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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[X]   |  | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
|      |  |                                                                                         
|      |  | For the quarterly period ended February 28, 2003.                                       
|      |  |                                                                                         
|[   ] |  | 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 |  | (IRS Employer Identification No.)
|or organization)                              |  |                                  

200 South Hoover Blvd, Suite 200, Tampa, FL 33609

---

(Address of principal executive offices and zip code)


(813) 288-4808

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(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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes [   ] No [X]

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 April 8, 2003
|                                       |  |                             
|Common Stock, par value $.01 per share |  | 3,926,549                   





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TABLE OF CONTENTS



|                                |                                                                                                |                                       |  |  |  |  |  | 
|------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------- |  |  |  |  |  | 
|PART I.  FINANCIAL INFORMATION
|                                | Item 1  Consolidated Financial Statements                                                    
|                                |                                                                                                | Consolidated Balance Sheets          
|                                |                                                                                                | Consolidated Statements of Operations
|                                |                                                                                                | Consolidated Statements of Cash Flows
|                                | Item 2  Managements discussion and analysis of financial condition and Results of operations
|                                | Item 4  Controls and Procedures                                                              
|PART II  OTHER INFORMATION    
|                                | Item 1  LEGAL PROCEEDINGS                                                                    
|                                | Item 6  Exhibits and Reports on Form 8-K                                                     
|                                | SIGNATURES                                                                                    
|                                | CERTIFICATIONS PURSUANT TO 18 U.S.C.                                                          
|Exhibit Index                  
|Ex-99.1 CEO Certification      
|Ex-99.2 CFO Certification      



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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Index

|                               |                                                                                                |                                                                                                      |  |       |      | 
|------------------------------ | ---------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- |  | ----- | ---- | 
|                               |                                                                                                |                                                                                                      |  | Page 
|                               |                                                                                                |                                                                                                      |  |      
|PART I  FINANCIAL INFORMATION |                                                                                                |                                                                                                      |  |      
|                               |                                                                                                |                                                                                                      |  |      
|                               | Item 1 Consolidated Financial Statements                                                      |                                                                                                      |  |       |     
|                               |                                                                                                |                                                                                                      |  |      
|                               |                                                                                                | Consolidated Balance Sheets,
February 28, 2003 and May 31, 2002                                      |  |       | 3    | 
|                               |                                                                                                |                                                                                                      |  |      
|                               |                                                                                                | Consolidated Statements of Operations for
the Three and Nine months ended February 28, 2003 and 2002 |  |       | 4    | 
|                               |                                                                                                |                                                                                                      |  |      
|                               |                                                                                                | Consolidated Statements of Cash Flows for
the Nine months ended February 28, 2003 and 2002           |  |       | 5    | 
|                               |                                                                                                |                                                                                                      |  |      
|                               |                                                                                                | Notes to Consolidated Financial Statements                                                           |  |       | 6-10 | 
|                               |                                                                                                |                                                                                                      |  |      
|                               | Item 2  Managements discussion and analysis of financial condition and
Results of operations |                                                                                                      |  | 10-17 |     
|                               |                                                                                                |                                                                                                      |  |      
|                               | Item 4  Controls and Procedures                                                               |                                                                                                      |  | 17-18 |     
|                               |                                                                                                |                                                                                                      |  |      
|PART II  OTHER INFORMATION    |                                                                                                |                                                                                                      |  |      
|                               |                                                                                                |                                                                                                      |  |      
|                               | Item 1 Legal Proceedings                                                                      |                                                                                                      |  | 18    |     
|                               |                                                                                                |                                                                                                      |  |      
|                               | Item 6 Exhibits and Reports on Form 8-K                                                       |                                                                                                      |  | 19    |     
|                               |                                                                                                |                                                                                                      |  |      
|                               | Signatures                                                                                     |                                                                                                      |  | 20    |     
|                               |                                                                                                |                                                                                                      |  |      
|                               | Certifications                                                                                 |                                                                                                      |  | 23-24 |     

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES




PART I.  FINANCIAL INFORMATION




Item 1  Consolidated Financial Statements




Consolidated Balance Sheets

|                                            |                                                                                                             |   |                        |         |         |   |         |         |  
|------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | - | ---------------------- | ------- | ------- | - | ------- | ------- | -
|                                            |                                                                                                             |   | February 28,           |         | May 31,
|                                            |                                                                                                             |   | 2003                   |         | 2002   
|                                            |                                                                                                             |   |                        |         |        
|                                            |                                                                                                             |   | (unaudited)            |         |         |   |        
|                                            |                                                                                                             |   | (Amounts in thousands)
|ASSETS                                      |                                                                                                             |   |                        |         |         |   |         |        
|Current assets:                             |                                                                                                             |   |                        |         |         |   |         |        
|                                            | Cash and cash equivalents                                                                                   |   | $                      | 3,665   |         |   | $       | 5,340   |  
|                                            | Accounts receivable, less allowance for doubtful accounts of $35 and $8                                     |   |                        | 578     |         |   |         | 324     |  
|                                            | Accounts receivable  managed care reinsurance contract                                                     |   |                        | 476     |         |   |         | 575     |  
|                                            | Other receivable                                                                                            |   |                        |        |         |   |         | 2,548   |  
|                                            | Other current assets                                                                                        |   |                        | 367     |         |   |         | 591     |  
|                                            |                                                                                                             |   |                        |         |         |   |         |        
|Total current assets                        |                                                                                                             |   | 5,086                  |         |         |   | 9,378   |        
|Property and equipment, net                 |                                                                                                             |   | 224                    |         |         |   | 291     |        
|Notes receivable                            |                                                                                                             |   | 156                    |         |         |   | 159     |        
|Goodwill, net                               |                                                                                                             |   | 991                    |         |         |   | 991     |        
|Restricted cash                             |                                                                                                             |   | 328                    |         |         |   | 430     |        
|Other assets                                |                                                                                                             |   | 78                     |         |         |   | 150     |        
|                                            |                                                                                                             |   |                        |         |         |   |         |        
|Total assets                                |                                                                                                             | $ | 6,863                  |         |         | $ | 11,399  |        
|                                            |                                                                                                             |   |                        |         |         |   |         |        
|LIABILITIES AND STOCKHOLDERS DEFICIT       |                                                                                                             |   |                        |         |         |   |         |        
|Current liabilities:                        |                                                                                                             |   |                        |         |         |   |         |        
|                                            | Accounts payable and accrued liabilities                                                                    |   | $                      | 1,709   |         |   | $       | 2,891   |  
|                                            | Accrued claims payable                                                                                      |   |                        | 4,416   |         |   |         | 4,635   |  
|                                            | Accrued reinsurance claims payable                                                                          |   |                        | 2,902   |         |   |         | 2,019   |  
|                                            | Unbenefitted tax refunds received                                                                           |   |                        |        |         |   |         | 12,092  |  
|                                            | Income taxes payable                                                                                        |   |                        | 15      |         |   |         | 16      |  
|                                            |                                                                                                             |   |                        |         |         |   |         |        
|Total current liabilities                   |                                                                                                             |   | 9,042                  |         |         |   | 21,653  |        
|                                            |                                                                                                             |   |                        |         |         |   |         |        
|Long-term liabilities:                      |                                                                                                             |   |                        |         |         |   |         |        
|                                            | Long-term debt                                                                                              |   |                        | 2,244   |         |   |         | 2,244   |  
|                                            | Other liabilities                                                                                           |   |                        | 55      |         |   |         | 21      |  
|                                            |                                                                                                             |   |                        |         |         |   |         |        
|Total long-term liabilities                 |                                                                                                             |   | 2,299                  |         |         |   | 2,265   |        
|                                            |                                                                                                             |   |                        |         |         |   |         |        
|Total liabilities                           |                                                                                                             |   | 11,341                 |         |         |   | 23,918  |        
|                                            |                                                                                                             |   |                        |         |         |   |         |        
|Commitments and Contingencies (Note 7)      |                                                                                                             |   |                        |         |         |   |         |        
|Stockholders deficit:                      |                                                                                                             |   |                        |         |         |   |         |        
|                                            | Preferred stock, $50.00 par value; authorized 60,000 shares; none
outstanding                               |   |                        |        |         |   |         |        |  
|                                            | Common stock, $0.01 par value; authorized 12,500,000 shares; issued
and outstanding 3,926,549 and 3,878,552 |   |                        | 39      |         |   |         | 39      |  
|                                            | Additional paid-in-capital                                                                                  |   |                        | 51,924  |         |   |         | 51,842  |  
|                                            | Deferred compensation                                                                                       |   |                        | (22     | )       |   |         | (1      | )
|                                            | Accumulated deficit                                                                                         |   |                        | (56,419 | )       |   |         | (64,399 | )
|                                            |                                                                                                             |   |                        |         |         |   |         |        
|Total stockholders deficit                 |                                                                                                             |   | (4,478                 | )       |         |   | (12,519 | )      
|                                            |                                                                                                             |   |                        |         |         |   |         |        
|Total liabilities and stockholders deficit |                                                                                                             | $ | 6,863                  |         |         | $ | 11,399  |        
|                                            |                                                                                                             |   |                        |         |         |   |         |        

See accompanying notes.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES




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

|                                                                  |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |        |       | 
|----------------------------------------------------------------- | --------------------------------------------- | ------- | ----- | ------------------ | ----- | ----------------- | ----- | ----- | ----- | ---- | ------ | ------ | ----- | - | ------ | ------ | ----- | 
|                                                                  |                                               |         |       | Three months Ended |       | Nine months Ended
|                                                                  |                                               |         |       | February 28,       |       | February 28,     
|                                                                  |                                               |         |       |                    |       |                  
|                                                                  |                                               |         |       | 2003               |       | 2002              |       | 2003  |       | 2002
|                                                                  |                                               |         |       |                    |       |                   |       |       |       |     
|Operating revenues                                                |                                               | $       | 8,061 |                    |       | $                 | 7,110 |       |       | $    | 24,999 |        |       | $ | 19,706 |       
|Costs and expenses:                                               |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |       
|                                                                  | Healthcare operating expenses                 |         |       | 7,227              |       |                   |       | 6,093 |       |      |        | 22,340 |       |   |        | 16,827 |      
|                                                                  | General and administrative expenses           |         |       | 771                |       |                   |       | 874   |       |      |        | 2,611  |       |   |        | 2,573  |      
|                                                                  | Provision for (recovery of) doubtful accounts |         |       | 19                 |       |                   |       | (3    | )     |      |        | 5      |       |   |        | (88    | )    
|                                                                  | Depreciation and amortization                 |         |       | 37                 |       |                   |       | 80    |       |      |        | 168    |       |   |        | 268    |      
|                                                                  |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |       
|                                                                  |                                               |         | 8,054 |                    |       |                   | 7,044 |       |       |      | 25,124 |        |       |   | 19,580 |       
|                                                                  |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |       
|Operating income (loss) before items shown below                  |                                               |         | 7     |                    |       |                   | 66    |       |       |      | (125   | )      |       |   | 126    |       
|Other income (expense):                                           |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |       
|                                                                  | Net gain on IRS settlement                    |         |       | 7,717              |       |                   |       |      |       |      |        | 7,717  |       |   |        |       |      
|                                                                  | Gain on settlement of other liability         |         |       |                   |       |                   |       |      |       |      |        | 470    |       |   |        |       |      
|                                                                  | Gain on sale of assets                        |         |       |                   |       |                   |       |      |       |      |        | 4      |       |   |        |       |      
|                                                                  | Loss on disposal of assets                    |         |       |                   |       |                   |       |      |       |      |        | (5     | )     |   |        |       |      
|                                                                  | Interest income                               |         |       | 8                  |       |                   |       | 18    |       |      |        | 37     |       |   |        | 71     |      
|                                                                  | Interest expense                              |         |       | (44                | )     |                   |       | (43   | )     |      |        | (134   | )     |   |        | (132   | )    
|                                                                  | Other non-operating income                    |         |       | 25                 |       |                   |       | 5     |       |      |        | 33     |       |   |        | 22     |      
|                                                                  |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |       
|Income before income taxes                                        |                                               |         | 7,713 |                    |       |                   | 46    |       |       |      | 7,997  |        |       |   | 87     |       
|Income tax expense                                                |                                               |         | 7     |                    |       |                   |      |       |       |      | 17     |        |       |   | 9      |       
|                                                                  |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |       
|Income before cumulative effect of change in accounting principle |                                               | $       | 7,706 |                    |       | $                 | 46    |       |       | $    | 7,980  |        |       | $ | 78     |       
|Cumulative effect of change in accounting principle               |                                               |         |      |                    |       |                   |      |       |       |      |       |        |       |   | 55     |       
|                                                                  |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |       
|Net income attributable to common stockholders                    |                                               | $       | 7,706 |                    |       | $                 | 46    |       |       | $    | 7,980  |        |       | $ | 133    |       
|                                                                  |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |       
|Earnings per common share  basic:                                |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |       
|Income before cumulative effect of change in accounting principle |                                               | $       | 1.97  |                    |       | $                 | 0.01  |       |       | $    | 2.05   |        |       | $ | 0.02   |       
|Cumulative effect of change in accounting principle               |                                               |         |      |                    |       |                   |      |       |       |      |       |        |       |   | 0.01   |       
|                                                                  |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |       
|Net income                                                        |                                               | $       | 1.97  |                    |       | $                 | 0.01  |       |       | $    | 2.05   |        |       | $ | 0.03   |       
|                                                                  |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |       
|Earnings per common share  diluted:                              |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |       
|                                                                  |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |       
|Income before cumulative effect of change in accounting principle |                                               | $       | 1.71  |                    |       | $                 | 0.01  |       |       | $    | 1.87   |        |       | $ | 0.02   |       
|Cumulative effect of change in accounting principle               |                                               |         |      |                    |       |                   |      |       |       |      |       |        |       |   | 0.01   |       
|                                                                  |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |       
|Net income                                                        |                                               | $       | 1.71  |                    |       | $                 | 0.01  |       |       | $    | 1.87   |        |       | $ | 0.03   |       
|                                                                  |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |       
|Weighted average common shares outstanding:                       |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |       
|                                                                  |                                               | Basic   |       |                    | 3,908 |                   |       |       | 3,867 |      |        |        | 3,897 |   |        |        | 3,856 | 
|                                                                  |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |       
|                                                                  |                                               | Diluted |       |                    | 4,509 |                   |       |       | 4,187 |      |        |        | 4,277 |   |        |        | 4,041 | 
|                                                                  |                                               |         |       |                    |       |                   |       |       |       |      |        |        |       |   |        |       

See accompanying notes.

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Consolidated Statements of Cash Flows
(Unaudited)

|                                                                                            |                                                                      |   |                        |        |      |   |       |       |  
|------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | - | ---------------------- | ------ | ---- | - | ----- | ----- | -
|                                                                                            |                                                                      |   | Nine months Ended     
|                                                                                            |                                                                      |   | February 28,          
|                                                                                            |                                                                      |   |                       
|                                                                                            |                                                                      |   | 2003                   |        | 2002
|                                                                                            |                                                                      |   |                        |        |     
|                                                                                            |                                                                      |   | (Amounts in thousands)
|Cash flows from operating activities:                                                       |                                                                      |   |                        |        |      |   |       |      
|Net income                                                                                  |                                                                      | $ | 7,980                  |        |      | $ | 133   |      
|Adjustments to reconcile net income to net cash (used in) provided by
operating activities: |                                                                      |   |                        |        |      |   |       |      
|                                                                                            | Depreciation and amortization                                        |   |                        | 168    |      |   |       | 268   |  
|                                                                                            | Provision for doubtful accounts                                      |   |                        | 5      |      |   |       |      |  
|                                                                                            | Cumulative effect of change in accounting principle                  |   |                        |       |      |   |       | (55   | )
|                                                                                            | Net gain on IRS settlement                                           |   |                        | (7,717 | )    |   |       |      |  
|                                                                                            | Gain on sale of assets                                               |   |                        | (4     | )    |   |       |      |  
|                                                                                            | Compensation expense  stock issued                                  |   |                        | 20     |      |   |       |      |  
|                                                                                            | Compensation expense  stock options and warrants issued             |   |                        | 9      |      |   |       |      |  
|                                                                                            | Other non-operating gain                                             |   |                        | (470   | )    |   |       |      |  
|                                                                                            | Loss on disposal of assets                                           |   |                        | 5      |      |   |       |      |  
|Changes in assets and liabilities:                                                          |                                                                      |   |                        |        |      |   |       |      
|                                                                                            | Accounts receivable                                                  |   |                        | (259   | )    |   |       | 133   |  
|                                                                                            | Accounts receivable  managed care reinsurance contract              |   |                        | 99     |      |   |       | 66    |  
|                                                                                            | Other receivable                                                     |   |                        | 525    |      |   |       |      |  
|                                                                                            | Other current assets, restricted funds, and other non-current assets |   |                        | 409    |      |   |       | 558   |  
|                                                                                            | Unbenefitted tax refunds received                                    |   |                        | (2,258 | )    |   |       |      |  
|                                                                                            | Accounts payable and accrued liabilities                             |   |                        | (824   | )    |   |       | (496  | )
|                                                                                            | Accrued claims payable                                               |   |                        | (219   | )    |   |       | 38    |  
|                                                                                            | Accrued reinsurance claims payable                                   |   |                        | 883    |      |   |       | 953   |  
|                                                                                            | Income taxes payable                                                 |   |                        | (1     | )    |   |       | (2    | )
|                                                                                            | Other liabilities                                                    |   |                        |       |      |   |       | (2    | )
|                                                                                            |                                                                      |   |                        |        |      |   |       |      
|                                                                                            | Net cash (used in) provided by operating activities                  |   |                        | (1,649 | )    |   |       | 1,594 |  
|                                                                                            |                                                                      |   |                        |        |      |   |       |      
|Cash flows from investing activities:                                                       |                                                                      |   |                        |        |      |   |       |      
|                                                                                            | Net proceeds from sale of property and equipment                     |   |                        | 3      |      |   |       |      |  
|                                                                                            | Payments received on note receivable                                 |   |                        | 3      |      |   |       | 3     |  
|                                                                                            | Additions to property and equipment                                  |   |                        | (37    | )    |   |       | (26   | )
|                                                                                            |                                                                      |   |                        |        |      |   |       |      
|                                                                                            | Net cash used in investing activities                                |   |                        | (31    | )    |   |       | (23   | )
|                                                                                            |                                                                      |   |                        |        |      |   |       |      
|Cash flows from financing activities:                                                       |                                                                      |   |                        |        |      |   |       |      
|                                                                                            | Proceeds from the issuance of common stock                           |   |                        | 14     |      |   |       |      |  
|                                                                                            | Repayment of debt                                                    |   |                        | (9     | )    |   |       |      |  
|                                                                                            |                                                                      |   |                        |        |      |   |       |      
|                                                                                            | Net cash provided by financing activities                            |   |                        | 5      |      |   |       |      |  
|                                                                                            |                                                                      |   |                        |        |      |   |       |      
|Net (decrease) increase in cash and cash equivalents                                        |                                                                      |   | (1,675                 | )      |      |   | 1,571 |      
|Cash and cash equivalents at beginning of year                                              |                                                                      |   | 5,340                  |        |      |   | 2,891 |      
|                                                                                            |                                                                      |   |                        |        |      |   |       |      
|Cash and cash equivalents at end of period                                                  |                                                                      | $ | 3,665                  |        |      | $ | 4,462 |      
|                                                                                            |                                                                      |   |                        |        |      |   |       |      

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 February 28, 2003, and the related
consolidated statements of operations for the three and nine months ended
February 28, 2003 and 2002, and cash flows for the nine months ended February
28, 2003 and 2002 are unaudited and have been prepared in accordance with
accounting principles generally accepted in the United States of America 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 nine months ended February 28, 2003 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 3  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 87.5%,
or $22.0 million, of revenue for the nine months ended February 28, 2003 and
84.0%, or $16.6 million, of revenue for the nine months ended February 28,
2002. 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 February 28, 2003 and May 31, 2002, non-current restricted accounts
include $0.3 million of cash held in trust in connection with the Companys
Directors and Officers liability insurance policy.

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 $4.4 million claims
payable amount reported as of February 28, 2003.

Additional Paid-in Capital

During the nine months ended February 28, 2003, additional paid-in capital
increased by $82,000. This increase consists of $15,000 due to the exercise of
employee stock options, $20,000 attributable to non-cash stock bonuses issued
to one employee, and $47,000 of options and warrants issued to non-employees
that vested and were recognized in expense during the nine months ended
February 28, 2003.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Note 2  Recently Issued Accounting Pronouncement

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

|                        |                                                                                                                                     |   |                    |      |                   |   |      |    |      |   |       |      |   |   |      |     |  
|----------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | ---- | ----------------- | - | ---- | -- | ---- | - | ----- | ---- | - | - | ---- | --- | -
|                        |                                                                                                                                     |   | Three months Ended |      | Nine months Ended
|                        |                                                                                                                                     |   | February 28,       |      | February 28,     
|                        |                                                                                                                                     |   |                    |      |                  
|                        |                                                                                                                                     |   | 2003               |      | 2002              |   | 2003 |    | 2002
|                        |                                                                                                                                     |   |                    |      |                   |   |      |    |     
|Net income, as reported |                                                                                                                                     | $ | 7,706              |      |                   | $ | 46   |    |      | $ | 7,980 |      |   | $ | 133  |    
|Deduct:                 |                                                                                                                                     |   |                    |      |                   |   |      |    |      |   |       |      |   |   |      |    
|                        | Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax
effects |   |                    | (117 | )                 |   |      | (7 | )    |   |       | (179 | ) |   |      | (15 | )
|                        |                                                                                                                                     |   |                    |      |                   |   |      |    |      |   |       |      |   |   |      |    
|Pro forma net income    |                                                                                                                                     | $ | 7,589              |      |                   | $ | 39   |    |      | $ | 7,801 |      |   | $ | 118  |    
|                        |                                                                                                                                     |   |                    |      |                   |   |      |    |      |   |       |      |   |   |      |    
|Earnings per share:     |                                                                                                                                     |   |                    |      |                   |   |      |    |      |   |       |      |   |   |      |    
|Basic  as reported     |                                                                                                                                     | $ | 1.97               |      |                   | $ | 0.01 |    |      | $ | 2.05  |      |   | $ | 0.03 |    
|                        |                                                                                                                                     |   |                    |      |                   |   |      |    |      |   |       |      |   |   |      |    
|Basic  pro forma       |                                                                                                                                     | $ | 1.94               |      |                   | $ | 0.01 |    |      | $ | 2.00  |      |   | $ | 0.03 |    
|                        |                                                                                                                                     |   |                    |      |                   |   |      |    |      |   |       |      |   |   |      |    
|Diluted  as reported   |                                                                                                                                     | $ | 1.71               |      |                   | $ | 0.01 |    |      | $ | 1.87  |      |   | $ | 0.03 |    
|                        |                                                                                                                                     |   |                    |      |                   |   |      |    |      |   |       |      |   |   |      |    
|Diluted  pro forma     |                                                                                                                                     | $ | 1.68               |      |                   | $ | 0.01 |    |      | $ | 1.82  |      |   | $ | 0.03 |    
|                        |                                                                                                                                     |   |                    |      |                   |   |      |    |      |   |       |      |   |   |      |    

Note 3  Basis of Presentation

The accompanying consolidated financial statements are prepared on a going
concern basis. During the quarter ended February 28, 2003, the Company
completed a settlement with the Internal Revenue Service and reached an
agreement with its former tax advisor with respect to the related tax advisor
fees. Having concluded these settlements, the Company recorded a non-operating
gain of $7.7 million during the quarter ended February 28, 2003, significantly
reducing its working capital deficiency and stockholders deficit (see Note 5 
Income Taxes below), which amount to $4.0 million and $4.5 million,
respectively, as of February 28, 2003. The IRS settlement required the
Company to make a cash payment in February 2003 of approximately $2.2 million
offset in part by $525,000 collected from its former tax advisor. As a result,
cash and cash equivalents have decreased by approximately $1.7 million during
the nine months ended February 28, 2003. Additionally, the IRS settlement
requires that the Federal net operating loss carryforwards of approximately
$42.0 million resulting from losses incurred in fiscal years ended May 31, 1995
through May 31, 2001, and a minimum tax credit carryover of approximately $0.7
million, are no longer available to the Company.

The Company is currently pursuing sources of financing on terms that would
support the Companys capital needs and provide available funds for working
capital beyond May 31, 2003. 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.
These conditions raise substantial doubt about the Companys ability to
continue as a going concern, which is dependent upon its ability to continue to
generate sufficient cash flow to meet its obligations on a timely basis,
obtaining additional financing as may be required and, ultimately, attaining an
operating profit. The accompanying consolidated financial statements do not
include any adjustments that may result from the outcome of this uncertainty.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Note 4  MAJOR CUSTOMERS/CONTRACTS



|(1) |  | During the nine months ended February 28, 2003, the Company had three
contracts with one HMO to provide behavioral healthcare services to
Florida members. The combined revenue from these contracts accounted for
15.1%, or $3.8 million, of the Companys operating revenues during the
nine months ended February 28, 2003 compared to 16.8%, or $3.3 million,
for the nine months ended February 28, 2002. 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. As such, these contracts covering
Florida members terminated effective January 1, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The Company has one contract to provide behavioral healthcare services to
Connecticut members under contract with one HMO. For the nine months
ended February 28, 2003, this contract represented approximately 8.5%, or
$2.1 million, of the Companys operating revenue compared to 13.3%, or
$2.6 million for the nine months ended February 28, 2002. Additionally,
this contract provides that the Company, through its contract with this
HMO, receives additional funds directly from a state reinsurance program.
During the nine months ended February 28, 2003, the Company filed
reinsurance claims totaling approximately $2.3 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 February 28, 2003, the Company has
reported $0.5 million as accounts receivablemanaged care reinsurance
contracts, with $2.9 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 a customer since March 2001. The original contract term ended
December 31, 2002 and, in accordance with its terms, was automatically
renewed for a one-year period ending December 31, 2003. In December 2002,
having been notified that the nature, scope, and parameters of the
contract would be revised and that the State of Connecticut was requesting
bids for administrative services only (ASO) in connection with a
contract that is expected to begin in July 2004, the Company submitted a
bid to the State of Connecticut. If selected, the Companys existing
contract would terminate and a new contract would be negotiated between
the Company and the State of Connecticut covering significantly more
members than are covered under the current fee-for-service arrangement.
If the State of Connecticut were to select another behavioral healthcare
company to service this membership, the Companys existing contracts may
terminate on or before June 30, 2004. There can be no assurance that the
Companys existing contract will be renewed or that the Company will be
successful in its bid to provide ASO services to Connecticut members.
|   
|(3) |  | During the nine months ended February 28, 2003, the Company had one
contract with one HMO, covering Medicaid, Medicare, and commercial
business, to provide behavioral healthcare services to Florida members.
This agreement represented approximately 20.1%, or $5.0 million, and
20.8%, or $4.1 million, of the Companys operating revenue for the nine
months ended February 28, 2003 and 2002, respectively. This HMO has been a
customer since July 2000. On December 24, 2002, the Company entered into a
contract with another HMO that acquired the existing clients Medicaid
business. As a result, the Company continues service to the Medicaid
members through its new contract with the acquiring HMO that was effective
January 1, 2003. The existing clients Medicaid business accounted for
13.9%, or $3.5 million, and 18.1%, or $3.6 million, of the Companys
operating revenues during the nine months ended February 28, 2003 and
2002, respectively. Medicaid business from the new HMO client accounted
for 4.4%, or $1.1 million, of the Companys operating revenues during the
nine months ended February 28, 2003. Additionally, on December 31, 2002,
the Company received a formal termination, effective February 28, 2003,
from the existing HMO client with respect to the Medicare and commercial
business. This business accounted for 6.2%, or approximately $1.5
million, and 2.7%, or $0.5 million, of the Companys operating revenues
during the nine months ended February 28, 2003 and 2002, respectively. As
such, all contracts with the existing HMO client terminated on or before
February 28, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Although the loss of the customer listed under (1) above and the commercial and
Medicare business under (3) above could have a material, adverse effect on the
Companys financial condition and future results of operations, the Company
believes that it 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.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Note 5  Income Taxes

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

As a result of the resolution of this matter, the Company extinguished the
$12.1 million liability and recorded a non-operating gain in the quarter ended
February 28, 2003 of approximately $7.7 million net of related expenses,
including $2.0 million of the unrecovered portion of the $2.5 million of fees
previously paid to its tax advisor. The gain represented $1.97 earnings per
share ($1.71 diluted earnings per share). No taxable income resulted from the
settlement of the liability. Additionally, the IRS settlement requires that
the Federal net operating loss carryforwards of approximately $42.0 million
resulting from losses incurred in fiscal years ended May 31, 1995 through May
31, 2001, and a minimum tax credit carryover of approximately $0.7 million, are
no longer available to the Company.

Note 6  Basic and Diluted Earnings Per Share

Basic earnings per share is computed by dividing net earnings by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share reflects the assumed exercise or conversion of all dilutive
securities, such as options, warrants and convertible debt. Convertible
debentures were not included in the calculation of diluted earnings per share
as they are antidilutive. The following table sets forth the computation of
basic and diluted earnings per share in accordance with Statement No. 128,
Earnings Per Share (amounts in thousands, except per share data):

|                                                                  |                                                                                                       |   |      |                                               |  |                   |      |       |  |      |      |       |  |   |      |       |  | 
|----------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | - | ---- | --------------------------------------------- |  | ----------------- | ---- | ----- |  | ---- | ---- | ----- |  | - | ---- | ----- |  | 
|                                                                  |                                                                                                       |   |      | Three Months Ended                            |  | Nine months Ended
|                                                                  |                                                                                                       |   |      | February 28,                                  |  | February 28,     
|                                                                  |                                                                                                       |   |      |                                               |  |                  
|                                                                  |                                                                                                       |   |      | 2003                                          |  | 2002              |      | 2003  |  | 2002
|                                                                  |                                                                                                       |   |      |                                               |  |                   |      |       |  |     
|                                                                  |                                                                                                       |   |      | (Amounts in thousands, except per share data)
|Numerator:                                                        |                                                                                                       |   |      |                                               |  |                   |      |       |  |      |      |       |  |   |      |      
|                                                                  | Income before cumulative effect of change in accounting principle                                     |   | $    | 7,706                                         |  |                   | $    | 46    |  |      | $    | 7,980 |  |   | $    | 78    | 
|                                                                  | Cumulative effect of change in accounting principle                                                   |   |      |                                              |  |                   |      |      |  |      |      |      |  |   |      | 55    | 
|                                                                  |                                                                                                       |   |      |                                               |  |                   |      |       |  |      |      |       |  |   |      |      
|                                                                  | Numerator for diluted earnings per share available to Common
Stockholders                             |   | $    | 7,706                                         |  |                   | $    | 46    |  |      | $    | 7,980 |  |   | $    | 133   | 
|                                                                  |                                                                                                       |   |      |                                               |  |                   |      |       |  |      |      |       |  |   |      |      
|Denominator:                                                      |                                                                                                       |   |      |                                               |  |                   |      |       |  |      |      |       |  |   |      |      
|                                                                  | Weighted average shares                                                                               |   |      | 3,908                                         |  |                   |      | 3,867 |  |      |      | 3,897 |  |   |      | 3,856 | 
|                                                                  | Effect of dilutive securities:                                                                        |   |      |                                               |  |                   |      |       |  |      |      |       |  |   |      |       | 
|                                                                  | Employee stock options                                                                                |   |      | 600                                           |  |                   |      | 320   |  |      |      | 380   |  |   |      | 185   | 
|                                                                  | Warrants                                                                                              |   |      | 1                                             |  |                   |      |      |  |      |      |      |  |   |      |      | 
|                                                                  |                                                                                                       |   |      |                                               |  |                   |      |       |  |      |      |       |  |   |      |      
|                                                                  | Denominator for diluted earnings per share-adjusted weighted
average shares after assumed conversions |   |      | 4,509                                         |  |                   |      | 4,187 |  |      |      | 4,277 |  |   |      | 4,041 | 
|                                                                  |                                                                                                       |   |      |                                               |  |                   |      |       |  |      |      |       |  |   |      |      
|Basic earnings per share:                                         |                                                                                                       |   |      |                                               |  |                   |      |       |  |      |      |       |  |   |      |      
|Income before cumulative effect of change in accounting principle |                                                                                                       | $ | 1.97 |                                               |  | $                 | 0.01 |       |  | $    | 2.05 |       |  | $ | 0.02 |      
|Cumulative effect of change in accounting principle               |                                                                                                       |   |     |                                               |  |                   |     |       |  |      |     |       |  |   | 0.01 |      
|                                                                  |                                                                                                       |   |      |                                               |  |                   |      |       |  |      |      |       |  |   |      |      
|Net income                                                        |                                                                                                       | $ | 1.97 |                                               |  | $                 | 0.01 |       |  | $    | 2.05 |       |  | $ | 0.03 |      
|                                                                  |                                                                                                       |   |      |                                               |  |                   |      |       |  |      |      |       |  |   |      |      
|Diluted earnings per share:                                       |                                                                                                       |   |      |                                               |  |                   |      |       |  |      |      |       |  |   |      |      
|Income before cumulative effect of change in accounting principle |                                                                                                       | $ | 1.71 |                                               |  | $                 | 0.01 |       |  | $    | 1.87 |       |  | $ | 0.02 |      
|Cumulative effect of change in accounting principle               |                                                                                                       |   |     |                                               |  |                   |     |       |  |      |     |       |  |   | 0.01 |      
|                                                                  |                                                                                                       |   |      |                                               |  |                   |      |       |  |      |      |       |  |   |      |      
|Net income                                                        |                                                                                                       | $ | 1.71 |                                               |  | $                 | 0.01 |       |  | $    | 1.87 |       |  | $ | 0.03 |      
|                                                                  |                                                                                                       |   |      |                                               |  |                   |      |       |  |      |      |       |  |   |      |      

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Authorized shares of common stock reserved for possible issuance for
convertible debentures, warrants, and stock options are as follows at February
28, 2003:

|                                                  |       |  |           |           | 
|------------------------------------------------- | ----- |  | --------- | --------- | 
|Convertible debentures                            |       |  | 9,044     |          
|Warrants(a)                                       |       |  | 92,500    |          
|Outstanding stock options                         |       |  | 1,120,224 |          
|Possible future issuance under stock option plans |       |  | 443,235   |          
|                                                  |       |  |           |          
|                                                  | Total |  |           | 1,665,003 | 
|                                                  |       |  |           |          



---

|(a) |  | During the quarter ended February 28, 2003, the Company issued
non-employees warrants to purchase an aggregate of 92,500 shares of common
stock in exchange for services. These warrants have exercise prices ranging
from $1.09 to $5.00 per share and all such warrants are fully vested as of
February 28, 2003. General and administrative expenses for the quarter ended
February 28, 2003 include approximately $8,000 in expense relating to these
warrants.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 7  Commitments and Contingencies



|(1) |  | Contracts with two major clients require the Company to maintain
performance bonds throughout the contract terms. At February 28, 2003,
the Company maintained performance bonds of $1,200,000 and $600,000 in
compliance with these requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The Company would remain liable to perform the services covered under
subcapitation agreements if the parties with which the Company
subcapitates were unable to fulfill their responsibilities under such
agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(3) |  | On February 19, 1999, the California Superior Court denied the Companys
Petition for Writ of Mandate of an adverse administrative appeal decision
regarding application of the Maximum Inpatient Reimbursement Limitation to
Medi-Cal reimbursement paid to Brea Neuropsychiatric Hospital for its
fiscal periods 1983 through 1986. The Company owned this facility until
its disposal in fiscal year 1991. The subject matter of the Superior
Court action involved the refusal of the administrative law judge to order
further reductions in the liability for costs associated with treating
high cost, long stay Medi-Cal patients, which are commonly referred to as
outliers.                                                                                                                                                                                                                
|   
|    |  | In July 2002, the Company entered into a Repayment Agreement with the
Department to resolve this liability at a substantially reduced amount. The
terms of the Repayment Agreement required the Company to either 1) pay one
lump sum of $450,000 to the Department on or before September 1, 2002 or 2)
beginning September 1, 2002, the Company would be required to make three
monthly installment payments of $160,000 each, with the last payment being
due on or before November 1, 2002, for a total of $480,000 as full and
complete satisfaction of the outstanding liability. As of November 30,
2002, after making three installment payments to the Department of $160,000
each, the Company had fully satisfied its obligations under the terms of the
settlement agreement. As a result, the Company recorded a non-operating
gain of $470,000 during the quarter ended November 30, 2002.




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 Risk Factors  Important Factors Related to Forward-Looking
Statements and Associated Risks (page 15).

General

INTRODUCTION

The Company has provided managed behavioral healthcare services and
products since 1992. Services are marketed primarily through business
development staff who are responsible for developing new sales leads and for
preparing responses to formal commercial and public sector Requests for
Proposals (RFPs). The Company typically has several RFPs in process, with
submissions being made to a diverse selection of existing and prospective
clients. Current services include a broad spectrum of inpatient and outpatient
mental health and substance abuse therapy, counseling, and supportive
interventions.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

RECENT DEVELOPMENTS

In January 2003, the IRS accepted the Companys Offer in Compromise, which
gave the Company the option of paying approximately $2.6 million over two years
or paying approximately $2.2 million within 90 days of the letter of acceptance
in addition to a $50,000 downpayment made by the Company at the time its Offer
was submitted to IRS. In February 2003, the Company concluded the IRS
settlement by making a cash payment of approximately $2.2 million to the IRS to
fully settle the previously accrued tax liability of $12.1 million. Coincident
with the IRS settlement, the Company reached an agreement with its former tax
advisor requiring the tax advisor to refund $525,000 of the original $2.5
million of fees previously paid by the Company. The Company received the
$525,000 refund in February 2003. As a result of the resolution of this matter,
the Company extinguished the $12.1 million liability and recorded a
non-operating gain in the quarter ended February 28, 2003 of approximately $7.7
million net of related expenses, including $2.0 million of the unrecovered
portion of the $2.5 million of fees previously paid to its tax advisor. The
gain represented $1.97 earnings per share ($1.71 diluted earnings per share).
No taxable income resulted from the settlement of the liability.
Additionally, the IRS settlement requires that the Federal net operating loss
carryforwards of approximately $42.0 million resulting from losses incurred in
fiscal years ended May 31, 1995 through May 31, 2001, and a minimum tax credit
carryover of approximately $0.7 million, are no longer available to the
Company.

In February 2003, the Company reported that it entered the Indiana market
in January 2003 and implemented contracts to service approximately 55,000
covered individuals. As of February 2003, the Indiana contracts covered
approximately 58,000 lives and annual revenues from this new business are
expected to exceed $1.2 million annually. With the addition of this new
business, the Company now serves more than 1,100,000 members nationwide.

RESULTS OF OPERATIONS

During the quarter ended February 28, 2003, the Company recorded a $7.7
million, non-operating gain related to the IRS settlement (see Note 5  Income
Taxes to the unaudited, consolidated financial statements). Additionally,
results included $88,000 of revenue related to a favorable cost report
settlement that was completed during the quarter pertaining to the Companys
hospital business segment that was discontinued in Fiscal 1999. As a result,
the Company reported net income of $7.7 million, or $1.97 earnings per share
($1.71 diluted earnings per share) and operating income of $7,000, for the
quarter ended February 28, 2003 compared to $46,000, or $0.01 earnings per
share (basic and diluted) and operating income of $66,000, for the quarter
ended February 28, 2002. Net income for the nine months ended February 28,
2003, which included the $7.7 million non-operating gain described above and a
$470,000 non-operating gain recorded during the quarter ended November 30,
2002, was approximately $8.0 million, or $2.05 earnings per share ($1.87
diluted earnings per share), compared to net income of $133,000 or $0.03
earnings per share (basic and diluted), for the nine months ended February 28,
2002. Excluding the $7.7 million non-operating gain from net income would have
resulted in an $11,000 net loss ($0.0 per basic and diluted share) for the
quarter ended February 28, 2003. For the nine months ended February 28, 2003,
excluding the $8.2 million non-operating gains from net income would have
resulted in a $207,000 net loss ($0.05 per basic and diluted share).

No tax benefit or provision for federal income taxes was recorded in the
nine months ended February 28, 2003 and 2002. Management has determined that
the $7.7 million non-operating gain specific to the IRS settlement and the
$470,000 non-operating gain recorded in the second quarter of Fiscal 2003 are
both non-taxable and, therefore, we do not anticipate that annual income taxes
will exceed the minimum state income taxes of $17,000 that were recorded during
the nine months ended February 28, 2003. Additionally, management has
determined that a valuation allowance at February 28, 2003 and 2002, was
necessary to offset any deferred tax assets based on the likelihood of future
realization.

The following tables summarize the Companys financial data for the three
and nine months ended February 28, 2003 and 2002 (in thousands):

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THE THREE MONTHS ENDED FEBRUARY 28, 2003 COMPARED TO THE THREE MONTHS ENDED FEBRUARY 28, 2002:

|                                |  |                    |       |                    |  |   |       | 
|------------------------------- |  | ------------------ | ----- | ------------------ |  | - | ----- | 
|                                |  | CONSOLIDATED       |       | CONSOLIDATED      
|                                |  | OPERATIONS         |       | OPERATIONS        
|                                |  | THREE MONTHS ENDED |       | THREE MONTHS ENDED
|                                |  | FEBRUARY 28, 2003  |       | FEBRUARY 28, 2002 
|                                |  |                    |       |                   
|Operating revenues              |  | $                  | 8,061 |                    |  | $ | 7,110 | 
|Healthcare operating expenses   |  |                    | 7,227 |                    |  |   | 6,093 | 
|General/administrative expenses |  |                    | 771   |                    |  |   | 874   | 
|Other operating expenses        |  |                    | 56    |                    |  |   | 77    | 
|                                |  |                    |       |                    |  |   |       | 
|                                |  |                    | 8,054 |                    |  |   | 7,044 | 
|                                |  |                    |       |                    |  |   |       | 
|Operating income                |  | $                  | 7     |                    |  | $ | 66    | 
|                                |  |                    |       |                    |  |   |       | 

The Company reported net income of $7.7 million and operating income of
$7,000 for the quarter ended February 28, 2003 compared to net income of
$46,000 and operating income of $66,000 for the quarter ended February 28,
2002. Results for the three months ended February 28, 2003 include a $7.7
million non-operating gain in connection with the IRS settlement (see Note 5 
Income Taxes to the unaudited, consolidated financial statements). Excluding
the $7.7 million non-operating gain from net income would have resulted in an
$11,000 net loss ($0.0 per basic and diluted share) for the quarter ended
February 28, 2003. Additionally, results included $88,000 of revenue related
to a favorable cost report settlement that was completed during the quarter
pertaining to the Companys hospital business segment that was discontinued in
Fiscal 1999. Operating revenues increased by 13.4%, or approximately $1.0
million, to $8.1 million for the quarter ended February 28, 2003 compared to
$7.1 million for the quarter ended February 28, 2002. This increase is
attributable to membership growth from existing business, one new contract
implemented during the fourth quarter of Fiscal 2002, and new Indiana business
that was implemented during January 2003. These increases were offset by the
loss of one major contract that terminated effective December 31, 2002 (see
Note 4(1)  Major Customers/Contracts to the unaudited, consolidated
financial statements).

Healthcare operating expenses increased by approximately $1.1 million, or
18.6%, for the quarter ended February 28, 2003 as compared to the quarter ended
February 28, 2002. This increase is directly attributable to revenue growth as
described above. Healthcare operating expense as a percentage of operating
revenue increased by 4.0% from 85.7% for the quarter ended February 28, 2002 to
89.7% for the quarter ended February 28, 2003. 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.

General and administrative expenses decreased by $103,000, or 11.8%, for
the quarter ended February 28, 2003 as compared to the quarter ended February
28, 2002. This decrease is primarily due to reclassifications made during the
current quarter related to $75,000 of costs that are directly attributable to
the IRS settlement and, therefore, were deducted from the associated gain (see
Note 5  Income Taxes to the unaudited, consolidated financial statements).
Such costs were included in general and administrative expenses in the prior
year. General and administrative expense as a percentage of operating revenue
decreased from 12.3% for the quarter ended February 28, 2002 to 9.6% for the
quarter ended February 28, 2003.

Other operating expenses decreased by $21,000 for the quarter ended
February 28, 2003 compared to the quarter ended February 28, 2002. This
decrease consisted of a reduction in depreciation expense of $43,000 offset by
a $22,000 increase in bad debt expense during the quarter ended February 28,
2003.

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THE NINE MONTHS ENDED FEBRUARY 28, 2003 COMPARED TO THE NINE MONTHS ENDED FEBRUARY 28, 2002:

|                                |  |                   |        |                   |  |   |        | 
|------------------------------- |  | ----------------- | ------ | ----------------- |  | - | ------ | 
|                                |  | CONSOLIDATED      |        | CONSOLIDATED     
|                                |  | OPERATIONS        |        | OPERATIONS       
|                                |  | NINE MONTHS ENDED |        | NINE MONTHS ENDED
|                                |  | FEBRUARY 28, 2003 |        | FEBRUARY 28, 2002
|                                |  |                   |        |                  
|Operating revenues              |  | $                 | 24,999 |                   |  | $ | 19,706 | 
|Healthcare operating expenses   |  |                   | 22,340 |                   |  |   | 16,827 | 
|General/administrative expenses |  |                   | 2,611  |                   |  |   | 2,573  | 
|Other operating expenses        |  |                   | 173    |                   |  |   | 180    | 
|                                |  |                   |        |                   |  |   |        | 
|                                |  |                   | 25,124 |                   |  |   | 19,580 | 
|                                |  |                   |        |                   |  |   |        | 
|Operating (loss) income         |  | $                 | (125   | )                 |  | $ | 126    | 
|                                |  |                   |        |                   |  |   |        | 

The Company reported net income of approximately $8.0 million and an
operating loss of $125,000 for the nine months ended February 28, 2003 compared
to net income of $133,000 and operating income of $126,000 for the nine months
ended February 28, 2002. Results for the nine months ended February 28, 2003
include a $7.7 million non-operating gain in the current quarter in connection
with the IRS settlement (see Note 5  Income Taxes to the unaudited,
consolidated financial statements) and a $470,000, non-operating gain related
to one settlement that was recorded in the second quarter of Fiscal 2003. For
the nine months ended February 28, 2003, excluding the $8.2 million
non-operating gains from net income would have resulted in a $207,000 net loss
($0.05 per basic and diluted share). Additionally, results included $88,000 of
revenue related to a favorable cost report settlement that was completed during
the current quarter pertaining to the Companys hospital business segment that
was discontinued in Fiscal 1999. Operating revenues increased by 26.9%, or $5.3
million, to approximately $25.0 million for the nine months ended February 28,
2003 compared to $19.7 million for the nine months ended February 28, 2002.
This increase is primarily attributable to membership growth from existing
business, one new contract implemented during the fourth quarter of Fiscal
2002, and new Indiana business that was implemented during January 2003. These
increases were offset by the loss of one major contract that terminated
effective December 31, 2002 (see Note 4(1)  Major Customers/Contracts to the
unaudited, consolidated financial statements).

Healthcare operating expenses increased by approximately $5.5 million, or
32.8%, for the nine months ended February 28, 2003 as compared to the nine
months ended February 28, 2002. This increase is directly attributable to
revenue growth as described above. Healthcare operating expense as a
percentage of operating revenue increased by 4.0% from 85.4% for the nine
months ended February 28, 2002 to 89.4% for the nine months ended February 28,
2003. 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.

General and administrative expenses increased by $38,000, or 1.5%, for
the nine months ended February 28, 2003 as compared to the nine months ended
February 28, 2002. This increase is primarily attributable to staffing
additions necessary to support new revenue offset by a reduction of expense in
connection with costs to settle the IRS matter (see Note 5  Income Taxes to
the unaudited, consolidated financial statements). General and administrative
expense as a percentage of operating revenue decreased from 13.1% for the nine
months ended February 28, 2002 to 10.5% for the nine months ended February 28,
2003.

Other operating expenses decreased by $7,000 for the nine months ended
February 28, 2003 compared to the nine months ended February 28, 2002. This
decrease is attributable to a decrease in depreciation expense offset by an
increase in bad debt expense in Fiscal 2003 compared to Fiscal 2002. The
increase in bad debt expense is primarily due to a $66,000 bad debt recovery in
Fiscal 2002.

LIQUIDITY AND CAPITAL RESOURCES

During the quarter ended February 28, 2003, the Company completed a
settlement with the Internal Revenue Service and reached an agreement with its
former tax advisor with respect to the related tax advisor fees. Having
concluded these settlements, the Company recorded a non-operating gain of $7.7
million during the quarter ended February 28, 2003, significantly reducing its
working capital deficiency and stockholders deficit (see Note 5  Income
Taxes to the unaudited, consolidated financial statements), which amount to
$4.0 million and $4.5 million, respectively, as of February 28, 2003. The IRS
settlement required the Company to make a cash payment in February

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2003 of approximately $2.2 million offset in part by $525,000 collected from
its former tax advisor. As a result, cash and cash equivalents have decreased
by approximately $1.7 million during the nine months ended February 28, 2003.

The Companys unpaid claims liability is estimated using an actuarial paid
completion factor methodology and other statistical analyses. These estimates
are subject to the effects of trends in utilization and other factors. Any
significant increase in member utilization that falls outside of the Companys
estimations would increase healthcare operating expenses and may impact the
Companys ability to achieve profitability and positive cash flow. Although
considerable variability is inherent in such estimates, management believes
that the unpaid claims liability is adequate. However, actual results could
differ from the $4.4 million claims payable amount reported as of February 28,
2003.

The Company is currently pursuing sources of financing on terms that would
support its capital needs and provide available funds for working capital
beyond May 31, 2003. Management cannot state with any degree of certainty
whether any required additional equity or debt financing will be available to
the Company during Fiscal 2003 and, if available, that the source of financing
would be available on terms and conditions acceptable to the Company. These
conditions raise substantial doubt about the Companys ability to continue as a
going concern, which is dependent upon its ability to continue to generate
sufficient cash flow to meet its obligations on a timely basis, obtaining
additional financing as may be required and, ultimately, attaining an operating
profit.

Summary of Significant Accounting Policies

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
$4.4 million claims payable amount reported as of February 28, 2003.

Stock Options  The Company has elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and
related interpretations in accounting for its employee stock options. Under
APB 25, in the event that the exercise price of the Companys employee stock
options is less than the market price of the underlying stock on the date of
grant, compensation expense is recognized. The fair value of options granted
to non-employee consultants is being amortized to expense over the vesting
period of the options.

Recently Issued Accounting Pronouncement

In December 2002, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, which amends the
disclosure requirements of SFAS 123, Accounting for Stock-Based Compensation
and provides alternative methods of transition for a voluntary change to the
fair value method of accounting for stock-based employee compensation. As
permitted by SFAS 148, the Company currently intends to continue applying
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, to account for stock-based employee compensation, which provides
that no compensation expense is recognized for stock option grants having an
exercise price equal to the market value of the underlying stock on the date of
grant. The disclosure requirements are effective for the Company beginning
with the quarter ended February 28, 2003 (see Note 2 to the unaudited
consolidated financial statements).

CAUTIONARY STATEMENT FOR THE PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Certain information included
in this 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, a concentration of customers, increases in
utilization, contract pricing, and other risks detailed from time to time in
the Companys SEC reports.

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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, and (iii) risk and utilization in
context of capitated payouts.

Concentration of Risk

The Company currently has contracts with four health plans to provide
behavioral healthcare services under commercial and Medicaid plans, to
contracted members in Connecticut, Florida, and Texas. These combined
contracts represent approximately 59.6% and 62.8% of the Companys operating
revenue for the nine months ended February 28, 2003 and February 28, 2002,
respectively, and include contracts that terminated effective January 1, 2003,
which accounted for a combined 15.1% and 16.8% of the Companys operating
revenue for the nine months ended February 28, 2003 and February 28, 2002,
respectively (see Note 4(1) to the unaudited, consolidated financial statements
 Major Customers/Contracts) and agreements that terminated effective
February 28, 2003, which accounted for 6.2% and 2.7% of the Companys operating
revenues during the nine months ended February 28, 2003 and 2002, respectively
(see Note 4(3) to the unaudited, consolidated financial statements
 Major
Customers/Contracts). 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.

Uncertainty of Future Profitability

As of February 28, 2003, the Company had a stockholders deficit of $4.5
million and a working capital deficiency of approximately $4.0 million. For the
nine months ended February 28, 2003, the Company incurred an operating loss of
$125,000. There can be no assurance that the Company will be able to achieve
and sustain an operating profit or that the Company can achieve and 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

Management believes that its ability to increase its business is dependent
on the Companys ability to have available working capital and, therefore, the
Company may be required to seek additional equity or debt financing.
Management cannot state with any degree of certainty whether any required
additional equity or debt financing will be available to it and, if available,
that the source of financing would be available on terms and conditions
acceptable to the Company.

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.

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Shares Eligible for Future Sale

As of March 24, 2003, the Company has issued 1,120,224 options, with
exercise prices ranging from $0.25 to $4.00. A total of 782,333 options are
exercisable and in the money as of March 24, 2003 and, accordingly, could be
exercised and resold by optionees.

Anti-takeover Provisions

The Companys Restated Certificate of Incorporation provides for 60,000
authorized shares of Preferred Stock, the rights, preferences, qualifications,
limitations and restrictions of which may be fixed by 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 February 28, 2003, there are 18,740 remaining
shares authorized and available to issue, and no outstanding shares of
Preferred Stock. The Companys Restated Certificate of Incorporation also
provides for a classified board of directors with directors divided into three
classes serving staggered terms. The Companys stock option plans generally
provide for the acceleration of vesting of options granted under such plans in
the event of certain transactions that result in a change of control of the
Company. Section 203 of the General Corporation Law of Delaware prohibits 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 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 future operations to the extent that
they are not able to be recouped in future managed care contracts.

As of February 28, 2003, the Company managed approximately 621,000 lives
in connection with behavioral and substance abuse services covered through
Medicaid in Connecticut, Florida, Michigan and Texas. The aggregate number of
Medicaid lives was reduced by approximately 164,000 effective January 1, 2003
due to the termination of the contracts described under Note 4(1)  Major
Contracts/Customers to the unaudited, consolidated financial statements. In
addition, the Company manages approximately 40,000 lives covered through
Medicare in Florida and Texas. However, the contract covering the 39,000
Florida Medicare lives terminated effective February 28, 2003
(see Note 4(3) 
Major Contracts/Customers to the unaudited, consolidated financial
statements). Any changes in Medicaid and Medicare reimbursement could
ultimately affect the Company through contract bidding and cost

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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 protected health information. Entities subject to HIPAA include
some 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 for the Company to be compliant is currently October 2003 for
transaction code changes due to the Companys filing in October 2002 of a
formal compliance plan, and April 14, 2003 for compliance with the privacy
rules. The Company is currently evaluating its systems and policies that are
impacted by HIPAA. 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 and has met the requirements specific to the privacy rules.
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.




Item 4  Controls and Procedures

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

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

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

Among other matters, we sought in our evaluation to determine whether there
were any significant deficiencies or material weaknesses in the Companys
Internal Controls, or whether the Company had identified any acts of fraud
involving personnel who have a significant role in the Companys Internal
Controls. In the professional auditing literature, significant deficiencies
are referred to as reportable conditions; these are control issues that could
have

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a significant adverse effect on the ability to record, process, summarize and
report financial data in the financial statements. A material weakness is
defined in the auditing literature as a particularly serious reportable
condition where the internal control does not reduce to a relatively low level
the risk that misstatements caused by error or fraud may occur in amounts that
would be material in relation to the financial statements and not be detected
within a timely period by employees in the normal course of performing their
assigned functions. We also sought to deal with other controls matters in the
Controls Evaluation, and in each case if a problem was identified, we
considered what revision, improvement and/or correction to make in accordance
with our on-going procedures.

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

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




PART II  OTHER INFORMATION




Item 1  LEGAL PROCEEDINGS

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

As a result of the resolution of this matter, the Company extinguished the
$12.1 million liability and recorded a non-operating gain in the quarter ended
February 28, 2003 of approximately $7.7 million net of related expenses,
including $2.0 million of the unrecovered portion of the $2.5 million of fees
previously paid to its tax advisor. The gain represented $1.97 earnings per
share ($1.71 diluted earnings per share). No taxable income resulted from the
settlement of the liability. Additionally, the IRS settlement requires that
the Federal net operating loss carryforwards of approximately $42.0 million
resulting from losses incurred in fiscal years ended May 31, 1995 through May
31, 2001, and a minimum tax credit carryover of approximately $0.7 million, are
no longer available to the Company.

From time to time, the Company and its subsidiaries may be parties to and
their property is subject to ordinary, routine litigation incidental to their
business. The Company has no knowledge of any claim that may be presently
brought against it. Future claims could exceed insurance policy limits and
the Company or any of it subsidiaries may be exposed to a future liability that
is not covered by insurance.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES




Item 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 submitted in accordance with
Securities Act Release 34-47551.
|     |  |                                                                                                                                                                                     
|99.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 submitted in accordance with
Securities Act Release 34-47551.



|(b) |  | Reports on Form 8-K. During the quarter ended February 28, 2003, the
following reports on Form 8-K were filed by the Registrant:
|--- |  | --------------------------------------------------------------------------------------------------------------------------------

|                  |  |                      |  |                                                                                                                                                     
|----------------- |  | -------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|Date of Report    |  | Item Reported        |  | Description                                                                                                                                         
|                  |  |                      |  |                                                                                                                                                     
|January 3, 2003   |  | Item 5. Other Events |  | Update on previously reported contract termination and
notice of the election of one new member to the Board
of Directors.                          
|January 23, 2003  |  | Item 5. Other Events |  | Reported that the Internal Revenue Service (IRS) had
accepted the Companys Offer in Compromise.                                                  
|February 7, 2003  |  | Item 5. Other Events |  | Filed new employment agreements that the Company entered
into with its President and Chief Executive Officer and,
also, its Chief Financial Officer.
|February 10, 2003 |  | Item 5. Other Events |  | Reported new business awards in Indiana and Michigan.                                                                                               
|March 3, 2003     |  | Item 5. Other Events |  | Announced that the Company had concluded the IRS matter
by making full payment to IRS.                                                              

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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
|               |  |                                |  |                                             
|April 11, 2003 |  | 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: April 11, 2003 |  | /s/ Mary Jane Johnson                
|                     |  |                                      
|                     |  | Mary Jane Johnson                    
|                     |  | President and Chief Executive Officer

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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: April 11, 2003 |  | /s/ Robert J. Landis                            
|                     |  |                                                 
|                     |  | Robert J. Landis                                
|                     |  | Chairman, Chief Financial Officer, and Treasurer

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Exhibit Index

Nine months Ended February 28, 2003

|        |  |                                                                                                                                                           |  |             |    | 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | -- | 
|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 |  |             | 23 | 
|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 |  |             | 24 | 

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