##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2008
 Commission File Number 1-9927
 COMPREHENSIVE CARE CORPORATION
  Delaware
    
    95-2594724(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer Identification No.)
 3405 W. Dr. Martin Luther King Jr. Blvd, Suite 101, Tampa, FL 33607
 (813) 288-4808
 
 þ o
  Large accelerated filer oAccelerated filer oNon-accelerated filer þ(Do not check if a smaller reporting company)Smaller reporting company o o þ




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Table of Contents
 PAGEPART I  FINANCIAL INFORMATIONItem 1 Consolidated Financial StatementsConsolidated Balance Sheets as of
June 30, 2008 (unaudited) and December 31, 2007
    
    
    3Consolidated Statements of Operations for
the three and six months ended June 30, 2008 (unaudited) and 2007
    
    
    4Consolidated Statements of Cash Flows for
the six months ended June 30, 2008 (unaudited) and 2007
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-14Item 2Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    14-22Item 3Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4Controls and Procedures
    
    
    22PART II  OTHER INFORMATIONItem 1 Legal Proceedings
    
    
    22-23Item 1A  Risk Factors
    
    
    23Item 6 Exhibits
    
    
    23Signatures
    
    
    24CertificationsEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  2




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 PART I  FINANCIAL INFORMATION
 
 Item 1. Consolidated Financial Statements
 
 Consolidated Balance Sheets
 June 30,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,270
    
    
    
    6,313Accounts receivable, less allowance for doubtful accounts of $0 and
$0, respectively
    
    
    1,562
    
    
    
    35Other current assets
    
    
    514
    
    
    
    407Total current assets
    
    
    3,346
    
    
    
    6,755Property and equipment, net
    
    
    295
    
    
    
    333Note receivable
    
    
    2
    
    
    
    17Goodwill, net
    
    
    991
    
    
    
    991Other assets
    
    
    389
    
    
    
    136Total assets
    
    
    5,023
    
    
    
    8,232LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable and accrued liabilities
    
    
    2,203
    
    
    
    1,918Accrued claims payable
    
    
    6,733
    
    
    
    5,464Reserve for loss contract
    
    
    300
    
    
    
    Income taxes payable
    
    
    100
    
    
    
    94Total current liabilities
    
    
    9,336
    
    
    
    7,476Long-term liabilities:Long-term debt
    
    
    2,244
    
    
    
    2,244Accrued reinsurance claims payable
    
    
    2,526
    
    
    
    2,526Other liabilities
    
    
    93
    
    
    
    118Total long-term liabilities
    
    
    4,863
    
    
    
    4,888Total liabilities
    
    
    14,199
    
    
    
    12,364Stockholders deficit:Preferred stock, $50.00 par value; authorized 18,740 shares; 14,400
Issued
    
    
    720
    
    
    
    720Common stock, $0.01 par value; authorized 30,000,000 shares; issued
and outstanding 7,827,766 and 7,702,766, respectively
    
    
    78
    
    
    
    77Additional paid-in capital
    
    
    57,751
    
    
    
    57,637Accumulated deficit
    
    
    (67,725
    )
    
    
    (62,566
    )Total stockholders deficit
    
    
    (9,176
    )
    
    
    (4,132
    )Total liabilities and stockholders deficit
    
    $
    5,023
    
    
    
    8,232
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Operations
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Operating revenues
    
    $
    9,582
    
    
    
    9,159
    
    
    $
    18,915
    
    
    
    17,860Costs and expenses:Healthcare operating expenses
    
    
    11,707
    
    
    
    9,348
    
    
    
    21,446
    
    
    
    17,611General and administrative expenses
    
    
    1,518
    
    
    
    931
    
    
    
    2,466
    
    
    
    2,012Provision for (recovery of doubtful accounts)
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    (8
    )Depreciation and amortization
    
    
    40
    
    
    
    38
    
    
    
    80
    
    
    
    7613,265
    
    
    
    10,319
    
    
    
    23,992
    
    
    
    19,691Operating loss before items shown below
    
    
    (3,683
    )
    
    
    (1,160
    )
    
    
    (5,077
    )
    
    
    (1,831
    )Other income (expense):Gain from sale of available-for-sale securities
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    29Interest income
    
    
    6
    
    
    
    48
    
    
    
    18
    
    
    
    72Interest expense
    
    
    (47
    )
    
    
    (48
    )
    
    
    (94
    )
    
    
    (95
    )Loss before income taxes
    
    
    (3,724
    )
    
    
    (1,131
    )
    
    
    (5,153
    )
    
    
    (1,825
    )Income tax expense
    
    
    3
    
    
    
    14
    
    
    
    6
    
    
    
    24Net loss attributable to common stockholders
    
    
    (3,727
    )
    
    
    (1,145
    )
    
    
    (5,159
    )
    
    
    (1,849
    )Net loss per common share  basic and diluted
    
    $
    (0.48
    )
    
    
    (0.15
    )
    
    $
    (0.66
    )
    
    
    (0.24
    )Weighted average common shares outstanding:Basic
    
    
    7,828
    
    
    
    7,703
    
    
    
    7,778
    
    
    
    7,692Diluted
    
    
    7,828
    
    
    
    7,703
    
    
    
    7,778
    
    
    
    7,692
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 Six Months EndedJune 30,2008
    
    
    2007Cash flows from operating activities:Net loss from continuing operations
    
    $
    (5,159
    )
    
    
    (1,849
    )Adjustments to reconcile loss from continuing operations
to net cash (used in) provided by operating activities:Depreciation and amortization
    
    
    80
    
    
    
    76Asset writedown  eye care memberships
    
    
    
    
    
    
    62Asset write-off
    
    
    
    
    
    
    3Compensation expense  stock options issued
    
    
    82
    
    
    
    40Gain from sale of available-for-sale securities
    
    
    
    
    
    
    (29
    )Non cash expense  stock issued
    
    
    
    
    
    
    25Changes in assets and liabilities:Accounts receivable, net
    
    
    (1,527
    )
    
    
    62Other current assets and other non-current assets
    
    
    (358
    )
    
    
    288Accounts payable and accrued liabilities
    
    
    280
    
    
    
    604Accrued claims payable
    
    
    1,269
    
    
    
    2,437Reserve for loss contract
    
    
    300
    
    
    
    Accrued reinsurance claims payable
    
    
    
    
    
    
    10Income taxes payable
    
    
    6
    
    
    
    (4
    )Other liabilities
    
    
    
    
    
    
    (19
    )Net cash (used in) provided by continuing operations
    
    
    (5,027
    )
    
    
    1,706Net cash used in discontinued operations
    
    
    
    
    
    
    (20
    )Net cash (used in) provided by continuing and
discontinued operations
    
    
    (5,027
    )
    
    
    1,686Cash flows from investing activities:Net proceeds from sale of available-for-sale securities
    
    
    
    
    
    
    30Payment received on notes receivable
    
    
    13
    
    
    
    12Additions to property and equipment, net
    
    
    (34
    )
    
    
    (46
    )Net cash used in investing activities
    
    
    (21
    )
    
    
    (4
    )Cash flows from financing activities:Proceeds from the issuance of common stock
    
    
    32
    
    
    
    19Repayment of debt
    
    
    (27
    )
    
    
    (28
    )Net cash provided by (used in) financing activities
    
    
    5
    
    
    
    (9
    )Net (decrease) increase in cash and cash equivalents
    
    
    (5,043
    )
    
    
    1,673Cash and cash equivalents at beginning of period
    
    
    6,313
    
    
    
    5,543Cash and cash equivalents at end of period
    
    $
    1,270
    
    
    
    7,216Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    94
    
    
    
    95Income taxes
    
    $
    
    
    
    
    30Non-cash operating, financing and investing activities:Property acquired under capital leases
    
    $
    6
    
    
    
    34
  5




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 Notes
to Consolidated Financial Statements
 Note 1  Description of the Companys Business and Basis of Presentation
 Basis of Presentation
  Going Concern
  Consolidation
 
 Change in Fiscal Year End
  Note 2  Summary of Significant Accounting Policies
 Revenue Recognition
  6




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  Healthcare Expense Recognition
  Accrued Claims Payable
  Premium Deficiencies
    Fair Value Measurements
  7




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
   Income Taxes
     Stock Options
  8




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
    Weighted-Average
    
    Weighted-AverageExercise
    
    Remaining
    
    AggregateOptions
    
    Shares
    
    Price
    
    Contractual Term
    
    Intrinsic ValueOutstanding at April 1, 2008
    
    
    885,375
    
    
    $
    1.24
    
    
    6.19 yearsGranted
    
    
    110,000
    
    
    $
    0.43Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (25,000
    )
    
    $
    1.76Outstanding at June 30, 2008
    
    
    970,375
    
    
    $
    1.13
    
    
    6.40 years
    
    
    Exercisable at June 30, 2008
    
    
    602,875
    
    
    $
    1.43
    
    
    4.48 years
    
    
    
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Options granted
    
    
    110,000
    
    
    
    
    
    
    
    295,000
    
    
    
    Weighted-average grant-date fair value ($)
    
    
    0.37
    
    
    
    
    
    
    
    0.46
    
    
    
    Options exercised
    
    
    
    
    
    
    
    
    
    
    125,000
    
    
    
    37,500Total intrinsic value of exercised options ($)
    
    
    
    
    
    
    
    
    
    
    50,080
    
    
    
    13,160Fair value of vested options ($)
    
    
    7,376
    
    
    
    3,423
    
    
    
    54,743
    
    
    
    78,346
   9




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Volatility factor of the expected
market price of the
Companys common stock
    
    
    130
    %
    
    
    
    
    
    
    125-130
    %
    
    
    Expected life (in years) of the options
    
    
    5
    
    
    
    
    
    
    
    5-6
    
    
    
    Risk-free interest rate
    
    
    2.98
    %
    
    
    
    
    
    
    2.59-3.24
    %
    
    
    Dividend yield
    
    
    0
    %
    
    
    
    
    
    
    0
    %
    
    
    
 Per Share Data
  Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Amounts in thousands, except per share information)Numerator:Net loss
    
    $
    (3,727
    )
    
    
    (1,145
    )
    
    
    (5,159
    )
    
    
    (1,849
    )Denominator:Weighted average shares  basic
    
    
    7,828
    
    
    
    7,703
    
    
    
    7,778
    
    
    
    7,692Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares  diluted
    
    
    7,828
    
    
    
    7,703
    
    
    
    7,778
    
    
    
    7,692Loss per common share  basic and diluted:
    
    $
    (0.48
    )
    
    
    (0.15
    )
    
    
    (0.66
    )
    
    
    (0.24
    )
  Convertible debentures(a)
    
    
    15,051Convertible preferred stock(b)
    
    
    4,235,328Outstanding stock options(c)
    
    
    970,375Outstanding warrants(d)
    
    
    313,500Possible future issuance under stock option plans
    
    
    1,150,168Total
    
    
    6,684,422
 
 (a)
    
    The debentures are convertible into 15,051 shares of common stock at a conversion price of
$149.09 per share.(b)
    
    The Series A Convertible Preferred Stock (Series A Preferred Stock) is convertible into
4,235,328 shares of common stock at a conversion rate of 294.12 common shares for each preferred
share. 10




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 (c)
    
    Options to purchase our common stock have been issued to employees and non-employee
directors with exercise prices ranging from $.25 to $4.00.(d)
    
    Warrants to purchase our common stock have been issued to certain individuals or vendors in
exchange for consulting services. All such warrants were issued in lieu of cash compensation and
have five-year terms. Exercise prices for warrants remaining at June 30, 2008 range from $1.25 to
$1.35.
 Note 3  Liquidity and Management Plans Regarding Going Concern
     Note 4  Sources Of Revenue
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Capitated contracts
    
    $
    9,258
    
    
    $
    8,848
    
    
    $
    18,345
    
    
    $
    17,315Non-capitated contracts
    
    
    324
    
    
    
    311
    
    
    
    570
    
    
    
    545Total
    
    $
    9,582
    
    
    $
    9,159
    
    
    $
    18,915
    
    
    $
    17,860
 11




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  Note 5  Major Customers/Contracts
       Note 6  Preferred Stock
   12




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Note 7 Commitments and Contingencies
      Note 8  Related Party Transactions
     13




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  OVERVIEW
 GENERAL
 
  
    
    Commercial members
    
    Medicare members
    
    Medicaid members
    
    Childrens Health Insurance Program (CHIP) members
  
    
    employers
    
    health plans
    
    government organizations
    
    third-party claims administrators
    
    commercial purchasers
    
    other group purchasers of behavioral healthcare services
  
    
    psychiatrists
    
    psychologists
    
    therapists
    
    other licensed healthcare professionals
    
    psychiatric hospitals
    
    general medical facilities with psychiatric beds
    
    residential treatment centers
    
    other treatment facilities
 14




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
   
    
    capitation arrangements, where our clients pay us a fixed fee per member, and
    
    fee-for-service and administrative service arrangements where we may manage behavioral
healthcare programs or perform various managed care services.
        15




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Results of Operations
   The Three Months Ended June 30, 2008 Compared to the Three Months Ended June 30, 2007:
 Three Months EndedJune 30,2008
    
    
    2007Operating revenues:Capitated contracts
    
    $
    9,258
    
    
    
    8,848Non-capitated sources
    
    
    324
    
    
    
    311Total operating revenues
    
    
    9,582
    
    
    
    9,159Operating expenses:Healthcare operating expenses:Claims expense(1)
    
    
    9,750
    
    
    
    7,550Other healthcare operating expenses (1)
    
    
    1,657
    
    
    
    1,798Reserve for loss contract
    
    
    300
    
    
    
    Total healthcare operating expenses
    
    
    11,707
    
    
    
    9,348General and administrative expenses
    
    
    1,518
    
    
    
    931Bad debt expense
    
    
    
    
    
    
    2Depreciation and amortization
    
    
    40
    
    
    
    38Total operating expenses
    
    
    13,265
    
    
    
    10,319Operating loss
    
    $
    (3,683
    )
    
    
    (1,160
    )
 
 (1)
    
    Claims expense reflects the cost of revenue of capitated contracts, and other healthcare
operating expense reflects the cost of revenue of capitated and non-capitated contracts.    16




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  The Six Months Ended June 30, 2008 Compared to the Six Months Ended June 30, 2007:
 Six Months EndedJune 30,2008
    
    
    2007Operating revenues:Capitated contracts
    
    $
    18,345
    
    
    
    17,315Non-capitated sources
    
    
    570
    
    
    
    545Total operating revenues
    
    
    18,915
    
    
    
    17,860Operating expenses:Healthcare operating expenses:Claims expense(1)
    
    
    17,900
    
    
    
    14,464Other healthcare operating expenses(1)
    
    
    3,246
    
    
    
    3,147Reserve for loss contract
    
    
    300
    
    
    
    Total healthcare operating expenses
    
    
    21,446
    
    
    
    17,611General and administrative expenses
    
    
    2,466
    
    
    
    2,012Recovery of doubtful accounts
    
    
    
    
    
    
    (8
    )Depreciation and amortization
    
    
    80
    
    
    
    76Total operating expenses
    
    
    23,992
    
    
    
    19,691Operating loss
    
    $
    (5,077
    )
    
    
    (1,831
    )
 
 (1)
    
    Claims expense reflects the cost of revenue of capitated contracts, and other healthcare
operating expense reflects the cost of revenue of capitated and non-capitated contracts.    17




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  Seasonality of Business
  Concentration of Risk
  Liquidity And Capital Resources
      18




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Limited Cash Availability
   Special
Committee Formation
  Going Concern
   Critical Accounting Estimates
   19




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Revenue Recognition
    Accrued Claims Payable and Claims Expense
      20




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  
    
    Changes in utilization patterns
    
    Changes in healthcare costs
    
    Changes in claims submission timeframes by providers
    
    Success in renegotiating contracts with healthcare providers
    
    Occurrence of catastrophes
    
    Changes in benefit plan design
    
    The impact of present or future state and federal regulations
  Change in Healthcare Costs:
 (Decrease)(Decrease)
    
    IncreaseIncrease
    
    In Claims Expense(5%)
    
    
    ($153,000
    )5%
    
    
    $150,000
 Premium Deficiencies
    Goodwill
  21




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Stock Compensation Expense
  Expected Volatility
  Expected Term
  Expected Forfeiture Rate
  Legal Proceedings
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4.
    
    Controls and Procedures
  
 PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  22




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
  
 Item 1A.
    
    Risk Factors
  
 Item 6.
    
    Exhibits
 EXHIBITNUMBER
    
    DESCRIPTION31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 23




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
   August 11, 2008
    COMPREHENSIVE CARE CORPORATIONBy
    /s/ JOHN M. HILLJohn M. HillPresident and Chief Executive
Officer
(Principal Executive Officer)By
    /s/      ROBERT J. LANDISRobert J. LandisChairman, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer) 24