  |  |            |        |           |  |            |   |           |  |  |       |     | 437 | (8)
|2003   |  | Paul R. McCarthy  |  | Chief Operating Officer(2)  |  |                    | 118,154 |                  |        |                     | 20,001  | (9)                    |   |             |       |                  |       |              |  |                  |   |            | 20,000 |           |   |            |  |           |   |  | 1,197 | (8)
|2002   |  | Paul R. McCarthy  |  |                             |  |                    |         |                  |       |                     |         |                        |  |             |        |                  |      |              |   |                  |  |            |        |           |  |            |   |           |  |  |       |     |    |    
|2001   |  | Paul R. McCarthy  |  |                             |  |                    |         |                  |       |                     |         |                        |  |             |        |                  |      |              |   |                  |  |            |        |           |  |            |   |           |  |  |       |     |    |    



|(1)  |  | Comprehensive Care Corporation.                                                                                                                                                                              
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | Comprehensive Behavioral Care, Inc., Principal Subsidiary of the Company.                                                                                                                                    
|    
|(3)  |  | Represents actual payments made in connection with the stay bonus awards
described under Employment Agreements with Executives below.                                                                      
|    
|(4)  |  | Represents $100,000 in actual payments made during Fiscal 2002 in
connection with the stay bonus described under Employment Agreements with
Executives below plus
a non-cash stock bonus valued at $10,200.
|    
|(5)  |  | Represents $50,000 in actual payments made during Fiscal 2002 in
connection with the stay bonus described under Employment Agreements with
Executives below plus
a non-cash stock bonus valued at $9,945.  
|    
|(6)  |  | Represents a $2,400 car allowance and $9,117 in moving expenses in
accordance to Ms. Johnsons employment agreement.                                                                                         
|    
|(7)  |  | Represents a car allowance in accordance to Ms. Johnsons employment
agreement.                                                                                                                              
|    
|(8)  |  | Represents amounts contributed by the Company to the indicated persons
401(k) Plan Account.                                                                                                                 
|    
|(9)  |  | Represents a non-cash stock bonus.                                                                                                                                                                           
|    
|(10) |  | Represents compensation expense for personal use mileage in accordance to
Mr. Landis employment agreement.                                                                                                  
|    
|(11) |  | Represents transitional living expenses paid to Mr. Clay.                                                                                                                                                    

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

EMPLOYMENT AGREEMENTS WITH EXECUTIVES

On February 7, 2003 the Company entered into a new employment agreement
with Mary Jane Johnson, superceding the previous agreement signed in July of
1999. The new agreement commenced February 1, 2003, terminates May 31, 2006
and is subject to two 18-month extensions. Ms. Johnsons employment agreement
provides for her salary to increase from $175,000 to $205,000 per annum
beginning June 1, 2003 and includes an annual performance bonus based on the
Companys earnings before interest, taxes, depreciation and amortization
(EBITDA). Such annual performance bonus shall be equal to the greater of 2
1/2% of the Companys EBITDA, or $25,000. Ms. Johnson is provided an auto
allowance of $250 biweekly as well as a policy of life insurance. In addition,
the Company pays for a portion of Ms. Johnsons health insurance and other
group insurance premiums in accordance with the Companys general benefit
guidelines covering all full-time employees. Ms. Johnsons employment
agreement provides that in the event of a change in control of the Company, or
in the case of termination without cause, Ms. Johnson will be paid a severance
benefit equal to twenty four (24) months base salary, together with her
performance bonus. Ms. Johnson is additionally eligible to receive a special
transaction bonus should the company merge with or into another entity in which
the Company is not the surviving entity, or if the Company sells all or
substantially all of its assets and the special transaction is $5.0 million or
greater. The special transaction bonus shall be an amount equal to 1% of the
special transaction value in excess of $5.0 million. Effective with the 2003
Annual Meeting of Stockholders and annually coincident with such meetings, Ms.
Johnson will be granted options to purchase 25,000 shares of the Companys
common stock. The options will bear an exercise price of the fair market value
of the Companys stock on the date of grant and will vest within one year of
such date. Ms. Johnsons employment agreement may be terminated by either
party in accordance with its terms, which require written notification to the
other party at least six months prior to the initial termination date or
renewal termination date.

On February 7, 2003, the Company entered into a new employment agreement
with Robert J. Landis, superceding a predecessor agreement dated September 14,
1998. The new agreement commenced February 1, 2003, terminates May 31, 2006
and is subject to two 18-month extensions. Mr. Landis employment agreement
provides for his salary to increase from $175,000 to $185,000 per annum
beginning June 1, 2003 and includes an annual performance bonus based on the
Companys earnings before interest, taxes, depreciation and amortization
(EBITDA). Such annual performance bonus shall be equal to the greater of 2
1/2% of the Companys EBITDA, or $20,000. In addition, the Company pays for
a portion of Mr. Landis health insurance and other group insurance premiums in
accordance with the Companys general benefit guidelines covering all full-time
employees. Mr. Landis is also provided with a policy of life insurance and a
$250 biweekly auto allowance. Mr. Landis employment agreement provides that
in the event of a change in control of the Company or in the case of
termination without cause, Mr. Landis will be paid a severance benefit equal to
twenty four (24) months base salary, together with his performance bonus. Mr.
Landis is additionally eligible to receive a special transaction bonus should
the company merge with or into another entity in which the Company is not the
surviving entity, or if the Company sells all or substantially all of its
assets and the special transaction is $5.0 million or greater. The special
transaction bonus shall be an amount equal to 1% of the special transaction
value in excess of $5.0 million. Effective with the 2003 Annual Meeting of
Stockholders and annually coincident with such meetings, Mr. Landis will be
granted options to purchase 25,000 shares of the Companys common stock. The
options will bear an exercise price of the fair market value of the Companys
stock on the date of grant and will vest within one year of such date. Mr.
Landis employment agreement may be terminated by either party in accordance
with its terms, which require written notification to the other party at least
six months prior to the initial termination date or renewal termination date.

On June 3, 2002, the Company entered into an employment agreement with
Thomas Clay. Mr. Clays employment agreement provides for a salary at the rate
of $120,000 per annum and includes a performance-based bonus not to exceed
$20,000 per annum, which will be based 20% on individual performance and 80% on
the Companys financial performance against set criteria. Mr. Clay is provided
with a policy of life insurance and the Company pays for a portion of Mr.
Clays health insurance and other group insurance premiums in accordance with
the Companys general benefit guidelines covering all full-time employees.
Mr. Clays employment agreement provides that, in the event of a change in
control of the Company as defined, Mr. Clay will be paid a severance benefit
equal to six (6) months base salary or, in the case of termination without
cause, Mr. Clay will be paid a severance benefit equal to three (3) months base
salary. Mr. Clays employment
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

agreement continues unless terminated by either
party in accordance with the terms of the employment agreement.

On June 3, 2002, the Company entered into an employment agreement with
Paul R. McCarthy, Ph.D. Dr. McCarthys employment agreement provides for a
salary at the rate of $120,000 per annum and includes a performance-based bonus
not to exceed $20,000 per annum, which will be based 20% on individual
performance and 80% on the Companys financial performance against set
criteria. Dr. McCarthy is provided with a policy of life insurance and the
Company pays for a portion of Dr. McCarthys health insurance and other group
insurance premiums in accordance with the Companys general benefit guidelines
covering all full-time employees. Dr. McCarthys employment agreement
provides that, in the event of a change in control of the Company as defined,
Dr. McCarthy will be paid a severance benefit equal to six (6) months base
salary or, in the case of termination without cause, Dr. McCarthy will be paid
a severance benefit equal to three (3) months base salary. Dr. McCarthys
employment agreement continues unless terminated by either party in accordance
with the terms of the employment agreement.

Effective July 2, 1999, the Board awarded stay bonuses to Ms. Johnson and
Mr. Landis in amounts not to exceed the greater of: $150,000 or 85% of the
current base salary, and $125,000 or 83% of the current base salary,
respectively, not payable unless each remained employed by the Company through
December 31, 2000. Effective January 1, 2001, Ms. Johnson and Mr. Landis each
were entitled to receive $150,000 and $145,250, respectively, in connection
with these stay bonus awards. As an accommodation to the Company, the two
executive officers consented to a deferral of the receipt of their stay bonus.
During Fiscal 2001, Ms. Johnson and Mr. Landis each were paid $50,000. During
Fiscal 2002, Ms. Johnson was paid $100,000 and Mr. Landis, $50,000. In the
fiscal year ended May 31, 2003, Mr. Landis received $15,250 related to this
bonus.

Effective July 6, 2001, a restricted stock grant of 20,000 shares, 19,500
shares, and 5,000 shares of the Companys Common Stock was made to Ms. Johnson,
Mr. Landis, and Mr. Clay, respectively, and was included in Fiscal 2002
executive compensation. Such shares were valued at $0.51 per share,
representing the fair market value of the Companys Common Stock on July 6,
2001. During Fiscal 2003, Dr. McCarthy was awarded two restricted stock grants
for a total of 20,001 shares of the Companys Common Stock to be included in
Fiscal 2003 executive compensation. The initial award was for 6,667 shares,
valued at $1.50 per share, representing the fair market value of the Companys
Common Stock on June 3, 2002. The second award to Dr. McCarthy was for 13,334
shares, valued at $0.75 per share, representing the fair market value of the
Companys Common Stock on September 5, 2002.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

In connection with the Companys indemnification program for executive
officers and directors, Ms. Johnson, Mr. Landis, Mr. Clay, and Dr. McCarthy as
well as seven current, key management employees, directors, or subsidiary
directors, nine former directors, and ten former executive officers, are
entitled to indemnification and are beneficiaries of the officers and directors
indemnification trust (as defined below).

Upon written demand for payment by the person designated in the Trust
Agreement as Beneficiary Representative accompanied by a Notice of
Qualification (as defined below), the Trustee shall pay the person designated
in the Trust Agreement (Underwriter) to administer the payments to the
accounts of Indemnitees an amount not greater than the balance, if any, of the
specified bookkeeping account (Account) recorded by the Trustee for each
Indemnitee. A Notice of Qualification is a written statement by the
Beneficiary Representative which (i) states the date and action on which the
policyholder is obligated to Indemnitee(s) under the terms of the
Indemnification Agreement, (ii) certifies that, pursuant to the terms of the
Indemnification Agreement, the Indemnitees are entitled to payment thereunder
as a result of the investigation, claim, action, suit or proceeding, and (iii)
states the amount of the payment to which the Underwriter is entitled. Upon the
receipt of a demand, the Trustee shall promptly inform the Company of such
receipt, by courier delivery to the Company, of written notice thereof. Subject
to any contrary order issued by a court of competent jurisdiction, a payment
made pursuant to this Section may be made without the approval or direction of
the Company, and shall be made despite any direction to the contrary by the
Company. Prior to the time amounts are to be paid to the Underwriter or his
designee from the Trust Fund as described above, Indemnitees have no preferred
claim or beneficial ownership interest in trust funds, and their rights are
merely unsecured contractual rights.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

The Company considers it desirable to provide each Indemnitee with
specified assurances that the Company can and will honor the Companys
obligations under the Indemnification Agreements, including a policy of
insurance to provide for directors and officers liability coverage.

Table II  Options Held at May 31, 2003

The following tables present information regarding the number of
unexercised options held by the Companys named executives at May 31, 2003. No
options were exercised by any named executive during Fiscal 2003. Further, no
stock appreciation rights were granted or held by such persons during Fiscal
2003.

Option Grants In the Last Fiscal year

|                  |  |                 |        |                |  |                      |      |          |  |            |      |         |  |            |          |  |  |   |        | 
|----------------- |  | --------------- | ------ | -------------- |  | -------------------- | ---- | -------- |  | ---------- | ---- | ------- |  | ---------- | -------- |  |  | - | ------ | 
|                  |  |                 |        |                |  | Percent of Total     |      | Exercise |  |            |      |         |  |            |          | 
|                  |  |                 |        |                |  | Options/SARS         |      | or Base  |  |            |      |         |  | Grant Date
|                  |  |                 |        |                |  | Granted to Employees |      | Price    |  | Expiration |      | Present
|Name              |  | Options Granted |        | in Fiscal Year |  | ($/Share)            |      | Date     |  | Value     
|                  |  |                 |        |                |  |                      |      |          |  |           
|Mary Jane Johnson |  |                 | 25,000 |                |  |                      | 13.1 | %        |  | $          | .51  |         |  |            | 11/07/12 |  |  | $ | 0.3771 | 
|                  |  |                 | 25,000 |                |  |                      | 13.1 | %        |  | $          | 1.40 |         |  |            | 02/07/13 |  |  | $ | 1.0351 | 
|Robert J. Landis  |  |                 | 25,000 |                |  |                      | 13.1 | %        |  | $          | .51  |         |  |            | 11/07/12 |  |  | $ | 0.3771 | 
|                  |  |                 | 25,000 |                |  |                      | 13.1 | %        |  | $          | 1.40 |         |  |            | 02/07/13 |  |  | $ | 1.0351 | 
|Thomas Clay       |  |                 | 10,000 |                |  |                      | 5.2  | %        |  | $          | .51  |         |  |            | 11/07/12 |  |  | $ | 0.3771 | 
|                  |  |                 | 10,000 |                |  |                      | 5.2  | %        |  | $          | 1.95 |         |  |            | 02/26/13 |  |  | $ | 1.4417 | 
|Paul R. McCarthy* |  |                 | 10,000 |                |  |                      | 5.2  | %        |  | $          | .51  |         |  |            | 11/07/12 |  |  | $ | 0.3771 | 
|                  |  |                 | 10,000 |                |  |                      | 5.2  | %        |  | $          | 1.95 |         |  |            | 02/26/13 |  |  | $ | 1.4417 | 



---

|* |  | Rejoined the Company effective May 28, 2002.
|- |  | --------------------------------------------

The present value as of the date of grant, calculated using the
Black-Scholes method is based on assumptions about future interest rates, stock
price volatility and dividend yield. There is no assurance that these
assumptions will prove to be true in the future. The actual value, if any,
that may be realized by each individual will depend upon the market price of
the Common Stock on the date of exercise.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND AGGREGATED FISCAL YEAR-END OPTION VALUE

|                     |  |              |   |          |  |                            |   |                              |  |                      |                |          |  |   |                 | 
|-------------------- |  | ------------ | - | -------- |  | -------------------------- | - | ---------------------------- |  | -------------------- | -------------- | -------- |  | - | --------------- | 
|                     |  |              |   |          |  |                            |   |                              |  | Number of Securities |                | Value of
|                     |  | Shares       |   | Value    |  | Underlying Unexercised     |   | Unexercised In-the-money    
|                     |  | Acquired on  |   | Realized |  | Options/SARs at FY End (#) |   | Options/SARs at FY End ($)  
|Name                 |  | Exercise (#) |   | ($)      |  | Exercisable/Unexercisable  |   | Exercisable/Unexercisable(1)
|                     |  |              |   |          |  |                            |   |                             
|Mary Jane Johnson    |  |              |  |          |  |                            |  |                              |  |                      | 232,500/37,500 |          |  | $ | 514,018/$63,625 | 
|Robert J. Landis     |  |              |  |          |  |                            |  |                              |  |                      | 278,125/37,500 |          |  | $ | 514,018/$63,625 | 
|Thomas Clay          |  |              |  |          |  |                            |  |                              |  |                      | 32,500/15,000  |          |  | $ | 67,260/$19,950  | 
|Paul R. McCarthy
(2) |  |              |  |          |  |                            |  |                              |  |                      | 5,000/15,000   |          |  | $ | 11,450/$19,950  | 



---

|(1) |  | Calculated on the basis of the closing sale price per share for the
Companys Common Stock on the Over The Counter Bulletin Board of $2.80 on May
30, 2003. Value was calculated on the basis of the difference between the
option price and $2.80 multiplied by the number of shares of Common Stock
underlying the respective options.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Rejoined the Company effective May 28, 2002.                                                                                                                                                                                                                                                                                            

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Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information known to the Company
concerning the beneficial ownership of Common Stock as of May 31, 2003, by (i)
all persons who are beneficial owners of five percent (5%) or more of the
Common Stock, (ii) each director of the Company, and (iii) the executive
officers named in the Summary Compensation Table included elsewhere herein, and
(iv) all directors and executive officers as a group in accordance with Section
13(d)(3) under the general rules and regulations of the Securities and
Exchange Commission (SEC) Act of 1934, as amended. According to rules
adopted by the SEC, a person is the beneficial owner of securities if he or
she has, or shares, the power to vote such securities or to direct their
investment. Unless otherwise indicated, each of the stockholders has sole
voting and investment power with respect to shares beneficially owned.

|                                                               |  |                     |         |                   |  |  |      |  
|-------------------------------------------------------------- |  | ------------------- | ------- | ----------------- |  |  | ---- | -
|                                                               |  | Shares Beneficially |         | Percent of Common
|Name of Beneficial Owner                                       |  | Owned               |         | Stock Outstanding
|                                                               |  |                     |         |                  
|Mary Jane Johnson(2)                                           |  |                     | 252,500 |                   |  |  | 6.1  | %
|Robert J. Landis(3)                                            |  |                     | 308,125 |                   |  |  | 7.3  | %
|Thomas Clay(1)                                                 |  |                     | 37,500  |                   |  |  | *    |  
|Paul R. McCarthy(4)                                            |  |                     | 25,001  |                   |  |  | *    |  
|Howard A. Savin(5)                                             |  |                     | 10,833  |                   |  |  | *    |  
|Eugene L. Froelich(6)                                          |  |                     |        |                   |  |  | *    |  
|All executive officers and directors
As a group (7 persons)(4) |  |                     | 698,959 |                   |  |  | 15.4 | %



|*   |  | Less than 1%.                                                                                                                                                                         
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | Includes 5,000 shares of common stock held directly and 32,500 shares
subject to options that are presently exercisable. Excludes 15,000 options
that are not presently exercisable.  
|   
|(2) |  | Includes 20,000 shares of common stock held directly and 232,500 shares
subject to options that are presently exercisable. Excludes 37,500 options
that are not presently exercisable.
|   
|(3) |  | Includes 30,000 shares of common stock held directly and 278,125 shares
subject to options that are presently exercisable. Excludes 37,500 options
that are not presently exercisable.
|   
|(4) |  | Includes 20,001 shares of common stock held directly and 5,000 shares
subject to options that are presently exercisable. Excludes 15,000 options
that are not presently exercisable.  
|   
|(5) |  | Includes 10,833 options that are presently exercisable. Excludes 25,833
options that are not presently exercisable.                                                                   
|   
|(6) |  | No options are presently exercisable. Excludes 20,833 options that are
not presently exercisable.                                                                                     

EQUITY COMPENSATION PLAN INFORMATION

The following table summarizes share and exercise price information with
respect to the Companys equity compensation plans (including individual
compensation arrangements) under which equity securities of Comprehensive Care
Corporation are authorized for issuance as of May 31, 2003:

|                                                        |  |                         |           |                      |  |                               |      |  |  |                                |         | 
|------------------------------------------------------- |  | ----------------------- | --------- | -------------------- |  | ----------------------------- | ---- |  |  | ------------------------------ | ------- | 
|                                                        |  | (a)                     |           | (b)                  |  | (c)                          
|                                                        |  |                         |           |                      |  |                              
|                                                        |  |                         |           |                      |  |                               |      |  |  | Number of securities remaining
|                                                        |  | Number of securities to |           | Weighted-average     |  | available for future issuance
|                                                        |  | be issued upon exercise |           | exercise price of    |  | under equity compensation    
|                                                        |  | of outstanding options, |           | outstanding options, |  | plans (excluding securities  
|Plan category                                           |  | warrants and rights     |           | warrants and rights  |  | reflected in column (a))     
|                                                        |  |                         |           |                      |  |                              
|Equity compensation
plans approved by
shareholders      |  |                         | 1,109,224 |                      |  | $                             | 0.88 |  |  |                                | 444,235 | 
|Equity compensation
plans not approved
by shareholders* |  |                         | 92,500    |                      |  |                               | 3.48 |  |  |                                |        | 
|                                                        |  |                         |           |                      |  |                               |      |  |  |                                |         | 
|Total                                                   |  |                         | 1,201,724 |                      |  | $                             | 1.08 |  |  |                                | 444,235 | 
|                                                        |  |                         |           |                      |  |                               |      |  |  |                                |         | 

*     Consists of warrants to purchase common stock of the Company issued to three
consultants, in lieu of cash compensation, for services provided to the
Company.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

For information relating to the employment agreements with executive
officers, stock options, stay bonuses, stock grants, and other compensation,
see the information included in Item 11 above. During the fiscal year ended
May 31, 2003, two executive officers served on the Board of Directors of the
Company and, also, on the Board of Directors for each of the Companys
wholly-owned subsidiary corporations.

Item 14. Controls and Procedures

Evaluation of the Companys Disclosure Controls and Internal Controls.Within
the 90 days prior to filing this report on Form 10-K, the Company evaluated the
effectiveness of the design and operation of its disclosure controls and
procedures (Disclosure Controls), and its internal controls and procedures
for financial reporting (Internal Controls). This evaluation (the Controls
Evaluation) was done under the supervision and with the participation of our
Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Rules
adopted by the Securities and Exchange Commission (SEC) require that in this
section of the Annual Report on Form 10-K we present the conclusions of the CEO
and the CFO about the effectiveness of our Disclosure Controls and Internal
Controls based on and as of the date of the Controls Evaluation.

Disclosure Controls and Internal Controls.As provided in Rule 13a-14 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, Disclosure Controls are defined as meaning controls and procedures
that are designed with the objective of insuring that information required to
be disclosed in our reports filed under the Securities Exchange Act of 1934, as
amended (the Exchange Act), is recorded, processed, designed and reported
within the time periods specified by the SECs rules and forms. Disclosure
Controls include, within the definition under the Exchange Act, and without
limitation, controls and procedures designed to insure that information
required to be disclosed by us in our reports is accumulated and communicated
to our management including our CEO and CFO, as appropriate, to allow timely
decisions regarding disclosure. Internal Controls are procedures which are
designed with the objective of providing reasonable assurance that (1) our
transactions are properly authorized; (2) our assets are safeguarded against
unauthorized or improper use; and (3) our transactions are properly recorded
and reported, all to permit the preparation of our financial statements in
conformity with generally accepted accounting principles.

Scope of the Controls Evaluation.The evaluation made by our CEO and CFO of
our Disclosure Controls and our Internal Controls included a review of the
controls objectives and design, the controls implementation by the Company
and the effect of the controls on the information generated for use in this
Form 10-K. In the course of the Controls Evaluation, we sought to identify
data errors, control problems or acts of fraud and to confirm that appropriate
corrective action, including process improvements, were being undertaken. This
type of evaluation will be done on a quarterly basis so that the conclusions
concerning controls effectiveness can be reported in our Quarterly Reports on
Form 10-Q and Annual Report on Form 10-K. The overall goals of these various
evaluation activities are to monitor our Disclosure Controls and our Internal
Controls and to make modifications as necessary; our intent in this regard is
that the Disclosure Controls and the Internal Controls will be maintained as
dynamic systems that change (including with improvements and corrections) as
conditions warrant.

Among other matters, we sought in our evaluation to determine whether there
were any significant deficiencies or material weaknesses in the Companys
Internal Controls, or whether the Company had identified any acts of fraud
involving personnel who have a significant role in the Companys Internal
Controls. In the professional auditing literature, significant deficiencies
are referred to as reportable conditions; these are control issues that could
have a significant adverse effect on the ability to record, process, summarize
and report financial data in the financial statements. A material weakness
is defined in the auditing literature as a particularly serious reportable
condition where the internal control does not reduce to a relatively low level
the risk that misstatements caused by error or fraud may occur in amounts that
would be material in relation to the financial statements and not be detected
within a timely period by employees in the normal course of performing their
assigned functions. We also sought to deal with other controls matters in the
Controls Evaluation, and in each case if a problem was identified, we
considered what revision, improvement and/or correction to make in accordance
with our on-going procedures.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

The Companys management, including the CEO and CFO, does not expect that our
Disclosure Controls or our Internal Controls will prevent all errors and all
fraud. A control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control systems objectives
will be met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of simple error or
mistake. Controls can also be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
controls. The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Over time, controls may become inadequate because
of changes in conditions or deterioration in the degree of compliance with its
policies or procedures. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur
and not be detected.

In accordance with SEC requirements, our CEO and CFO each have confirmed that,
since the date of the Controls Evaluation to the date of this Annual Report on
Form 10-K, there have been no significant changes in Internal Controls or in
other factors that could significantly affect Internal Controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Conclusion.Based upon the Controls Evaluation, our CEO and CFO have each
concluded that our Disclosure Controls are effective to ensure that material
information relating to the Company and its consolidated subsidiaries is made
known to management, including the CEO and CFO, particularly during the period
when our periodic reports are being prepared, and that our Internal Controls
are effective to provide reasonable assurance that our financial statements are
fairly presented in conformity with generally accepted accounting principles.




Part IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

|    |  |  |    |  |  |                                                                                          
|--- |  |  | -- |  |  | -----------------------------------------------------------------------------------------
|(a) |  |  | 1. |  |  | Financial Statements  Included in Part II of this report:                               
|    |  |  |    |  |  | Report of Independent Certified Public Accountants                                       
|    |  |  |    |  |  | Consolidated Balance Sheets, May 31, 2003 and 2002                                       
|    |  |  |    |  |  | Consolidated Statements of Operations, Years Ended May 31, 2003, 2002 and 2001           
|    |  |  |    |  |  | Consolidated Statements of Stockholders Deficit, Years Ended May 31, 2003, 2002 and 2001
|    |  |  |    |  |  | Consolidated Statements of Cash Flows, Years Ended May 31, 2003, 2002 and 2001           
|    |  |  |    |  |  | Notes to Consolidated Financial Statements                                               
|   
|    |  |  | 2. |  |  | Financial Statement Schedules: None.                                                     

Other schedules are omitted, as required information is inapplicable or
the information is presented in the consolidated financial statements or
related notes.

3.     Exhibits:

|       |  |                                                                                                                                   
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description and Reference                                                                                                         
|       |  |                                                                                                                                   
|3.1    |  | Restated Certificate of Incorporation as amended.(5)                                                                              
|3.2    |  | Restated Bylaws as amended July 20, 2000.(8)                                                                                      
|4.1    |  | Indenture dated April 25, 1985 between the Company and
Bank of America, NT&SA, relating to Convertible Subordinated
Debentures.(1)
|4.2    |  | Form of Common Stock Certificate.(6)                                                                                              
|10.1   |  | Form of Stock Option Agreement.*(2)                                                                                               
|10.2   |  | Form of Indemnity Agreement as amended March 24, 1994.*(3)                                                                        
|10.3   |  | Directors and Officers Trust dated February 27, 1995
between the Company and Mark Twain Bank.*(4)                                 

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|       |  |                                                                                                                                                                            
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description and Reference                                                                                                                                                  
|       |  |                                                                                                                                                                            
|10.4   |  | Comprehensive Care Corporation 1995 Incentive Plan, as
amended on November 17, 1998.(9)                                                                                    
|10.5   |  | Amended and Restated Non-Employee Directors Stock Option Plan.*(5)                                                                                                        
|10.6   |  | Employment agreement as amended February 7, 2003 between the Company and
Robert J. Landis.*(7)                                                                             
|10.7   |  | Employment agreement as amended February 7, 2003 between the Company and
Mary Jane Johnson.*(7)                                                                            
|10.8   |  | Employment agreement dated June 3, 2002 between the Company and Paul R. McCarthy.*(10)                                                                                     
|10.9   |  | Employment agreement dated June 3, 2002 between the Company and Thomas C. Clay.*(10)                                                                                       
|10.10  |  | Comprehensive Care Corporation 2002 Incentive Plan.(11)                                                                                                                    
|14     |  | Code of Business Conduct and Ethics (filed herewith).                                                                                                                      
|21     |  | List of the Companys active subsidiaries (filed herewith).                                                                                                                
|23     |  | Consent of Eisner LLP (filed herewith).                                                                                                                                    
|99.1   |  | 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).
|99.2   |  | Comprehensive Care Corporation CFO Certification pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (filed herewith).



---

|*    |  | Management contract or compensatory plan or arrangement with one or more
directors or executive officers.
|---- |  | ---------------------------------------------------------------------------------------------------------
|    
|(1)  |  | Filed as an exhibit to the Companys Form S-3 Registration Statement No.
2-97160.                        
|    
|(2)  |  | Filed as an exhibit to the Companys Form 10-K for the fiscal year ended
May 31, 1988.                   
|    
|(3)  |  | Filed as an exhibit to the Companys Form 10-K for the fiscal year ended
May 31, 1994.                   
|    
|(4)  |  | Filed as an exhibit to the Companys Form 10-Q for the quarter ended
February 28, 1995.                  
|    
|(5)  |  | Filed as an exhibit to the Companys Form 10-Q for the quarter ended
February 28, 1995.                  
|    
|(6)  |  | Filed with original filing of Registration Statement on Form S-1, dated
January 29, 1997.                
|    
|(7)  |  | Filed as an exhibit to the Companys Form 8-K dated February 7, 2003.                                    
|    
|(8)  |  | Filed as an exhibit to the Companys Form 10-K for the Fiscal Year ended
May 31, 2000.                   
|    
|(9)  |  | Filed as an exhibit to the Companys Form 8-K dated November 25, 1998.                                   
|    
|(10) |  | Filed as an exhibit to the Companys Form 8-K dated June 7, 2002.                                        
|    
|(11) |  | Filed as an exhibit to the Companys Form 8-K, dated September 20, 2002.                                 



|(b) |  | Reports on Form 8-K.
|--- |  | --------------------

1) The Company filed a current report on Form 8-K, dated March 3, 2003,
to report under Item 5 that the Company had fully satisfied the Offer in
Compromise with the Internal Revenue Service (IRS) and, additionally, that the
Company reached a settlement agreement with its former tax advisor with respect
to the fees previously paid by the Company to the advisor.

2) The Company filed a current report on Form 8-K, dated May 8, 2003, to
report under Item 5 that the Companys Central U.S. Service Center, located in
Bloomfield Hills, Michigan, was awarded a contract by the second largest
Medicaid qualified health plan in Michigan.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES




SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized,
September 5, 2003.

COMPREHENSIVE CARE CORPORATION

| |    |                                                                                                     |  | 
| | -- | --------------------------------------------------------------------------------------------------- |  | 
| | By | /s/ MARY JANE JOHNSON                                                                               |  | 
| |    |                                                                                                     |  | 
| |    | Mary Jane Johnson
President and Chief Executive Officer
(Principal Executive Officer)               |  | 
| |    |                                                                                                     |  | 
| | By | /s/ ROBERT J. LANDIS                                                                                |  | 
| |    |                                                                                                     |  | 
| |    | Robert J. Landis
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer) |  | 

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

|                       |  |                                                  |  |                  
|---------------------- |  | ------------------------------------------------ |  | -----------------
|Signature              |  | Title                                            |  | Date             
|                       |  |                                                  |  |                  
|/s/ MARY JANE JOHNSON  |  | President, Chief Executive Officer, and Director |  | September 5, 2003
|                       |  |                                                  |  |                  
|Mary Jane Johnson      |  |                                                  |  |                  
|                       |  |                                                  |  |                  
|/s/ ROBERT J. LANDIS   |  | Chairman of the Board of Directors,              |  | September 5, 2003
|                       |  | Chief Financial Officer, and Treasurer           |  |                  
|Robert J. Landis       |  | (Principal Financial and Accounting Officer)     |  |                  
|                       |  |                                                  |  |                  
|/s/ HOWARD A. SAVIN    |  | Director                                         |  | September 5, 2003
|                       |  |                                                  |  |                  
|Howard A. Savin        |  |                                                  |  |                  
|                       |  |                                                  |  |                  
|/s/ EUGENE L. FROELICH |  | Director                                         |  | September 5, 2003
|                       |  |                                                  |  |                  
|Eugene L. Froelich     |  |                                                  |  |                  

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Exhibit Index

Fiscal Year Ended May 31, 2003

|        |  |                                                                                                                                                           |  |        |       | 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------ | ----- | 
|EXHIBIT |  |                                                                                                                                                           |  | PAGE  
|NUMBER  |  | DESCRIPTION                                                                                                                                               |  | NUMBER
|        |  |                                                                                                                                                           |  |       
|14      |  | Code of Business Conduct and Ethics                                                                                                                       |  |        | 51-57 | 
|21      |  | List of the Companys subsidiaries                                                                                                                        |  |        | 58    | 
|23      |  | Consent of Eisner LLP                                                                                                                                     |  |        | 59    | 
|31.1    |  | Comprehensive Care Corporation CEO Certification pursuant to Section 302
of the Sarbanes-Oxley Act of 2002                                                |  |        | 60    | 
|31.2    |  | Comprehensive Care Corporation CFO Certification pursuant to Section 302
of the Sarbanes-Oxley Act of 2002                                                |  |        | 61    | 
|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 |  |        | 62    | 
|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 |  |        | 63    | 

50