##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the period ended November 30, 2005.
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to .
 Commission File Number 1-9927
 COMPREHENSIVE CARE CORPORATION
  Delaware
    
    95-2594724(State or other jurisdiction of incorporation
or organization)
    
    (IRS Employer Identification No.)
 204 South Hoover Blvd, Suite 200, Tampa, FL 33609
 
  (813) 288-4808
 
   þ o
  o þ
  o þ
  Classes
    
    Outstanding at January 6, 2006Common Stock, par value $.01 per share
    
    5,851,374




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##### 



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  
 Index
 PagePART I  FINANCIAL INFORMATIONItem 1 Consolidated Financial StatementsConsolidated Balance Sheets, November 30, 2005 and May 31, 2005
    
    
    3Consolidated Statements of Operations for the Three and Six months ended November 30, 2005 and 2004
    
    
    4Consolidated Statements of Cash Flows for the Six months ended November 30, 2005 and 2004
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-11Item 2Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12-18Item 3Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4Controls and Procedures
    
    
    18PART II  OTHER INFORMATIONItem 1 Legal Proceedings
    
    
    18Item 1A Risk Factors
    
    
    19Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 3 Defaults Upon Senior Securities
    
    
    19Item 4 Submission of Matters to a Vote of Security Holders
    
    
    19-20Item 5 Other Information
    
    
    20Item 6 Exhibits
    
    
    21Signatures
    
    
    22Certifications
    
    
    23-26Ex-31.1: Section 302 CertificationEx-31.2: Section 302 CertificationEx-32.1: Section 906 CertificationEx-32.2: Section 906 Certification
  2




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 PART
I.  FINANCIAL INFORMATION
 
 Item 1  Consolidated Financial Statements
 
 Consolidated Balance Sheets
  November 30,
    
    
    May 31,2005
    
    
    2005(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,165
    
    
    $
    3,695Restricted cash
    
    
    506
    
    
    
    Marketable securities
    
    
    10
    
    
    
    11Accounts receivable, less allowance for doubtful accounts of $4 and $5,
respectively
    
    
    92
    
    
    
    113Accounts
receivable  managed care reinsurance contract
    
    
    436
    
    
    
    372Other current assets
    
    
    448
    
    
    
    481Total current assets
    
    
    7,657
    
    
    
    4,672Property and equipment, net
    
    
    350
    
    
    
    384Goodwill, net
    
    
    991
    
    
    
    991Restricted cash
    
    
    73
    
    
    
    72Other assets
    
    
    222
    
    
    
    329Total assets
    
    $
    9,293
    
    
    $
    6,448LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    945
    
    
    $
    1,310Accrued claims payable
    
    
    3,775
    
    
    
    3,730Accrued reinsurance claims payable
    
    
    3,072
    
    
    
    3,191Income taxes payable
    
    
    33
    
    
    
    30Total current liabilities
    
    
    7,825
    
    
    
    8,261Long-term liabilities:Long-term debt
    
    
    2,244
    
    
    
    2,244Other liabilities
    
    
    33
    
    
    
    60Total long-term liabilities
    
    
    2,277
    
    
    
    2,304Total liabilities
    
    
    10,102
    
    
    
    10,565Stockholders deficit:Preferred stock, $50.00 par value; authorized 18,740 shares; issued and
outstanding 14,400 and 0, respectively
    
    
    720
    
    
    
    Common stock, $0.01 par value; authorized 12,500,000 shares; issued
and outstanding 5,850,375 and 5,582,547, respectively
    
    
    59
    
    
    
    56Additional paid-in capital
    
    
    56,596
    
    
    
    53,813Accumulated deficit
    
    
    (58,175
    )
    
    
    (57,986
    )Other comprehensive loss
    
    
    (9
    )
    
    
    Total stockholders deficit
    
    
    (809
    )
    
    
    (4,117
    )Total liabilities and stockholders deficit
    
    $
    9,293
    
    
    $
    6,448
  3




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Operations
   Three Months Ended
    
    
    Six Months EndedNovember 30,
    
    
    November 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Operating revenues
    
    $
    6,756
    
    
    $
    6,231
    
    
    $
    13,057
    
    
    $
    12,270Costs and expenses:Healthcare operating expenses
    
    
    5,777
    
    
    
    5,328
    
    
    
    11,495
    
    
    
    10,496General and administrative expenses
    
    
    829
    
    
    
    727
    
    
    
    1,705
    
    
    
    1,429(Recovery of) provision for doubtful accounts
    
    
    (2
    )
    
    
    1
    
    
    
    (36
    )
    
    
    (4
    )Depreciation and amortization
    
    
    22
    
    
    
    23
    
    
    
    44
    
    
    
    476,626
    
    
    
    6,079
    
    
    
    13,208
    
    
    
    11,968Operating income (loss) before items shown below
    
    
    130
    
    
    
    152
    
    
    
    (151
    )
    
    
    302Other income (expense):Interest income
    
    
    16
    
    
    
    3
    
    
    
    28
    
    
    
    5Interest expense
    
    
    (45
    )
    
    
    (52
    )
    
    
    (94
    )
    
    
    (106
    )Other non-operating income
    
    
    24
    
    
    
    11
    
    
    
    56
    
    
    
    22Income (loss) before income taxes
    
    
    125
    
    
    
    114
    
    
    
    (161
    )
    
    
    223Income tax expense
    
    
    17
    
    
    
    11
    
    
    
    28
    
    
    
    29Net income (loss) attributable to common stockholders
    
    $
    108
    
    
    $
    103
    
    
    $
    (189
    )
    
    $
    194Income (loss) per common share  basic
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    (0.03
    )
    
    $
    0.04Income (loss) per common share  diluted
    
    $
    0.01
    
    
    $
    0.02
    
    
    $
    (0.03
    )
    
    $
    0.04Weighted average common shares outstanding:Basic
    
    
    5,815
    
    
    
    4,691
    
    
    
    5,748
    
    
    
    4,687Diluted
    
    
    10,591
    
    
    
    5,262
    
    
    
    5,748
    
    
    
    5,268
  4




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
   Six Months EndedNovember 30,2005
    
    
    2004Cash flows from operating activities:Net (loss) income from continuing operations
    
    $
    (189
    )
    
    $
    194Adjustments to reconcile net loss (income) from continuing operations
to net cash used in operating activities:Depreciation and amortization
    
    
    44
    
    
    
    47Compensation expense  stock, stock options and warrants issued
    
    
    24
    
    
    
    23Amortization of deferred revenue
    
    
    (54
    )
    
    
    (11
    )Changes in assets and liabilities:Accounts receivable, net
    
    
    21
    
    
    
    2Accounts receivable  managed care reinsurance contract
    
    
    (64
    )
    
    
    (172
    )Other current assets, restricted funds, and other non-current assets
    
    
    (368
    )
    
    
    (79
    )Accounts payable and accrued liabilities
    
    
    (263
    )
    
    
    (288
    )Accrued claims payable
    
    
    45
    
    
    
    (315
    )Accrued reinsurance claims payable
    
    
    (119
    )
    
    
    207Income taxes payable
    
    
    3
    
    
    
    18Other liabilities
    
    
    
    
    
    
    (1
    )Net cash used in continuing operations
    
    
    (920
    )
    
    
    (375
    )Net cash used in discontinued operations
    
    
    (55
    )
    
    
    (73
    )Net cash used in continuing and discontinued operations
    
    
    (975
    )
    
    
    (448
    )Cash flows from investing activities:Additions to property and equipment, net
    
    
    (10
    )
    
    
    (14
    )Net cash used in investing activities
    
    
    (10
    )
    
    
    (14
    )Cash flows from financing activities:Proceeds from the issuance of common and preferred stock
    
    
    3,481
    
    
    
    6Repayment of long-term debt
    
    
    (26
    )
    
    
    (24
    )Net cash provided by (used in) financing activities
    
    
    3,455
    
    
    
    (18
    )Net increase (decrease) in cash and cash equivalents
    
    
    2,470
    
    
    
    (480
    )Cash and cash equivalents at beginning of period
    
    
    3,695
    
    
    
    3,209Cash and cash equivalents at end of period
    
    $
    6,165
    
    
    $
    2,729Supplemental disclosures of cash flow information:Cash paid during the six-month period for:Interest
    
    $
    95
    
    
    $
    107Income taxes
    
    $
    25
    
    
    $
    19Non-cash operating, financing and investing activities:Securities received through consulting agreement, net of other
comprehensive loss
    
    $
    4
    
    
    $
    78Property acquired under capital leases
    
    $
    
    
    
    $
    27
  5




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Note 1  Summary of Significant Accounting Policies
   Marketable Securities
  Restricted Cash
  Revenue Recognition
  Healthcare Expense Recognition
  6




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Accrued Claims Payable
  Premium Deficiencies
    Income Taxes
  Stock Options
  7




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Three
    
    
    Three
    
    
    Six
    
    
    SixMonths
    
    
    Months
    
    
    Months
    
    
    MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended11/30/05
    
    
    11/30/04
    
    
    11/30/05
    
    
    11/30/04(in thousands except for per share information)Net income (loss), as reported
    
    $
    108
    
    
    $
    103
    
    
    $
    (189
    )
    
    $
    194Deduct:Total stock-based employee
compensation expense
determined
under fair value based method
for all awards, net of related
tax
effects
    
    
    (189
    )
    
    
    (54
    )
    
    
    (248
    )
    
    
    (54
    )Pro forma net (loss) income
    
    $
    (81
    )
    
    $
    49
    
    
    $
    (437
    )
    
    $
    140Income (loss) per common share:Basic  as reported
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    (0.03
    )
    
    $
    0.04Diluted  as reported
    
    $
    0.01
    
    
    $
    0.02
    
    
    $
    (0.03
    )
    
    $
    0.04Basic  pro forma
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    (0.08
    )
    
    $
    0.03Diluted  pro forma
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    (0.08
    )
    
    $
    0.03
 Per Share Data
  Three Months Ended
    
    
    Six Months EndedNovember 30,
    
    
    November 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Numerator:Numerator for diluted income
(loss) attributable to common
stockholders
    
    $
    108
    
    
    $
    103
    
    
    $
    (189
    )
    
    $
    194Denominator:Weighted average shares
    
    
    5,815
    
    
    
    4,691
    
    
    
    5,748
    
    
    
    4,687Effect of dilutive securities:Warrants
    
    
    89
    
    
    
    2
    
    
    
    
    
    
    
    2Employee stock options
    
    
    452
    
    
    
    569
    
    
    
    
    
    
    
    579Convertible preferred stock
    
    
    4,235
    
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted
income (loss) per
share-adjusted weighted
average shares after assumed
conversions
    
    
    10,591
    
    
    
    5,262
    
    
    
    5,748
    
    
    
    5,268Income (loss) per share- basic
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    (0.03
    )
    
    $
    0.04Income (loss) per share- diluted
    
    $
    0.01
    
    
    $
    0.02
    
    
    $
    (0.03
    )
    
    $
    0.04
 8




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  Convertible debentures(a)
    
    
    12,377Convertible preferred stock(b)
    
    
    4,235,328Outstanding stock options(c)
    
    
    1,132,406Outstanding warrants(d)
    
    
    406,000Possible future issuance under stock option plans
    
    
    529,670Total
    
    
    6,315,781
 
 (a)
    
    The debentures are convertible into 12,377 shares of common stock at a conversion price of
$181.30 per share.(b)
    
    The Series A Convertible Preferred Stock (Series A Preferred Stock) is convertible into
4,235,328 shares of common stock at a conversion rate of 294.12 common shares for each preferred
share.(c)
    
    Options to purchase common stock of the Company have been issued to employees and non-employee
Board of Director members with exercise prices ranging from $0.25 to $4.00.(d)
    
    Warrants to purchase common stock of the Company have been issued to certain individuals or
vendors in exchange for consulting services. All such warrants were issued in lieu of cash
compensation and have five-year terms with exercise prices ranging from $1.09 to $5.00. Note 2  Liquidity
   Note
3  Total Comprehensive Income (Loss)
  Three Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended11/30/05
    
    
    11/30/04
    
    
    11/30/05
    
    
    11/30/04Net income (loss)
    
    $
    108
    
    
    $
    103
    
    
    $
    (189
    )
    
    $
    194Other comprehensive loss:Unrealized holding loss
    
    
    (7
    )
    
    
    (51
    )
    
    
    (9
    )
    
    
    (51
    )Total comprehensive income (loss)
    
    $
    101
    
    
    $
    52
    
    
    $
    (198
    )
    
    $
    143
 9




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Note
4  Sources Of Revenue
  Three Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended11/30/05
    
    
    11/30/04
    
    
    11/30/05
    
    
    11/30/04Capitated contracts
    
    $
    6,458
    
    
    $
    5,492
    
    
    $
    12,477
    
    
    $
    10,803Non-capitated contracts
    
    
    298
    
    
    
    739
    
    
    
    580
    
    
    
    1,467Total
    
    $
    6,756
    
    
    $
    6,231
    
    
    $
    13,057
    
    
    $
    12,270
  Note 5  Major Customers/Contracts
    10




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Note
6  Preferred Stock
  Note 7  Commitments and Contingencies
       11




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 Item 2  Managements Discussion and Analysis of Financial Condition and Results of
Operations
  OVERVIEW
 GENERAL
     12




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
   Results of Operations
   The Three Months Ended November 30, 2005 Compared to the Three Months Ended November 30,
2004:
 Three Months EndedNovember 30,2005
    
    
    2004Operating revenues:Capitated contracts
    
    $
    6,458
    
    
    
    5,492Non-capitated sources
    
    
    298
    
    
    
    739Total operating revenues
    
    
    6,756
    
    
    
    6,231Operating expenses:Healthcare operating expenses:Claims expense (1)
    
    
    4,660
    
    
    
    4,025Other healthcare operating expenses (1)
    
    
    1,117
    
    
    
    1,303Total healthcare operating expense
    
    
    5,777
    
    
    
    5,328General and administrative expenses
    
    
    829
    
    
    
    727Other operating expenses, net
    
    
    20
    
    
    
    24Total operating expenses
    
    
    6,626
    
    
    
    6,079Operating income
    
    $
    130
    
    
    
    152
 
 (1)
    
    Claims expense reflects the cost of revenue of capitated contracts, and other
healthcare operating expense reflects the cost of revenue of capitated and non-capitated contracts.   13




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
   The Six Months Ended November 30, 2005 Compared to the Six Months Ended November 30, 2004:
 Six Months EndedNovember 30,2005
    
    
    2004Operating revenues:Capitated contracts
    
    $
    12,477
    
    
    
    10,803Non-capitated sources
    
    
    580
    
    
    
    1,467Total operating revenues
    
    
    13,057
    
    
    
    12,270Operating expenses:Healthcare operating expenses:Claims expense (1)
    
    
    9,260
    
    
    
    7,929Other healthcare operating expenses (1)
    
    
    2,235
    
    
    
    2,567Total healthcare operating expense
    
    
    11,495
    
    
    
    10,496General and administrative expenses
    
    
    1,705
    
    
    
    1,429Other operating expenses, net
    
    
    8
    
    
    
    43Total operating expenses
    
    
    13,208
    
    
    
    11,968Operating (loss) income
    
    $
    (151
    )
    
    
    302
 
 (1)
    
    Claims expense reflects the cost of revenue of capitated contracts, and other healthcare
operating expense reflects the cost of revenue of capitated and non-capitated contracts.    14




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  Seasonality of Business
  Concentration of Risk
  Liquidity and Capital Resources
     15




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  Critical Accounting Estimates
   Revenue Recognition
   Accrued Claims Payable and Claims Expense
   16




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
    
    
    Changes in utilization patterns
    
    Changes in healthcare costs
    
    Changes in claims submission timeframes by providers
    
    Success in renegotiating contracts with healthcare providers
    
    Occurrence of catastrophes
    
    Changes in benefit plan design
    
    The impact of present or future state and federal regulations
  Change in Healthcare Costs:
 (Decrease)(Decrease)
    
    IncreaseIncrease
    
    In Claims Expense(5%)
    
    ($103,000)5%
    
    $102,000
 Premium Deficiencies
   17




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
   Marketable Securities
  
    
    The financial condition of the issuer.
    
    The length of time the investment has been in a continuous unrealized position.
    
    The Companys ability to hold the security for a period of time sufficient to allow
for any anticipated recovery.
 Goodwill
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  18




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 Item 1A. Risk Factors
  We depend on a limited number of customers, the loss of any one of these customers, or a reduction
in business from any one of them, could have a material, adverse effect on our working capital and
future results of operations.
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
     19




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  Name
    
    Votes For
    
    Votes WithheldEugene L. Froelich
    
    
    9,062,519
    
    
    
    15,349
  Name
    
    Preferred Votes For
    
    Preferred Votes WithheldRobert Parker
    
    
    14,400
    
    
    
    0
    NUMBER OF SHARES
 For
    
    Against
    
    Abstain9,071,893
    
    
    5,742
    
    
    
  233
   NUMBER OF SHARES
 For
    
    Against
    
    Abstain
    
    Broker Non-Votes6,408,717
    
    
    180,912
    
    
    
    51,050
    
    
    
    2,437,189
 
 Item 5. Other Information
  20




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 Item 6. Exhibits
 EXHIBITNUMBER
    
    DESCRIPTION
    
    PAGE NUMBER31.1
    
    Comprehensive Care Corporation CEO Certification pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
    
    
    2331.2
    
    Comprehensive Care Corporation CFO Certification pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
    
    
    2432.1
    
    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
    
    
    2532.2
    
    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
    
    
    26
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
   COMPREHENSIVE CARE CORPORATIONJanuary 12, 2006By
    
    /s/ MARY JANE JOHNSONMary Jane JohnsonPresident and Chief Executive Officer(Principal Executive Officer)By
    
    /s/ ROBERT J. LANDISRobert J. LandisChairman, Chief Financial Officer and Treasurer(Principal Financial and Accounting Officer)
 22