##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    Quarterly report pursuant to Section13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended February 28, 2007.
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from to .
 Commission File Number 1-9927
 COMPREHENSIVE CARE CORPORATION
  Delaware
    
    95-2594724(State or other jurisdiction of incorporation
    
    (IRS Employer Identification No.)or organization)
 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
  o o þ
 o þ
  Class
    
    Outstanding at April 11, 2007Common Stock, par value $.01 per share
    
    7,702,783




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##### 



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  
 Index
 PAGEPART I  FINANCIAL INFORMATIONItem 1 Consolidated Financial StatementsConsolidated Balance Sheets as of
February 28, 2007 and May 31, 2006
    
    
    3Consolidated Statements of Operations for
the three and nine months ended February 28, 2007 and 2006
    
    
    4Consolidated Statements of Cash Flows for
the nine months ended February 28, 2007 and 2006
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-14Item 2Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    14-22Item 3Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4Controls and Procedures
    
    
    23PART II  OTHER INFORMATIONItem 1 Legal Proceedings
    
    
    23Item 1A  Risk Factors
    
    
    23Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3 Defaults Upon Senior Securities
    
    
    24Item 4 Submission of Matters to a Vote of Security Holders
    
    
    24Item 5 Other Information
    
    
    24Item 6 Exhibits
    
    
    24Signatures
    
    
    25EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  2




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 PART I  FINANCIAL INFORMATION
 
 Item 1. Consolidated Financial Statements
 
 Consolidated Balance Sheets
 February 28,
    
    
    May 31,2007
    
    
    2006(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,374
    
    
    
    5,463Restricted cash
    
    
    1
    
    
    
    589Accounts receivable, less allowance for doubtful accounts of $0
    
    
    1,556
    
    
    
    153Other current assets
    
    
    551
    
    
    
    477Total current assets
    
    
    8,482
    
    
    
    6,682Property and equipment, net
    
    
    392
    
    
    
    251Note receivable
    
    
    40
    
    
    
    55Goodwill, net
    
    
    991
    
    
    
    991Other assets
    
    
    195
    
    
    
    203Total assets
    
    
    10,100
    
    
    
    8,182LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable and accrued liabilities
    
    
    1,367
    
    
    
    1,198Accrued claims payable
    
    
    5,017
    
    
    
    2,790Accrued reinsurance claims payable
    
    
    2,526
    
    
    
    2,526Income taxes payable
    
    
    46
    
    
    
    48Total current liabilities
    
    
    8,956
    
    
    
    6,562Long-term liabilities:Long-term debt
    
    
    2,244
    
    
    
    2,244Other liabilities
    
    
    166
    
    
    
    119Total long-term liabilities
    
    
    2,410
    
    
    
    2,363Total liabilities
    
    
    11,366
    
    
    
    8,925Stockholders deficit:Preferred stock, $50.00 par value; authorized 18,740 shares; 14,400
issued
    
    
    720
    
    
    
    720Common stock, $0.01 par value; authorized 30,000,000 shares; issued
and outstanding 7,702,783 and 5,898,707, respectively
    
    
    77
    
    
    
    59Additional paid-in capital
    
    
    57,586
    
    
    
    56,645Accumulated deficit
    
    
    (59,649
    )
    
    
    (58,167
    )Total stockholders deficit
    
    
    (1,266
    )
    
    
    (743
    )Total liabilities and stockholders deficit
    
    $
    10,100
    
    
    
    8,182
  3




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Operations
 Three Months Ended
    
    
    Nine Months EndedFebruary 28,
    
    
    February 28,2007
    
    
    2006
    
    
    2007
    
    
    2006Operating revenues
    
    $
    7,369
    
    
    $
    5,585
    
    
    
    16,051
    
    
    $
    18,642Costs and expenses:Healthcare operating expenses
    
    
    7,060
    
    
    
    4,579
    
    
    
    15,122
    
    
    
    16,074General and administrative expenses
    
    
    1,121
    
    
    
    768
    
    
    
    2,610
    
    
    
    2,473Recovery of doubtful accounts
    
    
    (10
    )
    
    
    (55
    )
    
    
    (145
    )
    
    
    (91
    )Depreciation and amortization
    
    
    34
    
    
    
    21
    
    
    
    86
    
    
    
    658,205
    
    
    
    5,313
    
    
    
    17,673
    
    
    
    18,521Operating (loss) income
    
    
    (836
    )
    
    
    272
    
    
    
    (1,622
    )
    
    
    121Other income (expense):Gain on sale of assets
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    Gain from property insurance claim
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    Loss from software development
    
    
    
    
    
    
    (102
    )
    
    
    
    
    
    
    (102
    )Interest income
    
    
    24
    
    
    
    19
    
    
    
    73
    
    
    
    47Interest expense
    
    
    (46
    )
    
    
    (45
    )
    
    
    (143
    )
    
    
    (139
    )Other non-operating income
    
    
    
    
    
    
    1
    
    
    
    254
    
    
    
    57(Loss) income before income taxes
    
    
    (856
    )
    
    
    145
    
    
    
    (1,419
    )
    
    
    (16
    )Income tax expense
    
    
    5
    
    
    
    16
    
    
    
    43
    
    
    
    44(Loss) income from continuing operations
    
    
    (861
    )
    
    
    129
    
    
    
    (1,462
    )
    
    
    (60
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    Net (loss) income attributable to common stockholders
    
    $
    (861
    )
    
    
    129
    
    
    
    (1,482
    )
    
    
    (60
    )(Loss) income per common share  basic(Loss) income from continuing operations
    
    $
    (0.11
    )
    
    
    0.02
    
    
    
    (0.22
    )
    
    
    (0.01
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.00
    )
    
    
    Net (loss) income
    
    $
    (0.11
    )
    
    
    0.02
    
    
    
    (0.22
    )
    
    
    (0.01
    )(Loss) income per common share  diluted(Loss) income from continuing operations
    
    $
    (0.11
    )
    
    
    0.01
    
    
    
    (0.22
    )
    
    
    (0.01
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.00
    )
    
    
    Net (loss) income
    
    $
    (0.11
    )
    
    
    0.01
    
    
    
    (0.22
    )
    
    
    (0.01
    )Weighted average common shares outstanding:Basic
    
    
    7,665
    
    
    
    5,851
    
    
    
    6,710
    
    
    
    5,782Diluted
    
    
    7,665
    
    
    
    10,443
    
    
    
    6,710
    
    
    
    5,782
  4




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 Nine Months EndedFebruary 28,2007
    
    
    2006Cash flows from operating activities:Loss from continuing operations
    
    $
    (1,462
    )
    
    
    (60
    )Adjustments to reconcile loss from continuing operations to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    86
    
    
    
    65Gain on sale of assets
    
    
    (2
    )
    
    
    Loss from software development
    
    
    
    
    
    
    102Compensation expense  stock options issued
    
    
    96
    
    
    
    Gain from property insurance claim
    
    
    (17
    )
    
    
    Non cash expense  stock issued
    
    
    35
    
    
    
    26Amortization of deferred revenue
    
    
    (3
    )
    
    
    (56
    )Changes in assets and liabilities:Accounts receivable, net
    
    
    (1,403
    )
    
    
    90Accounts receivable  managed care reinsurance contract
    
    
    
    
    
    
    372Other current assets, restricted cash, and other assets-non-current
    
    
    540
    
    
    
    (323
    )Accounts payable and accrued liabilities
    
    
    186
    
    
    
    (146
    )Accrued claims payable
    
    
    2,227
    
    
    
    (576
    )Accrued reinsurance claims payable
    
    
    
    
    
    
    (442
    )Income taxes payable
    
    
    (2
    )
    
    
    (1
    )Other liabilities
    
    
    32
    
    
    
    Net cash provided by (used in) continuing operations
    
    
    313
    
    
    
    (949
    )Net cash used in discontinued operations
    
    
    (20
    )
    
    
    (55
    )Net cash provided by (used in) continuing and discontinued
operations
    
    
    293
    
    
    
    (1,004
    )Cash flows from investing activities:Net proceeds from sale of property and equipment
    
    
    2
    
    
    
    Proceeds from property insurance claim
    
    
    35
    
    
    
    Payment received on notes receivable
    
    
    14
    
    
    
    Additions to property and equipment, net
    
    
    (173
    )
    
    
    (13
    )Net cash used in investing activities
    
    
    (122
    )
    
    
    (13
    )Cash flows from financing activities:Proceeds from the issuance of common and preferred stock
    
    
    804
    
    
    
    3,481Repayment of long-term debt
    
    
    (64
    )
    
    
    (38
    )Net cash provided by financing activities
    
    
    740
    
    
    
    3,443Net increase in cash and cash equivalents
    
    
    911
    
    
    
    2,426Cash and cash equivalents at beginning of period
    
    
    5,463
    
    
    
    3,695Cash and cash equivalents at end of period
    
    $
    6,374
    
    
    
    6,121Supplemental disclosures of cash flow information:Cash paid during the nine-month period for:Interest
    
    $
    101
    
    
    
    97Income taxes
    
    $
    46
    
    
    
    45Non-cash financing and investing activities:Securities received through consulting agreement, net of other
comprehensive loss
    
    $
    
    
    
    
    4Property acquired under capital leases
    
    $
    58
    
    
    
    
 S
 5




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Note 1  Basis of Presentation
     Note 2  Summary of Significant Accounting Policies
 Restricted Cash
  6




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




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Income Taxes
    Stock Options
   8




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
    Three
    
    
    NineMonths
    
    
    MonthsEnded
    
    
    Ended2/28/06
    
    
    2/28/06Net income (loss), as reported
    
    $
    129
    
    
    
    (60
    )Add:Total stock-based employee compensation expense included in
related net income (loss), net of related tax effects
    
    
    
    
    
    
    Deduct:Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax
effects
    
    
    (105
    )
    
    
    (133
    )Pro forma net income (loss)
    
    $
    24
    
    
    
    (193
    )Income (loss) per common share:Basic  as reported
    
    $
    0.02
    
    
    
    (0.01
    )Diluted  as reported
    
    $
    0.01
    
    
    
    (0.01
    )Basic  pro forma
    
    $
    0.00
    
    
    
    (0.03
    )Diluted  pro forma
    
    $
    0.00
    
    
    
    (0.03
    )
 9




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  Weighted-Average
    
    Weighted-AverageExercise
    
    Remaining
    
    AggregateOptions
    
    Shares
    
    Price
    
    Contractual Term
    
    Intrinsic ValueOutstanding at December 1, 2006
    
    
    1,308,707
    
    
    $
    1.41Granted
    
    
    
    
    
    
    Exercised
    
    
    (37,500
    )
    
    
    0.51Forfeited or expired
    
    
    (222,500
    )
    
    
    1.85Outstanding at February 28, 2007
    
    
    1,048,707
    
    
    $
    1.35
    
    
    
    5.43
    
    
    
    Exercisable at February 28, 2007
    
    
    1,001,207
    
    
    $
    1.33
    
    
    
    5.25
    
    
    
    
  Three Months Ended
    
    Nine Months EndedFebruary 28,
    
    February 28,2007
    
    2006
    
    2007
    
    2006Options granted
    
    
    
    
    
    
    
    
    
    
    125,000
    
    
    
    189,666Weighted-average grant-date fair value
    
    
    
    
    
    
    
    
    
    $
    1.31
    
    
    $
    1.42Options exercised
    
    
    37,500
    
    
    
    
    
    
    
    37,500
    
    
    
    255,833Total intrinsic value of exercised options
    
    $
    13,160
    
    
    
    
    
    
    $
    13,160
    
    
    $
    375,087Fair value of vested options
    
    $
    66,070
    *
    
    $
    1,711
    
    
    $
    125,338
    *
    
    $
    43,795
    *
 
 *
    
    Includes $66,070 representing the fair value of options vesting immediately due to a change
in control of the Company on January 12, 2007.    10




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Three Months Ended
    
    Nine Months EndedFebruary 28,
    
    February 28,2007
    
    2006
    
    2007
    
    2006Volatility factor of the expected
market price of the
Companys common stock
    
    
    
    
    
    
    
    
    
    
    93.0
    %
    
    
    95.0 - 106.0
    %Expected life (in years) of the options
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    5Risk-free interest rate
    
    
    
    
    
    
    
    
    
    
    4.60
    %
    
    
    4.10 - 4.46
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    0
    %
    
    
    0
    %
  Per Share Data
  Three Months Ended
    
    
    Nine Months EndedFebruary 28,
    
    
    February 28,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:(Loss) income from continuing operations
    
    $
    (861
    )
    
    
    129
    
    
    
    (1,462
    )
    
    
    (60
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    Numerator for diluted (loss) income attributable to common
stockholders
    
    $
    (861
    )
    
    
    129
    
    
    
    (1,482
    )
    
    
    (60
    )Denominator:Weighted average shares
    
    
    7,665
    
    
    
    5,851
    
    
    
    6,710
    
    
    
    5,782Effect of dilutive securities:Warrants
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    Employee stock options
    
    
    
    
    
    
    342
    
    
    
    
    
    
    
    Convertible preferred stock
    
    
    
    
    
    
    4,236
    
    
    
    
    
    
    
    Denominator for diluted income (loss) per share-adjusted
weighted average shares after assumed exercises
    
    
    7,665
    
    
    
    10,443
    
    
    
    6,710
    
    
    
    5,782(Loss) income per share  basic
    
    $
    (0.11
    )
    
    
    0.02
    
    
    
    (0.22
    )
    
    
    (0.01
    )(Loss) income per share  diluted
    
    $
    (0.11
    )
    
    
    0.01
    
    
    
    (0.22
    )
    
    
    (0.01
    )
  Convertible debentures(a)
    
    
    15,051Convertible preferred stock(b)
    
    
    4,235,328Outstanding stock options(c)
    
    
    1,048,707Outstanding warrants(d)
    
    
    406,000Possible future issuance under stock option plans
    
    
    1,298,336Total
    
    
    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 common stock of the Company have been issued to employees and non-employee
board of director members with exercise prices ranging from $.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. 11




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Note 3  Liquidity
  Note 4  Accounts Receivable
  Note 5  Sources Of Revenue
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended02/28/07
    
    
    02/28/06
    
    
    02/28/07
    
    
    02/28/06Capitated contracts
    
    $
    7,173
    
    
    $
    5,412
    
    
    $
    15,430
    
    
    $
    17,889Non-capitated contracts
    
    
    196
    
    
    
    173
    
    
    
    621
    
    
    
    753Total
    
    $
    7,369
    
    
    $
    5,585
    
    
    $
    16,051
    
    
    $
    18,642
  Note 6  Major Customers/Contracts
  12




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
     Note 7  Preferred Stock
   Note
8  Commitments and Contingencies
    13




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
   Note 9  Discontinued Operations
  Note 10  Related Party Transactions
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
  14




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  OVERVIEW
 GENERAL
      Change in Control
  15




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
    Major Contract
     Results of Operations
   16




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##### Table of Contents



COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
  The Three Months Ended February 28, 2007 Compared to the Three Months Ended February 28,
2006:
 Three Months EndedFebruary 28,2007
    
    
    2006Operating revenues:Capitated contracts
    
    $
    7,173
    
    
    
    5,412Non-capitated sources
    
    
    196
    
    
    
    173Total operating revenues
    
    
    7,369
    
    
    
    5,585Operating expenses:Healthcare operating expenses:Claims expense (1)
    
    
    5,838
    
    
    
    3,560Other healthcare operating expenses (1)
    
    
    1,222
    
    
    
    1,019Total healthcare operating expenses
    
    
    7,060
    
    
    
    4,579General and administrative expenses
    
    
    1,121
    
    
    
    768Bad Debt (recovery of doubtful accounts)
    
    
    (10
    )
    
    
    (55
    )Depreciation and amortization
    
    
    34
    
    
    
    21Total operating expenses
    
    
    8,205
    
    
    
    5,313Operating (loss) income
    
    $
    (836
    )
    
    
    272
 
 (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
  The Nine Months Ended February 28, 2007 Compared to the Nine Months Ended February 28,
2006:
 Nine Months EndedFebruary 28,2007
    
    
    2006Operating revenues:Capitated contracts
    
    $
    15,430
    
    
    $
    17,889Non-capitated sources
    
    
    621
    
    
    
    753Total operating revenues
    
    
    16,051
    
    
    
    18,642Operating expenses:Healthcare operating expenses:Claims expense (1)
    
    
    12,138
    
    
    
    12,820Other healthcare operating expenses (1)
    
    
    2,984
    
    
    
    3,254Total healthcare operating expense
    
    
    15,122
    
    
    
    16,074General and administrative expenses
    
    
    2,610
    
    
    
    2,473Recovery of doubtful accounts
    
    
    (145
    )
    
    
    (91
    )Depreciation and amortization
    
    
    86
    
    
    
    65Total operating expenses
    
    
    17,673
    
    
    
    18,521Operating loss
    
    $
    (1,622
    )
    
    $
    121
 
 (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.     18




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
   Seasonality of Business
  Concentration of Risk
  Liquidity and Capital Resources
     19




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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Related-Party Transactions
   Critical Accounting Estimates
   Revenue Recognition
   Accrued Claims Payable and Claims Expense
   20




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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%)
    
    ($206,000)5%
    
    $192,000
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 Premium Deficiencies
    Goodwill
  Stock Compensation Expense
  Expected Volatility
  Expected Term
  Expected Forfeiture Rate
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  We may be unsuccessful in managing our new Indiana Medicaid contract, or the contract may be
significantly more costly than anticipated.
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 EXHIBITNUMBER
    
    DESCRIPTION31.1
    
    Comprehensive Care Corporation CEO Certification pursuant to Section 302
of the Sarbanes-Oxley Act of 200231.2
    
    Comprehensive Care Corporation CFO Certification pursuant to Section 302
of the Sarbanes-Oxley Act of 200232.1
    
    Comprehensive Care Corporation CEO Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Comprehensive Care Corporation CFO Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
 
   COMPREHENSIVE CARE CORPORATIONApril 11, 2007By
    
    /s/ MARY JANE JOHNSONMary Jane JohnsonPresident and Chief Executive Officer(Principal Executive Officer)By
    
    /s/ ROBERT J. LANDIS

Robert J. LandisChairman, Chief Financial Officer and Treasurer(Principal Financial and Accounting Officer)
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