##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2007.
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _____________  to _____________.
Commission File Number 1-9927
 COMPREHENSIVE CARE CORPORATION
  Delaware
    
    95-2594724(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer Identification No.)
 3405 W. Dr. Martin Luther King Jr. Blvd, Suite 101, Tampa, FL 33607
  (813) 288-4808
  
   þ o
   Large Accelerated Filer  o
    
    Accelerated Filer  o
    
    Non-Accelerated Filer  þ
 o þ
  Class
    
    Outstanding at August 6, 2007Common Stock, par value $.01 per share
    
    7,702,781




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##### 



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Index
  
 PAGEPART I  FINANCIAL INFORMATIONItem 1 Consolidated Financial StatementsConsolidated Balance Sheets as of June 30, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Operations for the three and six months ended June 30, 2007 and 2006
    
    
    4Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-13Item 2Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13-21Item 3Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4Controls and Procedures
    
    
    21PART II  OTHER INFORMATIONItem 1 Legal Proceedings
    
    
    21-22Item 1A  Risk Factors
    
    
    22Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3 Defaults Upon Senior Securities
    
    
    22Item 4 Submission of Matters to a Vote of Security Holders
    
    
    22Item 5 Other Information
    
    
    22Item 6 Exhibits
    
    
    22Signatures
    
    
    23CertificationsEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  2




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##### Table of Contents



COMPREHENSIVE
CARE CORPORATION AND SUBSIDIARIES
 
 PART I  FINANCIAL INFORMATION
 
 Item 1. Consolidated Financial Statements
 
 Consolidated Balance Sheets
 June 30,
    
    
    December 31,2007
    
    
    2006(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    7,216
    
    
    
    5,543Accounts receivable, less allowance for doubtful accounts of $1 and
$6, respectively
    
    
    101
    
    
    
    163Other current assets
    
    
    496
    
    
    
    793Total current assets
    
    
    7,813
    
    
    
    6,499Property and equipment, net
    
    
    373
    
    
    
    377Note receivable
    
    
    31
    
    
    
    44Goodwill, net
    
    
    991
    
    
    
    991Other assets
    
    
    150
    
    
    
    203Total assets
    
    
    9,358
    
    
    
    8,114LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable and accrued liabilities
    
    
    1,783
    
    
    
    1,201Accrued claims payable
    
    
    5,183
    
    
    
    2,746Accrued reinsurance claims payable
    
    
    2,526
    
    
    
    2,516Income taxes payable
    
    
    46
    
    
    
    50Total current liabilities
    
    
    9,538
    
    
    
    6,513Long-term liabilities:Long-term debt
    
    
    2,244
    
    
    
    2,244Other liabilities
    
    
    144
    
    
    
    160Total long-term liabilities
    
    
    2,388
    
    
    
    2,404Total liabilities
    
    
    11,926
    
    
    
    8,917Stockholders deficit:Preferred stock, $50.00 par value; authorized 18,740 shares; 14,400
issued
    
    
    720
    
    
    
    720Common stock, $0.01 par value; authorized 30,000,000 shares; issued
and outstanding 7,702,783 and 7,655,283, respectively
    
    
    77
    
    
    
    77Additional paid-in capital
    
    
    57,587
    
    
    
    57,503Accumulated deficit
    
    
    (60,952
    )
    
    
    (59,103
    )Total stockholders deficit
    
    
    (2,568
    )
    
    
    (803
    )Total liabilities and stockholders deficit
    
    $
    9,358
    
    
    
    8,114
  3




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COMPREHENSIVE
CARE CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Operations
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Operating revenues
    
    $
    9,159
    
    
    
    4,924
    
    
    
    17,860
    
    
    
    10,033Costs and expenses:Healthcare operating expenses
    
    
    9,348
    
    
    
    4,161
    
    
    
    17,611
    
    
    
    8,308General and administrative expenses
    
    
    931
    
    
    
    790
    
    
    
    2,012
    
    
    
    1,585Provision for (recovery of) doubtful accounts
    
    
    2
    
    
    
    4
    
    
    
    (8
    )
    
    
    (52
    )Depreciation and amortization
    
    
    38
    
    
    
    22
    
    
    
    76
    
    
    
    4310,319
    
    
    
    4,977
    
    
    
    19,691
    
    
    
    9,884Operating (loss) income before items shown below
    
    
    (1,160
    )
    
    
    (53
    )
    
    
    (1,831
    )
    
    
    149Other income (expense):Gain from sale of available-for-sale securities
    
    
    29
    
    
    
    
    
    
    
    29
    
    
    
    Loss from software development
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    (123
    )Loss on impairment  investment in marketable securities
    
    
    
    
    
    
    (17
    )
    
    
    
    
    
    
    (17
    )Interest income
    
    
    48
    
    
    
    29
    
    
    
    72
    
    
    
    54Interest expense
    
    
    (48
    )
    
    
    (48
    )
    
    
    (95
    )
    
    
    (93
    )Other non-operating income
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    10Loss before income taxes
    
    
    (1,131
    )
    
    
    (100
    )
    
    
    (1,825
    )
    
    
    (20
    )Income tax expense
    
    
    14
    
    
    
    35
    
    
    
    24
    
    
    
    49Net loss attributable to common stockholders
    
    
    (1,145
    )
    
    
    (135
    )
    
    
    (1,849
    )
    
    
    (69
    )Net loss per common share  basic and diluted
    
    $
    (0.15
    )
    
    
    (0.02
    )
    
    
    (0.24
    )
    
    
    (0.01
    )Weighted average common shares outstanding:Basic
    
    
    7,703
    
    
    
    5,892
    
    
    
    7,692
    
    
    
    5,875Diluted
    
    
    7,703
    
    
    
    5,892
    
    
    
    7,692
    
    
    
    5,875
  4




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 Six Months EndedJune 30,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (1,849
    )
    
    
    (69
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    76
    
    
    
    43Asset writedown  eye care memberships
    
    
    62
    
    
    
    63Asset write-off
    
    
    3
    
    
    
    Compensation expense  stock options issued
    
    
    40
    
    
    
    8Loss from software development
    
    
    
    
    
    
    123Gain from sale of available-for-sale securities
    
    
    (29
    )
    
    
    Loss on impairment  investment in marketable securities
    
    
    
    
    
    
    17Non cash expense  stock issued
    
    
    25
    
    
    
    27Amortization of deferred revenue
    
    
    
    
    
    
    (4
    )Changes in assets and liabilities:Accounts receivable, net
    
    
    62
    
    
    
    (442
    )Accounts receivable  managed care reinsurance contract
    
    
    
    
    
    
    454Other current assets and other non-current assets
    
    
    288
    
    
    
    250Accounts payable and accrued liabilities
    
    
    604
    
    
    
    141Accrued claims payable
    
    
    2,437
    
    
    
    (1,162
    )Accrued reinsurance claims payable
    
    
    10
    
    
    
    (607
    )Income taxes payable
    
    
    (4
    )
    
    
    16Other liabilities
    
    
    (19
    )
    
    
    Net cash provided by (used in) continuing operations
    
    
    1,706
    
    
    
    (1,142
    )Net cash used in discontinued operations
    
    
    (20
    )
    
    
    Net cash provided by (used in) continuing and discontinued operations
    
    
    1,686
    
    
    
    (1,142
    )Cash flows from investing activities:Net proceeds from sale of available-for-sale securities
    
    
    30
    
    
    
    Payment received on notes receivable
    
    
    12
    
    
    
    Additions to property and equipment, net
    
    
    (46
    )
    
    
    (28
    )Net cash used in investing activities
    
    
    (4
    )
    
    
    (28
    )Cash flows from financing activities:Proceeds from the issuance of common stock
    
    
    19
    
    
    
    21Repayment of debt
    
    
    (28
    )
    
    
    (32
    )Net cash used in financing activities
    
    
    (9
    )
    
    
    (11
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,673
    
    
    
    (1,181
    )Cash and cash equivalents at beginning of period
    
    
    5,543
    
    
    
    6,288Cash and cash equivalents at end of period
    
    $
    7,216
    
    
    
    5,107Supplemental disclosures of cash flow information:Cash paid during the six-month period for:Interest
    
    $
    95
    
    
    
    93Income taxes
    
    $
    30
    
    
    
    32Non-cash operating, financing and investing activities:Property acquired under capital leases
    
    $
    34
    
    
    
    136
  5




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 Note 1  Description of the Companys Business and Basis of Presentation
 
  Note 2  Summary of Significant Accounting Policies
   Revenue Recognition
  6




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Healthcare Expense Recognition
  Accrued Claims Payable
  Premium Deficiencies
    Income Taxes
   7




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
   Stock Options
     8




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##### Table of Contents



COMPREHENSIVE
CARE CORPORATION AND SUBSIDIARIES
  ThreeMonths
    
    
    Six Months(in thousands except for per share information)
    
    Ended
    
    
    Ended6/30/06
    
    
    6/30/06Net loss as reported
    
    $
    (135
    )
    
    
    (69
    )Add:Total stock-based employee compensation expense included in
related net loss, net of related tax effects
    
    
    8
    
    
    
    8Deduct:Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax
effects
    
    
    (63
    )
    
    
    (138
    )Pro forma net loss
    
    $
    (190
    )
    
    
    (199
    )Loss per common share:Basic  as reported
    
    
    (0.02
    )
    
    
    (0.01
    )Diluted  as reported
    
    
    (0.02
    )
    
    
    (0.01
    )Basic  pro forma
    
    
    (0.03
    )
    
    
    (0.03
    )Diluted  pro forma
    
    
    (0.03
    )
    
    
    (0.03
    )
  Weighted-AverageWeighted-
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicOptions
    
    Shares
    
    
    Exercise Price
    
    
    Term
    
    
    ValueOutstanding at April 1, 2007
    
    
    1,048,707
    
    
    $
    1.35Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (40,000
    )
    
    $
    1.85Outstanding at June 30, 2007
    
    
    1,008,707
    
    
    $
    1.33
    
    
    4.95 years
    
    
    Exercisable at June 30, 2007
    
    
    1,008,707
    
    
    $
    1.33
    
    
    4.95 years
    
    
    
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Options granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,000Weighted-average grant-date fair value ($)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.43Options exercised
    
    
    
    
    
    
    26,333
    
    
    
    37,500
    
    
    
    26,333Total intrinsic value of exercised options ($)
    
    
    
    
    
    
    35,922
    
    
    
    13,160
    
    
    
    35,922Fair value of vested options ($)
    
    
    3,423
    
    
    
    153,506
    
    
    
    78,346
    
    
    
    155,217
 9




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##### Table of Contents



COMPREHENSIVE
CARE CORPORATION AND SUBSIDIARIES
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Volatility factor of the expected market price of the
Companys common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107.0
    %Expected life (in years) of the options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Risk-free interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.61
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0
    %
  Per Share Data
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Net loss
    
    $
    (1,145
    )
    
    
    (135
    )
    
    
    (1,849
    )
    
    
    (69
    )Denominator:Weighted average shares  basic
    
    
    7,703
    
    
    
    5,892
    
    
    
    7,692
    
    
    
    5,875Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares  diluted
    
    
    7,703
    
    
    
    5,892
    
    
    
    7,692
    
    
    
    5,875Loss per share  basic and diluted
    
    $
    (0.15
    )
    
    
    (0.02
    )
    
    
    (0.24
    )
    
    
    (0.01
    )
 10




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  Convertible debentures(a)
    
    
    15,051Convertible preferred stock(b)
    
    
    4,235,328Outstanding stock options(c)
    
    
    1,008,707Outstanding warrants(d)
    
    
    406,000Possible future issuance under stock option plans
    
    
    1,338,336Total
    
    
    7,003,422
     Note 3  Liquidity
  Note 4  Sources Of Revenue
  Three Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended6/30/07
    
    
    6/30/06
    
    
    6/30/07
    
    
    6/30/06Capitated contracts
    
    $
    8,848
    
    
    $
    4,762
    
    
    $
    17,315
    
    
    $
    9,714Non-capitated contracts
    
    
    311
    
    
    
    162
    
    
    
    545
    
    
    
    319Total
    
    $
    9,159
    
    
    $
    4,924
    
    
    $
    17,860
    
    
    $
    10,033
  Note 5  Major Customers/Contracts
  11




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
   Note 6  Preferred Stock
   Note 7 Commitments and Contingencies
     12




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
   Note 8  Related Party Transactions
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  13




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##### Table of Contents



COMPREHENSIVE
CARE CORPORATION AND SUBSIDIARIES
 OVERVIEW
 GENERAL
 SM (1)
  
    
    Commercial members
    
    Medicare members
    
    Medicaid members
    
    Childrens Health Insurance Program (CHIP) members
  
    
    employers
    
    health plans
    
    government organizations
    
    third-party claims administrators
    
    commercial purchasers
    
    other group purchasers of behavioral healthcare services
  
    
    psychiatrists
    
    psychologists
    
    therapists
    
    other licensed healthcare professionals
    
    psychiatric hospitals
    
    general medical facilities with psychiatric beds
    
    residential treatment centers
    
    other treatment facilities
    
 (1)
    
    Comprehensive Behavioral Care, Inc. is a registered service mark of the Company. 14




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
   ®
       Results of Operations
  15




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##### Table of Contents



COMPREHENSIVE
CARE CORPORATION AND SUBSIDIARIES
   The
Three Months Ended June 30, 2007 Compared to the Three Months Ended June 30, 2006:
 Three Months EndedJune 30,2007
    
    
    2006Operating revenues:Capitated contracts
    
    $
    8,848
    
    
    
    4,762Non-capitated sources
    
    
    311
    
    
    
    162Total operating revenues
    
    
    9,159
    
    
    
    4,924Operating expenses:Healthcare operating expenses:Claims expense(1)
    
    
    7,550
    
    
    
    3,140Other healthcare operating expenses(1)
    
    
    1,798
    
    
    
    1,021Total healthcare operating expenses
    
    
    9,348
    
    
    
    4,161General and administrative expenses
    
    
    931
    
    
    
    790Bad Debt
    
    
    2
    
    
    
    4Depreciation and amortization
    
    
    38
    
    
    
    22Total operating expenses
    
    
    10,319
    
    
    
    4,977Operating loss
    
    $
    (1,160
    )
    
    
    (53
    )
     16




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COMPREHENSIVE
CARE CORPORATION AND SUBSIDIARIES
 The Six Months Ended June 30, 2007 Compared to the Six Months Ended June 30, 2006:
 Six Months EndedJune 30,2007
    
    
    2006Operating revenues:Capitated contracts
    
    $
    17,315
    
    
    $
    9,714Non-capitated sources
    
    
    545
    
    
    
    319Total operating revenues
    
    
    17,860
    
    
    
    10,033Operating expenses:Healthcare operating expenses:Claims expense(1)
    
    
    14,464
    
    
    
    6,305Other healthcare operating expenses(1)
    
    
    3,147
    
    
    
    2,003Total healthcare operating expense
    
    
    17,611
    
    
    
    8,308General and administrative expenses
    
    
    2,012
    
    
    
    1,585Recovery of doubtful accounts
    
    
    (8
    )
    
    
    (52
    )Depreciation and amortization
    
    
    76
    
    
    
    43Total operating expenses
    
    
    19,691
    
    
    
    9,884Operating (loss) income
    
    $
    (1,831
    )
    
    $
    149
     Seasonality of Business
  17




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  Concentration of Risk
  Liquidity and Capital Resources
     Critical Accounting Estimates
   Revenue Recognition
  18




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
   Accrued Claims Payable and Claims Expense
       19




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  
    
    Changes in utilization patterns
    
    Changes in healthcare costs
    
    Changes in claims submission timeframes by providers
    
    Success in renegotiating contracts with healthcare providers
    
    Occurrence of catastrophes
    
    Changes in benefit plan design
    
    The impact of present or future state and federal regulations
  Change in Healthcare Costs:(Decrease)(Decrease)
    
    IncreaseIncrease
    
    In Claims Expense(5%)
    
    ($86,000)5%
    
    $84,000
 Premium Deficiencies
    Goodwill
  20




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Stock Compensation Expense
  Expected Volatility
 Expected Term
 Expected Forfeiture Rate
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   21




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
   
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  Item 6. Exhibits
 EXHIBITNUMBER
    
    DESCRIPTION31.1
    
    
    Comprehensive Care Corporation CEO Certification pursuant to Section 302
of the Sarbanes-Oxley Act of 200231.2
    
    
    Comprehensive Care Corporation CFO Certification pursuant to Section 302
of the Sarbanes-Oxley Act of 200232.1
    
    
    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 200232.2
    
    
    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
 22




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
   COMPREHENSIVE CARE CORPORATIONAugust 9, 2007By
    
    /s/ MARY JANE JOHNSONMary Jane Johnson
President and Chief Executive Officer
(Principal Executive Officer)By
    
    /s/ ROBERT J. LANDISRobert J. Landis
Chairman, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
 23