##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2007
 Commission File Number 001-09927
 COMPREHENSIVE CARE CORPORATION
  Delaware
    
    95-2594724(State or other jurisdiction of incorporation 
or organization)
    
    (IRS Employer Identification No.)
 3405 W. Dr. Martin Luther King Jr. Blvd, Suite 101, Tampa, FL 33607
 (813) 288-4808  (Registrants telephone number, including area code)
  (Former name, former address and former fiscal year, if changed since last report)
 þ o
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer þ
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Table of Contents
 PAGEPART I  FINANCIAL INFORMATIONItem 1 Consolidated Financial StatementsConsolidated Balance Sheets as of September 30, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Operations for the three and nine months ended September 30, 2007 and 2006
    
    
    4Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-13Item 2Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13-21Item 3Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4Controls and Procedures
    
    
    21PART II  OTHER INFORMATIONItem 1 Legal Proceedings
    
    
    22Item 1A  Risk Factors
    
    
    22Item 5
Other Information
    
    
    22Item 6 Exhibits
    
    
    22Signatures
    
    
    23Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   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
 September 30,
    
    
    December 31,2007
    
    
    2006(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,999
    
    
    
    5,543Accounts receivable, less allowance for doubtful accounts of $6 and
$6, respectively
    
    
    113
    
    
    
    163Other current assets
    
    
    448
    
    
    
    793Total current assets
    
    
    7,560
    
    
    
    6,499Property and equipment, net
    
    
    370
    
    
    
    377Note receivable
    
    
    24
    
    
    
    44Goodwill, net
    
    
    991
    
    
    
    991Other assets
    
    
    146
    
    
    
    203Total assets
    
    
    9,091
    
    
    
    8,114LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable and accrued liabilities
    
    
    1,989
    
    
    
    1,201Accrued claims payable
    
    
    5,547
    
    
    
    2,746Accrued reinsurance claims payable
    
    
    2,526
    
    
    
    2,516Income taxes payable
    
    
    61
    
    
    
    50Total current liabilities
    
    
    10,123
    
    
    
    6,513Long-term liabilities:Long-term debt
    
    
    2,244
    
    
    
    2,244Other liabilities
    
    
    141
    
    
    
    160Total long-term liabilities
    
    
    2,385
    
    
    
    2,404Total liabilities
    
    
    12,508
    
    
    
    8,917Stockholders deficit:Preferred stock, $50.00 par value; authorized 18,740 shares; 14,400
issued
    
    
    720
    
    
    
    720Common stock, $0.01 par value; authorized 30,000,000 shares; issued
and outstanding 7,702,781 and 7,655,283, respectively
    
    
    77
    
    
    
    77Additional paid-in capital
    
    
    57,611
    
    
    
    57,503Accumulated deficit
    
    
    (61,825
    )
    
    
    (59,103
    )Total stockholders deficit
    
    
    (3,417
    )
    
    
    (803
    )Total liabilities and stockholders deficit
    
    $
    9,091
    
    
    
    8,114
   3




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Operations
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Operating revenues
    
    $
    9,760
    
    
    
    4,179
    
    
    
    27,620
    
    
    
    14,212Costs and expenses:Healthcare operating expenses
    
    
    9,374
    
    
    
    3,775
    
    
    
    26,985
    
    
    
    12,083General and administrative expenses
    
    
    1,201
    
    
    
    790
    
    
    
    3,213
    
    
    
    2,375Provision for (recovery of) doubtful accounts
    
    
    4
    
    
    
    (138
    )
    
    
    (4
    )
    
    
    (190
    )Depreciation and amortization
    
    
    38
    
    
    
    23
    
    
    
    114
    
    
    
    6610,617
    
    
    
    4,450
    
    
    
    30,308
    
    
    
    14,334Operating loss before items shown below
    
    
    (857
    )
    
    
    (271
    )
    
    
    (2,688
    )
    
    
    (122
    )Other income (expense):Gain from sale of available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    Gain from sale of assets
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    Loss from software development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (123
    )Loss on impairment  investment in marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17
    )Interest income
    
    
    44
    
    
    
    22
    
    
    
    116
    
    
    
    76Interest expense
    
    
    (48
    )
    
    
    (49
    )
    
    
    (143
    )
    
    
    (142
    )Other non-operating income
    
    
    
    
    
    
    252
    
    
    
    
    
    
    
    262Loss before income taxes
    
    
    (858
    )
    
    
    (46
    )
    
    
    (2,683
    )
    
    
    (66
    )Income tax expense
    
    
    15
    
    
    
    24
    
    
    
    39
    
    
    
    73Net loss attributable to common stockholders
    
    
    (873
    )
    
    
    (70
    )
    
    
    (2,722
    )
    
    
    (139
    )Net loss per common share  basic and diluted
    
    $
    (0.11
    )
    
    
    (0.01
    )
    
    
    (0.35
    )
    
    
    (0.02
    )Weighted average common shares outstanding:Basic
    
    
    7,703
    
    
    
    5,905
    
    
    
    7,696
    
    
    
    5,885Diluted
    
    
    7,703
    
    
    
    5,905
    
    
    
    7,696
    
    
    
    5,885
   4




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 Nine Months EndedSeptember 30,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (2,722
    )
    
    
    (139
    )Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    114
    
    
    
    66Asset writedown  eye care memberships
    
    
    62
    
    
    
    63Gain on sale of assets
    
    
    (3
    )
    
    
    Asset write-off
    
    
    3
    
    
    
    Compensation expense  stock options issued
    
    
    63
    
    
    
    31Loss from software development
    
    
    
    
    
    
    123Gain from sale of available-for-sale securities
    
    
    (29
    )
    
    
    Loss on impairment  investment in marketable securities
    
    
    
    
    
    
    17Non cash expense  stock issued
    
    
    30
    
    
    
    37Amortization of deferred revenue
    
    
    
    
    
    
    (5
    )Changes in assets and liabilities:Accounts receivable, net
    
    
    50
    
    
    
    (186
    )Accounts receivable  managed care reinsurance contract
    
    
    
    
    
    
    454Other current assets and other non-current assets
    
    
    337
    
    
    
    256Accounts payable and accrued liabilities
    
    
    805
    
    
    
    178Accrued claims payable
    
    
    2,801
    
    
    
    (1,389
    )Accrued reinsurance claims payable
    
    
    10
    
    
    
    (617
    )Income taxes payable
    
    
    11
    
    
    
    6Other liabilities
    
    
    (29
    )
    
    
    38Net cash provided by (used in) continuing operations
    
    
    1,503
    
    
    
    (1,067
    )Net cash used in discontinued operations
    
    
    (20
    )
    
    
    Net cash provided by (used in) continuing and
discontinued operations
    
    
    1,483
    
    
    
    (1,067
    )Cash flows from investing activities:Net proceeds from sale of available-for-sale securities
    
    
    30
    
    
    
    Net proceeds from sale of property and equipment
    
    
    3
    
    
    
    Payment received on notes receivable
    
    
    18
    
    
    
    4Additions to property and equipment, net
    
    
    (55
    )
    
    
    (109
    )Net cash used in investing activities
    
    
    (4
    )
    
    
    (105
    )Cash flows from financing activities:Proceeds from the issuance of common stock
    
    
    19
    
    
    
    21Repayment of debt
    
    
    (42
    )
    
    
    (32
    )Net cash used in financing activities
    
    
    (23
    )
    
    
    (11
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,456
    
    
    
    (1,183
    )Cash and cash equivalents at beginning of period
    
    
    5,543
    
    
    
    6,288Cash and cash equivalents at end of period
    
    $
    6,999
    
    
    
    5,105Supplemental disclosures of cash flow information:Cash paid during the nine-month period for:Interest
    
    $
    101
    
    
    
    100Income taxes
    
    $
    30
    
    
    
    66Non-cash operating, financing and investing activities:Property acquired under capital leases
    
    $
    60
    
    
    
    171
   5




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




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




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Stock Options
      8




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Nine MonthsEnded(in thousands except for per share information)
    
    9/30/06Net loss as reported
    
    $
    (139
    )Add:Total stock-based employee compensation expense included in
related net loss, net of related tax effects
    
    
    31Deduct:Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax
effects
    
    
    (161
    )$
    (269
    )Loss per common share:Basic  as reported
    
    
    (0.02
    )Diluted  as reported
    
    
    (0.02
    )Basic  pro forma
    
    
    (0.05
    )Diluted  pro forma
    
    
    (0.05
    )
  Weighted-Average
    
    
    Weighted-AverageExercise
    
    
    Remaining
    
    
    AggregateOptions
    
    Shares
    
    
    Price
    
    
    Contractual Term
    
    
    Intrinsic ValueOutstanding at July 1, 2007
    
    
    1,008,707
    
    
    $
    1.33
    
    
    4.95 yearsGranted
    
    
    120,000
    
    
    $
    1.11Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (64,999
    )
    
    $
    1.68Outstanding at September 30, 2007
    
    
    1,063,708
    
    
    $
    1.29
    
    
    5.10 years
    
    
    Exercisable at September 30, 2007
    
    
    943,708
    
    
    $
    1.31
    
    
    4.51 years
    
    
    
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Options granted
    
    
    120,000
    
    
    
    
    
    
    
    120,000
    
    
    
    125,000Weighted-average grant-date fair value ($)
    
    
    0.79
    
    
    
    
    
    
    
    0.79
    
    
    
    1.43Options exercised
    
    
    
    
    
    
    
    
    
    
    37,500
    
    
    
    26,333Total intrinsic value of exercised options ($)
    
    
    
    
    
    
    
    
    
    
    13,160
    
    
    
    35,922Fair value of vested options ($)
    
    
    
    
    
    
    4,532
    
    
    
    78,346
    
    
    
    159,749
   9




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Volatility factor of the expected
market price of the
Companys common stock
    
    
    110
    %
    
    
    
    
    
    
    110
    %
    
    
    107
    %Expected life (in years) of the options
    
    
    3.33
    
    
    
    
    
    
    
    3.33
    
    
    
    5.00Risk-free interest rate
    
    
    4.87
    %
    
    
    
    
    
    
    4.87
    %
    
    
    4.61
    %Dividend yield
    
    
    0
    %
    
    
    
    
    
    
    0
    %
    
    
    0
    %
  Per Share Data
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Net loss
    
    $
    (873
    )
    
    
    (70
    )
    
    
    (2,722
    )
    
    
    (139
    )Denominator:Weighted average shares  basic
    
    
    7,703
    
    
    
    5,905
    
    
    
    7,696
    
    
    
    5,885Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares  diluted
    
    
    7,703
    
    
    
    5,905
    
    
    
    7,696
    
    
    
    5,885Loss per share  basic and diluted
    
    $
    (0.11
    )
    
    
    (0.01
    )
    
    
    (0.35
    )
    
    
    (0.02
    )
  10




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  Convertible debentures(a)
    
    
    15,051Convertible preferred stock(b)
    
    
    4,235,328Outstanding stock options(c)
    
    
    1,063,708Outstanding warrants(d)
    
    
    406,000Possible future issuance under stock option plans
    
    
    1,283,335Total
    
    
    7,003,422
 (a)
    
    The debentures are convertible into 15,051 shares of common stock at a conversion price of
$149.09 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 our common stock have been issued to employees and non-employee directors
with exercise prices ranging from $.25 to $4.00.(d)
    
    Warrants to purchase our common stock 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 3  Liquidity
  Note 4  Sources Of Revenue
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended9/30/07
    
    
    9/30/06
    
    
    9/30/07
    
    
    9/30/06Capitated contracts
    
    $
    9,470
    
    
    $
    4,012
    
    
    $
    26,785
    
    
    $
    13,727Non-capitated contracts
    
    
    290
    
    
    
    167
    
    
    
    835
    
    
    
    485Total
    
    $
    9,760
    
    
    $
    4,179
    
    
    $
    27,620
    
    
    $
    14,212
  Note 5  Major Customers/Contracts
   11




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




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Note 8  Related Party Transactions
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  OVERVIEW
 GENERAL
 
  
    
    Commercial members
    
    Medicare members
    
    Medicaid members
    
    Childrens Health Insurance Program (CHIP) members
  13




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  
    
    employers
    
    health plans
    
    government organizations
    
    third-party claims administrators
    
    commercial purchasers
    
    other group purchasers of behavioral healthcare services
  
    
    psychiatrists
    
    psychologists
    
    therapists
    
    other licensed healthcare professionals
    
    psychiatric hospitals
    
    general medical facilities with psychiatric beds
    
    residential treatment centers
    
    other treatment facilities
     ®
   14




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
       Results of Operations
    15




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 The Three Months Ended September 30, 2007 Compared to the Three Months Ended September 30,
2006:
 Three Months EndedSeptember 30,2007
    
    
    2006Operating revenues:Capitated contracts
    
    $
    9,470
    
    
    
    4,012Non-capitated sources
    
    
    290
    
    
    
    167Total operating revenues
    
    
    9,760
    
    
    
    4,179Operating expenses:Healthcare operating expenses:Claims expense(1)
    
    
    7,700
    
    
    
    2,925Other healthcare operating expenses(1)
    
    
    1,674
    
    
    
    850Total healthcare operating expenses
    
    
    9,374
    
    
    
    3,775General and administrative expenses
    
    
    1,201
    
    
    
    790Provision for (recovery of) doubtful accounts
    
    
    4
    
    
    
    (138
    )Depreciation and amortization
    
    
    38
    
    
    
    23Total operating expenses
    
    
    10,617
    
    
    
    4,450Operating loss
    
    $
    (857
    )
    
    
    (271
    )
 (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.
     16




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 The Nine Months Ended September 30, 2007 Compared to the Nine Months Ended September 30,
2006:
 Nine Months EndedSeptember 30,2007
    
    
    2006Operating revenues:Capitated contracts
    
    $
    26,785
    
    
    
    13,727Non-capitated sources
    
    
    835
    
    
    
    485Total operating revenues
    
    
    27,620
    
    
    
    14,212Operating expenses:Healthcare operating expenses:Claims expense(1)
    
    
    22,165
    
    
    
    9,230Other healthcare operating expenses(1)
    
    
    4,820
    
    
    
    2,853Total healthcare operating expense
    
    
    26,985
    
    
    
    12,083General and administrative expenses
    
    
    3,213
    
    
    
    2,375Recovery of doubtful accounts
    
    
    (4
    )
    
    
    (190
    )Depreciation and amortization
    
    
    114
    
    
    
    66Total operating expenses
    
    
    30,308
    
    
    
    14,334Operating loss
    
    $
    (2,688
    )
    
    
    (122
    )
 (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.
     17




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




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




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  
    
    Changes in utilization patterns
    
    Changes in healthcare costs
    
    Changes in claims submission timeframes by providers
    
    Success in renegotiating contracts with healthcare providers
    
    Occurrence of catastrophes
    
    Changes in benefit plan design
    
    The impact of present or future state and federal regulations
  Change in Healthcare Costs:(Decrease)(Decrease)
    
    IncreaseIncrease
    
    In Claims Expense(5%)
    
    ($223,000)5%
    
    $220,000
 Premium Deficiencies
    Goodwill
   20




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




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
     
 Item 1A. Risk Factors
  
 Item 5.
Other Information
  
 Item 6. Exhibits
 EXHIBITNUMBER
    
    DESCRIPTION31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
  22




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
   COMPREHENSIVE CARE CORPORATIONNovember 8, 2007By
    
    /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)
  23




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  EXHIBITNUMBER
    
    DESCRIPTION31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
  24