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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 period ended August 31, 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
or organization) |  | (IRS Employer Identification No.)

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

---

(Address of principal executive offices and zip code)


(813) 288-4808

---

(Registrants telephone number, including area code)


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

Yes [X] No [  ]

Indicate 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 October 6, 2003
|                                       |  |                               
|Common Stock, par value $.01 per share |  | 3,939,549                     





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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 3. Quantitative and Qualitative Disclosures About Market Risk                            
|                                         | Item 4. Controls and Procedures                                                               
|PART II  OTHER INFORMATION             
|                                         | Item 1  LEGAL PROCEEDINGS                                                                    
|                                         | Item 6  Exhibits and Reports on Form 8-K                                                     
|                                         | SIGNATURES                                                                                    
|Ex.31.1 Section 302 Certification of CEO
|Ex.31.2 Section 302 Certification of CFO
|Ex.32.1 Section 906 Certification of CEO
|Ex.32.2 Section 906 Certification of CFO



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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Index

|                               |  |                                                                                              |                                                                                           |  |       |      | 
|------------------------------ |  | -------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- |  | ----- | ---- | 
|                               |  |                                                                                              |                                                                                           |  | Page 
|PART I  FINANCIAL INFORMATION |  |                                                                                              |                                                                                           | 
|                               |  | Item 1Consolidated Financial Statements                                                     |                                                                                           |  |       |     
|                               |  |                                                                                              | Consolidated Balance Sheets,
August 31, 2003 and May 31, 2003                             |  |       | 3    | 
|                               |  |                                                                                              | Consolidated Statements of Operations for
the three months ended August 31, 2003 and 2002 |  |       | 4    | 
|                               |  |                                                                                              | Consolidated Statements of Cash Flows for
the three months ended August 31, 2003 and 2002 |  |       | 5    | 
|                               |  |                                                                                              | Notes to Consolidated Financial Statements                                                |  |       | 6-11 | 
|                               |  | Item 2Managements Discussion and Analysis of Financial Condition and
Results of Operations |                                                                                           |  | 11-17 |     
|                               |  | Item 3Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                           |  | 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                                                                               |                                                                                           |  | 21-24 |     

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES




PART I.  FINANCIAL INFORMATION




Item 1  Consolidated Financial Statements




Consolidated Balance Sheets

|                                            |                                                                                                             |   |                        |         |         |   |        |         |  
|------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | - | ---------------------- | ------- | ------- | - | ------ | ------- | -
|                                            |                                                                                                             |   | August 31,             |         | May 31,
|                                            |                                                                                                             |   | 2003                   |         | 2003   
|                                            |                                                                                                             |   |                        |         |        
|                                            |                                                                                                             |   | (unaudited)            |         |         |   |       
|                                            |                                                                                                             |   | (Amounts in thousands)
|ASSETS                                      |                                                                                                             |   |                        |         |         |   |        |        
|Current assets:                             |                                                                                                             |   |                        |         |         |   |        |        
|                                            | Cash and cash equivalents                                                                                   |   | $                      | 3,416   |         |   | $      | 3,590   |  
|                                            | Accounts receivable, less allowance for doubtful accounts of $27                                            |   |                        | 257     |         |   |        | 75      |  
|                                            | Accounts receivable  managed care reinsurance contract                                                     |   |                        | 485     |         |   |        | 354     |  
|                                            | Other current assets                                                                                        |   |                        | 445     |         |   |        | 605     |  
|                                            |                                                                                                             |   |                        |         |         |   |        |        
|Total current assets                        |                                                                                                             |   | 4,603                  |         |         |   | 4,624  |        
|Property and equipment, net                 |                                                                                                             |   | 284                    |         |         |   | 230    |        
|Note receivable                             |                                                                                                             |   | 154                    |         |         |   | 155    |        
|Goodwill, net                               |                                                                                                             |   | 991                    |         |         |   | 991    |        
|Restricted cash                             |                                                                                                             |   | 327                    |         |         |   | 328    |        
|Other assets                                |                                                                                                             |   | 46                     |         |         |   | 51     |        
|                                            |                                                                                                             |   |                        |         |         |   |        |        
|Total assets                                |                                                                                                             | $ | 6,405                  |         |         | $ | 6,379  |        
|                                            |                                                                                                             |   |                        |         |         |   |        |        
|LIABILITIES AND STOCKHOLDERS DEFICIT       |                                                                                                             |   |                        |         |         |   |        |        
|Current liabilities:                        |                                                                                                             |   |                        |         |         |   |        |        
|                                            | Accounts payable and accrued liabilities                                                                    |   | $                      | 2,001   |         |   | $      | 1,836   |  
|                                            | Accrued claims payable                                                                                      |   |                        | 4,039   |         |   |        | 4,103   |  
|                                            | Accrued reinsurance claims payable                                                                          |   |                        | 3,343   |         |   |        | 3,117   |  
|                                            | Income taxes payable                                                                                        |   |                        | 17      |         |   |        | 15      |  
|                                            |                                                                                                             |   |                        |         |         |   |        |        
|Total current liabilities                   |                                                                                                             |   | 9,400                  |         |         |   | 9,071  |        
|                                            |                                                                                                             |   |                        |         |         |   |        |        
|Long-term liabilities:                      |                                                                                                             |   |                        |         |         |   |        |        
|                                            | Long-term debt                                                                                              |   |                        | 2,244   |         |   |        | 2,244   |  
|                                            | Other liabilities                                                                                           |   |                        | 58      |         |   |        | 54      |  
|                                            |                                                                                                             |   |                        |         |         |   |        |        
|Total long-term liabilities                 |                                                                                                             |   | 2,302                  |         |         |   | 2,298  |        
|                                            |                                                                                                             |   |                        |         |         |   |        |        
|Total liabilities                           |                                                                                                             |   | 11,702                 |         |         |   | 11,369 |        
|                                            |                                                                                                             |   |                        |         |         |   |        |        
|Commitments and Contingencies (Note 5)      |                                                                                                             |   |                        |         |         |   |        |        
|Stockholders deficit:                      |                                                                                                             |   |                        |         |         |   |        |        
|                                            | Preferred stock, $50.00 par value; authorized 18,740 shares; none issued                                    |   |                        |        |         |   |        |        |  
|                                            | Common stock, $0.01 par value; authorized 12,500,000 shares; issued
and outstanding 3,939,049 and 3,936,549 |   |                        | 39      |         |   |        | 39      |  
|                                            | Additional paid-in-capital                                                                                  |   |                        | 51,940  |         |   |        | 51,928  |  
|                                            | Deferred compensation                                                                                       |   |                        | (10     | )       |   |        | (16     | )
|                                            | Accumulated deficit                                                                                         |   |                        | (57,266 | )       |   |        | (56,941 | )
|                                            |                                                                                                             |   |                        |         |         |   |        |        
|Total stockholders deficit                 |                                                                                                             |   | (5,297                 | )       |         |   | (4,990 | )      
|                                            |                                                                                                             |   |                        |         |         |   |        |        
|Total liabilities and stockholders deficit |                                                                                                             | $ | 6,405                  |         |         | $ | 6,379  |        
|                                            |                                                                                                             |   |                        |         |         |   |        |        

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
|                                                                     |                                     |   | August 31,        
|                                                                     |                                     |   |                   
|                                                                     |                                     |   | 2003               |       | 2002
|                                                                     |                                     |   |                    |       |     
|Operating revenues                                                   |                                     | $ | 7,893              |       |      | $ | 8,307 |      
|Costs and expenses:                                                  |                                     |   |                    |       |      |   |       |      
|                                                                     | Healthcare operating expenses       |   |                    | 6,852 |      |   |       | 7,353 |  
|                                                                     | General and administrative expenses |   |                    | 908   |      |   |       | 888   |  
|                                                                     | Recovery of doubtful accounts       |   |                    | (8    | )    |   |       | (8    | )
|                                                                     | Depreciation and amortization       |   |                    | 27    |      |   |       | 68    |  
|                                                                     |                                     |   |                    |       |      |   |       |      
|                                                                     |                                     |   | 7,779              |       |      |   | 8,301 |      
|                                                                     |                                     |   |                    |       |      |   |       |      
|Operating income from continuing operations before items
shown below |                                     |   | 114                |       |      |   | 6     |      
|Other income (expense):                                              |                                     |   |                    |       |      |   |       |      
|                                                                     | Gain on sale of assets              |   |                    |      |      |   |       | 3     |  
|                                                                     | Loss on disposal of assets          |   |                    |      |      |   |       | (5    | )
|                                                                     | Interest income                     |   |                    | 12    |      |   |       | 16    |  
|                                                                     | Interest expense                    |   |                    | (48   | )    |   |       | (46   | )
|                                                                     | Other non-operating income          |   |                    | 1     |      |   |       |      |  
|                                                                     |                                     |   |                    |       |      |   |       |      
|Income (loss) from continuing operations before income taxes         |                                     |   | 79                 |       |      |   | (26   | )    
|Income tax expense                                                   |                                     |   | 17                 |       |      |   | 7     |      
|                                                                     |                                     |   |                    |       |      |   |       |      
|Income (loss) from continuing operations                             |                                     | $ | 62                 |       |      | $ | (33   | )    
|Loss from Discontinued Operations                                    |                                     |   | (387               | )     |      |   |      |      
|                                                                     |                                     |   |                    |       |      |   |       |      
|Net loss attributable to common stockholders                         |                                     | $ | (325               | )     |      | $ | (33   | )    
|                                                                     |                                     |   |                    |       |      |   |       |      
|Earnings (loss) per common share  basic:                            |                                     |   |                    |       |      |   |       |      
|Earnings (loss) from continuing operations                           |                                     | $ | 0.02               |       |      | $ | (0.01 | )    
|Loss from discontinued operations                                    |                                     |   | (0.10              | )     |      |   |      |      
|                                                                     |                                     |   |                    |       |      |   |       |      
|Net loss                                                             |                                     | $ | (0.08              | )     |      | $ | (0.01 | )    
|                                                                     |                                     |   |                    |       |      |   |       |      
|Earnings (loss) per common share  diluted:                          |                                     |   |                    |       |      |   |       |      
|Earnings (loss) from continuing operations                           |                                     | $ | 0.01               |       |      | $ | (0.01 | )    
|Loss from discontinued operations                                    |                                     |   | (0.08              | )     |      |   |      |      
|                                                                     |                                     |   |                    |       |      |   |       |      
|Net loss                                                             |                                     | $ | (0.07              | )     |      | $ | (0.01 | )    
|                                                                     |                                     |   |                    |       |      |   |       |      
|Weighted average common shares outstanding:                          |                                     |   |                    |       |      |   |       |      
|Basic                                                                |                                     |   | 3,937              |       |      |   | 3,885 |      
|                                                                     |                                     |   |                    |       |      |   |       |      
|Diluted                                                              |                                     |   | 4,725              |       |      |   | 3,885 |      
|                                                                     |                                     |   |                    |       |      |   |       |      

See accompanying notes.

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Consolidated Statements of Cash Flows
(Unaudited)

|                                                                                     |                                                                      |   |                        |      |      |   |        |        |  
|------------------------------------------------------------------------------------ | -------------------------------------------------------------------- | - | ---------------------- | ---- | ---- | - | ------ | ------ | -
|                                                                                     |                                                                      |   | Three months ended    
|                                                                                     |                                                                      |   | August 31,            
|                                                                                     |                                                                      |   |                       
|                                                                                     |                                                                      |   | 2003                   |      | 2002
|                                                                                     |                                                                      |   |                        |      |     
|                                                                                     |                                                                      |   | (Amounts in thousands)
|Cash flows from operating activities:                                                |                                                                      |   |                        |      |      |   |        |       
|Net income (loss) from continuing operations                                         |                                                                      | $ | 62                     |      |      | $ | (33    | )     
|Adjustments to reconcile net income (loss) to net cash used in
operating activities: |                                                                      |   |                        |      |      |   |        |       
|                                                                                     | Depreciation and amortization                                        |   |                        | 27   |      |   |        | 68     |  
|                                                                                     | Compensation expense  stock and stock options issued                |   |                        | 17   |      |   |        | 11     |  
|                                                                                     | Gain on sale of assets                                               |   |                        |     |      |   |        | (3     | )
|                                                                                     | Loss on disposal of assets                                           |   |                        |     |      |   |        | 5      |  
|Changes in assets and liabilities:                                                   |                                                                      |   |                        |      |      |   |        |       
|                                                                                     | Accounts receivable                                                  |   |                        | (182 | )    |   |        | (6     | )
|                                                                                     | Accounts receivable  managed care reinsurance contract              |   |                        | (131 | )    |   |        | (101   | )
|                                                                                     | Other current assets, restricted funds, and other non-current assets |   |                        | 74   |      |   |        | (92    | )
|                                                                                     | Accounts payable and accrued liabilities                             |   |                        | (121 | )    |   |        | (433   | )
|                                                                                     | Accrued claims payable                                               |   |                        | (64  | )    |   |        | (970   | )
|                                                                                     | Accrued reinsurance claims payable                                   |   |                        | 226  |      |   |        | 402    |  
|                                                                                     | Income taxes payable                                                 |   |                        | 2    |      |   |        | 4      |  
|                                                                                     | Other liabilities                                                    |   |                        |     |      |   |        | (2     | )
|                                                                                     |                                                                      |   |                        |      |      |   |        |       
|                                                                                     | Net cash used in continuing operations                               |   |                        | (90  | )    |   |        | (1,150 | )
|                                                                                     | Net cash used in discontinued operations                             |   |                        |     |      |   |        |       |  
|                                                                                     |                                                                      |   |                        |      |      |   |        |       
|                                                                                     | Net cash used in continuing and discontinued operations              |   |                        | (90  | )    |   |        | (1,150 | )
|                                                                                     |                                                                      |   |                        |      |      |   |        |       
|Cash flows from investing activities:                                                |                                                                      |   |                        |      |      |   |        |       
|                                                                                     | Net proceeds from sale of property and equipment                     |   |                        |     |      |   |        | 2      |  
|                                                                                     | Payments received on note receivable                                 |   |                        | 1    |      |   |        | 1      |  
|                                                                                     | Additions to property and equipment                                  |   |                        | (80  | )    |   |        | (18    | )
|                                                                                     |                                                                      |   |                        |      |      |   |        |       
|                                                                                     | Net cash used in investing activities                                |   |                        | (79  | )    |   |        | (15    | )
|                                                                                     |                                                                      |   |                        |      |      |   |        |       
|Cash flows from financing activities:                                                |                                                                      |   |                        |      |      |   |        |       
|                                                                                     | Proceeds from issuance of Common Stock                               |   |                        | 1    |      |   |        |       |  
|                                                                                     | Repayment of debt                                                    |   |                        | (6   | )    |   |        | (1     | )
|                                                                                     |                                                                      |   |                        |      |      |   |        |       
|                                                                                     | Net cash used in financing activities                                |   |                        | (5   | )    |   |        | (1     | )
|                                                                                     |                                                                      |   |                        |      |      |   |        |       
|Net decrease in cash and cash equivalents                                            |                                                                      |   | (174                   | )    |      |   | (1,166 | )     
|Cash and cash equivalents at beginning of year                                       |                                                                      |   | 3,590                  |      |      |   | 5,340  |       
|                                                                                     |                                                                      |   |                        |      |      |   |        |       
|Cash and cash equivalents at end of period                                           |                                                                      | $ | 3,416                  |      |      | $ | 4,174  |       
|                                                                                     |                                                                      |   |                        |      |      |   |        |       

See accompanying notes

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Note 1  Summary of Significant Accounting Policies

The consolidated balance sheet as of August 31, 2003, and the related
consolidated statements of operations and cash flows for the three months ended
August 31, 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 three months ended August 31, 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 accounting principles generally
accepted in the United States of America. The balance sheet at May 31, 2003 has
been derived from the audited financial statements at that date, but does not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statement presentation. Notes to consolidated financial statements included in
Form 10-K for the year ended May 31, 2003 are on file with the Securities and
Exchange Commission and provide additional disclosures and a further
description of accounting policies.

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

The Companys managed care activities are performed under the terms of
agreements with health maintenance organizations (HMOs), preferred provider
organizations (PPOs), and other health plans or payers to provide contracted
behavioral healthcare services to subscribing participants. Revenue under a
substantial portion of these agreements is earned monthly based on the number
of qualified participants regardless of services actually provided (generally
referred to as capitation arrangements). Such agreements accounted for 87.7%,
or $6.9 million, of revenue for the three months ended August 31, 2003 and
86.6%, or $7.2 million, of revenue for the three months ended August 31, 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 August 31, 2003 and May 31, 2003, 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 and is continually reviewed and adjusted, if necessary, to
reflect any change in the estimated liability. These estimates are subject to
the effects of trends in utilization and other factors. However, actual claims
incurred could differ from the estimated claims payable amount reported as of
August 31, 2003. Although considerable variability is inherent in such
estimates, management believes that the unpaid claims liability is adequate.

Income Taxes

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

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Stock Options

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

|                       |                       |                                                                                                                                     |      |                          |     |      |     |       |    |  
|---------------------- | --------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | ---- | ------------------------ | --- | ---- | --- | ----- | -- | -
|                       |                       |                                                                                                                                     |      | Quarter Ended August 31,
|                       |                       |                                                                                                                                     |      |                         
|                       |                       |                                                                                                                                     |      | 2003                     |     | 2002
|                       |                       |                                                                                                                                     |      |                          |     |     
|                       |                       |                                                                                                                                     |      | (in thousands except for
|                       |                       |                                                                                                                                     |      | per share information)  
|                       |                       |                                                                                                                                     |     
|Net loss, as reported  |                       | $                                                                                                                                   | (325 | )                        |     | $    | (33 | )    
|Deduct:                |                       |                                                                                                                                     |      |                          |     |      |     |      
|                       |                       | Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax
effects |      |                          | (40 | )    |     |       | (9 | )
|                       |                       |                                                                                                                                     |      |                          |     |      |     |      
|Pro forma net loss     |                       | $                                                                                                                                   | (365 | )                        |     | $    | (42 | )    
|                       |                       |                                                                                                                                     |      |                          |     |      |     |      
|Loss per common share: |                       |                                                                                                                                     |      |                          |     |      |     |      
|                       | Basic  as reported   |                                                                                                                                     | $    | (0.08                    | )   |      | $   | (0.01 | ) 
|                       |                       |                                                                                                                                     |      |                          |     |      |     |      
|                       | Diluted  as reported |                                                                                                                                     | $    | (0.07                    | )   |      | $   | (0.01 | ) 
|                       |                       |                                                                                                                                     |      |                          |     |      |     |      
|                       | Basic  pro forma     |                                                                                                                                     | $    | (0.09                    | )   |      | $   | (0.01 | ) 
|                       |                       |                                                                                                                                     |      |                          |     |      |     |      
|                       | Diluted  pro forma   |                                                                                                                                     | $    | (0.08                    | )   |      | $   | (0.01 | ) 
|                       |                       |                                                                                                                                     |      |                          |     |      |     |      

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Per Share data

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

|                        |                                                                            |                                                                                                              |   |                    |       |      |   |       |       | 
|----------------------- | -------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | - | ------------------ | ----- | ---- | - | ----- | ----- | 
|                        |                                                                            |                                                                                                              |   | Three Months Ended
|                        |                                                                            |                                                                                                              |   | August 31,        
|                        |                                                                            |                                                                                                              |   |                   
|                        |                                                                            |                                                                                                              |   | 2003               |       | 2002
|                        |                                                                            |                                                                                                              |   |                    |       |     
|Numerator:              |                                                                            |                                                                                                              |   |                    |       |      |   |      
|                        | Numerator for diluted earnings (loss) per share from continuing operations |                                                                                                              | $ | 62                 |       |      | $ | (33   | )    
|                        | Loss from discontinued operations                                          |                                                                                                              |   | (387               | )     |      |   |      |      
|                        |                                                                            |                                                                                                              |   |                    |       |      |   |      
|                        | Net loss attributable to common stockholders                               |                                                                                                              | $ | (325               | )     |      | $ | (33   | )    
|                        |                                                                            |                                                                                                              |   |                    |       |      |   |      
|Denominator:            |                                                                            |                                                                                                              |   |                    |       |      |   |      
|                        |                                                                            | Weighted average shares                                                                                      |   |                    | 3,937 |      |   |       | 3,885 | 
|                        |                                                                            | Effect of dilutive securities:                                                                               |   |                    |       |      |   |       |       | 
|                        |                                                                            | Employee stock options                                                                                       |   |                    | 782   |      |   |       |      | 
|                        |                                                                            | Warrants                                                                                                     |   |                    | 6     |      |   |       |      | 
|                        |                                                                            |                                                                                                              |   |                    |       |      |   |      
|                        |                                                                            | Denominator for diluted earnings (loss) per share-adjusted weighted
average shares after assumed conversions |   |                    | 4,725 |      |   |       | 3,885 | 
|                        |                                                                            |                                                                                                              |   |                    |       |      |   |      
|Basic loss per share:   |                                                                            |                                                                                                              |   |                    |       |      |   |      
|                        | Income (loss) from continuing operations                                   |                                                                                                              | $ | 0.02               |       |      | $ | (0.01 | )    
|                        | Loss from discontinued operations                                          |                                                                                                              |   | (0.10              | )     |      |   |      |      
|                        |                                                                            |                                                                                                              |   |                    |       |      |   |      
|                        | Net loss                                                                   |                                                                                                              | $ | (0.08              | )     |      | $ | (0.01 | )    
|                        |                                                                            |                                                                                                              |   |                    |       |      |   |      
|Diluted loss per share: |                                                                            |                                                                                                              |   |                    |       |      |   |      
|                        | Income (loss) from continuing operations                                   |                                                                                                              | $ | 0.01               |       |      | $ | (0.01 | )    
|                        | Loss from discontinued operations                                          |                                                                                                              |   | (0.08              | )     |      |   |      |      
|                        |                                                                            |                                                                                                              |   |                    |       |      |   |      
|                        | Net loss                                                                   |                                                                                                              | $ | (0.07              | )     |      | $ | (0.01 | )    
|                        |                                                                            |                                                                                                              |   |                    |       |      |   |      

Authorized shares of common stock reserved for possible issuance for
convertible debentures and stock options are as follows at August 31, 2003:

|                                                  |  |  |           | 
|------------------------------------------------- |  |  | --------- | 
|Convertible debentures                            |  |  | 9,044     | 
|Outstanding stock options                         |  |  | 1,105,724 | 
|Possible future issuance under stock option plans |  |  | 445,235   | 
|                                                  |  |  |           | 
|Total                                             |  |  | 1,560,003 | 
|                                                  |  |  |           | 

Note 2  Basis of Presentation

The accompanying consolidated financial statements are prepared on a going
concern basis. During the fiscal quarter ended August 31, 2003, net cash used
in operations amounted to $90,000. Additionally, the Company used $80,000 in
investing activities, which include amounts paid in connection with the
Companys ongoing implementation of its new, customized management information
system. The Companys capital needs during Fiscal 2004 will include additional
amounts required to implement this system, which is expected to cost
approximately $0.4 million in total and will enable to the Company to meet
HIPAA requirements, streamline the Companys entire clinical and claims
functions, and offer service improvements to the Companys participating
providers. Additionally, the Company may be required to repay approximately
$0.3 million to Medicare within the current fiscal year in connection with one
Medicare cost report settlement (see Note 4  Discontinued Operations). As
of August 31, 2003, the Company had a working capital deficiency of $4.8
million and a stockholders deficit of $5.3 million.
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 during Fiscal 2004. Management cannot state with any degree of
certainty whether any required additional equity or debt financing will be
available to it during Fiscal 2004 and, if available, that the source of
financing would be available on terms and conditions acceptable to the Company.
These conditions raise substantial doubt about the Companys ability to
continue as a going concern, which is dependent upon its ability

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to continue to generate sufficient cash flow to meet its obligations on a
timely basis, obtaining additional financing as may be required and,
ultimately, sustaining an operating profit. The accompanying consolidated
financial statements do not include any adjustments that may result from the
outcome of this uncertainty.

Note 3  Major Customers/Contracts



|(1) |  | Beginning January 1, 2003, the Company contracted with a new HMO client
to provide behavioral healthcare services to contracted Medicaid members
in Florida. This business accounted for 23.3%, or $1.8 million, of the
Companys operating revenues during the fiscal quarter ended August 31,
2003. This contract with the Company is scheduled to renew in January
2004, but we have received verbal advice from this HMO that it is
evaluating whether to manage its members behavioral healthcare benefits
in house. During the prior fiscal year, such Medicaid members were
serviced by the Company through its contract with another HMO whose
agreements with the Company covered Medicaid, Medicare, and commercial
members and represented a combined 23.3%, or $1.9 million, of the
Companys operating revenue for the fiscal quarter ended August 31, 2002.
On December 31, 2002, the Company received a formal termination, effective
February 28, 2003, from the prior HMO client with respect to the Medicare
and commercial business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The Company has one contract to provide behavioral healthcare services to
Connecticut members under contract with one HMO. This agreement
represented approximately 9.9%, or $0.8 million and 9.0%, or $0.7 million,
of the Companys operating revenue for the quarters ended August 31, 2003
and 2002, respectively. Additionally, this contract provides that the
Company, through its contract with this HMO, receives additional funds
directly from a state reinsurance program for the purpose of paying
providers. During the quarters ended August 31, 2003 and 2002, the Company
filed reinsurance claims totaling approximately $0.6 million and $0.9
million, respectively. Such claims represent cost reimbursements and, as
such, are not included in the reported operating revenues and are
accounted for as reductions of healthcare operating expenses. As of
August 31, 2003 and May 31, 2003, respectively, the Company has reported
$0.5 million and $0.4 million as accounts receivablemanaged care
reinsurance contracts, with $3.3 million and $3.1 million reported as
accrued reinsurance claims payable, in the accompanying balance sheet. In
the event that the Company does not collect the amounts receivable related
to reinsurance amounts, the Company could remain liable for the costs of
the specific services provided to members that qualify for such
reimbursements. The difference between the reinsurance receivable amount
and the reinsurance payable amount is related to timing differences
between the authorization date, the date the money is received by the
Company, and the date the money is paid to the provider. In certain
cases, providers have submitted claims for authorized services having
incorrect service codes or otherwise incorrect information that has caused
payment to be denied by the Company. In such cases, there are contractual
and statutory provisions that allow the provider to appeal a denied claim.
If no appeal is received by the Company within the prescribed amount of
time, the Company may be required to remit the reinsurance funds back to
the appropriate party. For non-reinsurance claims incurred but not
reported under this contract, the Company estimates its claims payable
using a similar method as that used for other existing contracts. This HMO
has been a customer since March 2001. The original contract term ended
December 31, 2002 and, in accordance with its terms, was automatically
renewed for a one-year period ending December 31, 2003.
|   
|(3) |  | The Company has contracts with one HMO to provide behavioral healthcare
services to contracted commercial, Medicaid, and Childrens Health
Insurance Program (CHIP) members in Texas. This business accounted for
approximately 14.2%, or $1.1 million, and 11.9%, or $1.0 million, of the
Companys operating revenues during the fiscal quarters ended August 31,
2003 and 2002, respectively. Under recently passed legislation, the
benefits available to Texas CHIP recipients have been significantly
reduced and, as a result, the Company and this HMO customer have agreed to
amend their current contract covering CHIP members to reflect a reduced
fee and benefit arrangement. For each of the three months ended August
31, 2003 and 2002, this CHIP business accounted for operating revenues of
approximately $0.6 million, or 7.9% and 6.9%, respectively. The CHIP
legislation is subject to pending bills that, if passed, could restore
some of the benefits to these programs. The Company continues to closely
monitor developments in Texas and is taking steps necessary to decrease
operating costs to offset the expected revenue reductions, although the
Company cannot currently predict the full financial impact that these
changes will have on its business and we may be unable to reduce our costs
to a level that would allow us to maintain current gross margins specific
to our Medicaid and CHIPS programs. This HMO has been a customer of the
Company since November 1998. The original contract term was for one year
and the contract provides for automatic one-year renewal terms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(4) |  | During the prior fiscal year, the Company had three contracts with one
HMO to provide behavioral healthcare services to Florida members. The
combined revenue from these contracts accounted for 18.4%, or $1.5
million, of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES



| |  | the Companys operating revenues during the fiscal quarter ended August 31,
2002. These contracts covering Florida members terminated effective January
1, 2003. Additionally, the Company has one major contract with an affiliate
of this HMO (see Item 2 above).
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Although the loss of the customers listed under (1) and (3) above could have a
material, adverse effect on the Companys financial condition and future
results of operations, the Company believes that it will be able to reduce its
internal cost of servicing this account to minimize any effect on future
results of operations.

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

Note 4  Discontinued Operations

Results for the quarter ended August 31, 2003 include a change in estimate
resulting in a net charge of approximately $387,000 that has been included under
Discontinued Operations in the accompanying financial statements. Such charge
is primarily due to the Companys Fiscal 1999 Medicare cost report for its Aurora,
Colorado psychiatric hospital that was owned by the Company until its disposal
on March 11, 1999, which completed the Companys plan to dispose of its
hospital business segment. The Fiscal 1999 cost report had recently been under
audit by the Medicare fiscal intermediary in the normal course of completing
the final settlement for Fiscal 1999. Prior to the intermediarys completion of
the audit, management reviewed proposed adjustments with the Medicare fiscal
intermediary and separately with the Companys cost report consultant. After
filing the Companys response to the proposed adjustments, which included
documentation that was accepted by the Medicare intermediary, thereby allowing
the intermediary to reverse specific adjustments that would have been
unfavorable, and based on continuing discussions with the Medicare
intermediary, management believed that no liability existed in relation to this
Fiscal 1999 cost report. However, in late September 2003, the Company
received notice from the Medicare fiscal intermediary that the intermediary had
completed its audit and that various audit adjustments made by the intermediary
would result in approximately $400,000 being due back to the Medicare program
specific to Fiscal 1999.

The Company is currently reviewing the audit adjustments to determine if
it may have grounds for an appeal. However, management believes it is
probable that Medicare will require the Company to repay the full amount of
approximately $400,000 specific to Fiscal 1999 less approximately $100,000 in Medicare refunds that are
currently due the Company in connection with the Fiscal 1995 and 1996
Medicare cost report settlement specific to the same Aurora, Colorado hospital.
Such refunds, of which $13,000 has been recorded in the current
quarter and the balance of which had been recorded in the fiscal year
ended May 31, 2003, are currently being withheld by the intermediary as an offset to
the Fiscal 1999 Medicare overpayment. The Company plans to request an
installment payment plan from Medicare, in which case interest would be payable
at the current statutory rate. If it is determined that no Medicare
installment plan is available to the Company, a lump sum payment in the amount
of approximately $300,000 would be due to Medicare during the Companys fiscal
quarter ending November 30, 2003. Such amount is included in
accounts payable and accrued expenses in the accompanying balance
sheet at August 31, 2003.

Note 5  Commitments and Contingencies



|(1) |  | Contracts with two existing clients require the Company to maintain
performance bonds throughout the contract terms. At August 31, 2003, the
Company maintained performance bonds of $1,200,000 and $600,000 in
compliance with these requirements.                                                                                                                                                                                                                                                                                                         
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The Company would remain liable to perform the services covered under
subcapitation agreements if the parties with which the Company
subcapitates were unable to fulfill their responsibilities under such
agreements.                                                                                                                                                                                                                                                                                                                                      
|   
|(3) |  | Related to the Companys discontinued hospital operations, Medicare
guidelines allow the Medicare fiscal intermediary to re-open previously
filed cost reports. Management believes that the Companys Fiscal 1998
and 1999 cost reports remain eligible for re-opening at some future date,
in which case the intermediary may determine that additional amounts are
due to or from Medicare.                                                                                                                                                              
|   
|(4) |  | 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

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| |  | of HIPAA, the Company recently determined it would need to make a
significant investment in its current information system or in a new
information system that would better meet the future needs of the Company.
As a result, the Company has entered into a Letter of Intent with Qualifacts
Systems, Inc. (Qualifacts) to design a new, customized management
information system that will enable the Company to meet HIPAA requirements.
The Company expects to incur approximately $0.4 million of costs to
customize the Qualifacts system and activate the licenses needed for
Qualifacts and other, related third-party software.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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




Item 2  Managements discussion and analysis of financial condition and Results of operations

This quarterly report on Form 10-Q includes forward-looking statements,
the realization of which may be impacted by certain important factors discussed
below under Cautionary Statement and Risk Factors  Important Factors
Related to Forward-Looking Statements and Associated Risks (page 14).

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.

Results of Operations

The
Company reported income from continuing operations of $62,000, or
$0.02 basic earnings per share ($0.01 diluted earnings per share), and a net loss of $325,000, or
$0.08 basic loss per share ($0.07 diluted loss per share), for the quarter
ended August 31, 2003 compared to the loss from continuing operations and net
loss of $33,000, or $0.01 loss per share (basic and diluted), for the quarter
ended August 31, 2002.

Results for the quarter ended August 31, 2003 include a change in estimate
resulting in a net charge of approximately $387,000 that has been included under
Discontinued Operations in the unaudited, consolidated financial statements for
the quarter ended August 31, 2003 (See Note 4 
Discontinued Operations to the unaudited, consolidated
financial statements).

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The following tables summarize the Companys operating results from
continuing operations for the three months ended August 31, 2003 and 2002 (in
thousands):

The three months Ended August 31, 2003 Compared To The three months Ended
August 31, 2002:

|                                |  |              |       |              |  |   |       | 
|------------------------------- |  | ------------ | ----- | ------------ |  | - | ----- | 
|                                |  | Consolidated |       | Consolidated
|                                |  | Continuing   |       | Continuing  
|                                |  | Operations   |       | Operations  
|                                |  | Fiscal 2004  |       | Fiscal 2003 
|                                |  |              |       |             
|Operating revenues              |  | $            | 7,893 |              |  | $ | 8,307 | 
|Healthcare operating expenses   |  |              | 6,852 |              |  |   | 7,353 | 
|General/administrative expenses |  |              | 908   |              |  |   | 888   | 
|Other operating expenses        |  |              | 19    |              |  |   | 60    | 
|                                |  |              |       |              |  |   |       | 
|                                |  |              | 7,779 |              |  |   | 8,301 | 
|                                |  |              |       |              |  |   |       | 
|Operating income                |  | $            | 114   |              |  | $ | 6     | 
|                                |  |              |       |              |  |   |       | 

The
Company reported income from continuing operations of $62,000, or
$0.02 basic earnings per share ($0.01 diluted earnings per share),
operating income of $114,000, and a
net loss of $325,000, or $0.08 basic loss per share ($0.07 diluted loss per
share), for the quarter ended August 31, 2003 compared to a net loss of
$33,000, or $0.01 loss per share (basic and diluted), and operating income of
$6,000 for the quarter ended August 31, 2002. Operating revenues decreased by
5.0%, or approximately $0.4 million, to $7.9 million for the quarter ended
August 31, 2003 compared to $8.3 million for the quarter ended August 31, 2002.
This decrease is primarily attributable to the loss of one major customer in
Florida that accounted for $1.5 million of revenue during the fiscal quarter
ended August 31, 2002. However, this decrease was partially offset by the
addition of two new customers in Indiana and one new customer in Michigan.

Healthcare operating expenses decreased by approximately $0.5 million, or
6.8%, for the quarter ended August 31, 2003 as compared to the quarter ended
August 31, 2002. This decrease is directly attributable to the loss of revenue
as described above. Healthcare operating expense as a percentage of operating
revenue decreased by 1.7%, from 88.5% for the quarter ended August 31, 2002 to
86.8% for the quarter ended August 31, 2003. This decrease is primarily due
to the termination in January 2003 of one major contract that consistently
returned a high medical loss ratio.

General and administrative expenses increased by $20,000, or 2.3%, for the
quarter ended August 31, 2003 as compared to the quarter ended August 31, 2002.
This increase is primarily attributable to increased usage of outside
professional services during Fiscal 2004. General and administrative expense as
a percentage of operating revenue increased from 10.7% for the quarter ended
August 31, 2002 to 11.5% for the quarter ended August 31, 2003.

Other operating expenses decreased by $41,000 for the quarter ended August
31, 2003 compared to the quarter ended August 31, 2002. This decrease is
directly attributable to a reduction in depreciation expense as a result of
specific assets being fully depreciated.

Seasonality of Business

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

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Liquidity and Capital Resources

During the fiscal quarter ended August 31, 2003, net cash used in
operations amounted to $90,000. Additionally, we made installment payments
totaling $80,000 to one vendor in connection with the ongoing implementation of
the Companys new, customized management information system. Our capital needs
during Fiscal 2004 will include additional amounts required to implement this
system, which is expected to cost approximately $0.4 million in total and will
enable us to meet HIPAA requirements, streamline our entire clinical and claims
functions, and offer service improvements to our participating providers.
Additionally, we may be required to repay approximately $0.3 million to
Medicare within the current fiscal year in connection with one Medicare cost
report settlement (see Note 4  Discontinued Operations to the unaudited,
consolidated financial statements). As of August 31, 2003, the Company has a
working capital deficiency of $4.8 million and a stockholders deficit of $5.3
million. We are currently pursuing sources of financing on terms that would
support our future capital needs and provide available funds for working
capital in Fiscal 2004. We cannot state with any degree of certainty whether
any required additional equity or debt financing will be available to us during
Fiscal 2004 and, if available, that the source of financing would be available
on terms and conditions acceptable to us. These conditions raise substantial
doubt about the Companys ability to continue as a going concern, which is
dependent upon our ability to continue to generate sufficient cash flow to meet
our obligations on a timely basis, obtaining additional financing as may be
required and, ultimately, sustaining an operating profit.

Our unpaid claims liability is estimated using an actuarial paid
completion factor methodology and other statistical analyses. These estimates
are subject to the effects of trends in utilization and other factors. Any
significant increase in member utilization that falls outside of our
estimations would increase healthcare operating expenses and may impact our
ability to achieve profitability and positive cash flow. Although considerable
variability is inherent in such estimates, we believe that the unpaid claims
liability is adequate. However, actual results could differ from the $4.0
million claims payable amount reported as of August 31, 2003.

Summary of Significant Accounting Policies

Our discussion and analysis of our financial condition and results of
operations is based upon the Companys consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires us to make significant estimates and judgments to develop the amounts
reflected and disclosed in the financial statements. On an on-going basis, we
evaluate the appropriateness of our estimates and we maintain a thorough
process to review the application of our accounting policies. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions.

We believe the following significant accounting policies involve our most
significant judgments and estimates that are material to our consolidated
financial statements:

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

Revenue Recognition  Our managed care activities are performed under
the terms of agreements with health maintenance organizations, preferred
provider organizations, and other health plans or payers to provide contracted
behavioral healthcare services to subscribing participants. Revenue under a
substantial portion of these agreements is earned monthly based on the number
of qualified participants regardless of services actually provided (generally
referred to as capitation arrangements). The information regarding qualified
participants is supplied by our clients and we rely extensively on the accuracy
of the client remittance and other reported information to determine the amount
of revenue to be recognized. Such agreements accounted for 87.6%, or $6.9
million, of revenue from continuing operations for the fiscal quarter ended
August 31, 2003. The balance of our revenues is earned on a fee-for-service
basis and is recognized as services are rendered.

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

Risk Factors

Important Factors Related to Forward-Looking Statements and Associated Risks

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

Concentration of Risk

We currently have contracts with three health plans to provide behavioral
healthcare services under commercial, Medicaid, and CHIP plans to contracted
members in Connecticut, Florida, and Texas. These combined contracts represent
approximately 47.4% and 62.6% of our operating revenue for the fiscal quarters
ended August 31, 2003 and 2002, respectively, and include contracts that
terminated effective January 1, 2003, which accounted for a combined 18.4% of
our operating revenue for the fiscal quarter ended August 31, 2002 (see Note
3(4) to the unaudited, consolidated financial statements  Major
Customers/Contracts), and agreements that terminated effective February 28,
2003, which accounted for 6.0% of our operating revenues during the fiscal
quarter ended August 31, 2002 (see Note 3(1) to the unaudited, consolidated
financial statements  Major Customers/Contracts). One HMO, whose contract
with the Company accounted for approximately $1.8 million, or
23.3%, of our operating revenue for the quarter ended August 31, 2003 and is scheduled to
renew in January 2004, has verbally advised us that it is evaluating whether to
manage its members behavioral healthcare benefits in house (see Note 3(1) to
the unaudited, consolidated financial statements  Major
Customers/Contracts). We have not received a formal termination notice, nor
has the customer advised the Company of a date by which it will make known its
decision. However, at this point in time, we believe there exists a greater
risk of non-renewal of this contract, the realization of which rests solely
with our customer. Although the loss of this customer could have a material,
adverse effect on the Companys financial condition and future results of
operations, we believe the Company will be able to reduce its internal cost of
servicing this account to minimize any effect on future results of operations.
In general, the terms of each contract are generally for one-year periods and
are automatically renewable for additional one-year periods unless terminated
by either party. The loss of any one of these customers or changes in any of
these States Medicaid reimbursement rules could have a material, adverse
effect on our working capital and future results of operations (see Medicaid
and Other State Funded Programs below).

History of Operating Losses  Uncertainty of Future Profitability

For each of the fiscal years ending May 31, 2003, 2002 and 2001, we had
operating losses of approximately $608,000, $774,000 and $1,163,000,
respectively. The report of the Companys independent auditors with respect to
their examination of the Companys financial statements for the years ended May
31, 2003 and 2002 contains an explanatory paragraph relating to the preparation
of the Companys financial statements on a going concern basis and states
that the Companys working capital deficiency and stockholders deficit raise
substantial doubt about its ability to continue as a going concern. At August
31, 2003, the Companys total current liabilities exceeded its total current
assets by approximately $4.8 million and it had an accumulated deficit of
approximately $57.3 million, with a total stockholders deficit of approximately
$5.3 million. While our management has addressed the conditions giving rise to
the going concern uncertainty, there is no certainty that we will be successful
in implementing any of the plans

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of management to restore us to profitability, to achieve and maintain
positive cash flow on an ongoing basis, or otherwise to ensure that we will be
able to continue as a going concern.

Costs of Care  Estimated Claims Incurred But Not Reported

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

Need for Additional Funds; Uncertainty of Future Funding

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

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

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

Medicaid and Other State funded Programs

As of August 31, 2003, we managed approximately 803,000 lives in
connection with behavioral and substance abuse services covered through
Medicaid in Connecticut, Florida, Michigan and Texas. Any changes in Medicaid
reimbursement could ultimately affect the Company through contract bidding and
cost structures with the health plans first impacted by such changes. The State
of Texas has passed legislation that has reduced the amount of funds allocated
to our clients to cover behavioral healthcare services to Medicaid and
Childrens Health Insurance Program (CHIP) recipients in the State of Texas.
Such legislation is subject to pending bills that, if passed, could restore
some of the benefits to these programs. Under the recently passed legislation,
the outpatient behavioral healthcare benefits available to adult Medicaid and
CHIP recipients will be provided by the HMOs and their subcontractors,
including the Company, on a very limited basis while the inpatient benefits for
CHIP recipients may not be covered by the HMOs and their subcontractors. For
the fiscal quarter ended August 31, 2003, we had operating revenue of $1.0
million and $1.4 million, respectively, specific to contracts covering Texas
CHIP and Texas Medicaid recipients. These changes to Texas Medicaid and CHIP
programs could have a material, adverse impact on our operations. Two current
clients have notified us that they will not continue the CHIP portion of their
contracts beyond August 31, 2003. However, another current client has
negotiated an arrangement with us to continue to service their CHIP members
under a reduced fee and benefit arrangement. We continue to closely monitor
developments in Texas and we are taking steps necessary to decrease operating
costs to offset the expected revenue reductions, although we currently cannot
predict the full financial impact that these changes will have on our business
and we may be unable to reduce our costs to a level that would allow us to
maintain current gross margins specific to our Medicaid and CHIPS programs.

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Seasonality of Business

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

Regulatory compliance

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

We hold licenses or certificates to perform utilization review and third
party administrator (TPA) services in certain states. Certain of the
services provided by our managed behavioral healthcare subsidiaries may be
subject to such licensing requirements in other states. There can be no
assurance that additional utilization review or TPA licenses will not be
required or, if required, that CompCare will qualify to obtain such licenses.
In many states, entities that assume risk under contract with licensed
insurance companies or health plans have not been considered by state
regulators to be conducting an insurance or HMO business. As a result, we have
not sought licensure as either an insurer or HMO in any state. If the
regulatory positions of these states were to change, our business could be
materially affected until such time as we are able to meet the regulatory
requirements. Currently, we cannot quantify the potential effects of additional
regulation of the managed care industry, but such costs will have an adverse
effect on future operations to the extent that they are not able to be recouped
in future managed care contracts.

We are subject to the requirements of the Health Insurance Portability and
Accountability Act of 1996 (HIPAA). The purpose of the HIPAA provisions is
to improve the efficiency and effectiveness of the healthcare system through
standardization of the electronic data interchange of certain administrative
and financial transactions and, also, to protect the security and privacy of
protected health information. Entities subject to HIPAA include some
healthcare providers and all healthcare plans. To meet the specific
requirements of HIPAA, we will incur costs to insure the adequacy and security
of our healthcare information system and communication networks. Additionally,
we will incur costs to implement a new clinical information system that will
process the specific transaction codes required by HIPAA for claims, payment,
enrollment, eligibility, or to become compliant with security and privacy
rules, which may be more stringent for providers of certain behavioral
healthcare services. The expected timetable for us to be compliant is
currently October 15, 2003 for transaction code changes due to our October 2002
filing of a formal compliance plan. The Company has met the deadline for
compliance with the privacy rules, which was April 14, 2003. Additionally, we
have filed our Electronic Health Care Transactions and Code Sets Standards
Model Compliance Plan with the Centers for Medicare and Medicaid Services.
While these efforts will be ongoing, we expect to meet all compliance rules and
timetables with respect to the HIPAA regulations. Failure to do so may result
in penalties and have a material adverse effect on the Companys ability to
retain its customers or to gain new business.

Dependence on Key Personnel

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

Shares Eligible for Future Sale

As of October 6, 2003, the Company has issued 1,102,724 options, with
exercise prices ranging from $0.25 to $4.00. A total of 846,083 options are
exercisable and in the money as of October 6, 2003 and, accordingly, could be
exercised and resold by optionees.

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Anti-takeover Provisions

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

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




Item 3. Quantitative and Qualitative Disclosures About Market Risk

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




Item 4. Controls and Procedures

Evaluation of the Companys Disclosure Controls and Internal Controls.Within
the 90 days prior to filing this report on Form 10-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 on Form 10-Q we present the conclusions of the
CEO and the CFO about the effectiveness of our Disclosure Controls and Internal
Controls based on and as of the date of the Controls Evaluation.

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

Scope of the Controls Evaluation.The evaluation made by our CEO and CFO of
our Disclosure Controls and our Internal Controls included a review of the
controls objectives and design, the controls implementation by the Company
and the effect of the controls on the information generated for use in this
Form 10-Q. 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

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be done on a quarterly basis so that the conclusions concerning controls
effectiveness can be reported in our quarterly reports on Form 10-Q and Annual
Report on Form 10-K. The overall goals of these various evaluation activities
are to monitor our Disclosure Controls and our Internal Controls and to make
modifications as necessary; our intent in this regard is that the Disclosure
Controls and the Internal Controls will be maintained as dynamic systems that
change (including with improvements and corrections) as conditions warrant.

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

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

In accordance with SEC requirements, our CEO and CFO each have confirmed that,
since the date of the Controls Evaluation to the date of this quarterly report
on Form 10-Q, 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

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

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Item 6  Exhibits and Reports on Form 8-K

|        |  |                                                                                                                                                           |  | 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|EXHIBIT |  |                                                                                                                                                          
|NUMBER  |  | DESCRIPTION                                                                                                                                               |  | 
|31.1    |  | Comprehensive Care Corporation CEO Certification pursuant to Section 302
of the Sarbanes-Oxley Act of 2002                                               
|31.2    |  | Comprehensive Care Corporation CFO Certification pursuant to Section 302
of the Sarbanes-Oxley Act of 2002                                               
|32.1    |  | Comprehensive Care Corporation CEO Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|32.2    |  | Comprehensive Care Corporation CFO Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



---

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

None.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                 |  |                                |  |                                                                                                                                      
|---------------- |  | ------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------
|                 |  | COMPREHENSIVE CARE CORPORATION
|                
|                 |  |                                |  |                                                                                                                                      
|                
|October 10, 2003 |  |                                |  |                                                                                                                                      
|                
|                 |  |                                |  |                                                                                                                                      
|                
|                 |  | By                             |  | /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)