##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

|     |  |                                                                                         
|---- |  | ----------------------------------------------------------------------------------------
|[X]  |  | Quarterly report pursuant to Section13 or 15(d) of the Securities Exchange Act of 1934  
|     |  |                                                                                         
|     |  | For the period ended August 31, 2002.                                                   
|     |  |                                                                                         
|[  ] |  | 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                                                       |  | 95-2594724                       
|                                                               |  |                                  
|(State or other jurisdiction of incorporation
or organization) |  | (IRS Employer Identification No.)

200 South Hoover Blvd, Suite 200, Tampa, FL 33609
(Address of principal executive offices and zip code)

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

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuers classes
of Common Stock, as of the latest practicable date:

|                                       |  |                               
|-------------------------------------- |  | ------------------------------
|Classes                                |  | Outstanding at October 2, 2002
|                                       |  |                               
|Common Stock,
par value $.01 per share |  | 3,899,053                     





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COMPREHENSIVE CARE CORPORATION

INDEX

|                               |                                                                                                            |                                                                                           |  |       |      | 
|------------------------------ | ---------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- |  | ----- | ---- | 
|                               |                                                                                                            |                                                                                           |  | PAGE 
|PART I  FINANCIAL INFORMATION |                                                                                                            |                                                                                           |  |      
|                               | Item 1 CONSOLIDATED FINANCIAL STATEMENTS                                                                  |                                                                                           |  |       |     
|                               |                                                                                                            | Consolidated Balance Sheets,
August 31, 2002 and May 31, 2002                             |  |       | 3    | 
|                               |                                                                                                            | Consolidated Statements of Operations for
the three months ended August 31, 2002 and 2001 |  |       | 4    | 
|                               |                                                                                                            | Consolidated Statements of Cash Flows for
the three months ended August 31, 2002 and 2001 |  |       | 5    | 
|                               |                                                                                                            | Notes to Consolidated Financial Statements                                                |  |       | 6-11 | 
|                               | Item 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF
             OPERATIONS |                                                                                           |  | 11-15 |     
|                               | Item 4 CONTROLS AND PROCEDURES                                                                            |                                                                                           |  | 15    |     
|PART II  OTHER INFORMATION    |                                                                                                            |                                                                                           |  |      
|                               | Item 1 LEGAL PROCEEDINGS                                                                                  |                                                                                           |  | 16-17 |     
|                               | Item 5  OTHER INFORMATION                                                                                 |                                                                                           |  | 17    |     
|                               | Item 6 EXHIBITS AND REPORTS ON FORM 8-K                                                                   |                                                                                           |  | 18    |     
|                               | SIGNATURES                                                                                                 |                                                                                           |  | 19    |     
|                               | CERTIFICATIONS                                                                                             |                                                                                           |  | 19-20 |     

2



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##### 



COMPREHENSIVE CARE CORPORATION
AND SUBSIDIARIES

PART I.  FINANCIAL INFORMATION

Item 1  Consolidated Financial Statements

CONSOLIDATED BALANCE SHEETS

|                                                                     |                                                                                                             |   |                        |         |         |   |         |         |  
|-------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | - | ---------------------- | ------- | ------- | - | ------- | ------- | -
|                                                                     |                                                                                                             |   | August 31,             |         | May 31,
|                                                                     |                                                                                                             |   | 2002                   |         | 2002   
|                                                                     |                                                                                                             |   |                        |         |        
|                                                                     |                                                                                                             |   | (unaudited)            |         |         |   |        
|                                                                     |                                                                                                             |   | (Amounts in thousands)
|ASSETS                                                               |                                                                                                             |   |                        |         |         |   |         |        
|Current assets:                                                      |                                                                                                             |   |                        |         |         |   |         |        
|                                                                     | Cash and cash equivalents                                                                                   |   | $                      | 4,174   |         |   | $       | 5,340   |  
|                                                                     | Accounts receivable, less allowance for doubtful accounts of $8                                             |   |                        | 330     |         |   |         | 324     |  
|                                                                     | Accounts receivable  managed care reinsurance contract                                                     |   |                        | 676     |         |   |         | 575     |  
|                                                                     | Other receivable                                                                                            |   |                        | 2,548   |         |   |         | 2,548   |  
|                                                                     | Other current assets                                                                                        |   |                        | 667     |         |   |         | 591     |  
|                                                                     |                                                                                                             |   |                        |         |         |   |         |        
|Total current assets                                                 |                                                                                                             |   | 8,395                  |         |         |   | 9,378   |        
|Property and equipment, net                                          |                                                                                                             |   | 264                    |         |         |   | 291     |        
|Note receivable                                                      |                                                                                                             |   | 158                    |         |         |   | 159     |        
|Goodwill, net                                                        |                                                                                                             |   | 991                    |         |         |   | 991     |        
|Restricted cash                                                      |                                                                                                             |   | 430                    |         |         |   | 430     |        
|Other assets                                                         |                                                                                                             |   | 166                    |         |         |   | 150     |        
|                                                                     |                                                                                                             |   |                        |         |         |   |         |        
|Total assets                                                         |                                                                                                             | $ | 10,404                 |         |         | $ | 11,399  |        
|                                                                     |                                                                                                             |   |                        |         |         |   |         |        
|LIABILITIES AND STOCKHOLDERS DEFICIT                                |                                                                                                             |   |                        |         |         |   |         |        
|Current liabilities:                                                 |                                                                                                             |   |                        |         |         |   |         |        
|                                                                     | Accounts payable and accrued liabilities                                                                    |   | $                      | 2,485   |         |   | $       | 2,891   |  
|                                                                     | Accrued claims payable                                                                                      |   |                        | 3,665   |         |   |         | 4,635   |  
|                                                                     | Accrued reinsurance claims payable                                                                          |   |                        | 2,421   |         |   |         | 2,019   |  
|                                                                     | Unbenefitted tax refunds received                                                                           |   |                        | 12,092  |         |   |         | 12,092  |  
|                                                                     | Income taxes payable                                                                                        |   |                        | 20      |         |   |         | 16      |  
|                                                                     |                                                                                                             |   |                        |         |         |   |         |        
|Total current liabilities                                            |                                                                                                             |   | 20,683                 |         |         |   | 21,653  |        
|                                                                     |                                                                                                             |   |                        |         |         |   |         |        
|Long-term liabilities:                                               |                                                                                                             |   |                        |         |         |   |         |        
|                                                                     | Long-term debt                                                                                              |   |                        | 2,244   |         |   |         | 2,244   |  
|                                                                     | Other liabilities                                                                                           |   |                        | 18      |         |   |         | 21      |  
|                                                                     |                                                                                                             |   |                        |         |         |   |         |        
|Total long-term liabilities                                          |                                                                                                             |   | 2,262                  |         |         |   | 2,265   |        
|                                                                     |                                                                                                             |   |                        |         |         |   |         |        
|Total liabilities                                                    |                                                                                                             |   | 22,945                 |         |         |   | 23,918  |        
|                                                                     |                                                                                                             |   |                        |         |         |   |         |        
|Commitments
and Contingencies (Notes 4 and 6)
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 3,885,719 and 3,878,552 |   |                        | 39      |         |   |         | 39      |  
|                                                                     | Additional paid-in-capital                                                                                  |   |                        | 51,852  |         |   |         | 51,842  |  
|                                                                     | Deferred compensation                                                                                       |   |                        |        |         |   |         | (1      | )
|                                                                     | Accumulated deficit                                                                                         |   |                        | (64,432 | )       |   |         | (64,399 | )
|                                                                     |                                                                                                             |   |                        |         |         |   |         |        
|Total stockholders deficit                                          |                                                                                                             |   | (12,541                | )       |         |   | (12,519 | )      
|                                                                     |                                                                                                             |   |                        |         |         |   |         |        
|Total liabilities and stockholders deficit                          |                                                                                                             | $ | 10,404                 |         |         | $ | 11,399  |        
|                                                                     |                                                                                                             |   |                        |         |         |   |         |        

See accompanying notes.

3



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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations
(Unaudited)
(Amounts in thousands, except per share amounts)

|                                                                |                                     |   |                    |       |      |   |       |       |  
|--------------------------------------------------------------- | ----------------------------------- | - | ------------------ | ----- | ---- | - | ----- | ----- | -
|                                                                |                                     |   | Three months Ended
|                                                                |                                     |   | August 31,        
|                                                                |                                     |   |                   
|                                                                |                                     |   | 2002               |       | 2001
|                                                                |                                     |   |                    |       |     
|Operating revenues                                              |                                     | $ | 8,307              |       |      | $ | 6,126 |      
|                                                                |                                     |   |                    |       |      |   |       |      
|Costs and expenses:                                             |                                     |   |                    |       |      |   |       |      
|                                                                | Healthcare operating expenses       |   |                    | 7,353 |      |   |       | 5,210 |  
|                                                                | General and administrative expenses |   |                    | 888   |      |   |       | 826   |  
|                                                                | Recovery of doubtful accounts       |   |                    | (8    | )    |   |       | (14   | )
|                                                                | Depreciation and amortization       |   |                    | 68    |      |   |       | 101   |  
|                                                                |                                     |   |                    |       |      |   |       |      
|                                                                |                                     |   | 8,301              |       |      |   | 6,123 |      
|                                                                |                                     |   |                    |       |      |   |       |      
|Operating income before items shown below                       |                                     |   | 6                  |       |      |   | 3     |      
|                                                                |                                     |   |                    |       |      |   |       |      
|Other income (expense):                                         |                                     |   |                    |       |      |   |       |      
|                                                                | Gain on sale of assets              |   |                    | 3     |      |   |       |      |  
|                                                                | Loss on disposal of assets          |   |                    | (5    | )    |   |       |      |  
|                                                                | Interest income                     |   |                    | 16    |      |   |       | 33    |  
|                                                                | Interest expense                    |   |                    | (46   | )    |   |       | (45   | )
|                                                                | Other non-operating income          |   |                    |      |      |   |       | 15    |  
|                                                                |                                     |   |                    |       |      |   |       |      
|Income (loss) before income taxes                               |                                     |   | (26                | )     |      |   | 6     |      
|Income tax expense                                              |                                     |   | 7                  |       |      |   | 7     |      
|                                                                |                                     |   |                    |       |      |   |       |      
|                                                                |                                     |   |                    |       |      |   |       |      
|Loss before cumulative effect of change in accounting principle |                                     | $ | (33                | )     |      | $ | (1    | )    
|Cumulative effect of change in accounting principle             |                                     |   |                   |       |      |   | 55    |      
|                                                                |                                     |   |                    |       |      |   |       |      
|                                                                |                                     |   |                    |       |      |   |       |      
|Net income (loss) attributable to common stockholders           |                                     | $ | (33                | )     |      | $ | 54    |      
|                                                                |                                     |   |                    |       |      |   |       |      
|Basic and diluted income (loss) per share:                      |                                     |   |                    |       |      |   |       |      
|Loss before cumulative effect of change in accounting principle |                                     | $ | (0.01              | )     |      | $ |      |      
|Cumulative effect of change in accounting principle             |                                     |   |                   |       |      |   | 0.01  |      
|                                                                |                                     |   |                    |       |      |   |       |      
|Net income (loss)                                               |                                     | $ | (0.01              | )     |      | $ | 0.01  |      
|                                                                |                                     |   |                    |       |      |   |       |      

See accompanying notes.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(Unaudited)

|                                                                                                   |                                                                      |   |        |                        |   |      |       |      |   | 
|-------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | - | ------ | ---------------------- | - | ---- | ----- | ---- | - | 
|                                                                                                   |                                                                      |   |        | Three months ended    
|                                                                                                   |                                                                      |   |        | August 31,            
|                                                                                                   |                                                                      |   |        |                       
|                                                                                                   |                                                                      |   |        | 2002                   |   | 2001
|                                                                                                   |                                                                      |   |        |                        |   |     
|                                                                                                   |                                                                      |   |        | (Amounts in thousands)
|Cash flows from operating activities:                                                              |                                                                      |   |        |                        |   |      |       |     
|Net income (loss)                                                                                  |                                                                      | $ | (33    | )                      |   | $    | 54    |     
|                                                                                                   |                                                                      |   |        |                        |   |      |       |     
|Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |                                                                      |   |        |                        |   |      |       |     
|                                                                                                   | Depreciation and amortization                                        |   |        | 68                     |   |      |       | 101  |  
|                                                                                                   | Cumulative effect of change in accounting principle                  |   |        |                       |   |      |       | (55  | )
|                                                                                                   | Compensation expense  stock and stock options issued                |   |        | 11                     |   |      |       |     |  
|                                                                                                   | Gain on sale of assets                                               |   |        | (3                     | ) |      |       |     |  
|                                                                                                   | Loss on disposal of assets                                           |   |        | 5                      |   |      |       |     |  
|                                                                                                   |                                                                      |   |        |                        |   |      |       |     
|Changes in assets and liabilities:                                                                 |                                                                      |   |        |                        |   |      |       |     
|                                                                                                   | Accounts receivable                                                  |   |        | (6                     | ) |      |       | (33  | )
|                                                                                                   | Accounts receivable  managed care reinsurance contract              |   |        | (101                   | ) |      |       | 37   |  
|                                                                                                   | Other current assets, restricted funds, and other
non-current assets |   |        | (92                    | ) |      |       | 311  |  
|                                                                                                   | Accounts payable and accrued liabilities                             |   |        | (433                   | ) |      |       | (64  | )
|                                                                                                   | Accrued claims payable                                               |   |        | (970                   | ) |      |       | (122 | )
|                                                                                                   | Accrued reinsurance claims payable                                   |   |        | 402                    |   |      |       | 652  |  
|                                                                                                   | Income taxes payable                                                 |   |        | 4                      |   |      |       | 10   |  
|                                                                                                   | Other liabilities                                                    |   |        | (2                     | ) |      |       | (6   | )
|                                                                                                   |                                                                      |   |        |                        |   |      |       |     
|                                                                                                   | Net cash (used in) provided by operating activities                  |   |        | (1,150                 | ) |      |       | 885  |  
|                                                                                                   |                                                                      |   |        |                        |   |      |       |     
|                                                                                                   |                                                                      |   |        |                        |   |      |       |     
|Cash flows from investing activities:                                                              |                                                                      |   |        |                        |   |      |       |     
|                                                                                                   | Net proceeds from sale of property and equipment                     |   |        | 2                      |   |      |       |     |  
|                                                                                                   | Payments received on note receivable                                 |   |        | 1                      |   |      |       | 1    |  
|                                                                                                   | Additions to property and equipment                                  |   |        | (18                    | ) |      |       | (8   | )
|                                                                                                   |                                                                      |   |        |                        |   |      |       |     
|                                                                                                   | Net cash used in investing activities                                |   |        | (15                    | ) |      |       | (7   | )
|                                                                                                   |                                                                      |   |        |                        |   |      |       |     
|                                                                                                   |                                                                      |   |        |                        |   |      |       |     
|Cash flows from financing activities:                                                              |                                                                      |   |        |                        |   |      |       |     
|                                                                                                   | Repayment of debt                                                    |   |        | (1                     | ) |      |       |     |  
|                                                                                                   |                                                                      |   |        |                        |   |      |       |     
|                                                                                                   | Net cash used in financing activities                                |   |        | (1                     | ) |      |       |     |  
|                                                                                                   |                                                                      |   |        |                        |   |      |       |     
|Net (decrease) increase in cash and cash equivalents                                               |                                                                      |   | (1,166 | )                      |   |      | 878   |     
|Cash and cash equivalents at beginning of year                                                     |                                                                      |   | 5,340  |                        |   |      | 2,891 |     
|                                                                                                   |                                                                      |   |        |                        |   |      |       |     
|Cash and cash equivalents at end of period                                                         |                                                                      | $ | 4,174  |                        |   | $    | 3,769 |     
|                                                                                                   |                                                                      |   |        |                        |   |      |       |     

See accompanying notes

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Note 1  Summary of Significant Accounting Policies

The consolidated balance sheet as of August 31, 2002, and the related
consolidated statements of operations and cash flows for the three months ended
August 31, 2002 and 2001 are unaudited and have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the
opinion of management, all adjustments necessary for a fair presentation of
such financial statements have been included. Such adjustments consisted only
of normal recurring items. The results of operations for the three months
ended August 31, 2002 are not necessarily indicative of the results to be
expected during the balance of the fiscal year.

The consolidated financial statements do not include all information and
footnotes necessary for a complete presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. The balance sheet at May 31, 2002 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statement presentation. Notes to consolidated financial statements
included in Form 10-K for the year ended May 31, 2002 are on file with the
Securities and Exchange Commission and provide additional disclosures and a
further description of accounting policies.

The Companys financial statements are presented on the basis that it is a
going concern, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The consolidated financial
statements do not include any adjustments to reflect the possible future
effects on the recovery and classification of assets or the amount and
classification of liabilities that may result from the outcome of the
uncertainties described in Note 2  Basis of Presentation.

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). Such agreements accounted for 86.6%,
or $7.2 million, of revenue for the three months ended August 31, 2002 and
82.5%, or $5.1 million, of revenue for the three months ended August 31, 2001.
The balance of the Companys revenues is earned on a fee-for-service basis and
is recognized as services are rendered.

Restricted Cash

As of August 31, 2002 and 2001, 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.

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. These estimates are subject to the effects of trends in
utilization and other factors. Although considerable variability is inherent
in such estimates, management believes that the unpaid claims liability is
adequate. However, actual results could differ from the claims payable amount
reported as of August 31, 2002.

Note 2  Basis of Presentation

The accompanying consolidated financial statements are prepared on a going
concern basis. For the three months ended August 31, 2002, the Company has
incurred net losses and, as of August 31, 2002, has a stockholders deficit of
$12.5 million and a working capital deficiency of $12.3 million. The working
capital deficiency results primarily from a $12.1 million liability related to
Federal income tax refunds received in prior years. The ultimate outcome of
the Internal Revenue Service audit whereby it is seeking recovery of the
refunds from the Company, including the amount to be repaid, if any, and the
timing thereof, is not determinable (see Note 4  Income Taxes).

6



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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Management cannot state with any degree of certainty whether any required
additional equity or debt financing will be available to it during Fiscal 2003
and, if available, that the source of financing would be available on terms and
conditions acceptable to the Company.

The above 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,
successfully resolve the Internal Revenue Service audit, obtain additional
financing as may be required and, ultimately, to attain profitability. The
accompanying consolidated financial statements do not include any adjustments
that may result from the outcome of this uncertainty.

Note 3  Major Customers/Contracts



|(1) |  | The Company currently has three contracts with one HMO to provide
behavioral healthcare services to Florida members. The combined revenue
from these contracts accounted for 18.4%, or $1.5 million, of the
Companys operating revenues during the quarter ended August 31, 2002
compared to 15.7%, or $1.0 million, for the quarter ended August 31, 2001.
Additionally, the Company has one major contract with an affiliate of
this HMO (see Item 2 below). 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. Such
notice followed an agreed upon price increase that the Company had
recently obtained from this client. The price increase was effective
August 1, 2002 and was necessitated by an increase in utilization specific
to this account as well as increases in the rates paid by the Company in
response to demands from a group of providers who service this account.
On September 25, 2002, the HMO verbally advised the Company that its
termination notice was due in part to the recent price increase.
Following such advisement, the Company held discussions with this client,
but was unsuccessful in its attempts to resolve the pricing issue as the
HMO was seeking a price reduction below the original contracted rate. As
such, these contracts covering Florida members will terminate effective
January 1, 2003. The Company believes that it will be able to reduce its
internal costs of servicing this account to minimize any effect on future
results of operations.                                                                                                                                                                                                                                                                                              
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | During the fourth quarter of the fiscal year ended May 31, 2001, the
Company implemented a new contract to provide behavioral healthcare
services to Connecticut members under contract with one HMO. For the
quarter ended August 31, 2002, this contract represented approximately
8.7%, or $0.7 million, of the Companys operating revenue compared to
13.8%, or $0.8 million for the quarter ended August 31, 2001.
Additionally, this contract provides that the Company, through its
contract with this HMO, receives additional funds directly from a state
reinsurance program. During the quarter ended August 31, 2002, the Company
filed reinsurance claims totaling approximately $0.9 million. 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 August 31, 2002, the Company has
reported $0.7 million as accounts receivable  managed care reinsurance
contracts, with $2.4 million reported as accrued reinsurance claims
payable, in the accompanying balance sheet. In the event that the Company
does not collect these reinsurance amounts, the Company could remain
liable for the costs of the specific services provided to members that
qualify for such reimbursements. 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 our customer since April 2001. The original contract term
expires December 31, 2002 and provides for automatic one-year renewals
unless terminated by either party.                                                                                                                                                                                                                         
|   
|(3) |  | During the fiscal year ended May 31, 2001, the Company implemented five
new contracts to provide behavioral healthcare services to Florida members
under contracts with one HMO. These combined contracts represented
approximately 23.3%, or $1.9 million, and 19.8%, or $1.2 million, of the
Companys operating revenue for the quarter ended August 31, 2002 and
2001, respectively. This HMO has been our customer since July 2000. The
primary contract with this customer has renewed through July 22, 2003 and
the contract provides for additional, automatic one-year renewals unless
terminated by either party. On October 4, 2002, the Company
received a written, 90-day termination notice, dated
September 27, 2002, from this client. The HMO
advised the Company that it has entered into an agreement to sell its
Medicaid business to another HMO while retaining other lines of
business. The Company will retain the commercial and Medicare lines
of business with the HMO, which accounted for 6.0%, or approximately
$0.5 million, and 1.6%, or $0.1 million, of the Company's
operating revenues during the quarter ended August 31, 2002 and
2001, respectively. The Company has contacted the acquiring HMO and
has scheduled a meeting to take place in October to discuss retaining
the Medicaid business after the sale is completed, but there can be
no assurance that the Company or any of its subsidiaries will be
selected by the acquiring HMO. As such, the contracts covering
Florida Medicaid members, which
accounted for 17.3%, or $1.4 million, and 18.1%,
or $1.1 million, of the Companys operating revenues during the quarter
ended August 31, 2002 and 2001, respectively, are expected to
terminate effective December 31, 2002. The Company believes that it will be able to
reduce its internal costs of servicing this account to minimize any effect
on future results of operations.

7



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##### 



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Although the loss of the customers listed under (1) and (3) above could have a
material, adverse effect on the Companys financial condition and future
results of operations, the Company believes that it will be able to reduce 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 4  Income Taxes

In connection with the filing of its Federal income tax returns for fiscal
year 1995 and 1996, the Company filed a tentative refund claim to carry back
losses described in Section 172(f) of the Internal Revenue Code (IRC),
requesting a refund of $9.4 million and $5.5 million, respectively, of which
refunds of $9.4 million and $5.4 million were received. In addition, the
Company also filed amended Federal income tax returns for fiscal years prior to
1995, requesting similar refunds for losses carried back under Section 172(f)
of $6.2 million for 1986; $0.4 million for 1985; $0.7 million for 1983; and
$0.4 million for 1982, a total of $7.7 million.

Section 172(f) of the IRC provides for a ten year net operating loss
carryback for specific losses attributable to (1) a product liability or (2) a
liability arising under a federal or state law or out of any tort if the act
giving rise to such liability occurs at least three years before the beginning
of the taxable year. The applicability of Section 172(f) to the type of
business in which the Company operates is unclear. No assurance can be
provided that the Company will be able to retain the refunds received to date
or that the other refunds requested will be received.

During fiscal years 1997 and 1996, the Company recognized a portion of the
refunds received as a tax benefit of $0.3 million and $2.4 million,
respectively. The balance of the refunds received, $12.1 million, is recorded
as a deferred liability, Unbenefitted tax refunds received, pending
resolution by the Internal Revenue Service (IRS) of the appropriateness of
the 172(f) carryback. The other refunds requested under Section 172(f) for
prior years of $7.7 million have not been received, nor has the Company
recognized any tax benefit related to these potential refunds.

On August 21, 1998, the Company received an examination report, dated
August 6, 1998, from the IRS advising the Company that it was disallowing $12.4
million of the $14.8 million of refunds previously received, and the additional
refunds requested of $7.7 million. If the position of the IRS were to be
upheld the Company would be required to repay $12.4 million in refunds
previously received, plus accrued interest of approximately $8.7 million through
August 31, 2002. In this event, the Company would be entitled to a repayment
of the fees advanced to its tax advisor relating to these refunds of
approximately $2.5 million, which is reported as other receivable in the
accompanying balance sheets. The Company filed a protest letter with
the IRS Appeals Office on November 6, 1998. This filing commenced the administrative appeals process.

On July 11, 2000, the Company submitted an Offer in Compromise (the
Offer) and, on March 13, 2002, submitted an amended Offer in Compromise
(Amended Offer) to the IRS Appeals Office to resolve the controversy with respect to the
refunds at a substantially reduced amount than the IRS has asserted as
indicated above. To assist the IRS in evaluating the Amended Offer, the
Company is providing additional documents to the IRS and is continuing its
discussions with the IRS. The Amended Offer must be reviewed and approved by
the IRS, with the ultimate decision determined by the IRS Appeals Office. Pending the resolution of the Amended Offer, the IRS generally
suspends any collection activities. There can be no assurance that the IRS
will accept the Amended Offer.

If the IRS Appeals
Office were to accept the Amended Offer, the IRS would require that
the net operating loss carryforwards are no longer available to the Company.
If the IRS Appeals Office were to ultimately disallow the refunds claimed and an offer is not accepted,
the Company will have additional loss carry forwards of approximately $50
million, which will expire if unused by the year 2010.

8



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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Note 5  Basic and Diluted Earnings (Loss) Per Share

Net earnings (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Convertible debentures
were not included in the calculation of earnings (loss) per share as they are
antidilutive. 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):

| |                                                                 |  |                                                                                                              |       |                    |       |      |      |   |       |  
| | --------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ | ----- | ------------------ | ----- | ---- | ---- | - | ----- | -
| |                                                                 |  |                                                                                                              |       | Three Months Ended
| |                                                                 |  |                                                                                                              |       | August 31,        
| |                                                                 |  |                                                                                                              |       |                   
| |                                                                 |  |                                                                                                              |       | 2002               |       | 2001
| |                                                                 |  |                                                                                                              |       |                    |       |     
| | Numerator:                                                      |  |                                                                                                              |       |                    |       |      |      |  
| |                                                                 |  | Loss before cumulative effect of change in accounting principle                                              |       | $                  | (33   | )    |      | $ | (1    | )
| |                                                                 |  | Cumulative effect of change in accounting principle                                                          |       |                    |      |      |      |   | 55    |  
| |                                                                 |  |                                                                                                              |       |                    |       |      |     
| |                                                                 |  | Numerator for diluted earnings (loss) per share available to Common
Stockholders                             |       | $                  | (33   | )    |      | $ | 54    |  
| |                                                                 |  |                                                                                                              |       |                    |       |      |     
| | Denominator:                                                    |  |                                                                                                              |       |                    |       |      |      |  
| |                                                                 |  | Weighted average shares                                                                                      |       |                    | 3,879 |      |      |   | 3,834 |  
| |                                                                 |  | Effect of dilutive securities:                                                                               |       |                    |       |      |      |   |       |  
| |                                                                 |  | Employee stock options                                                                                       |       |                    |      |      |      |   | 155   |  
| |                                                                 |  |                                                                                                              |       |                    |       |      |     
| |                                                                 |  | Denominator for diluted earnings (loss) per share-adjusted weighted
average shares after assumed conversions |       |                    | 3,879 |      |      |   | 3,989 |  
| |                                                                 |  |                                                                                                              |       |                    |       |      |     
| | Basic earnings (loss) per share:                                |  |                                                                                                              |       |                    |       |      |      |  
| | Loss before cumulative effect of change in accounting principle |  | $                                                                                                            | (0.01 | )                  |       | $    |     |  
| | Cumulative effect of change in accounting principle             |  |                                                                                                              |      |                    |       |      | 0.01 |  
| |                                                                 |  |                                                                                                              |       |                    |       |      |     
| | Net income (loss)                                               |  | $                                                                                                            | (0.01 | )                  |       | $    | 0.01 |  
| |                                                                 |  |                                                                                                              |       |                    |       |      |     
| | Diluted earnings (loss) per share:                              |  |                                                                                                              |       |                    |       |      |      |  
| | Loss before cumulative effect of change in accounting principle |  | $                                                                                                            | (0.01 | )                  |       | $    |     |  
| | Cumulative effect of change in accounting principle             |  |                                                                                                              |      |                    |       |      | 0.01 |  
| |                                                                 |  |                                                                                                              |       |                    |       |      |     
| | Net income (loss)                                               |  | $                                                                                                            | (0.01 | )                  |       | $    | 0.01 |  
| |                                                                 |  |                                                                                                              |       |                    |       |      |     

Authorized shares of common stock reserved for possible issuance for
convertible debentures and stock options are as follows at August 31, 2002:

|                                                  |       |  |         |           | 
|------------------------------------------------- | ----- |  | ------- | --------- | 
|Convertible debentures                            |       |  | 9,044   |          
|Outstanding stock options                         |       |  | 922,458 |          
|Possible future issuance under stock option plans |       |  | 168,501 |          
|                                                  |       |  |         |          
|                                                  | Total |  |         | 1,100,003 | 
|                                                  |       |  |         |          

Note 6  Commitments and Contingencies



|(1) |  | During the fiscal year ended May 31, 2001, the Company implemented a
major contract for one new client requiring that the Company maintains a
$600,000 performance bond throughout the term of the contract. This bond,
which was issued in September 2001 with an effective date of April 1,
2001, is unsecured and is automatically renewable as long as the contract
remains in force.                                                                                                                                                                                                                                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | During the fiscal year ended May 31, 2000, the Company renewed one
contract, which included a requirement that the Company maintains a
$550,000 performance bond throughout the term of the contract. The
original term of the bond was for one year and the bond, which is
unsecured, is automatically renewable as long as the contract remains in
force.                                                                                                                                                                                                                                                                                                                             
|   
|(3) |  | On February 19, 1999, the California Superior Court denied the Companys
Petition for Writ of Mandate of an adverse administrative appeal decision
regarding application of the Maximum Inpatient Reimbursement Limitation to
Medi-Cal reimbursement paid to Brea Neuropsychiatric Hospital for its
fiscal periods 1983 through 1986. The Company owned this facility until
its disposal in fiscal year 1991. The subject matter of the Superior
Court action involved the refusal of the administrative law judge to order
further reductions in the liability for costs associated with treating
high cost, long stay Medi-Cal patients, which are commonly referred to as
outliers.

9



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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES



|    |  | In July 2002, the Company has entered into a Repayment Agreement with the
Department to resolve this liability 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. If
neither of the arrangements discussed under 1) or 2) above was satisfied,
the Company would be considered to be in default and the Department had
the right to collect the full amount of the claim plus interest,
attorneys fees, and collections costs. As of May 31, 2002, the Company
had accrued $950,000 related to this matter. As of August 31, 2002,
after making two installment payments to the Department of $160,000 each,
the Company had a remaining accrual of $630,000 relating to this matter.
In September 2002, the Company made the final, $160,000 installment
payment to the Department and has fully satisfied its obligations under
the terms of the settlement agreement. As a result, the Company expects
to record an extraordinary gain of approximately $470,000 during the
second quarter of Fiscal 2003.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(4) |  | With respect to the contingency related to prior years income taxes, see
Note 4, Income Taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(5) |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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 some pending cases, 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 believes that the outcome of such
lawsuits will not have a material adverse impact on the Companys financial
statements.

Item 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q includes forward-looking statements,
the realization of which may be impacted by certain important factors discussed
below under Cautionary Statement and Risk Factors  Important Factors
Related to Forward-Looking Statements and Associated Risks (page 12).

GENERAL

INTRODUCTION

The Company has provided managed behavioral healthcare services and
products since 1992. Current services include a broad spectrum of inpatient
and outpatient mental health and substance abuse therapy, counseling, and
supportive interventions. The Companys chief focus is its managed care
business.

RECENT DEVELOPMENTS



| |  |  | (a) On October 4,
2002, the Company received a written, 90-day termination notice,
dated September 27, 2002, from one major client.  This HMO
advised the Company that it has
entered into an agreement to sell its Medicaid business to another
HMO while retaining other lines of business. The Company will retain
the commercial and Medicare lines of business with this HMO, which
accounted for 6.0%, or approximately $0.5 million, and 1.6%, or
$0.1 million, of the Company's operating revenues during the quarter ended
August 31, 2002 and 2001, respectively. The Company  has
contacted the acquiring HMO and has scheduled a meeting to take place
in October to discuss retaining the Medicaid business after the sale
is completed, but there can be no assurance that the Company or any
of its subsidiaries will be selected by the acquiring HMO. As such,
the contracts covering Florida Medicaid members, which accounted for 17.3%, or $1.4 million, and 18.1%, or
$1.1 million, of the Companys operating revenues during the quarter
ended August 31, 2002 and 2001, respectively (see Note 3, Item 3 
Major Customers/Contracts  to the consolidated financial
statements), are expected to terminate effective December 31,
2002. The Company believes that it will be able to
reduce its internal costs of servicing this account to minimize any
effect on future results of operations.
|- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10



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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES



| |  |  | (b) On September 24, 2002, the Company received a written, 90-day
termination notice, dated September 20, 2002, from one major customer
whose contracts with the Company accounted for 18.4%, or $1.5
million, of the Companys operating revenues during the quarter ended
August 31, 2002 (see Note 3, Item 1  Major Customers/Contracts 
to the consolidated financial statements). Such notice followed an
agreed upon price increase that the Company had recently obtained
from this client. The price increase was effective August 1, 2002
and was necessitated by an increase in utilization specific to this
account as well as increases in the rates paid by the Company in
response to demands from a group of providers who service this
account. On September 25, 2002, the HMO
verbally advised the Company that its termination notice was due in
part to the recent price increase. Following such advisement, the
Company held discussions with this client, but was unsuccessful in
its attempts to resolve the pricing issue as the HMO was seeking a
price reduction below the original contracted rate. As such, these
contracts covering Florida members will terminate effective January
1, 2003. The Company believes that it will be able to reduce its
internal costs of servicing this account to minimize any effect on
future results of operations.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Although the loss of the above customers could have a material, adverse
effect on the Companys financial condition and future results of
operations, the Company believes that it will be able to reduce its
internal cost of servicing these accounts to minimize any effect on
future results of operations. In particular, certain of the contracts
listed under (a) and (b) above were among the least profitable accounts
during the fiscal year ended May 31, 2002. In addition, the Company
expects to contract with two new, smaller HMO clients to begin providing
services to their membership during the second quarter of Fiscal 2003.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The National Committee on Quality Assurance has awarded Full
Accreditation to Comprehensive Behavioral Cares (CBC) Southeast
regional operations, extending CBCs accreditation to July 22, 2005.
This accreditation covers the Companys health plan membership in
Connecticut, Florida, Georgia, and Michigan and has been important to
the Companys ability to recruit new clients such as one new Michigan
client that we added in April 2002.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | During July 2002, the Company entered into a Repayment Agreement with
the California Department of Health Services to resolve the Medi-Cal
liability (see Item 1-(1)  Legal Proceedings, below). Effective
September 2002, the Company has made the final payment to the
Department and has fully satisfied its obligations under the terms of
the settlement agreement. As a result, the Company expects to record
an extraordinary gain of approximately $470,000 during the second
quarter of Fiscal 2003.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

RESULTS OF OPERATIONS

The Company reported a net loss of $33,000, or $0.01 loss per share, for
the quarter ended August 31, 2002 compared to net income of $54,000, or $0.01
earnings per share, for the quarter ended August 31, 2001, which included
approximately $55,000 specific to the cumulative effect of a change in
accounting principle. The following tables summarize the Companys financial
data for the three months ended August 31, 2002 and 2001 (in thousands):

THE THREE MONTHS ENDED AUGUST 31, 2002 COMPARED TO THE THREE MONTHS ENDED AUGUST 31, 2001:

|                                |  |              |       |              |  |   |       | 
|------------------------------- |  | ------------ | ----- | ------------ |  | - | ----- | 
|                                |  | Consolidated |       | Consolidated
|                                |  | Operations   |       | Operations  
|                                |  | Fiscal 2003  |       | Fiscal 2002 
|                                |  |              |       |             
|Operating revenues              |  | $            | 8,307 |              |  | $ | 6,126 | 
|Healthcare operating expenses   |  |              | 7,353 |              |  |   | 5,210 | 
|General/administrative expenses |  |              | 888   |              |  |   | 826   | 
|Other operating expenses        |  |              | 60    |              |  |   | 87    | 
|                                |  |              |       |              |  |   |       | 
|                                |  |              | 8,301 |              |  |   | 6,123 | 
|                                |  |              |       |              |  |   |       | 
|Operating income                |  | $            | 6     |              |  | $ | 3     | 
|                                |  |              |       |              |  |   |       | 

The Company reported a net loss of $33,000 and operating income of $6,000
for the quarter ended August 31, 2002 compared to net income of $54,000 and
operating income of $3,000 for the quarter ended August 31, 2001. Operating
revenues increased by 35.6%, or $2.2 million, to $8.3 million for the quarter
ended August 31, 2002 compared to $6.1 million for the quarter ended August 31,
2001. This increase is primarily attributable to two new
contracts implemented
during Fiscal 2002 and continued membership growth from state sponsored
childrens health insurance programs.

11



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##### 



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Healthcare operating expenses increased by approximately $2.1 million, or
41.1%, for the quarter ended August 31, 2002 as compared to the quarter ended
August 31, 2001. This increase is directly attributable to revenue growth as
described above. Healthcare operating expense as a percentage of operating
revenue increased by 3.4%, from 85.1% for the quarter ended August 31, 2001 to
88.5% for the quarter ended August 31, 2002. This increase is primarily
attributable to a change in revenue mix resulting in increased Medicaid and
Medicare membership during Fiscal 2003 compared to Fiscal 2002. Additionally,
the Company experienced increased utilization during the quarter ended August
31, 2002 compared to the quarter ended August 31, 2001. In response,
management has begun initiatives to manage costs and negotiate necessary price
increases from its clients.

General and administrative expenses increased by approximately $62,000, or
7.5%, for the quarter ended August 31, 2002 as compared to the quarter ended
August 31, 2001. This increase is primarily attributable to staffing additions
necessary to support new revenue. General and administrative expense as a
percentage of operating revenue decreased from 13.5% for the quarter ended
August 31, 2001 to 10.7% for the quarter ended August 31, 2002.

Other operating expenses decreased by $27,000 for the quarter ended August
31, 2002 compared to the quarter ended August 31, 2001. This decrease is
primarily attributable to a reduction in depreciation expense, which results
from assets being fully depreciated and, also, from decreases in capital
spending.

CAUTIONARY STATEMENT FOR THE PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Certain information included
in this quarterly report on Form 10-Q and in other Company reports, SEC
filings, statements, and presentations is forward looking within the meaning of
the Private Securities Litigation Reform Act of 1995, including, but not
limited to, statements concerning the Companys anticipated operating results,
financial resources, increases in revenues, increased profitability, interest
expense, growth and expansion, and the ability to obtain new behavioral
healthcare contracts. Such forward-looking information involves important
risks and uncertainties that could significantly affect actual results and
cause them to differ materially from expectations expressed herein and in other
Company reports, SEC filings, statements, and presentations. These risks and
uncertainties include local, regional, and national economic and political
conditions, the effect of governmental regulation, the competitive environment
in which the Company operates, and other risks detailed from time to time in
the Companys SEC reports.

Risk Factors

Important Factors Related to Forward-Looking Statements and Associated Risks

This Quarterly Report on Form 10-Q 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, the Companys success in (i)
expanding the managed behavioral healthcare operations, (ii) effective
management in the delivery of services, (iii) risk and utilization in context
of capitated payouts, and (iv) retaining certain refunds from the IRS (see Note
4 to the unaudited consolidated financial statements   Income Taxes).

Concentration of Risk

The Company currently has nine contracts with three health plans to
provide behavioral healthcare services under commercial, Medicaid, and Medicare
plans, to contracted members in Connecticut and Florida. These combined
contracts represent approximately 50.4% and 49.2% of the Companys operating
revenue for the three months ended August 31, 2002 and August 31, 2001,
respectively, and include contracts that may terminate effective January 1,
2003, which accounted for a combined 35.7% and 33.8% of the Companys operating
revenue for the three months ended August 31, 2002 and August 31, 2001,
respectively (see Note 3 to the consolidated financial statements  Major
Customers/Contracts and Recent Developments above). 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 could have a material, adverse effect on the Companys
working capital and future results of operations.

12



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##### 



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Uncertainty of Future Profitability

As of August 31, 2002, the Company had stockholders deficit of $12.5
million and a working capital deficiency of approximately $12.3 million. The
Company had a net loss for the three months ended August 31, 2002 of
approximately $33,000. There can be no assurance that the Company will be able
to achieve and sustain profitability or that the Company can maintain positive
cash flow on an ongoing basis. Present results of operations are not
necessarily indicative of anticipated future results of operations.

Need for Additional Funds; Uncertainty of Future Funding

During recent fiscal years, a principal source of liquidity has been the
sale of hospital facilities. During Fiscal 1999, the Company completed its
plan to dispose of its hospital business segment and as such, does not
currently own any hospital facilities. Subject to various market conditions,
an additional source of liquidity could be the issuance of additional equity
securities, which could result in substantial dilution to stockholders.

The Company may be required to repay a portion of the tax refunds received
from the Internal Revenue Service for Fiscal 1996 and 1995, which amounted to
$9.4 million and $5.4 million, respectively (see Item 1-(2)  Legal
Proceedings, below).

Taxes

In connection with the filing of its Federal income tax returns for fiscal
year 1995 and 1996, the Company filed a tentative refund claim to carry back
losses described in Section 172(f) of the Internal Revenue Code (IRC),
requesting a refund of $9.4 million and $5.5 million, respectively, of which
refunds of $9.4 million and $5.4 million were received. In addition, the
Company also filed amended Federal income tax returns for fiscal years prior to
1995, requesting similar refunds for losses carried back under Section 172(f)
of $6.2 million for 1986; $0.4 million for 1985; $0.7 million for 1983; and
$0.4 million for 1982, a total of $7.7 million.

Section 172(f) of the IRC provides for a ten year net operating loss
carryback for specific losses attributable to (1) a product liability or (2) a
liability arising under a federal or state law or out of any tort if the act
giving rise to such liability occurs at least three years before the beginning
of the taxable year. The applicability of Section 172(f) to the type of
business in which the Company operates is unclear. No assurance can be
provided that the Company will be able to retain the refunds received to date
or that the other refunds requested will be received.

During fiscal years 1997 and 1996, the Company recognized a portion of the
refunds received as a tax benefit of $0.3 million and $2.4 million,
respectively. The balance of the refunds received, $12.1 million, is recorded
as a deferred liability, Unbenefitted tax refunds received, pending
resolution by the Internal Revenue Service (IRS) of the appropriateness of
the 172(f) carryback. The other refunds requested under Section 172(f) for
prior years of $7.7 million have not been received, nor has the Company
recognized any tax benefit related to these potential refunds.

On August 21, 1998, the Company received an examination report, dated
August 6, 1998, from the IRS advising the Company that it was disallowing $12.4
million of the $14.8 million of refunds previously received, and the additional
refunds requested of $7.7 million. If the position of the IRS were to be
upheld the Company would be required to repay $12.4 million in refunds
previously received, plus accrued interest of approximately $8.7 million
through August 31, 2002. In this event, the Company would be entitled to a
repayment of the fees advanced to its tax advisor relating to these refunds of
approximately $2.5 million, which is reported as other receivable in the
accompanying balance sheets. The Company filed a protest letter with
the IRS Appeals Office on November 6, 1998. This filing commenced the administrative appeals process.

On July 11, 2000, the Company submitted an Offer in Compromise (the
Offer) and, on March 13, 2002, submitted an amended Offer in Compromise
(Amended Offer) to the IRS Appeals Office to resolve the controversy with respect to the
refunds at a substantially reduced amount than the IRS has asserted as
indicated above. To assist the IRS in evaluating the Amended Offer, the
Company is providing additional documents to the IRS and is continuing its
discussions with the IRS. The Amended Offer must be reviewed and approved by
the IRS, with the ultimate decision determined by the IRS Appeals Office. Pending the resolution of the Amended Offer, the IRS generally
suspends any collection activities. There can be no assurance that the IRS
will accept the Amended Offer.

If the IRS Appeals
Office were to accept the Amended Offer, the IRS would require that
the net operating loss carryforwards are no longer available to the Company.
If the IRS Appeals Office were to ultimately disallow the refunds claimed and an offer is not accepted,
the Company will have additional loss carry forwards of approximately $50
million, which will expire if unused by the year 2010.

13



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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 the Company to the
additional risk that contracts negotiated and entered into may ultimately be
determined to be unprofitable if utilization levels require the Company to
deliver and provide services at capitation rates which do not account for or
factor in such utilization levels.

The Company typically contracts 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. The
Companys clients may also be acquired by larger HMOs, in which case there can
be no assurance that the acquiring company would renew the Companys contract.
Additionally, changes specific to Medicaid and Medicare reimbursement could
have an effect on the profitability of the Companys contracts. The Company
cannot predict the effect healthcare reforms may have on its business and no
assurance can be given that any such reforms will not have a material adverse
effect on the Company.

Shares Eligible for Future Sale

The Company has issued or committed to issue options or other rights to
purchase approximately 1,100,000 shares, with option prices ranging from $0.25
to $4.00. The Company may contemplate issuing additional amounts of debt,
equity or convertible securities in public or private transactions for use in
fulfilling its future capital needs (see Need for Additional Funds;
Uncertainty of Future Funding). Issuance of additional equity could adversely
affect the trading price of the Companys Common Stock.

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 the 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 August 31, 2002, 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 the
Company 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 the Companys Common Stock or the
possibility of sale of shares to an acquiring person.

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 the Company to alter its 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 the objectives or plans of the Company will be achieved.

Regulatory Monitoring and Compliance

The Company is subject to extensive and evolving state and federal
regulations as well as changes in Medicaid and Medicare reimbursement that
could have an effect on the profitability of the Companys 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, the Company 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 is currently licensed in one state to operate
as a Limited Health Service
14COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIESOrganization and is required to comply with certain
laws and regulations that, among other things, may require the Company to
maintain certain types of assets and minimum levels of deposits, capital,
surplus, reserves, or net worth. 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 the Companys 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
the Company 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, the Company has not sought licensure
as either an insurer or HMO in certain states. If the regulatory positions of
these states were to change, the Companys business could be materially
affected until such time as the Company meets the regulatory requirements.
Currently, management cannot quantify the potential effects of additional
regulation of the managed care industry, but such costs will have an adverse
effect on further operations to the extent that they are not able to be
recouped in future managed care contracts.As of August 31, 2002, the Company managed approximately 725,000 lives in
connection with behavioral and substance abuse services covered through
Medicaid in Connecticut, Florida, Michigan and Texas. The aggregate number of
Medicaid lives would be reduced by approximately 345,000 effective January 1,
2003 if the contracts under Recent Developments, (a) and (b), were all to
terminate. In addition, the Company manages approximately 36,000 lives covered
through Medicare in Florida. Any changes in Medicaid and Medicare
reimbursement could ultimately affect the Company through contract bidding and
cost structures with the health plans first impacted by such changes. At this
time, the Company is unable to predict what effect, if any, changes in Medicaid
and Medicare legislation may have on its business.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 transmitted information. Entities subject to HIPAA include all
healthcare providers and all healthcare plans. To meet the specific
requirements of HIPAA, the Company will incur costs to insure the adequacy and
security of its healthcare information system and communication networks.
Additionally, the Company may incur costs to implement 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. The expected
timetable to be compliant is currently October 2002 for transaction code
changes, although recent legislation allows for a one-year delay of this
compliance date if a formal compliance plan is filed by October 2002, and April
2003 for compliance with the privacy rules. The Company is currently
evaluating its systems and policies that are impacted by HIPAA. As of August
31, 2002, the Company has filed its 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, the Company expects 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.SARBANES-OXLEY ACT OF 2002The Company is subject to the various provisions of the Sarbanes-Oxley Act
of 2002, which include a requirement that the Company must have at least one
qualified, financial expert on its independent audit committee or be subject to
not having its stock included in the Over The Counter Bulletin Board listings.
The Company has until April 2003 to comply with this requirement.Item 4  Controls and ProceduresAs of August 31, 2002, an evaluation was performed under the supervision
and with the participation of the Companys management, including the Companys
CEO and CFO, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures. Based on that evaluation, the Companys
management, including the CEO and CFO, concluded that the Companys disclosure
controls and procedures were effective as of August 31, 2002. There have been
no significant changes in the Companys internal controls or in other factors
that could significantly affect internal controls subsequent to August 31,
2002.15COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIESPART II  OTHER INFORMATIONItem 1  LEGAL PROCEEDINGS(1)
        
        On February 19, 1999, the California Superior Court denied the Companys
Petition for Writ of Mandate of an adverse administrative appeal decision
regarding application of the Maximum Inpatient Reimbursement Limitation to
Medi-Cal reimbursement paid to Brea Neuropsychiatric Hospital for its
fiscal periods 1983 through 1986. The Company owned this facility until
its disposal in fiscal year 1991. The subject matter of the Superior
Court action involved the refusal of the administrative law judge to order
further reductions in the liability for costs associated with treating
high cost, long stay Medi-Cal patients, which are commonly referred to as
outliers.In July 2002, the Company has entered into a Repayment Agreement with the
Department to resolve this liability 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. If
neither of the arrangements discussed under 1) or 2) above is satisfied,
the Company will be considered to be in default and the Department has
the right to collect the full amount of the claim plus interest,
attorneys fees, and collections costs. As of May 31, 2002, the Company
had accrued $950,000 related to this matter. As of August 31, 2002,
after making two installment payments to the Department of $160,000 each,
the Company had accrued $630,000 relating to this matter. In September
2002, the Company made the final, $160,000 installment payment to the
Department and has fully satisfied its obligations under the terms of the
settlement agreement. As a result, the Company expects to record an
extraordinary gain of approximately $470,000 during the second quarter of
Fiscal 2003.(2)
        
        In connection with the filing of its Federal income tax returns for
fiscal year 1995 and 1996, the Company filed a tentative refund claim to
carry back losses described in Section 172(f) of the Internal Revenue Code
(IRC), requesting a refund of $9.4 million and $5.5 million,
respectively, of which refunds of $9.4 million and $5.4 million were
received. In addition, the Company also filed amended Federal income tax
returns for fiscal years prior to 1995, requesting similar refunds for
losses carried back under Section 172(f) of $6.2 million for 1986; $0.4
million for 1985; $0.7 million for 1983; and $0.4 million for 1982, a
total of $7.7 million.Section 172(f) of the IRC provides for a ten year net operating loss
carryback for specific losses attributable to (1) a product liability or
(2) a liability arising under a federal or state law or out of any tort
if the act giving rise to such liability occurs at least three years
before the beginning of the taxable year. The applicability of Section
172(f) to the type of business in which the Company operates is unclear.
No assurance can be provided that the Company will be able to retain
the refunds received to date or that the other refunds requested will be
received.During fiscal years 1997 and 1996, the Company recognized a portion of
the refunds received as a tax benefit of $0.3 million and $2.4 million,
respectively. The balance of the refunds received, $12.1 million, is
recorded as a deferred liability, Unbenefitted tax refunds received,
pending resolution by the Internal Revenue Service (IRS) of the
appropriateness of the 172(f) carryback. The other refunds requested
under Section 172(f) for prior years of $7.7 million have not been
received, nor has the Company recognized any tax benefit related to these
potential refunds.On August 21, 1998, the Company received an examination report, dated
August 6, 1998, from the IRS advising the Company that it was disallowing
$12.4 million of the $14.8 million of refunds previously received, and
the additional refunds requested of $7.7 million. If the position of the
IRS were to be upheld the Company would be required to repay $12.4
million in refunds previously received, plus accrued interest of
approximately $8.7 million through August 31, 2002. In this event, the
Company would be entitled to a repayment of the fees advanced to its tax
advisor relating to these refunds of approximately $2.5 million, which is
reported as other receivable in the accompanying balance sheets. The
Company filed a protest letter with the IRS Appeals Office on November 6, 1998. This
filing commenced the administrative appeals process.16COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIESOn July 11, 2000, the Company submitted an Offer in Compromise (the
Offer) and, on March 13, 2002, submitted an amended Offer in
Compromise (Amended Offer) to the
IRS Appeals Office to resolve the controversy with respect to the refunds at a
substantially reduced amount than the IRS Appeals Office has asserted as indicated
above. To assist the IRS in evaluating the Amended Offer, the Company is
providing additional documents to the IRS and is continuing its
discussions with the IRS. The Amended Offer must be reviewed and approved
by the IRS, with the ultimate decision determined by the IRS Appeals
Office. Pending the resolution of the Amended Offer, the IRS
generally suspends any collection activities. There can be no assurance
that the IRS will accept the Amended Offer.If the IRS Appeals Office were to accept the Amended Offer, the IRS would require that
the net operating loss carryforwards are no longer available to the
Company. If the IRS Appeals Office were to ultimately disallow the refunds claimed and an offer is
not accepted, the Company will have additional loss carry forwards of
approximately $50 million, which will expire if unused by the year 2010.From time to time, the Company and its subsidiaries are also parties to
and their property is subject to ordinary, routine litigation incidental to
their business. In some pending cases, claims may exceed insurance policy
limits and the Company or any one of its subsidiaries may have exposure to
liability that is not covered by insurance. Management believes that the
outcome of such lawsuits will not have a material adverse impact on the
Companys financial statements.Item 5  Other Information(a)  On October 4, 2002, the Company
received a written, 90-day termination notice, dated
September 27, 2002, from one major client. This HMO advised the
Company that it has entered into an
agreement to sell its Medicaid business to another HMO while
retaining other lines of business. The Company will retain the
commercial and Medicare lines of business with this HMO, which
accounted for 6.0%, or approximately $0.5 million, and 1.6%, or
$0.1 million, of the Company's operating revenues during the
quarter ended August 31, 2002 and 2001, respectively. The
Company has contacted the acquiring HMO and has scheduled a meeting
to take place in October to discuss retaining the Medicaid business
after the sale is completed, but there can be no assurance that the
Company or any of its subsidiaries will be selected by the acquiring
HMO. As such, the contracts covering Florida medicaid members, which accounted for 17.3%, or
$1.4 million, and 18.1%, or $1.1 million, of the
Companys operating revenues during the quarter ended
August 31, 2002 and 2001, respectively (see Note 3,
Item 3  Major Customers/Contracts  to
the consolidated financial statements), are expected to terminate
effective December 31, 2002. The Company
believes that it will be able to reduce its internal costs of
servicing this account to minimize any effect on future results of
operations.(b)  On September 24, 2002, the Company received a written, 90-day termination
notice, dated September 20, 2002, from one major customer whose contracts with
the Company accounted for 18.4%, or $1.5 million, of the Companys operating
revenues during the quarter ended August 31, 2002 (see Note 3, Item 1  Major
Customers/Contracts  to the consolidated financial statements). Such notice
followed an agreed upon price increase that the Company had recently obtained
from this client. The price increase was effective August 1, 2002 and was
necessitated by an increase in utilization specific to this account as well as
increases in the rates paid by the Company in response to demands from a group
of providers who service this account. On September 25, 2002, the HMO verbally
advised the Company that its termination notice was due in part to the recent
price increase. Following such advisement, the Company held discussions with
this client, but was unsuccessful in its attempts to resolve the pricing issue
as the HMO was seeking a price reduction below the original contracted rate.
As such, these contracts covering Florida members will terminate effective
January 1, 2003. The Company believes that it will be able to reduce its
internal costs of servicing this account to minimize any effect on future
results of operations.Although the loss of the above customers could have a material, adverse effect
on the Companys financial condition and future results of operations, the
Company believes that it will be able to reduce its internal cost of servicing
these accounts to minimize any effect on future results of operations. In
particular, certain of the contracts listed under (a) and (b) above were among
the least profitable accounts during the fiscal year ended May 31, 2002. In
addition, the Company expects to contract with two new, smaller HMO clients to
begin providing services to their membership during the second quarter of
Fiscal 2003.17COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIESItem 6  Exhibits and Reports on Form 8-K(a) Exhibits 

|     |  |                                                                                                                        
|---- |  | -----------------------------------------------------------------------------------------------------------------------
|99.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|     |  |                                                                                                                        
|99.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K 



|1) |  | The Company filed a current report on Form
8-K, dated June 7, 2002, to report under Item 5 that the
Board of Directors had elected Howard A. Savin, Ph.D.,
effective June 3, 2002, to fill one existing vacancy for
a Class II Director. Additionally, the Company
announced that it had hired Paul R. McCarthy, Ph.D. to
fill the position of Chief Operating Officer for
Comprehensive Behavioral Care, Inc. (CBC). The
Company also announced the promotion of Thomas C. Clay,
MSW to the position of President, Public Sector Services
for CBC. Further, the Company reported that it had
entered into employment agreements, each effective June
3, 2002, with Dr. McCarthy and Mr. Clay.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements 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.

|                |                                                                                                     |                          | 
|--------------- | --------------------------------------------------------------------------------------------------- | ------------------------ | 
|                | COMPREHENSIVE CARE CORPORATION                                                                     
|               
|October 4, 2002 |                                                                                                     | 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)

COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
CERTIFICATIONS PURSUANT TO 18 U.S.C.
SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mary Jane Johnson, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Comprehensive Care
Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                      |                                                                              | 
|--------------------- | ---------------------------------------------------------------------------- | 
|Date: October 4, 2002
|                     
|                      | /s/ Mary Jane JohnsonMary Jane Johnson
President and Chief Executive Officer

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

I, Robert J. Landis, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Comprehensive Care
Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                      |  |                                                                                      
|--------------------- |  | -------------------------------------------------------------------------------------
|Date: October 4, 2002 |  |                                                                                      
|                     
|                      |  |                                                                                      
|                     
|                      |  | /s/ Robert J. LandisRobert J. Landis
Chairman, Chief Financial Officer, and Treasurer

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Exhibit Index

Three Months Ended August 31, 2002

|        |  |                                                                                                                                                           |  |             |    | 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | -- | 
|EXHIBIT |  |                                                                                                                                                           |  |             |    | 
|NUMBER  |  | DESCRIPTION                                                                                                                                               |  | PAGE NUMBER
|        |  |                                                                                                                                                           |  |            
|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 |  |             | 22 | 
|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 |  |             | 23 | 

21