10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2007

or

¨ 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 333-135172

CRC HEALTH CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	73-1650429
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

20400 Stevens Creek Boulevard, Suite 600, Cupertino, California	95014
(Address of principal executive offices)	(Zip code)

(877) 272-8668

(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 (the “Exchange Act”) 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act)    Yes  ¨    No  x

There is no market for the registrant’s equity. The total number of shares of the registrant’s common stock, par value of $0.001 per share, outstanding as of May 10, 2007 was 1,000.

CRC HEALTH CORPORATION

INDEX

			Page No.
Part I.	Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006	3
		Condensed Consolidated Statements of Operations for the three months ended March 31, 2007 (Successor), two months ended March 31, 2006 (Successor) and one month ended January 31, 2006 (Predecessor)	4
		Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 (Successor), two months ended March 31, 2006 (Successor) and one month ended January 31, 2006 (Predecessor)	5
		Notes to Condensed Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3.	Quantitative and Qualitative Disclosure About Market Risk	32
	Item 4.	Controls and Procedures	32
Part II.	Other Information
	Item 1A.	Risk Factors	33
	Item 6.	Exhibits	33
Signature			34
Exhibit Index			35

Forward-Looking Statements

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this Quarterly Report, includes or may include “forward-looking statements.” All statements included herein, other than statements of historical fact, may constitute forward-looking statements. In some cases you can identify forward-looking statements by terminology such as “may,” “should” or “could.” Generally, the words “anticipates,” “believes,” “expects,” “intends,” “estimates,” “projects,” “plans” and similar expressions identify forward-looking statements. Although CRC Health Corporation (“CRC”) believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, among others, the following factors: changes in government reimbursement for CRC’s services; our substantial indebtedness, changes in applicable regulations or a government investigation or assertion that CRC has violated applicable regulations, attempts by local residents to force our closure or relocation, the potentially difficult, unsuccessful or costly integration of recently acquired operations and future acquisitions; the potentially difficult, unsuccessful or costly opening and operating of new treatment programs; the possibility that commercial payors for CRC’s services may undertake future cost containment initiatives; the limited number of national suppliers of methadone used in CRC’s outpatient treatment clinics; the failure to maintain established relationships or cultivate new relationships with patient referral sources; shortages in qualified healthcare workers; natural disasters such as hurricanes, earthquakes and floods; competition that limits CRC’s ability to grow; the potentially costly implementation of new information systems to comply with federal and state initiatives relating to patient privacy, security of medical information and electronic transactions; the potentially costly implementation of accounting and other management systems and resources in response to financial reporting and other requirements; the loss of key members of CRC’s management; claims asserted against CRC or lack of adequate available insurance; and certain restrictive covenants in CRC’s debt documents and other risks that are described herein, including but not limited to the items discussed in “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed on April 2, 2007, and that are otherwise described from time to time in CRC’s Securities and Exchange Commission filings after this Quarterly Report. CRC assumes no obligation and does not intend to update these forward-looking statements.

2

CRC HEALTH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

MARCH 31, 2007 AND DECEMBER 31, 2006

(In thousands, except share amounts)

	March 31, 2007		December 31, 2006
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	3,166	$	4,206
Accounts receivable, net of allowance for doubtful accounts of $8,851 in 2007 and $8,235 in 2006		32,441		33,805
Prepaid expenses		7,615		7,675
Other current assets		2,395		2,261
Income taxes receivable		8,666		6,496
Deferred income taxes		7,226		7,052
Total current assets		61,509		61,495
PROPERTY AND EQUIPMENT—Net		98,409		94,976
GOODWILL		703,480		702,425
INTANGIBLE ASSETS—Net		398,039		400,714
OTHER ASSETS		27,848		29,178
TOTAL ASSETS	$	1,289,285	$	1,288,788
LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES:
Accounts payable	$	5,540	$	6,714
Accrued liabilities		27,608		34,827
Current portion of long-term debt		19,205		10,743
Other current liabilities		28,943		27,941
Total current liabilities		81,296		80,225
LONG-TERM DEBT—Less current portion		617,842		615,785
OTHER LONG-TERM LIABILITIES		2,310		5,526
DEFERRED INCOME TAXES		147,315		149,827
Total liabilities		848,763		851,363
COMMITMENTS AND CONTINGENCIES (Note 9)
MINORITY INTEREST		157		251
STOCKHOLDER’S EQUITY:
Common stock, $0.001 par value—1,000 shares authorized; 1,000 shares issued and outstanding at March 31, 2007 and December 31, 2006
Additional paid-in capital		434,734		433,652
Retained earnings		5,631		3,522
Total stockholder’s equity		440,365		437,174
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	1,289,285	$	1,288,788

See notes to condensed consolidated financial statements.

3

CRC HEALTH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE MONTHS ENDED M ARCH 31, 2007 (SUCCESSOR), TWO MONTHS ENDED MARCH 31, 2006 (SUCCESSOR) AND ONE MONTH ENDED JANUARY 31, 2006 (PREDECESSOR)

(In thousands)

	Successor						Predecessor
	Three Months Ended March 31, 2007			Two Months Ended March 31, 2006			One Month Ended January 31, 2006
NET REVENUE:
Net client service revenue	$	106,482		$	37,810		$	19,360
Other revenue		1,448			792			490
Net revenue		107,930			38,602			19,850
OPERATING EXPENSES:
Salaries and benefits		55,308			18,494			9,265
Supplies, facilities and other operating costs		30,736			10,319			4,561
Provision for doubtful accounts		1,503			837			285
Depreciation and amortization		5,292			1,459			361
Acquisition related costs		—			—			43,710
Total operating expenses		92,839			31,109			58,182
INCOME (LOSS) FROM OPERATIONS		15,091			7,493			(38,332	)
INTEREST EXPENSE, NET		(14,989	)		(6,316	)		(2,505	)
OTHER FINANCING COSTS		—			—			(10,655	)
OTHER (LOSS) INCOME		(349	)		566			55
(LOSS) INCOME FROM OPERATIONS BEFORE INCOME TAXES		(247	)		1,743			(51,437	)
INCOME TAX (BENEFIT) EXPENSE		(101	)		718			(12,444	)
MINORITY INTEREST IN LOSS OF A SUBSIDIARY		(100	)		—			—
NET (LOSS) INCOME	$	(46	)	$	1,025		$	(38,993	)

See notes to condensed consolidated financial statements.

4

CRC HEALTH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2007 (SUCCESSOR), TWO MONTHS ENDED MARCH 31, 2006 (SUCCESSOR) AND ONE MONTH ENDED JANUARY 31, 2006 (PREDECESSOR)

(In thousands)

	Successor						Predecessor
	Three Months Ended March 31, 2007			Two Months Ended March 31, 2006			One Month Ended January 31, 2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(46	)	$	1,025		$	(38,993	)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization		5,292			1,459			361
Write-off of debt discount and capitalized financing costs		—			—			10,655
Amortization of debt discount and capitalized financing costs		1,095			535			162
Loss (gain) on interest rate swap agreement		306			(567	)		(55	)
(Gain) loss on disposition of property		(10	)		(3	)		(1	)
Provision for doubtful accounts		1,503			837			285
Stock-based compensation		1,088			628			17,666
Deferred income taxes		(442	)		(258	)		—
Minority interest		(100	)		—			—
Changes in current assets and liabilities:
Accounts receivable		(139	)		(1,771	)		(1,271	)
Income taxes receivable		102			788			(9,041	)
Accounts payable		(1,174	)		24			(2,997	)
Accrued liabilities		(7,223	)		(24,488	)		25,641
Income taxes payable		—			—			(3,384	)
Other working capital accounts		(206	)		2,457			842
Other assets and liabilities		198			81			1,331
Net cash provided by (used in) operating activities		244			(19,253	)		1,201
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment		(5,975	)		(1,291	)		(316	)
Proceeds from sale of property and equipment		26			3			1
Acquisition of business, net of cash acquired		(1,082	)		—			—
Prior period acquisition adjustments		(226	)		—			—
Payment of purchase price to former shareholders		—			(429,190	)		—
Net cash used in investing activities		(7,257	)		(430,478	)		(315	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Equity contribution from Bain Capital		—			294,475			—
Payment of transaction related costs		—			(5,354	)		—
Stock options exercised		—			—			7
Debt financing costs		(15	)		(22,105	)		(547	)
Net borrowings (repayments) under revolver line of credit		7,400			(4,500	)		(5,000	)
Proceeds from issuances of long-term debt		—			442,022			—
Repayment of long-term debt		(1,412	)		(253,975	)		—
Net cash provided by (used in) financing activities		5,973			450,563			(5,540	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(1,040	)		832			(4,654	)
CASH AND CASH EQUIVALENTS—Beginning of period		4,206			423			5,077
CASH AND CASH EQUIVALENTS—End of period	$	3,166		$	1,255		$	423
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Payable in conjunction with the addition of property and equipment	$	—		$	312		$	95
Payable in conjunction with acquisition contingent consideration	$	1,094		$	—		$	—
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	19,521		$	3,938		$	1,336
Cash paid for income taxes, net of refunds	$	240		$	189		$	—

See notes to condensed consolidated financial statements.

5

CRC HEALTH CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION

CRC Health Corporation (the “Company” or “We”) is a wholly owned subsidiary of CRC Health Group, Inc. referred to as (the “Group”) or (the “Parent”). The Company is headquartered in Cupertino, California and through its wholly owned subsidiaries provides substance abuse treatment services and youth treatment services in the United States. The Company also provides treatment services for other addiction diseases and behavioral disorders such as eating disorders. The Company delivers its substance abuse and behavioral disorder treatment services through residential and outpatient treatment facilities, which we refer to as our residential and outpatient treatment divisions. We deliver our youth treatment services through our residential schools, wilderness programs and weight loss programs, which we refer to as our youth treatment division. As of March 31, 2007, we operated 104 residential and outpatient treatment facilities in 23 states and treated approximately 24,500 patients per day. As of March 31, 2007, our youth treatment division operated programs at 35 facilities in 12 states and 1 in the United Kingdom.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation—The date of the Bain Merger was February 6, 2006 but for accounting purposes and to coincide with its normal financial closing, the Company has utilized February 1, 2006 as the effective date. As a result, the Company has reported operating results and financial position for all periods presented prior to February 1, 2006 as those of the Predecessor Company (“Predecessor”) and for all periods from and subsequent to February 1, 2006 as those of the Successor Company (“Successor”) due to the resulting change in the basis of accounting.

These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable for interim financial information. The Company’s condensed consolidated financial statements include the accounts of CRC Health Corporation and its consolidated subsidiaries, and, for the periods through January 31, 2006, CRC Health Group, Inc. and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments, including normal recurring adjustments, necessary to present fairly the financial position of the Company as of March 31, 2007, its results of operations for the three months ended March 31, 2007, two months ended March 31, 2006 and one month ended January 31, 2006, and its cash flows for the three months ended March 31, 2007, two months ended March 31, 2006 and one month ended January 31, 2006. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2006.

Use of Estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements—In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment to FASB Statement No. 115 (“SFAS 159”). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. Other eligible items include firm commitments for financial instruments that would otherwise not be recognized at inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to provide the warranty goods or services. If fair value is elected, any upfront costs and fees related to the item must be recognized in earnings and cannot be deferred, e.g., debt issue costs. The fair value election is irrevocable and may generally be made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to fair value. At the adoption date, unrealized gains and losses on existing items for which fair value has been elected are reported as a cumulative adjustment to beginning retained earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007 and is required to be adopted by the Company in the first quarter 2008. The Company is currently determining whether fair value is appropriate for any of its eligible items and cannot estimate the impact, if any, which SFAS 159 will have on its consolidated results of operations and financial condition.

6

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute; however SFAS 157 does not apply to SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”). SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. SFAS 157 is required to be adopted by the Company on January 1, 2008. The Company is currently evaluating the effect of the adoption of SFAS 157 will have on its financial statements.

The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”) on January 1, 2007. FIN 48 clarifies the accounting and reporting for uncertainties in income tax law recognized in an enterprise’s financial statements in accordance with SFAS No. 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in income tax returns. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. See Note 7 for additional information, including the effects of adoption on the Company’s condensed consolidated balance sheet.

3. ACQUISITIONS

2007 Acquisitions

In the three months ended March 31, 2007, the Company completed one acquisition and paid total cash consideration of approximately $1.1 million, including acquisition related expenses. The acquisition is intended to provide expansion of its youth services into new geographic regions in the United States. The Company recorded $1.2 million of goodwill none of which is expected to be deductible for tax purposes. The goodwill was assigned to the youth segment.

The acquisition was accounted for as a purchase in accordance with SFAS No. 141, “Business Combinations.” Under purchase accounting the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values. The Company has included the results of operations in the condensed consolidated statements of operations of the acquisition from the date of the acquisition. Pro forma results of operations have not been presented because the effect of the acquisition is not material.

Prior Period Acquisitions

In connection with an acquisition closed in October 2005, the Company is obligated to make certain additional payments in the amount of up to $2.0 million upon the achievement of certain performance milestones for the year ending October 7, 2007. As of May 11, 2007, the entity has achieved a pro-rata portion of the second year performance milestones and as a result the Company recorded additional goodwill and a liability of $0.6 million, respectively. Any additional payments earned will be paid by the Company in the fourth quarter of 2007.

Certain acquisition agreements acquired in the Aspen Acquisition (as defined below) contain contingent earnout provisions that provide for additional consideration to be paid to the sellers if the results of the entity’s operations exceed negotiated benchmarks. As a result of one of the entities exceeding the benchmark, the Youth segment recorded additional goodwill and a liability of $1.1 million, respectively. The additional consideration consists of a combination of cash and notes payable issued to the seller. The Company expects the cash payment to be made in the third quarter of 2007.

Aspen Acquisition— In November 2006, the Company acquired substantially all the outstanding capital stock of Aspen Education Group, Inc., a California corporation (“Aspen Education Group”) for approximately $273.9 million in cash purchase price consideration, the assumption of approximately $20.6 million of indebtedness as defined per the merger agreement (includes the buy-out of minority interest of $4.2 million), and the payment of costs associated with the acquisition and the related financing of approximately $1.5 million and $10.8 million respectively. Aspen Education Group provides educational services to youth who have demonstrated behavioral issues that have interfered with their performance in school and life. Aspen Education Group offers its programs through its residential division (boarding schools), outdoor division (outdoor education programs) and health living division (weight management programs for children and teenagers). Among other benefits, the Aspen Acquisition offers multiple revenue and cost synergies. The Aspen Acquisition further enhances the Company’s private pay mix and business diversification, thereby reducing business risk from any one aspect of the Company’s operations. In addition, the Company is expected to benefit from increased cross-referral opportunities.

7

The acquisition was accounted for as a purchase and accordingly, the purchase consideration was allocated to the assets and liabilities based on their relative fair values. The consideration remaining was allocated to the Company’s intangible assets with finite lives and is being amortized over that life, as well as to goodwill and identifiable intangible assets with indefinite lives, which will be evaluated on at least an annual basis to determine impairment and adjusted accordingly.

Bain Merger—On February 6, 2006, investment funds managed by Bain Capital Partners, LLC (“Bain Capital”) acquired Health Group for a total cash consideration of approximately $742.3 million (including acquisition and financing transactions related fees and expenses of $28.5 million). As a result of the acquisition, Bain Capital received control of the Company.

The acquisition was accounted for as a purchase and accordingly, the purchase consideration was allocated to the assets and liabilities based on their relative fair values. The consideration remaining was allocated to the Company’s intangible assets with finite lives and is being amortized over that life, as well as to goodwill and identifiable intangible assets with indefinite lives, which will be evaluated on at least an annual basis to determine impairment and adjusted accordingly.

4. BALANCE SHEET COMPONENTS

Balance sheet components at March 31, 2007 and December 31, 2006 consist of the following (in thousands):

	March 31, 2007			December 31, 2006
Other assets:
Capitalized financing costs—net	$	25,893		$	26,899
Deposits		862			1,078
Note receivable and accrued interest		1,093			1,201
Total other assets	$	27,848		$	29,178
Accrued liabilities:
Accrued payroll and related expenses	$	10,842		$	13,227
Accrued vacation		6,057			5,376
Accrued interest		3,823			9,288
Accrued expenses		6,886			6,936
Total accrued liabilities	$	27,608		$	34,827
Other current liabilities:
Deferred revenue	$	19,307		$	15,343
Other liabilities		1,865			5,434
Client deposits		5,720			4,347
Insurance premium financing		2,051			2,817
Total other current liabilities	$	28,943		$	27,941
Accounts receivable:
Accounts receivable	$	40,212		$	41,323
Unbilled client service fees		1,080			717
		41,292			42,040
Less allowance for doubtful accounts		(8,851	)		(8,235	)
Accounts receivable—net	$	32,441		$	33,805

8

The following schedule reflects activity associated with the Company’s allowance for doubtful accounts for the three months ended March 31, 2007 and the year ended December 31, 2006 (in thousands):

	March 31, 2007			December 31, 2006
Allowance for Doubtful Accounts
Balance—beginning of the period	$	8,235		$	4,459
Provision for doubtful accounts		1,503			5,391
Write-off of uncollectible accounts		(887	)		(1,615	)
Balance—end of the period	$	8,851		$	8,235

5. PROPERTY AND EQUIPMENT

Property and equipment at March 31, 2007 and December 31, 2006 consists of the following (in thousands):

	March 31, 2007			December 31, 2006
Land	$	19,031		$	19,031
Building and improvements		42,786			41,886
Leasehold improvements		16,383			12,011
Furniture and fixtures		7,883			7,074
Computer equipment		6,340			5,766
Computer software		4,866			3,078
Motor vehicles		3,651			3,687
Field equipment		1,666			1,423
Construction in progress		3,601			6,208
		106,207			100,164
Less accumulated depreciation		(7,798	)		(5,188	)
Property and equipment—net	$	98,409		$	94,976

Depreciation expense was $2.6 million for the three months ended March 31, 2007, $0.7 million and $0.3 million for the two months ended March 31, 2006 and one month ended January 31, 2006, respectively

6. GOODWILL AND INTANGIBLE ASSETS

Changes to goodwill by segment for the three months ended March 31, 2007 are as follows (in thousands):

	Residential		Outpatient		Youth			Total
Goodwill—December 31, 2006	$	267,631	$	208,179	$	226,615		$	702,425
Goodwill additions (Other Acquisitions)				—		2,260			2,260
Goodwill adjustments		177		—		(1,382	)		(1,205	)
Goodwill—March 31, 2007	$	267,808	$	208,179	$	227,493		$	703,480

The goodwill additions for the Other Acquisitions relate to the acquisitions completed in the current and prior fiscal year. The goodwill adjustments for the prior fiscal year Other Acquisitions and Aspen Acquisition relate primarily to revisions of the original estimates.

9

Intangible assets at March 31, 2007 and December 31, 2006 consist of the following (in thousands):

	Amortization Lives	March 31, 2007			December 31, 2006
Intangible assets subject to amortization:
Referral network	20 years	$	45,400		$	45,400
Accreditations	20 years		24,400			24,400
Curriculum	20 years		9,000			9,000
Government, including Medicaid, contracts	15 years		35,600			35,600
Managed care contracts	10 years		14,400			14,400
Core developed technology	5 years		2,704			2,704
Covenants not to compete	3 years		152			152
Registration rights	2 years		200			200
Student contracts	1 year		2,241			2,241
Less: accumulated amortization			(7,604	)		(4,929	)
Total intangible assets subject to amortization			126,493			129,168
Intangible assets not subject to amortization:
Trademarks and trade names			183,725			183,725
Certificates of need			44,600			44,600
Licenses			43,221			43,221
Total intangible assets not subject to amortization			271,546			271,546
Total intangible assets		$	398,039		$	400,714

Amortization expense of intangible assets subject to amortization was $2.7 million for the three months ended March 31, 2007, $0.7 million and $0.02 million for the two months ended March 31, 2006 and one month ended January 31, 2006, respectively.

Estimated future amortization expense related to the amortizable intangible assets at March 31, 2007 is as follows (in thousands):

Fiscal Year
2007 (remaining 9 months)	$	7,746
2008		8,318
2009		8,293
2010		8,293
2011		7,798
Thereafter		86,045
Total	$	126,493

7. INCOME TAXES

The Company determines income tax expense for interim periods by applying the use of the full year’s estimated effective tax rate in financial statements for interim periods.

The income tax benefit for the three months ended March 31, 2007 was $0.1 million, reflecting an effective tax rate of 40.8%. The income tax expense for the two months ended March 31, 2006 was $0.7 million, reflecting an effective tax rate of 41.2% and the income benefit for the one month ended January 31, 2006 was $12.4 million, reflecting an effective tax rate of 24.2%. The tax benefit for the one month ended January 31, 2006 was primarily the result of $31.9 million of one time acquisition-related expenses that are deductible for tax purposes. There were no material one-time items affecting the effective tax rate for the three and two months ended March 31, 2007 and March 31, 2006, respectively.

The Company currently expects that the effective tax rate during 2007 may be impacted by the revised estimates of the tax deductible portion of the 2006 acquisition related expenses. The Company is currently evaluating the amount and has not completed its final evaluation; therefore, the Company cannot estimate the effect on the 2007 effective tax rate.

10

Adoption of New Accounting Policy

The Company adopted the provisions of FIN 48 on January 1, 2007. The cumulative effect of adopting FIN 48 was a decrease in tax reserves of $1.5 million and an increase of $2.2 million to the January 1, 2007 retained earnings balance. Upon adoption, the liability for income taxes associated with uncertain tax positions at January 1, 2007 was $2.1 million. This liability can be reduced by $0.2 million of offsetting tax benefits associated with the correlative effects of potential state income taxes and other timing adjustments. The net amount of $1.9 million, if recognized, would favorably affect the Company’s effective tax rate. In addition, consistent with the provisions of FIN 48, the Company reclassified $0.7 million of income tax liabilities from current to non-current liabilities because payment of cash is not anticipated within one year of the balance sheet date. These non-current income tax liabilities are recorded in other liabilities in the condensed consolidated balance sheets.

The amount of accrued interest and penalties recorded in income tax receivable in the condensed consolidated balance sheets at January 1, 2007 was $0.3 million. Of this amount, $0.03 million was also reclassified from current to non-current liabilities upon adoption of FIN 48.

With limited exception, the Company is no longer subject to U.S. federal, state and local income tax audits by taxing authorities for years through 2002. In connection with acquisitions during 2006, the Company is completing its evaluation of the deductibility of transaction costs for those acquisitions. The Company’s evaluation is not complete and, therefore, the Company cannot estimate the effect on the 2007 effective tax rate. Such impact will have a FIN 48 component. Due to normal expiry of statute of limitations, the Company expects $1.4 million of unrecognized tax benefits to reverse within the next 12 months.

8. LONG-TERM DEBT

Long-term debt at March 31, 2007 and December 31, 2006 consists of the following (in thousands):

	March 31, 2007			December 31, 2006
Term loans
2006 borrowing arrangements	$	417,179		$	418,227
Revolving line of credit		11,000			3,600
Senior subordinated notes
2006 notes, net of discount of $2,631		197,369			197,295
Seller notes		11,275			7,145
Capital lease obligations		224			261
Total long-term debt		637,047			626,528
Less: current portion		(19,205	)		(10,743	)
Long-term debt—less current portion	$	617,842		$	615,785

Term Loans and Revolving Line of Credit—On November 17, 2006 the Company amended and restated the Credit Agreement (the “Amended and Restated Credit Agreement”). The Amended and Restated Credit Agreement provides for financing of $419.3 million in senior secured term loans and $100.0 million of revolving credit.

Term Loan—Aggregate commitment of $419.3 million matures on February 6, 2013. The term loan is payable in quarterly principal installments of $1.05 million per quarter through December 31, 2012, and the remainder on February 6, 2013. Interest is payable quarterly at 90 day London Interbank Offered Rate (“LIBOR”) plus 2.50% (7.85% at March 31, 2007). The principal balance outstanding at March 31, 2007 was $417.2 million.

Revolving Line of Credit (“Revolver”)—Maximum borrowings not to exceed $100.0 million. At the Company’s option, interest is currently available at the LIBOR plus 2.50% or monthly at the Base Rate (defined as the higher of (a) the prime rate or (b) the overnight federal funds rate plus 50 basis points) plus 1.50%. Principal is payable at the Company’s discretion based on available operating cash balances. The

11

revolving line of credit commitment expires on February 6, 2012. At March 31, 2007, the outstanding balance under the revolving line of credit was $11.0 million. From time to time the Revolver may include one or more swing line loans at the Base Rate or one or more letters of credit (“LCs”). At March 31, 2007, there was no outstanding balance on the swing line loans. LCs outstanding at March 31, 2007 was $3.9 million with interest payable quarterly at 2.50%. The LCs secure various liability and workers’ compensation policies in place for the Company and its subsidiaries

Senior Subordinated Notes—Concurrent with the Bain Merger, the Company issued $200.0 million aggregate principal amount of 10 3/4% Senior Subordinated Notes (the “Notes”) due February 1, 2016. Interest is payable semiannually beginning August 1, 2006. The Notes were issued at a price of 98.511%, resulting in $3.0 million of original issue discount. The Company may redeem some or all of the Notes on or prior to February 1, 2011 at a redemption price equal to 100% of the principal amount of the Notes redeemed plus a “make-whole” premium or at the redemption prices set forth in the indenture governing the Notes. The Company may also redeem up to 35% of the aggregate principal amount of the Notes using the proceeds of one or more equity offerings completed before February 1, 2009. If there is a change of control as specified in the indenture, the Company must offer to repurchase the Notes. The Notes are subordinated to all of the Company’s existing and future senior indebtedness, rank equally with all of the Company’s existing and future senior subordinated indebtedness and rank senior to all of the Company’s existing and future subordinated indebtedness. The Notes are guaranteed on an unsecured senior subordinated basis by all of the Company’s subsidiaries.

Seller Notes—Represents notes payable for amounts owed by Aspen Education Group arising out of achievement of certain earn out obligations per the terms of the underlying purchase agreements and to fund prior acquisitions. Interest rates on these notes range from 6.75% to 10.25%. Principal and interest are payable quarterly through September 2011.

Capital Leases—Principal and interest are payable monthly at various dates through September 2011. Interest rates range from 5.00% to 12.20%.

Interest expense on total debt was $15.2 million for the three months ended March 31, 2007, $6.3 million and $2.5 million for the two months ended March 31, 2006 and one month ended January 31, 2006, respectively.

Interest income was approximately $0.2 million for the three months ended March 31, 2007, $0.0 million in the two months ended March 31, 2006 and one month ended January 31, 2006.

9. COMMITMENTS AND CONTINGENCIES

Litigation—The Company is involved in litigation and regulatory investigations arising in the course of business. After consultation with legal counsel, management estimates that these matters will be resolved without material adverse effect on the Company’s future financial position or results from operations and cash flows.

10. STOCKHOLDER’S EQUITY

Common Stock

The Company’s Amended and Restated Certificate of Incorporation authorizes the Company to issue 1,000 shares of $0.001 par value common stock, all of which are issued and outstanding as of December 31, 2006 and are held by the Parent.

Voting—Each share of common stock is entitled, on all matters submitted for a vote or the consent of the holders of shares of common stock, to one vote.

Capital Contributed by Parent

The Company received a capital contribution of $135.7 million from the Group to fund the Aspen Acquisition. The Group funded such capital contributions by a combination of $36.2 million resulting from the sale of its equity securities to certain of the Group’s equity holders and by the issuance of a PIK loan of $105.0 million issued at 1% original issue discount for net proceeds of $103.9 million. The Group incurred $4.5 million of financing costs in connection with the issuance of the PIK loan which was treated as a reduction in the capital contribution. The interest payable per annum for the PIK loan is 180 day LIBOR plus 7.0% for the first year, 180 day LIBOR plus 7.5% for the second year and 180 day LIBOR plus 8.0% for the years thereafter until the maturity date. Per the PIK loan agreement, the interest is accrued through an increase in the principal amount. The aggregate principal amount inclusive of the accrued interest matures on November 17, 2013. This senior unsecured PIK loan is not guaranteed by the Company or any of its subsidiaries.

12

11. STOCK-BASED COMPENSATION EXPENSE

Adoption of New Accounting Policy

On January 1, 2006, the Company adopted the provisions of Statement of Financial Standards No. 123 (revised 2004), Share-Based Payment (“ SFAS 123(R)”) using the prospective transition method, which requires the application of the accounting standard to awards granted, modified or settled subsequent to the date of adoption. Results from prior periods have not been restated.

The Company’s condensed consolidated financial statements for the three months ended March 31, 2007 and 2006 reflect the effect of SFAS 123(R). Stock option-based compensation expense related to employee stock options granted by CRC Health Group, Inc, (the “Group”) subsequent to the date of adoption recognized under SFAS 123(R) was $1.1 million for the three months ended March 31, 2007, $0.6 million and $0.0 million for the two months ended March 31, 2006 and the one month ended January 31, 2006, respectively. The income tax benefit recognized in the condensed consolidated statements of operations for stock-based compensation expense was $0.4 million and $0.3 million for the three months ended March 31, 2007 and the two months ended March 31, 2006, respectively. There was no stock option-based compensation expense recognized in the condensed consolidated statements of operations for the three months ended March 31, 2007, two months ended March 31, 2006 and one month ended January 31, 2006 related to the options granted prior to the date of adoption of SFAS 123(R). Stock option-based compensation expense of $17.7 million and tax benefit of $7.3 million was recognized in the 2006 Predecessor Company consolidated statement of operations and is included in the acquisition related costs.

2006 Executive Incentive Plan and 2006 Management Incentive Plan

On February 6, 2006, following the Bain Merger, Group adopted the 2006 Executive Incentive Plan and 2006 Management Incentive Plan, or the “Executive Plan” and the “Management Plan,” and collectively, the “Plans.” The Plans provide for the granting of stock options to the Company’s key employees, directors, consultants and advisors. Options granted under the Plans may be either incentive stock options or non-incentive stock options. Options granted under the Plans represent units. One unit consists of nine shares of class A and one share of class L common stock of the Group.

The Company estimated the fair value of share based payments awards using a Black-Scholes valuation model for Management Plan grants and tranches 1 and 3 of the Executive Plan grants. A Monte Carlo simulation approach was used to determine the fair value of the Executive Plan tranche 2 awards. The following assumptions were used to calculate the weighted average fair value of employee stock options granted during the periods presented below.

	Three Months Ended March 31, 2007			Three Months Ended March 31, 2006
Weighted-average estimated fair value of units granted	$	55.65		$	53.38
Expected volatility – tranches 1 and 3 and management awards		48.8	%		57.0	%
Expected volatility – tranche 2		55.1	%		57.0	%
Risk-free interest rate		4.70	%		4.52	%
Expected term – tranches 1 and 3 and management awards in years		6.30			6.50
Expected term – tranche 2 in years		5.58			5.67
Expected dividend to be paid over the option period	$	0.00		$	0.00
Estimated forfeiture rate over the effective vesting period		5	%		5	%

As of March 31, 2007, $19.6 million of total unrecognized compensation expense is expected to be recognized over a weighted average period of 2.1 years.

Activity under the Executive and Management Plans for the three months ended March 31, 2007 is set forth below:

	Options		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (In Years)
Options outstanding at December 31, 2006	6,310,558			9.02	4.81
Activity from January 1 through March 31, 2007
Granted	801,496			10.23	5.00
Exercised	—			—	—
Forfeited/cancelled/expired	(32,484	)		10.05	—
Outstanding—March 31, 2007	7,079,570		$	7.64	4.51
Exercisable—March 31, 2007	1,969,687		$	3.57	4.51

13

12. RELATED PARTY TRANSACTIONS

In connection with the Bain Merger, Bain Capital and the Company’s management entered into a stockholders agreement. The stockholders agreement contains agreements among the parties with respect to the election of the Company’s directors and the directors of the Company’s direct parent company, restrictions on the issuance or transfer of shares, including tag-along rights and drag-along rights, other special corporate governance provisions (including the right to approve various corporate actions), registration rights (including customary indemnification provisions) and call options. Three of the Company’s directors are employees of Bain Capital Partners, LLC, the Company’s principal shareholder.

Upon the consummation of the Bain Merger, the Company entered into a management agreement with an affiliate of Bain Capital Partners, LLC pursuant to which such entity or its affiliates will provide management services. Pursuant to such agreement, an affiliate of Bain Capital Partners, LLC receives an aggregate annual management fee of $2.0 million and reimbursement for out-of-pocket expenses and any additional fees incurred in connection with the provision of services pursuant to the agreement. In addition, pursuant to such agreement, an affiliate of Bain Capital Partners, LLC also received aggregate transaction fees of approximately $7.2 million in connection with services provided by such entity related to the Bain Merger. Of the $7.2 million, approximately $2.9 million were for acquisition related expenses and $4.3 million were for financing related expenses which are capitalized and recorded in other assets. The management agreement has a five year, evergreen term, however, in certain circumstances, such as an initial public offering or change of control of the Group, the Company may terminate the management agreement and buy out its remaining obligations under the agreement to Bain Capital Partners, LLC and affiliates. In addition, the management agreement provides that an affiliate of Bain Capital Partners, LLC may receive fees in connection with certain subsequent financing and acquisition transactions. The management agreement includes customary indemnification provisions in favor of Bain Capital Partners, LLC and its affiliates. The Company under this agreement paid management fees of $0.5 million and $0.3 million during the three months ended March 31, 2007 and two months ended March 31, 2006, respectively, which is included in supplies, facilities and other operating costs.

In addition, under a separate management agreement with two of the former stockholders of the Predecessor Company, the Predecessor Company paid management fees of $0.1 million during the one month ended January 31, 2006, which is included in supplies, facilities and other operating costs. This agreement was terminated as part of the Bain Merger.

In connection with the closing of the Bain Merger on February 6, 2006, and pursuant to a rollover and subscription agreement, certain members of the Company’s management converted options to purchase stock of the Predecessor Company into options to purchase stock of the Group with an aggregate value of $9.1 million.

13. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

As of March 31, 2007, the Company had outstanding $200.0 million aggregate principal amount of Notes due 2016. The Notes are fully and unconditionally guaranteed, jointly and severally on an unsecured senior subordinated basis, by substantially all of the Company’s subsidiaries.

The following supplemental tables present condensed consolidating balance sheets for the Company and its subsidiary guarantors as of March 31, 2007 and December 31, 2006, the condensed consolidating statements of operations for the three months ended March 31, 2007 (Successor Company), two months ended March 31, 2006 (Successor Company) and one month ended January 31, 2006 (Predecessor Company), and the condensed consolidating statement of cash flows for the three months ended March 31, 2007, two months ended March 31, 2006 (Successor Company) and one month ended January 31, 2006 (Predecessor Company).

14

Condensed Consolidating Balance Sheet as of March 31, 2007

(In thousands)

	CRC Health Corporation			Subsidiary Guarantors		Subsidiary Non-Guarantors			Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—		$	3,007	$	159		$	—		$	3,166
Accounts receivable—net of allowance		1			31,890		550						32,441
Prepaid expenses		3,711			3,693		211						7,615
Other current assets		20			2,330		45						2,395
Income taxes receivable		8,193			473								8,666
Deferred income taxes		6,047			1,179								7,226
Total current assets		17,972			42,572		965			—			61,509
PROPERTY AND EQUIPMENT—Net		4,336			92,866		1,207						98,409
GOODWILL					703,480								703,480
INTANGIBLE ASSETS—Net					398,039								398,039
OTHER ASSETS		25,946			1,886		16						27,848
INVESTMENT IN SUBSIDIARIES—At cost		580,141								(580,141	)
TOTAL ASSETS	$	628,395		$	1,238,843	$	2,188		$	(580,141	)	$	1,289,285
LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,303		$	2,082	$	155		$	—		$	5,540
Accrued liabilities		8,796			17,947		865						27,608
Current portion of long-term debt		15,193			4,012								19,205
Other current liabilities		1,837			26,326		780						28,943
Total current liabilities		29,129			50,367		1,800			—			81,296
LONG-TERM DEBT—Less current portion		610,355			7,487								617,842
OTHER LONG-TERM LIABILITIES		865			1,445								2,310
DEFERRED INCOME TAXES		109,087			38,228								147,315
Total liabilities		749,436			97,527		1,800			—			848,763
MINORITY INTEREST					71		86						157
STOCKHOLDER’S EQUITY:
Common stock
Additional paid-in capital(1)		(115,097	)		1,129,095		877			(580,141	)		434,734
(Accumulated deficit) Retained earnings		(5,944	)		12,150		(575	)					5,631
Total stockholder’s equity		(121,041	)		1,141,245		302			(580,141	)		440,365
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	628,395		$	1,238,843	$	2,188		$	(580,141	)	$	1,289,285

(1) Includes intercompany balances

15

Condensed Consolidating Balance Sheet as of December 31, 2006

(In thousands)

	CRC Health Corporation			Subsidiary Guarantors		Subsidiary Non-Guarantors			Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—		$	4,167	$	39		$	—		$	4,206
Accounts receivable—net of allowance		4			33,309		492						33,805
Prepaid expenses		3,977			3,676		22						7,675
Other current assets		152			2,096		13						2,261
Income taxes receivable		6,110			386								6,496
Deferred income taxes		5,873			1,179								7,052
Total current assets		16,116			44,813		566			—			61,495
PROPERTY AND EQUIPMENT—Net		4,258			89,835		883						94,976
GOODWILL					702,425								702,425
INTANGIBLE ASSETS—Net		43			400,671								400,714
OTHER ASSETS		26,953			2,205		20						29,178
INVESTMENT IN SUBSIDIARIES—At cost		577,739								(577,739	)
TOTAL ASSETS	$	625,109		$	1,239,949	$	1,469		$	(577,739	)	$	1,288,788
LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,990		$	2,662	$	62		$	—		$	6,714
Accrued liabilities		13,473			20,544		810						34,827
Current portion of long-term debt		7,793			2,950								10,743
Other current liabilities		332			27,215		394						27,941
Total current liabilities		25,588			53,371		1,266			—			80,225
LONG-TERM DEBT—Less current portion		611,329			4,456								615,785
OTHER LONG-TERM LIABILITIES		90			5,436								5,526
DEFERRED INCOME TAXES		109,992			39,835								149,827
Total liabilities		746,999			103,098		1,266			—			851,363
MINORITY INTEREST					66		185						251
STOCKHOLDER’S EQUITY:
Common stock
Additional paid-in capital(1)		(118,916	)		1,130,185		122			(577,739	)		433,652
(Accumulated deficit) retained earnings		(2,974	)		6,600		(104	)					3,522
Total stockholder’s equity		(121,890	)		1,136,785		18			(577,739	)		437,174
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	625,109		$	1,239,949	$	1,469		$	(577,739	)	$	1,288,788

(1) Includes intercompany balances

16

Condensed Consolidating Statements of Operations

For the Three Months Ended March 31, 2007 (Successor)

(In thousands)

	CRC Health Corporation			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations			Consolidated
NET REVENUE:
Net client service revenue	$	4		$	104,110		$	2,368		$	—		$	106,482
Other revenue		2			1,438			8						1,448
Management fee revenue		12,483									(12,483	)
Net revenue		12,489			105,548			2,376			(12,483	)		107,930
OPERATING EXPENSES:
Salaries and benefits		3,437			50,698			1,173						55,308
Supplies, facilities and other operating costs		1,993			27,181			1,562						30,736
Provision for doubtful accounts		(1	)		1,504									1,503
Depreciation and amortization		579			4,663			50						5,292
Management fee expense					11,929			554			(12,483	)
Total operating expenses		6,008			95,975			3,339			(12,483	)		92,839
INCOME (LOSS) FROM OPERATIONS		6,481			9,573			(963	)					15,091
INTEREST EXPENSE, NET		(14,802	)		(186	)		(1	)					(14,989	)
OTHER INCOME		(337	)		(11	)		(1	)					(349	)
(LOSS) INCOME FROM OPERATIONS BEFORE INCOME TAXES		(8,658	)		9,376			(965	)					(247	)
INCOME TAX (BENEFIT) EXPENSE		(3,533	)		3,826			(394	)					(101	)
MINORITY INTEREST IN LOSS OF A SUBSIDIARY								(100	)					(100	)
NET (LOSS) INCOME	$	(5,125	)	$	5,550		$	(471	)	$	—		$	(46	)

17

Condensed Consolidating Statements of Operations

For the Two Months Ended March 31, 2006 (Successor)

(In thousands)

	CRC Health Corporation			Subsidiary Guarantors		Eliminations			Consolidated
NET REVENUE:
Net client service revenue	$	7		$	37,803	$	—		$	37,810
Other revenue		2			790					792
Management fee revenue		6,425					(6,425	)
Net revenue		6,434			38,593		(6,425	)		38,602
OPERATING EXPENSES:
Salaries and benefits		1,867			16,627					18,494
Supplies, facilities and other operating costs		1,111			9,208					10,319
Provision for doubtful accounts		11			826					837
Depreciation and amortization		76			1,383					1,459
Management fee expense					6,425		(6,425	)
Total operating expenses		3,065			34,469		(6,425	)		31,109
INCOME FROM OPERATIONS		3,369			4,124					7,493
INTEREST EXPENSE, NET		(6,319	)		3					(6,316	)
OTHER INCOME		566								566
(LOSS) INCOME FROM OPERATIONS BEFORE INCOME TAXES		(2,384	)		4,127					1,743
INCOME TAX (BENEFIT) EXPENSE		(982	)		1,700					718
NET (LOSS) INCOME	$	(1,402	)	$	2,427	$	—		$	1,025

18

Condensed Consolidating Statements of Operations

For the One Month Ended January 31, 2006 (Predecessor)

(In thousands)

	CRC Health Corporation			Subsidiary Guarantors		Eliminations			Consolidated
NET REVENUE:
Net client service revenue	$	5		$	19,355	$	—		$	19,360
Other revenue		1			489					490
Management fee revenue		1,110					(1,110	)
Net revenue		1,116			19,844		(1,110	)		19,850
OPERATING EXPENSES:
Salaries and benefits		666			8,599					9,265
Supplies, facilities and other operating costs		324			4,237					4,561
Provision for doubtful accounts					285					285
Depreciation and amortization		40			321					361
Acquisition related costs		43,710								43,710
Management fee expense					1,110		(1,110	)
Total operating expenses		44,740			14,552		(1,110	)		58,182
(LOSS) INCOME FROM OPERATIONS		(43,624	)		5,292					(38,332	)
INTEREST EXPENSE, NET		(2,505	)							(2,505	)
OTHER FINANCING COSTS		(10,655	)							(10,655	)
OTHER INCOME		55								55
(LOSS) INCOME FROM OPERATIONS BEFORE INCOME TAXES		(56,729	)		5,292					(51,437	)
INCOME TAX (BENEFIT) EXPENSE		(13,723	)		1,279					(12,444	)
NET (LOSS) INCOME	$	(43,006	)	$	4,013	$	—		$	(38,993	)

19

Condensed Consolidating Statements of Cash Flows

For the Three Months Ended March 31, 2007 (Successor)

(In thousands)

	CRC Health Corporation			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used in) provided by operating activities	$	(2,670	)	$	3,177		$	(263	)	$	—	$	244
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment—net		(657	)		(4,670	)		(648	)				(5,975	)
Proceeds from sale of property and equipment					26								26
Acquisition of businesses, net of cash acquired		(1,082	)										(1,082	)
Prior period acquisition adjustments					(226	)							(226	)
Net cash used in investing activities		(1,739	)		(4,870	)		(648	)		—		(7,257	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany transfers		(1,600	)		569			1,031
Debt financing costs		(15	)										(15	)
Net borrowings under revolving line of credit		7,400											7,400
Repayments of long-term debt		(1,376	)		(36	)							(1,412	)
Net cash provided by financing activities		4,409			533			1,031			—		5,973
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS					(1,160	)		120					(1,040	)
CASH AND CASH EQUIVALENTS—Beginning of period					4,167			39					4,206
CASH AND CASH EQUIVALENTS—End of period	$	—		$	3,007		$	159		$	—	$	3,166

20

Condensed Consolidating Statements of Cash Flows

For the Two Months Ended March 31, 2006 (Successor)

(In thousands)

	CRC Health Corporation			Subsidiary Guarantors			Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used in) provided by operating activities	$	(23,151	)	$	3,898		$	—	$	(19,253	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment—net		(95	)		(1,196	)				(1,291	)
Proceeds from sale of property and equipment					3					3
Payment of purchase price to former shareholders		(429,190	)							(429,190	)
Net cash used in investing activities		(429,285	)		(1,193	)		—		(430,478	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Equity contribution from Bain Capital		294,475								294,475
Payment of transaction related costs		(5,354	)							(5,354	)
Intercompany transfers		1,873			(1,873	)
Debt financing costs		(22,105	)							(22,105	)
Net borrowings under revolving line of credit		(4,500	)							(4,500	)
Proceeds from issuance of long-term debt		442,022								442,022
Repayments of long-term debt		(253,975	)							(253,975	)
Net cash provided by (used in) financing activities		452,436			(1,873	)		—		450,563
INCREASE IN CASH AND CASH EQUIVALENTS					832					832
CASH AND CASH EQUIVALENTS—Beginning of period					423					423
CASH AND CASH EQUIVALENTS—End of period	$	—		$	1,255		$	—	$	1,255

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Condensed Consolidating Statements of Cash Flows

For the One Month Ended January 31, 2006 (Predecessor)

(In thousands)

	CRC Health Corporation			Subsidiary Guarantors			Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used in) provided by operating activities	$	(3,563	)	$	4,764		$	—	$	1,201
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment—net		(30	)		(286	)				(316	)
Proceeds from sale of property and equipment					1					1
Net cash used in investing activities		(30	)		(285	)		—		(315	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany transfers		4,187			(4,187	)
Stock options exercised		7								7
Debt financing costs		(547	)							(547	)
Repayments of revolver line of credit		(5,000	)							(5,000	)
Net cash used in financing activities		(1,353	)		(4,187	)		—		(5,540	)
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS		(4,946	)		292					(4,654	)
CASH AND CASH EQUIVALENTS—Beginning of period		4,946			131					5,077
CASH AND CASH EQUIVALENTS—End of period	$	—		$	423		$	—	$	423

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14. SEGMENT INFORMATION

In accordance with the criteria of SFAS No. 131 the Company has determined that it operates three reportable segments: (1) residential treatment division (“Residential”) (2) outpatient treatment division (“Outpatient”) and (3) youth treatment division (“Youth”). The Company has aggregated operations into three reportable segments based on the characteristics of the services provided. The reportable segments of Residential and Outpatient have not changed as a result of the consummation of the Bain Merger. A new reportable segment Youth has been formed after the Aspen Acquisition.

Reportable segments are based upon the Company’s internal organizational structure, the manner in which the operations are managed, the criteria used by the Company’s chief operating decision-maker to evaluate segment performance and the availability of separate financial information. The Company’s chief operating decision-maker is its Chief Executive Officer.

The financial information used by the Company’s chief operating decision-maker includes net revenue, operating expenses, income (loss) from operations and capital expenditures.

Residential—The Residential segment provides chemical dependency and other behavioral health disorders treatment services both on an inpatient, residential basis and on an outpatient basis. Services offered in this segment include: inpatient/residential care, partial/day treatment, intensive outpatient groups, therapeutic living/half-way house environments, aftercare centers and detoxification. As of March 31, 2007, the Residential segment provided services to patients at 45 facilities located in 12 states.

Outpatient—The Outpatient segment provides substance abuse treatment services on an outpatient basis. Substantially all of the services are provided to individuals addicted to heroin and other opiates, including prescription painkillers such as oxycodene. Services include medication assisted treatment, counseling and physical examination. As of March 31, 2007, 24 of our 59 clinics were certified to provide at least one additional comprehensive outpatient substance abuse treatment service. Such additional services include outpatient detoxification and intensive outpatient services for individuals addicted to drugs or alcohol. As of March 31, 2007, the Outpatient segment provided services to patients at 59 facilities located in 18 states.

Youth—The Youth segment provides a wide variety of therapeutic and educational programs through settings and solutions that match individual needs with the appropriate learning and therapeutic environment. Its programs are offered in therapeutic boarding schools, experiential outdoor education programs, weight-loss residential schools and summer weight-loss camps. As of March 31, 2007, the Youth segment operates 35 educational facilities in 12 states and 1 in the United Kingdom.

Corporate/Other—In addition to the three reportable segments as described above, the Company has activities classified as Corporate/Other which represent revenue and expenses associated with eGetgoing, an online internet startup and certain corporate-level operating general and administrative costs (i.e., expenses associated with the corporate offices in Cupertino, California, which provides management, financial, human resources and information system support) and stock option-based compensation expense that are not allocated to the segments.

Major Customers—No single customer represented 10% or more of the Company’s total net revenue in any period presented.

Geographic Information—The Company’s business operations are primarily in the United States.

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Selected segment financial information for the Company’s reportable segments were as follows (in thousands):

	Successor						Predecessor
	Three Months Ended March 31, 2007			Two Months Ended March 31, 2006			One Month Ended January 31, 2006
Net revenue:
Residential	$	47,323		$	24,106		$	12,693
Outpatient		24,796			14,393			7,125
Youth		35,688			—			—
Corporate/other		123			103			32
Total consolidated net revenue	$	107,930		$	38,602		$	19,850
Operating expenses:
Residential	$	35,184		$	18,378		$	9,112
Outpatient		16,852			9,727			4,447
Youth		34,797			—			—
Corporate/other		6,006			3,004			44,623
Total consolidated operating expenses	$	92,839		$	31,109		$	58,182
Income (loss) from operations:
Residential	$	12,139		$	5,728		$	3,581
Outpatient		7,944			4,666			2,678
Youth		891			—			—
Corporate/other		(5,883	)		(2,901	)		(44,591	)
Total consolidated income (loss) from operations	$	15,091		$	7,493		$	(38,332	)
Income (loss) from continuing operations before income taxes:
Total consolidated income (loss) from operations	$	15,091		$	7,493		$	(38,332	)
Interest expense, net		(14,989	)		(6,316	)		(2,505	)
Other financing costs		—			—			(10,655	)
Other income		(349	)		566			55
Total consolidated (loss) income from continuing operations before income taxes	$	(247	)	$	1,743		$	(51,437	)
Capital expenditures:
Residential	$	3,304		$	858		$	336
Outpatient		330			577			45
Youth		1,683			—			—
Corporate/other		658			168			30
Total consolidated capital expenditures	$	5,975		$	1,603		$	411

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	March 31, 2007		December 31, 2006
Total assets:
Residential	$	547,131	$	545,110
Outpatient		330,263		331,491
Youth		363,313		361,319
Corporate/other		48,578		50,868
Total consolidated assets	$	1,289,285	$	1,288,788

15. SUBSEQUENT EVENT

Effective April 16, 2007, the Company entered into an Amendment No. 2 (“Amendment”) and amends the Company’s Amended and Restated Credit Agreement dated November 17, 2006. Per the Amendment, the Term Loan interest is payable quarterly at 90 day LIBOR plus 2.25% (previously 2.50%); provided that on and after such time the Company’s corporate rating from Moody’s is at least B1 then the interest is payable quarterly at 90 day LIBOR plus 2.0%.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and the related notes that appear elsewhere in this Quarterly Report.

Unless the context otherwise requires, in this management’s discussion and analysis of financial condition and results of operations, the terms “our company,” “we,” “us,” “the Company” and “our” refer (i) for periods prior to the consummation of the Transactions, to CRC Health Group, Inc. and its consolidated subsidiaries and (ii) for periods following the consummation of the Transactions, to CRC Health Corporation and its consolidated subsidiaries following the mergers described below under “The Transactions.”

OVERVIEW

We are a leading provider of substance abuse treatment services and youth treatment services in the United States. We also provide treatment services for other addiction diseases and behavioral disorders such as eating disorders. We deliver our substance abuse and behavioral disorder treatment services through our residential and outpatient treatment programs, which we refer to as our residential and outpatient treatment divisions. We deliver our youth treatment services through our residential schools, wilderness programs and weight loss programs, which we refer to as our youth treatment division or Aspen Education Group. We have three reporting segments: residential treatment division, outpatient treatment division and youth treatment division. Our residential treatment division, which currently operates 28 inpatient and 17 outpatient facilities in 12 states, treats patients for addiction to alcohol and drugs and other behavioral health disorders. As of March 31, 2007, our residential treatment division treated approximately 1,450 patients per day. Our outpatient treatment division, which currently operates 59 outpatient treatment clinics in 18 states, provides services to individuals addicted to opiates, including heroin and prescription painkillers such as oxycodone. As of March 31, 2007, our outpatient treatment programs treated approximately 24,500 patients per day. Aspen Education Group currently operates 35 education facilities in 12 states and 1 facility in the United Kingdom and enrolled approximately 1,000 new students during the three months ended March 31, 2007. Activities classified as “Corporate/other” represent revenue and expenses associated with eGetgoing, an online internet startup, and general and administrative expenses (i.e., expenses associated with our corporate offices in Cupertino, California, which provides management, financial, human resource and information system support) and stock option-based compensation expense that are not allocated to the segments.

The Transactions

On February 6, 2006, investment funds managed by Bain Capital Partners, LLC (“Bain Capital”) acquired CRC Health Group, Inc. for a total cash consideration of approximately $742.3 million (including acquisition and financing transactions related fees and expenses of $28.5 million). As a result of the acquisition, Bain Capital received control of the Company. We refer to our acquisition by Bain Capital and the related financings as the “Transactions.”

Basis of Presentation

As a result of the Transactions on February 6, 2006, a new basis of accounting has begun. However, for accounting purposes and to coincide with our normal financial account closing dates, we have utilized February 1, 2006 as the effective date of the Transactions. For the purpose of presenting a comparison of our 2007 operating results to 2006, we have presented the three months ended March 31, 2006 as the mathematical addition of our operating results for January 2006 (“Predecessor Company”) to the operating results of the two months ended March 31, 2006 (“Successor Company”). This approach is not consistent with GAAP and may yield results that are not strictly comparable on a period-to-period basis primarily due to the impact of purchase accounting entries recorded as a result of the Transactions. For purposes of this management’s discussion and analysis of financial condition and results of operations, however, management believes that it is the most meaningful way to present our results of operations for the three months ended March 31, 2006.

Acquisitions

2007 Acquisitions

In the three months ended March 31, 2007, we completed one acquisition and paid approximately $1.3 million in cash, including acquisition related expenses. The acquisition is intended to expand our range of youth treatment services into new geographic regions in the United States. This acquisition is not expected to materially impact our results of operations.

2006 Acquisitions

In November 2006, we acquired all of the outstanding capital stock of Aspen Education Group for approximately $279.5 million in total purchase consideration, including acquisition related expenses of $1.5 million. We refer to this acquisition as the Aspen Acquisition. We believe Aspen Education Group is the largest for-profit provider of therapeutic

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educational programs to troubled youth and its offerings include boarding schools, experiential outdoor education programs, weight loss residential high schools and summer weight loss camps. The Aspen Acquisition is intended to diversify our business into other service offerings and geographic regions. This acquisition will further enhance our overall self payor mix revenue and offers multiple revenue and cost synergies.

In 2006, in addition, to the Aspen Acquisition, we completed five other acquisitions for which we paid approximately $36.6 million in cash, including acquisition related expenses. These acquisitions are intended to expand our range of treatment programs into new geographic regions in the United States. In addition, they contribute to the continued building of a nationwide network of specialized behavioral care services.

SUMMARY

We generate revenue by providing substance abuse treatment services and youth treatment services in the United States. We also generate revenue by providing treatment services for other specialized behavioral disorders. Revenue is recognized when services are provided. During the three months ended March 31, 2007, we generated 86.2% of our net revenue from non-governmental sources, including 71.3% from self payors and 14.9% from commercial payors, respectively. Substantially all of our government program net revenue was received from multiple counties and states under Medicaid and similar programs.

In 2007, our consolidated same-facility net revenue increased by 5.9% compared to the consolidated same-facility net revenue in 2006. “Same-facility” refers to the comparison of each facility owned during 2007 with the results for the comparable period in 2006.

Our operating expenses include salaries and benefits, supplies, facilities and other operating costs, provision for doubtful accounts, depreciation and amortization and acquisition related costs. Operating expenses for our residential, outpatient and youth treatment divisions exclude corporate level general and administrative costs (i.e., expenses associated with our corporate offices in Cupertino, California, which provide management, financial, human resources and information systems support), stock option-based compensation expense and expenses associated with eGetgoing.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The accompanying discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). We have based our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our senior management has reviewed our critical accounting policies and their application in the preparation of our financial statements and related disclosures and discussed the development, selection and disclosure of significant estimates. To the extent that actual results differ from those estimates, our future results of operations may be affected. Management believes that there have not been any significant changes during the three months ended March 31, 2007 to the items that we have previously reported in our critical accounting policies in management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2006.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment to FASB Statement No. 115 (“SFAS 159”). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. Other eligible items include firm commitments for financial instruments that would otherwise not be recognized at inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to provide the warranty goods or services. If fair value is elected, any upfront costs and fees related to the item must be recognized in earnings and cannot be deferred, e.g., debt issue costs. The fair value election is irrevocable and may generally be made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to fair value. At the adoption date, unrealized gains and losses on existing items for which fair value has been elected are reported as a cumulative adjustment to beginning retained earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are required to adopt SFAS 159 on January 1, 2008. We are currently evaluating the effect of the adoption of SFAS 159 will have on our condensed consolidated financial statements.

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In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute; however SFAS 157 does not apply to SFAS 123(R). SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are required to adopt SFAS 157 on January 1, 2008. We are currently evaluating the effect of the adoption of SFAS 157 will have on our condensed consolidated financial statements.

We adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”) on January 1, 2007. FIN 48 clarifies the accounting and reporting for uncertainties in income tax law recognized in an enterprise’s financial statements in accordance with SFAS No. 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in income tax returns. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. See Note 7 to the condensed consolidated financial statements for additional information, including the effects of adoption on the company’s condensed consolidated statement of balance sheet.

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RESULTS OF OPERATIONS

The following tables illustrate our results of operations by segment for the quarters ended March 31, 2007 and 2006 (dollars in thousands, except for percentages; percentages are calculated as percentage of total net revenue). Each period has a different basis of accounting and, as a result, they are not comparable. For the purpose of presenting a comparison of our 2007 results to 2006, we have presented the quarter ended March 31, 2006 as the mathematical addition of our operating results for January 2006 (“Predecessor Company”) to the operating results of February and March 2006 (“Successor Company”). This approach is not consistent with U.S. GAAP and may yield results that are not strictly comparable on a period-to-period basis primarily due to the impact of purchase accounting entries recorded as a result of the Transactions. For purposes of this management’s discussion and analysis of financial condition and results of operations, however, management believes that it is the most meaningful way to present our results of operations for the quarter ended March 31, 2006.

	Three Months Ended March 31,
	2007			%		2006			%
Net revenue:
Residential treatment	$	47,323		43.8	%	$	36,799		63.0	%
Outpatient treatment		24,796		23.0	%		21,518		36.8	%
Youth treatment		35,688		33.1	%		—		0.0	%
Corporate / other		123		0.1	%		135		0.2	%
Net revenue		107,930		100.0	%		58,452		100.0	%
Operating expenses:
Residential treatment		35,184		32.6	%		27,490		47.0	%
Outpatient treatment		16,852		15.6	%		14,174		24.2	%
Youth treatment		34,797		32.2	%		—		0.0	%
Corporate / other		6,006		5.6	%		47,627		81.5	%
Total operating expenses		92,839		86.0	%		89,291		152.7	%
Income (loss) from operations:
Residential treatment		12,139		11.2	%		9,309		16.0	%
Outpatient treatment		7,944		7.4	%		7,344		12.6	%
Youth treatment		891		0.9	%		—		0.0	%
Corporate / other		(5,883	)	-5.5	%		(47,492	)	-81.3	%
Income (loss) from operations		15,091		14.0	%		(30,839	)	-52.7	%
Interest expense, net		(14,989	)				(8,821	)
Other financing costs		—					(10,655	)
Other (loss) income		(349	)				621
Loss from operations before income taxes		(247	)				(49,694	)
Income tax benefit		(101	)				(11,726	)
Minority interest in loss of a subsidiary		(100	)				—
Net loss	$	(46	)			$	(37,968	)

Quarter Ended March 31, 2007 Compared to Quarter Ended March 31, 2006

Consolidated net revenue increased $49.5 million, or 84.6%, to $107.9 million in the quarter ended March 31, 2007 from $58.5 million in the quarter ended March 31, 2006. Of the $49.5 million increase, the youth treatment division contributed $35.7 million and the remaining net revenue growth was driven by net revenue increases of $10.5 million, or 28.6% and $3.3 million, or 15.2%, in our residential and outpatient treatment divisions, respectively. Of the $10.5 million and $3.3 million net revenue increases in the residential and outpatient treatment divisions, respectively, $7.7 million and $1.4 million, respectively was contributed by the 2006 acquisitions and the Transactions that were not included in results of operations for the first quarter of 2006. In addition, same-facility revenue increases in residential and outpatient treatment divisions of $2.3 million or 6.1% and $1.2 million or 5.5%, respectively, contributed to the net revenue growth. Our same-facility residential growth was driven in part by a 4.6% increase in patient census and a 1.4% increase in revenue per patient day. Outpatient treatment same-facility net revenue increase was primarily attributable to an increase in the number of patients receiving treatment at our outpatient treatment clinics. On a same-facility basis, outpatient treatment clinic census increased 3.9% from an average daily census of 21,030 in the first quarter of 2006 to an average daily census of 21,856 in the first quarter of 2007.

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Consolidated operating expenses increased $3.5 million, or 4.0%, to $92.8 million in the quarter ended March 31, 2007 from $89.3 million in the quarter ended March 31, 2006. The increases in our residential treatment and outpatient treatment division operating expenses before divisional administration expenses were $6.6 million or 25.2% and $2.3 million or 18.8%, respectively. The increase in residential treatment operating expenses was mainly attributable to $4.9 million in expenses related to the 2006 acquisitions and partially attributable to a $1.4 million, or 5.2%, same-facility increase in operating expenses. The increase in outpatient treatment operating expenses of $0.8 million or 86.4% was attributable to start-up facilities and $0.7 million or 6.4% was attributable to same-facilities. Division administration expenses increased $1.1 million or 88.2%, in our residential treatment division and increased $0.4 million or 19.7% in our outpatient treatment division. The youth treatment operating expenses of $34.8 million are attributable mainly to salaries and wages and other general operating expenses. Corporate/other expenses decreased $41.6 million or 87.4%. Expressed as a percentage of consolidated net revenue, corporate/other expenses decreased to 5.6% in 2007 compared to 81.5% in 2006. The corporate/other expenses in 2006 was primarily attributable to one-time expenses of $43.7 million related to the Transactions and the corporate/other expenses in 2007 was not impacted by such material one-time expenses.

Our consolidated operating margin was 14.0% in the quarter ended March 31, 2007 compared to (52.7) % in the quarter ended March 31, 2006. One-time expenses of $43.7 million related to the Transactions impacted the first quarter ended March 31, 2006 operating margin. The first quarter ended March 31, 2007 operating margin was not impacted by any material one-time expenses. On a same-facility basis, our consolidated operating margin increased to 36.4% in the quarter ended March 31, 2007, as compared to 36.2% in the quarter ended March 31, 2006.

Our consolidated net loss decreased by $37.9 million to $0.05 million in the quarter ended March 31, 2007 compared to $38.0 million in the first quarter ended March 31, 2006. The overall decrease in net loss in the quarter ended March 31, 2007 was mainly due to the increase in income from operations of $45.9 million, offset in part by, an increase in interest expense of $6.2 million resulting mainly from the additional borrowings related to the Aspen acquisition in November 2006.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity for operating activities are payments from self pay patients, students, commercial payors and government programs for treatment services. We receive most of our cash from self payors in advance or upon completion of treatment. Cash payment from commercial payors and government programs is typically received upon the collection of accounts receivable, which are generated upon delivery of treatment services.

Working Capital

Working capital is defined as total current assets, including cash, less total current liabilities, including the current portion of long-term debt.

We had negative working capital of $19.8 million at March 31, 2007 and $18.7 million at December 31, 2006, respectively. The decrease in working capital from December 31, 2006 to March 31, 2007 was primarily attributable to increase in the current portion of long-term debt of $8.5 million resulting from $7.4 million of increase in borrowings in the three months ended March 31, 2007 under the revolving line of credit, which were used to pay the earn outs related to the Aspen historical acquisition of $4.5 million and the interest payment on the long-term debt. The increase in current debt was partially offset by other changes in working capital accounts.

Sources and Uses of Cash

	Three Months Ended March, 31,
	2007			2006
	(In thousands)
Net cash provided by (used in) operating activities	$	244		$	(18,052	)
Net cash used in investing activities		(7,257	)		(430,793	)
Net cash provided by financing activities		5,973			445,023
Net decrease in cash	$	(1,040	)	$	(3,822	)

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Cash provided by operating activities was $0.2 million in the three months ended March 31, 2007, compared to cash used in operating activities of $18.1 million in the three months ended March 31, 2006. The cash used in operating activities for the three months ended March 31, 2006 was primarily due to the net loss in the January 2006 Predecessor Company statement of operations resulting from one-time acquisition related expenses incurred in connection with the Transactions.

Cash used in investing activities was $7.2 million in the three months ended March 31, 2007, compared to $430.8 million in the three months ended March 31, 2006. The cash used for investing activities during the three months ended March 31, 2006 was due primarily to the payment of the purchase price to former shareholders in connection with the Transactions.

Cash provided by financing activities was $6.0 million in the three months ended March 31, 2007, compared to $445.0 million in the three months ended March 31, 2006. The cash provided from financing activities in the three months ended March 31, 2006 was due primarily to an equity contribution of $294.5 million from investment funds managed by Bain Capital Partners, LLC and the increase in net issuances of long-term debt of $188.0 million.

Financing and Liquidity

We intend to fund our ongoing operations through cash generated by operations, funds available under the revolving portion of our new senior secured credit facility and existing cash and cash equivalents. As of March 31, 2007, our senior secured credit facility is comprised of a $417.2 million senior secured term loan facility and a $100.0 million revolving credit facility, of which $11.0 million was issued and outstanding at March 31, 2007. In addition, the revolving credit facility had approximately $3.9 million of letters of credit issued and outstanding at March 31, 2007. As part of the Transactions, we issued $200.0 million in aggregate principal amount of senior subordinated notes. We anticipate that cash generated by current operations, the remaining funds available under the revolving portion of our new senior secured credit facility and existing cash and cash equivalents will be sufficient to meet working capital requirements, service our debt and finance capital expenditures over the next twelve months.

In addition, we may expand existing residential treatment and outpatient treatment facilities and build or acquire new facilities. Management continually assesses our capital needs and will likely seek additional financing, including debt or equity, to fund potential acquisitions or for other corporate purposes. In negotiating such financing, there can be no assurance that we will be able to raise additional capital on terms satisfactory to us. Failure to obtain additional financing on reasonable terms could have a negative effect on our plans to acquire additional residential treatment facilities, outpatient treatment clinics and youth treatment facilities. We expect to spend an approximately $5.0 to $8.0 million for maintenance related expenditure and an additional $20.0 to $30.0 million over the next 12 months for expansion projects, systems upgrades and other related initiatives.

Under the terms of our borrowing arrangements, we are required to comply with various covenants, including the maintenance of certain financial ratios. As of March 31, 2007, we are in compliance with all such covenants.

Effective April 16, 2007, the Company entered into an Amendment No. 2 (“Amendment”) and amends the Company’s Amended and Restated Credit Agreement dated November 17, 2006. Per the Amendment, the Term Loan interest is payable quarterly at 90 day LIBOR plus 2.25%; provided that on and after such time the Company’s corporate rating from Moody’s is at least B1 then the interest is payable quarterly at 90 day LIBOR plus 2.0%

Funding Commitments

In connection with an acquisition closed in October 2005, we are obligated to make certain additional payments in the amount of up to $2.0 million upon the achievement of certain performance milestones for the second year period ending October 2007. As of May 11, 2007, the entity has achieved a pro-rata portion of the second year performance milestones and as a result we recorded additional goodwill and a liability of $0.6 million, respectively. Any additional payments earned will be paid by us in the fourth quarter of 2007.

Certain acquisition agreements acquired in the acquisition of Aspen contain contingent earnout provisions that provide for additional consideration to be paid to the sellers if the results of the entity’s operations exceed negotiated benchmarks. As a result of one of the entities exceeding the benchmark, the Youth segment recorded additional liability of $2.3 million, of which $1.1 million was incurred during the three months ended March 31, 2007. The additional consideration consists of a combination of cash and notes payable issued to the seller. The Company expects the cash payment to be made in the third quarter of 2007.

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Item 3. Quantitative and Qualitative Disclosure about Market Risk

For quantitative and qualitative disclosures about market risk affecting the Company, see “Quantitative and Qualitative Disclosure about Market Risk” in Item 7A of Part II, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, which is incorporated herein by reference. Our exposure to market risk has not changed materially since December 31, 2006.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report. Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that material information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

The company’s management, including the CEO and CFO, does not expect that our Disclosure Controls or our internal control over financial reporting will prevent or detect all error 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. 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. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or 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 on 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. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

32

PART II. OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes to the factors disclosed in Item 1A Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2006.

Item 6. Exhibits

The Exhibit Index beginning on page 35 of this report sets forth a list of exhibits.

33

SIGNATURE

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

Date: May 15, 2007

CRC HEALTH CORPORATION
(Registrant)
By	/s/ KEVIN HOGGE
	Kevin Hogge,
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer and duly authorized signatory)

34

CRC HEALTH CORPORATION

EXHIBIT INDEX

4.1e	Form of Fifth Supplemental Indenture dated as of April 27, 2007, by and among CRC Health Corporation, the Guarantors named therein, the New Guarantors named therein and U.S. Bank National Association, as Trustee, with respect to the 10  3/4% Senior Subordinated Notes due 2016 ‡
10.1d	Form of AMENDMENT NO. 2 TO CREDIT AGREEMENT (“Amendment”) entered into as of April 16, 2007, among CRC Health Group, Inc., CRC Health Corporation, Citibank, N.A., as administrative agent, collateral agent, swing line lender and L/C issuer, each lender from time to time party thereto, JPMorgan, Chase Bank, N.A., as Syndication Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as documentation agent. ‡
10.2f	Form of SUPPLEMENT NO. 6 dated as of April 27, 2007, to the Security Agreement dated as of February 6, 2006 among CRC Health Corporation (f/k/a CRC Health Group, Inc.), CRC Health Group, Inc. (f/k/a/ CRCA Holdings, Inc.), and the Subsidiaries of the Borrower identified therein and Citibank, N.A., as collateral Agent for the Secured Parties, as defined therein. ‡
10.3f	Form of SUPPLEMENT NO. 6 dated as of April 27, 2007, to the Guarantee Agreement dated as of February 6, 2006, among CRC Health Group, Inc., CRC Health Corporation, the Subsidiaries of the Borrower, as defined herein and Citibank, N.A., as Administrative Agent. ‡
31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer ‡
31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer and Principal Accounting Officer ‡
32.1	Section 1350 Certification of Principal Executive Officer †
32.2	Section 1350 Certification of Principal Financial Officer and Principal Accounting Officer †

‡ Filed herewith.

† Furnished herewith.

35

EX-4.1(E)

Exhibit 4.1e

FIFTH SUPPLEMENTAL INDENTURE

THIS FIFTH SUPPLEMENTAL INDENTURE dated as of April 27, 2007 among CRC Health Corporation, a Delaware corporation (the “Company”), the Guarantors, Camp Huntington Inc., a New York corporation (the “New Guarantor”) and U.S. Bank National Association, as trustee (the “Trustee”).

WHEREAS, the Company and the Guarantors have heretofore executed and delivered to the Trustee an indenture dated as of February 6, 2006 (the “Indenture”), providing for the issuance of $200 million aggregate principal amount of the Company’s 10.75% Senior Subordinated Notes due 2016 (the “Notes”), as supplemented by the First Supplemental Indenture, dated as of July 7, 2006 (the “First Supplemental Indenture”), the Second Supplemental Indenture, dated as of September 28, 2006 (the “Second Supplemental Indenture”), the Third Supplemental Indenture, dated as of October 24, 2006 (the “Third Supplemental Indenture”), and the Fourth Supplemental Indenture, dated as of November 17, 2006 (the “Fourth Supplemental Indenture”);

WHEREAS, the Company and the Guarantors propose to further amend and supplement the Indenture to join the New Guarantor, an indirect subsidiary of the Company, as a party to the Indenture, as a Guarantor thereunder;

WHEREAS, pursuant to Section 8.01 of the Indenture, the Company and the Trustee may amend, waive or supplement the Indenture, the Notes or the Guarantees without the consent of any Holders to make any change that would provide additional rights or benefits to the holders of Notes or that does not adversely affect the legal rights under the Indenture of any such holder;

WHEREAS, the Company, each Guarantor and the New Guarantor have been authorized by their respective board of directors, managers, members, partners, or general partners, as applicable, to enter into this Fifth Supplemental Indenture;

WHEREAS, all other acts and proceedings required by law, by the Indenture and by the respective certificates of incorporation, certificates of formation, limited liability company agreements, partnership agreements, limited partnership agreements, by-laws and other organizational documents of the Company, each Guarantor and the New Guarantor to make this Fifth Supplemental Indenture a valid and binding agreement for the purposes expressed herein, in accordance with its terms, have been duly performed;

WHEREAS, pursuant to Section 8.06 of the Indenture, the Trustee is authorized to execute and deliver this Fifth Supplemental Indenture;

WHEREAS, the Company hereby requests that the Trustee execute and deliver this Fifth Supplemental Indenture;

NOW, THEREFORE, for in consideration of the premises herein contained and in order to effect the proposed amendment to join the New Guarantor to the Indenture pursuant to Section 8.01 of the Indenture, the Company, the New Guarantor and the Guarantors agree with the Trustee as follows:

ARTICLE I

Amendment of Indenture

1.1. Amendment of Indenture. As of the date hereof, this Fifth Supplemental Indenture amends the Indenture by joining the New Guarantor as a party to the Indenture, as a Guarantor thereunder.

1.2. Execution and Delivery of Note Guarantee. Upon the effectiveness of this Fifth Supplemental Indenture, the New Guarantor agrees that a notation of its Guarantee substantially in the form attached as Exhibit G to the Indenture, will be endorsed by a duly authorized officer of the New Guarantor on each Note authenticated and delivered by the Trustee under the Indenture.

ARTICLE II

Miscellaneous Provisions

2.1. Instruments to be Read Together. This Fifth Supplemental Indenture is an indenture supplemental to and in implementation of the Indenture, and said Indenture, the First Supplemental Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture the Fourth Supplemental Indenture and this Fifth Supplemental Indenture shall henceforth be read together.

2.2. Confirmation. The Indenture as amended and supplemented by the First Supplemental Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture, the Fourth Supplemental Indenture and further amended and supplemented by this Fifth Supplemental Indenture is in all respects confirmed and preserved.

2.3. Terms Defined. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2.4. Counterparts. This Fifth Supplemental Indenture may be signed in any number of counterparts each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

2.5. Effect of Headings. The section headings herein are for convenience only and shall not affect the construction hereof.

2.6. Effectiveness. The provisions of this Fifth Supplemental Indenture will take effect immediately upon execution thereof by the parties hereto.

2.7. Trust Indenture Act Controls. If any provision of this Fifth Supplemental Indenture limits, qualifies or conflicts with another provision that is required by or deemed to be included in this Fifth Supplemental Indenture by the Trust Indenture Act, the required or incorporated provision shall control.

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2.8. Governing Law. THIS FIFTH SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK.

2.9. Trustee. The Trustee makes no representations as to the validity or sufficiency of this Fifth Supplemental Indenture. The recitals and statements herein are deemed to be those of the Company, the Guarantors and the New Guarantor and not of the Trustee.

[the remainder of this page intentionally left blank]

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IN WITNESS WHEREOF, the undersigned have executed this Fifth Supplemental Indenture this 27th day of April, 2007.

CRC HEALTH CORPORATION
By:
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fifth Supplemental Indenture]

CORPORATE SUBSIDIARIES:
4therapy.com NETWORK
ADVANCED TREATMENT SYSTEMS, INC.
ATS OF CECIL COUNTY, INC.
ATS OF DELAWARE, INC.
ATS OF NORTH CAROLINA, INC.
BATON ROUGE TREATMENT CENTER, INC.
BECKLEY TREATMENT CENTER, INC.
BGI OF BRANDYWINE, INC.
BOWLING GREEN INN OF PENSACOLA, INC.
BOWLING GREEN INN OF SOUTH DAKOTA, INC.
CAPS OF VIRGINIA, INC.
CARTERSVILLE CENTER, INC.
CHARLESTON TREATMENT CENTER INC.
CLARKSBURG TREATMENT CENTER, INC.
COMPREHENSIVE ADDICTION
PROGRAMS, INC.
CORAL HEALTH SERVICES, INC.
CRC ED TREATMENT, INC.
CRC HEALTH OREGON, INC.
CRC HEALTH TENNESSEE, INC.
CRC RECOVERY, INC.
EAST INDIANA TREATMENT CENTER, INC.
EVANSVILLE TREATMENT CENTER INC.
GALAX TREATMENT CENTER, INC.
GREENBRIER TREATMENT CENTER, INC.
HUNTINGTON TREATMENT CENTER, INC.
INDIANAPOLIS TREATMENT CENTER, INC.
JAYCO ADMINISTRATION, INC.
JEFF-GRAND MANAGEMENT CO., INC.
KANSAS CITY TREATMENT CENTER, INC.
By:
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fifth Supplemental Indenture]

CORPORATE SUBSIDIARIES (cont.):
MINERAL COUNTY TREATMENT CENTER, INC.
MWB ASSOCIATES-MASSACHUSETTS, INC.
NATIONAL SPECIALTY CLINICS, INC.
NSC ACQUISITION CORP.
PARKERSBURG TREATMENT CENTER, INC.
RICHMOND TREATMENT CENTER, INC.
SAN DIEGO HEALTH ALLIANCE
SHELTERED LIVING INCORPORATED
SIERRA TUCSON INC.
SOBER LIVING BY THE SEA, INC.
SOUTHERN INDIANA TREATMENT CENTER INC.
SOUTHERN WEST VIRGINIA TREATMENT CENTER, INC.
SOUTHWEST ILLINOIS TREATMENT CENTER, INC.
STONEHEDGE CONVALESCENT CENTER, INC.
TRANSCULTURAL HEALTH DEVELOPMENT, INC.
TREATMENT ASSOCIATES, INC.
VIRGINIA TREATMENT CENTER, INC.
VOLUNTEER TREATMENT CENTER, INC.
WCHS OF COLORADO (G), INC.
WCHS, INC.
WHEELING TREATMENT CENTER, INC.
WHITE DEER REALTY, LTD.
WHITE DEER RUN, INC.
WICHITA TREATMENT CENTER INC.
WILLIAMSON TREATMENT CENTER, INC.
WILMINGTON TREATMENT CENTER, INC.
By:
Name:	Kevin Hogge
Title:	Chief Financial Officer

CORPORATE SUBSIDIARIES (cont.):
ASPEN EDUCATION GROUP, INC.
ASPEN YOUTH, INC.
AYS MANAGEMENT, INC.
AHS OF IDAHO, INC.
CAMP HUNTINGTON INC.
LONE STAR EXPEDITIONS, INC.
SUWS OF THE CAROLINAS, INC.
WILDERNESS THERAPY PROGRAMS, INC.
MOUNT BACHELOR EDUCATIONAL CENTER, INC.
NEW LEAF ACADEMY, INC.
NORTHSTAR CENTER, INC.
SUNHAWK ACADEMY OF UTAH, INC.
TALISMAN SCHOOL, INC.
TEXAS EXCEL ACADEMY, INC.
TURN-ABOUT RANCH, INC.
YOUTH CARE OF UTAH, INC.
By:
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fifth Supplemental Indenture]

LIMITED LIABILITY COMPANY SUBSIDIARIES:
ACADEMY OF THE SIERRAS, LLC
EATING DISORDER VENTURE, LLC
ADIRONDACK LEADERSHIP EXPEDITIONS, LLC
ASPEN ACHIEVEMENT ACADEMY, LLC
FOUR CIRCLES RECOVERY CENTER, LLC
OUTBACK THERAPEUTIC EXPEDITIONS, LLC
PASSAGES TO RECOVERY, LLC
TALISMAN SUMMER CAMP, LLC
ASPEN RANCH, LLC
BROMLEY BROOK SCHOOL, LLC
CEDARS ACADEMY, LLC
COPPER CANYON ACADEMY, LLC
ISLAND VIEW RESIDENTIAL TREATMENT CENTER, LLC
NEW LEAF ACADEMY OF NORTH CAROLINA, LLC
ASPEN INSTITUTE FOR BEHAVIORAL ASSESSMENT, LLC
OAKLEY SCHOOL, LLC
SWIFT RIVER ACADEMY, L.L.C.
By:
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fifth Supplemental Indenture]

SAN DIEGO TREATMENT SERVICES
By:	Jayco Administration, Inc.
Its:	Partner
By:
Name:	Kevin Hogge
Title:	Chief Financial Officer
By:	Treatment Associates, Inc.
Its:	Partner
By:
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fifth Supplemental Indenture]

CALIFORNIA TREATMENT SERVICES
By:	Jayco Administration, Inc.
Its:	Partner
By:
Name:	Kevin Hogge
Title:	Chief Financial Officer
By:	Treatment Associates, Inc.
Its:	Partner
By:
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fifth Supplemental Indenture]

MILWAUKEE HEALTH SERVICES SYSTEM
By:	WCHS, Inc.
Its:	Partner
By:
Name:	Kevin Hogge
Title:	Chief Financial Officer
By:	Coral Health Services, Inc.
Its:	Partner
By:
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fifth Supplemental Indenture]

THE CAMP RECOVERY CENTERS, L.P.
By:	CRC Recovery, Inc.
Its:	General Partner
By:
Name:	Kevin Hogge
Title:	Chief Financial Officer
By:	CRC Health Corporation
Its:	Limited Partner
By:
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fifth Supplemental Indenture]

STONEHEDGE CONVALESCENT CENTER LIMITED PARTNERSHIP
By:	Stonehedge Convalescent Center, Inc.
Its:	General Partner
By:
Name:	Kevin Hogge
Title:	Chief Financial Officer
By:	Comprehensive Addiction Programs, Inc.
Its:	Limited Partner
By:
Name:	Kevin Hogge
Title:	Chief Financial Officer

[Signature Page to Fifth Supplemental Indenture]

U.S. BANK NATIONAL ASSOCIATION, as Trustee

By:

Name:

Title:

[Signature Page to Fifth Supplemental Indenture]

EX-10.1(D)

Exhibit 10.1d

AMENDMENT NO. 2

TO

CREDIT AGREEMENT

This AMENDMENT NO. 2 to CREDIT AGREEMENT, dated as of April 16, 2007 (this “Amendment”), is entered into among CRC HEALTH GROUP, INC., a Delaware corporation (“Holdings”), CRC HEALTH CORPORATION, a Delaware corporation (the “Borrower”), CITIBANK, N.A., in its capacity as administrative agent for the Lenders and as collateral agent for the Secured Parties (in such capacity, the “Administrative Agent”) and the Lenders listed on the signature pages hereto, and amends the Credit Agreement dated as of February 6, 2006 and as amended and restated as of November 17, 2006 (as amended to the date hereof and as the same may be further amended, supplemented or otherwise modified from time to time, the “Credit Agreement”) entered into among Holdings, the Borrower, the institutions from time to time party thereto as Lenders (the “Lenders”), the Administrative Agent and the other Agents and Arrangers named therein. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement.

W I T N E S S E T H:

WHEREAS, the Borrower has requested that the Lenders amend the Credit Agreement to effect the changes described below;

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged), the parties hereto hereby agree as follows:

Section 1. Amendments to the Credit Agreement. The Credit Agreement is, effective as of the Amendment No. 2 Effective Date, amended as follows:

(a) Section 1.01 of the Credit Agreement is hereby amended by deleting clause (a) of the definition of “Applicable Rate” contained therein in its entirety and replacing it with the following:

“(a) with respect to Term Loans, (i) for Eurocurrency Rate Loans, 2.25% and (ii) for Base Rate Loans, 1.25%; provided that on and after such time as Borrower’s corporate family rating from Moody’s is at least B1 (with stable or better outlook) then (regardless of any changes to such rating thereafter) a percentage per annum equal to (x) for Eurocurrency Rate Loans, 2.00% and (y) for Base Rate Loans, 1.00%. Any change in the Applicable Rate resulting from a change in the corporate family rating from Moody’s shall become effective as of the first Business Day immediately following the formal publication by Moody’s of such change.”

(b) Section 2.05 of the Credit Agreement is hereby amended by adding thereto a new clause (d) as follows:

“(d) Notwithstanding the foregoing, any mandatory prepayment pursuant to Section 2.05(b)(iii) or optional prepayment of Term Loans that results in the prepayment of all, but not less than all, of the outstanding Term Loans prior to the one year anniversary of the Amendment No. 2 Effective Date with the proceeds of new term loans (including without limitation any Replacement Term Loans) under this Agreement that have an applicable margin that is less than the Applicable Margin for Term Loans, as of the Amendment No. 2 Effective Date, may only be made if each Term Lender is paid a prepayment premium of 1% of the principal amount of such Lender’s Term Loans. As used herein, “Amendment No. 2 Effective Date” means April 16, 2007, the date Amendment No. 2 to this Agreement became effective.”

(c) Section 3.07(d) of the Credit Agreement is hereby amended by adding to the end of such Section a new sentence as follows:

“In addition, this Section 3.07(d) may only be utilized with respect to a Non-Consenting Lender in respect of any amendment to this Agreement after the Amendment No. 2 Effective Date and prior to the one year anniversary of the Amendment No. 2 Effective Date that has the effect of reducing the Applicable Margin for any Term Loan if such Non-Consenting Lender is paid a fee equal to 1% of the principal amount of such Lender’s Term Loans being replaced and repaid.”

Section 2. Conditions Precedent to the Effectiveness of this Amendment

This Amendment shall become effective as of the date first written above when, and only when, each of the following conditions precedent shall have been satisfied or waived (the “Amendment No. 2 Effective Date”) by the Administrative Agent:

(a) Executed Counterparts. The Administrative Agent shall have received this Amendment, duly executed by Holdings, the Borrower, the Administrative Agent, the Required Lenders and each of the Term Lenders;

(b) Corporate and Other Proceedings. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Amendment shall be reasonably satisfactory in all respects to the Administrative Agent; and

(c) Fees and Expenses Paid. The Borrower shall have paid all reasonable out-of-pocket costs and expenses of the Administrative Agent in connection with the preparation, reproduction, execution and delivery of this Amendment (including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto) and all other costs, expenses and fees due under any Loan Document or other fee letter with the Administrative Agent.

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Section 3. Representations and Warranties

On and as of the Amendment No. 2 Effective Date, after giving effect to this Amendment, the Borrower hereby represents and warrants to the Administrative Agent and each Lender as follows:

(a) this Amendment has been duly authorized, executed and delivered by the Borrower and Holdings and constitutes the legal, valid and binding obligations of the Borrower and Holdings enforceable against the Borrower and Holdings in accordance with its terms and the Credit Agreement as amended by this Amendment and constitutes the legal, valid and binding obligation of the Borrower and Holdings enforceable against the Borrower and Holdings in accordance with its terms except as such enforceability may be limited by Debtor Relief Laws and by general principles of equity;

(b) each of the representations and warranties contained in Article V (Representations and Warranties) of the Credit Agreement and each other Loan Document is true and correct in all material respects on and as of the Amendment No. 2 Effective Date, as if made on and as of such date and except to the extent that such representations and warranties specifically relate to a specific date, in which case such representations and warranties shall be true and correct in all material respects as of such specific date; provided, however, that references therein to the “Credit Agreement” shall be deemed to refer to the Credit Agreement as amended hereby and after giving effect to the consents and waivers set forth herein; and

(c) no Default or Event of Default has occurred and is continuing.

Section 4. Fees and Expenses

The Borrower and each other Loan Party agrees to pay on demand in accordance with the terms of Section 10.04 (Attorney Costs, Expenses and Taxes) of the Credit Agreement all reasonable out-of-pocket costs and expenses of the Administrative Agent in connection with the preparation, reproduction, execution and delivery of this Amendment (including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto).

Section 5. Reference to the Effect on the Loan Documents

(a) As of the Amendment No. 2 Effective Date, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein,” or words of like import, and each reference in the other Loan Documents to the Credit Agreement (including, without limitation, by means of words like “thereunder”, “thereof” and words of like import), shall mean and be a reference to the Credit Agreement as amended hereby, and this Amendment and the Credit Agreement shall be read together and construed as a single instrument. Each of the table of contents and lists of Exhibits and Schedules of the Credit Agreement shall be amended to reflect the changes made in this Amendment as of the Amendment No. 2 Effective Date.

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(b) Except as expressly amended hereby or specifically waived above, all of the terms and provisions of the Credit Agreement and all other Loan Documents are and shall remain in full force and effect and are hereby ratified and confirmed.

(c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Lenders, the Borrower, Joint Lead Arrangers or the Agents under any of the Loan Documents, nor constitute a waiver or amendment of any other provision of any of the Loan Documents or for any purpose except as expressly set forth herein.

(d) This Amendment is a Loan Document.

Section 6. Execution in Counterparts

This Amendment may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are attached to the same document. Delivery of an executed counterpart by telecopy shall be effective as delivery of a manually executed counterpart of this Amendment.

Section 7. Governing Law

This Amendment shall be governed by and construed in accordance with the law of the State of New York.

Section 8. Section Titles

The section titles contained in this Amendment are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto, except when used to reference a section. Any reference to the number of a clause, sub-clause or subsection of any Loan Document immediately followed by a reference in parenthesis to the title of the section of such Loan Document containing such clause, sub-clause or subsection is a reference to such clause, sub-clause or subsection and not to the entire section; provided, however, that, in case of direct conflict between the reference to the title and the reference to the number of such section, the reference to the title shall govern absent manifest error. If any reference to the number of a section (but not to any clause, sub-clause or subsection thereof) of any Loan Document is followed immediately by a reference in parenthesis to the title of a section of any Loan Document, the title reference shall govern in case of direct conflict absent manifest error.

Section 9. Notices

All communications and notices hereunder shall be given as provided in the Credit Agreement.

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Section 10. Severability

The fact that any term or provision of this Agreement is held invalid, illegal or unenforceable as to any person in any situation in any jurisdiction shall not affect the validity, enforceability or legality of the remaining terms or provisions hereof or the validity, enforceability or legality of such offending term or provision in any other situation or jurisdiction or as applied to any person.

Section 11. Successors

The terms of this Amendment shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns.

Section 12. Waiver of Jury Trial

EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AMENDMENT OR ANY OTHER LOAN DOCUMENT.

[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers and general partners thereunto duly authorized, as of the date first written above.

CRC HEALTH GROUP, INC., as Holdings
By:
	Name:
	Title:

CRC HEALTH CORPORATION, as the Borrower
By:
	Name:
	Title:

CRC Credit Agreement

Amendment No. 2

CITIBANK, N.A., as Administrative Agent and Lender
By:
	Name:
	Title:

CRC Credit Agreement

Amendment No. 2

EX-10.2(F)

Exhibit 10.2f

SUPPLEMENT NO. 6 dated as of April 27, 2007, to the Security Agreement dated as of February 6, 2006 among CRC HEALTH CORPORATION, a Delaware corporation (f/k/a CRC HEALTH GROUP, INC.) (the “Borrower”), CRC HEALTH GROUP, INC., a Delaware corporation, (f/k/a/ CRCA Holdings, Inc.) (“Holdings”), and the Subsidiaries of the Borrower identified therein and CITIBANK, N.A., as Collateral Agent for the Secured Parties (as defined below).

A. Reference is made to the Credit Agreement dated as of February 6, 2006; as amended and restated as of November 17, 2006 (and as further amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Holdings, the Borrower, the lenders from time to time party thereto, Citibank, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer, each Lender from time to time party thereto, JPMorgan Chase Bank, N.A., as Syndication Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Documentation Agent.

B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement and the Security Agreement referred to therein.

C. The Grantors have entered into the Security Agreement in order to induce the Lenders to make Loans and the L/C Issuers to issue Letters of Credit. Section 7.14 of the Security Agreement provides that additional Restricted Subsidiaries of the Borrower may become Subsidiary Parties under the Security Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Restricted Subsidiary (the “New Subsidiary”) is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Subsidiary Party under the Security Agreement in order to induce the Lenders to make additional Loans and the L/C Issuers to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued.

Accordingly, the Collateral Agent and the New Subsidiary agree as follows:

SECTION 1. In accordance with Section 7.14 of the Security Agreement, the New Subsidiary by its signature below becomes a Subsidiary Party (and accordingly, becomes a Grantor) and Grantor under the Security Agreement with the same force and effect as if originally named therein as a Subsidiary Party and the New Subsidiary hereby (a) agrees to all the terms and provisions of the Security Agreement applicable to it as a Subsidiary Party and Grantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Grantor thereunder are true and correct on and as of the date hereof. In furtherance of the foregoing, the New Subsidiary, as security for the payment and performance in full of the Obligations does hereby create and grant to the Collateral Agent, its successors and assigns, for the benefit of the Secured Parties, their successors and assigns, a security interest in and lien on all of the New Subsidiary’s right, title and interest in and to the Collateral (as defined in the Security Agreement) of the New Subsidiary. Each reference to a “Grantor” in the Security Agreement shall be deemed to include the New Subsidiary. The Security Agreement is hereby incorporated herein by reference.

SECTION 2. The New Subsidiary represents and warrants to the Collateral Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.

SECTION 3. This Supplement may be executed in one or more counterparts, each of which shall be deemed an original but all of which when taken together shall constitute a single contract. Delivery by telecopier of an executed counterpart of a signature page to this Supplement shall be as effective as delivery of an original executed counterpart of this Supplement. This Supplement shall become effective when the Collateral Agent shall have received a counterpart of this Supplement that bears the signature of the New Subsidiary and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding upon such New Subsidiary and the Collateral Agent and their respective permitted successors and assigns, and shall inure to the benefit of such New Subsidiary, the Collateral Agent and the other Secured Parties and their respective successors and assigns, except that the New Subsidiary shall not have the right to assign or transfer its rights or obligations hereunder or any interest herein or in the Collateral (and any such assignment or transfer shall be void) except as expressly contemplated by the Security Agreement or the Credit Agreement.

SECTION 4. The New Subsidiary hereby represents and warrants that (a) set forth on Schedule I attached hereto is a true and correct schedule of the location of any and all Collateral of the New Subsidiary and (b) set forth under its signature hereto is the true and correct legal name of the New Subsidiary, its jurisdiction of formation and the location of its chief executive office.

SECTION 5. Except as expressly supplemented hereby, the Security Agreement shall remain in full force and effect.

SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 7. Any provision of this Supplement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 8. All communications and notices hereunder shall be in writing and given as provided in Section 7.01 of the Security Agreement.

SECTION 9. The New Subsidiary agrees to reimburse the Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent.

IN WITNESS WHEREOF, the New Subsidiary and the Collateral Agent have duly executed this Supplement to the Security Agreement as of the day and year first above written.

CAMP HUNTINGTON INC.
By:
Name:	Kevin Hogge
Title:	Chief Financial Officer
	Legal Name: Camp Huntington Inc.
	Jurisdiction of Formation: New York
	Location of Chief Executive office:
	20400 Stevens Creek Blvd.
	Suite 600
	Cupertino, California 95014
CITIBANK, N.A., as Collateral Agent
By:
Name:
Title:

Schedule I to Security Agreement Supplement

Camp Huntington Inc.

56 & 58 Bruceville Road

High Falls, NY 12440

EX-10.3(F)

Exhibit 10.3f

SUPPLEMENT NO. 6 dated as of April 27, 2007, to the Guarantee Agreement dated as of February 6, 2006, among CRC HEALTH GROUP, INC. (“Holdings”), CRC HEALTH CORPORATION, the Subsidiaries of the Borrower (as defined below) identified herein and CITIBANK, N.A., as Administrative Agent.

A. Reference is made to the Credit Agreement dated as of February 6, 2006; as amended and restated as of November 17, 2006 (and as further amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among CRC Health Group, Inc., a Delaware corporation (“Holdings”), CRC Health Corporation, a Delaware corporation (“Borrower), the Guarantors party thereto (collectively, the “Guarantors”), Citibank, N.A., as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer, each Lender from time to time party thereto, JPMorgan Chase Bank, N.A., as Syndication Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Documentation Agent.

B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement and the Guarantee Agreement referred to therein.

C. The Guarantors have entered into the Guarantee Agreement in order to induce the Lenders to make Loans and the L/C Issuers to issue Letters of Credit. Section 4.14 of the Guarantee Agreement provides that additional Restricted Subsidiaries of the Borrower may become Subsidiary Parties under the Guarantee Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Restricted Subsidiary (the “New Subsidiary”) is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Subsidiary Party under the Guarantee Agreement in order to induce the Lenders to make additional Loans and the L/C Issuers to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued.

Accordingly, the Administrative Agent and the New Subsidiary agree as follows:

SECTION 1. In accordance with Section 4.14 of the Guarantee Agreement, the New Subsidiary by its signature below becomes a Subsidiary Party (and accordingly, becomes a Guarantor) and Guarantor under the Guarantee Agreement with the same force and effect as if originally named therein as a Subsidiary Party and the New Subsidiary hereby (a) agrees to all the terms and provisions of the Guarantee Agreement applicable to it as a Subsidiary Party and Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Guarantor thereunder are true and correct on and as of the date hereof. Each reference to a “Guarantor” in the Security Agreement shall be deemed to include the New Subsidiary. The Guarantee Agreement is hereby incorporated herein by reference.

SECTION 2. The New Subsidiary represents and warrants to the Administrative Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.

SECTION 3. This Supplement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of

which when taken together shall constitute a single contract. This Supplement shall become effective when the Administrative Agent shall have received a counterpart of this Supplement that bears the signature of the New Subsidiary and the Administrative Agent has executed a counterpart hereof. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Supplement.

SECTION 4. Except as expressly supplemented hereby, the Guarantee Agreement shall remain in full force and effect.

SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Guarantee Agreement shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 4.01 of the Guarantee Agreement.

SECTION 8. The New Subsidiary agrees to reimburse the Administrative Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Administrative Agent.

Signature Page to Supplement to Guarantee Agreement

IN WITNESS WHEREOF, the New Subsidiary and the Administrative Agent have duly executed this Supplement to the Guarantee Agreement as of the day and year first above written.

CAMP HUNTINGTON INC.
By:
Name:	Kevin Hogge
Title:	Chief Financial Officer

Signature Page to Supplement to Guarantee Agreement

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Dr. Barry W. Karlin, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of CRC Health Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) [not applicable];

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2007	/s/ DR. BARRY W. KARLIN
	Dr. Barry W. Karlin
	Chairman, Chief Executive Officer and President (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Kevin Hogge, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of CRC Health Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) [not applicable];

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2007	/s/ KEVIN HOGGE
	Kevin Hogge
	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Dr. Barry W. Karlin, Chairman, Chief Executive Officer and President of CRC Health Corporation (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

• the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2007, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

• the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 15, 2007

/s/ DR. BARRY W. KARLIN

Dr. Barry W. Karlin

Chairman, Chief Executive Officer and President

(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to CRC Health Corporation and will be retained by CRC Health Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin Hogge, Chief Financial Officer of CRC Health Corporation (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

• the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2007, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

• the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 15, 2007

/s/ KEVIN HOGGE

Kevin Hogge

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

A signed original of this written statement required by Section 906 has been provided to CRC Health Corporation and will be retained by CRC Health Corporation and furnished to the Securities and Exchange Commission or its staff upon request.