10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2010

Commission File Number 1-9927

COMPREHENSIVE CARE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	95-2594724
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

3405 W. Dr. Martin Luther King Jr. Blvd, Suite 101, Tampa, FL 33607

(Address of principal executive offices and zip code)

                                 (813) 288-4808                                

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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

Yes þ  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨  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. (Check one):

Large Accelerated Filer ¨ Non-Accelerated Filer ¨ Accelerated Filer ¨ Smaller reporting company þ

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨  No þ

As of November 10, 2010, there were 54,259,803 shares of registrant’s common stock, $0.01 par value, outstanding.

COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
ITEM 1 -- CONSOLIDATED FINANCIAL STATEMENTS	PAGE
Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009	3
Consolidated Statements of Operations for the three and nine months ended September 30, 2010 (unaudited) and 2009 (unaudited)	4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 (unaudited) and 2009 (unaudited)	5
Notes to Consolidated Financial Statements	6-24
ITEM 2 -- MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	24-35
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	35
ITEM 4 -- CONTROLS AND PROCEDURES	35
PART II – OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS	35-37
ITEM 1A -- RISK FACTORS	37
ITEM 2 -- UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	37-38
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES	38
ITEM 6 -- EXHIBITS	38
SIGNATURES	39
CERTIFICATIONS

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

PART I -- FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

	September 30, 2010		December 31, 2009
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$      1,023		$         694
Accounts receivable		3		5
Other current assets		506		741
Total current assets		1,532		1,440
Property and equipment, net		733		311
Intangible assets, net		662		1,042
Goodwill		12,150		12,175
Other assets		222		255
Total assets		15,299		15,223
LIABILITIES AND DEFICIT
Current liabilities:
Accounts payable and accrued liabilities		6,674		5,721
Accrued claims payable		5,534		4,679
Accrued pharmacy payable		15		23
Note obligations due within one year		3,189		4,721
Income taxes payable		103		118
Total current liabilities		15,515		15,262
Long-term liabilities:
Long-term debt		1,309		200
Other liabilities		3,490		2,584
Total long-term liabilities		4,799		2,784
Total liabilities		20,314		18,046
Stockholders’ equity:
Preferred stock, $50.00 par value; authorized shares: 974,260 shares; none issued		--		--
Preferred stock, Series C, $50.00 par value; 14,400 shares authorized, issued and outstanding		720		720
Preferred stock, Series D, $50.00 par value; 7,000 shares authorized; none issued		--		--
Common stock, $0.01 par value; authorized 100,000,000 shares; issued and outstanding 54,259,803 and 39,869,089, respectively		542		399
Additional paid-in capital		20,847		14,814
Accumulated deficit		(27,124)		(19,078)
Total stockholders’ deficit		(5,015)		(3,145)
Non-controlling interest		--		322
Total deficit		(5,015)		(2,823)
Total liabilities and deficit		$    15,299		$    15,223

See accompanying notes to condensed consolidated financial statements.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in thousands, except per share amounts)

	Three Months Ended September 30, 2010			Three Months Ended September 30, 2009			Nine Months Ended September 30, 2010			Nine Months Ended September 30, 2009
Revenues:
Managed care revenues		$      7,898			$      3,559			$      17,315			$      10,411
Other revenues		3			9			29			18
Total revenues		7,901			3,568			17,344			10,429
Costs of services and sales:
Cost of care		7,548			3,507			15,514			9,961
Other costs of services and sales		5			5			28			9
Total costs of services and sales		7,553			3,512			15,542			9,970
Gross margin		348			56			1,802			459
Expenses:
General and administrative expenses		2,259			2,224			6,506			4,994
Provision for doubtful accounts		--			--			--			4
Depreciation and amortization		201			187			553			498
Total operating expenses		2,460			2,411			7,059			5,496
Merger transaction costs		--			--			--			589
Equity based expenses		1,127			212			2,031			8,813
Total expenses		3,587			2,623			9,090			14,898
Operating loss		(3,239	)		(2,567	)		(7,288	)		(14,439	)
Other income (expense):
Loss from extinguishment of debt		(13	)		--			(102	)		--
Other non-operating income		35			1			15			1
Interest income		--			2			1			3
Interest expense		(442	)		(102	)		(1,163	)		(207	)
Loss before income taxes		(3,659	)		(2,666	)		(8,537	)		(14,642	)
Income tax expense		31			28			94			159
Net loss before pre-acquisition loss		(3,690	)		(2,694	)		(8,631	)		(14,801	)
Add back pre-acquisition loss		--			--			--			721
Net loss after pre-acquisition adjustments		(3,690	)		(2,694	)		(8,631	)		(14,080	)
Add back: Net loss attributable to non-controlling interest		--			116			44			161
Net loss attributable to stockholders		$    (3,690	)		$    (2,578	)		$    (8,587	)		$    (13,919	)
Basic and diluted loss per share		$      (0.07	)		$      (0.06	)		$      (0.20	)		$        (0.47	)
Weighted average common shares outstanding:
Basic		52,150			39,762			43,414			29,738
Diluted		52,150			39,762			43,414			29,738
Dilutive common shares without respect to anti-dilutive effect		67,727			52,720			58,055			52,808

See accompanying notes to condensed consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)

	Nine Months Ended September 30, 2010			Nine Months Ended September 30, 2009
Cash flows from operating activities:
Net loss		$      (8,587	)		$      (13,919	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		553			492
Provision for doubtful accounts		--			4
Non-controlling interest		(44	)		(161	)
Discount amortization on notes payable		402			--
Loss from extinguishment of debt		31			--
Equity based expenses		2,118			8,736
Changes in assets and liabilities:
Accounts receivable		1			602
Other current assets and other non-current assets		(58	)		(116	)
Accounts payable and accrued liabilities		1,386			146
Accrued claims payable		855			(1,454	)
Accrued pharmacy payable		(8	)		35
Income taxes payable		(15	)		146
Other liabilities		598			31
Net cash used in operating activities		(2,768	)		(5,458	)
Cash flows from investing activities:
Cash paid for the acquisition of a business, net of cash acquired		--			(978	)
Cash paid for the acquisition of non-controlling interest		(135	)		--
Payment received on notes receivable		--			14
Additions to property and equipment, net		(154	)		(118	)
Net cash used in investing activities		(289	)		(1,082	)
Cash flows from financing activities:
Net proceeds from the issuance of common stock		1,450			4,796
Capital contribution from non-controlling interest		--			490
Net proceeds from the issuance of note obligations		3,553			2,000
Long-term financing		82			--
Redemption of note obligations		(1,614	)		--
Repayment of debt		(85	)		(50	)
Net cash provided by financing activities		3,386			7,236
Net increase in cash and cash equivalents		329			696
Cash and cash equivalents at beginning of period		694			503
Cash and cash equivalents at end of period		$      1,023			$      1,199
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		154			110
Income taxes		109			14
Non-cash operating, financing and investing activities:
Property acquired under capital leases		419			--
Conversion of Series B-1 to Series C Preferred Stock		--			720
Conversion of Series B-2 Preferred Stock to common stock		--			133
Conversion of notes payable and accrued interest to common stock		2,200			--
Common stock issued for outside services		112			480
Common stock issued in lieu of cash interest payment		87			--
Net gain credited to deficit from sale of subsidiary		541			--

See accompanying notes to condensed consolidated financial statements.

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NOTE 1 – DESCRIPTION OF THE COMPANY’S BUSINESS AND BASIS OF PRESENTATION

The accompanying unaudited interim condensed consolidated financial statements for Comprehensive Care Corporation (referred to herein as the “Company,” “CompCare,” “we,” “us” or “our”) and its subsidiaries have been prepared in accordance with the Securities and Exchange Commission (“SEC”) rules for interim financial information and do not include all information and notes required for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of the results that may be expected for the entire fiscal year. The accompanying financial information should be read in conjunction with the consolidated financial statements and the notes thereto in our most recent annual report on Form 10-K.

Our consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries, Comprehensive Behavioral Care, Inc. (“CBC”) and Core Corporate Consulting Group, Inc. (“Core”), each with their respective subsidiaries. Through CBC we provide managed care services in the behavioral health and psychiatric fields. We manage the delivery of a continuum of psychiatric and substance abuse services to commercial, Medicare, Medicaid and Children’s Health Insurance Program (“CHIP”) members on behalf of employers, health plans, government organizations, third-party claims administrators, and commercial and other group purchasers of behavioral healthcare services. We also provide prior and concurrent authorization for physician-prescribed psychotropic medications and behavioral pharmaceutical management services for a number of health plans. The managed care operations include administrative service agreements, fee-for-service agreements, and capitation contracts. Through Core we market a variety of health related products, insurance, and discount plans to targeted markets such as the uninsured, the underinsured, and underserved ethnic groups.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Our managed care activities are performed under the terms of agreements with health maintenance organizations, preferred provider organizations, and other health plans or payers to provide contracted behavioral healthcare services to subscribing members. Revenue under at-risk, behavioral healthcare and pharmacy agreements is earned monthly based on the number of qualified members regardless of services actually provided or pharmacy benefits actually used (generally referred to as “at-risk” or “capitated” arrangements). The information regarding eligible qualified members is supplied by our clients and we review member eligibility records and other reported information to verify its accuracy to determine the amount of revenue to be recognized. Such capitated, behavioral healthcare and pharmacy agreements accounted for 90.5%, or $15.7 million, and 89.8%, or $8.7 million, of revenue for the nine months ended September 30, 2010 and 2009, respectively. The remaining balance of our managed care revenues is not capitated and is earned based on the number of qualified members included under our administrative services only (“ASO”) agreements.

During the nine months ended September 30, 2010, we entered into a contract to provide autism treatment services to a health plan’s membership for which there was no historical claims data. In the absence of data upon which to base pricing, we included cost sharing/cost savings provisions in the agreement with the health plan whereby we share in the additional cost or cost savings when comparing actual claims costs to the estimated claims costs incorporated into the contract’s pricing. Accordingly, we may adjust our revenue periodically as claims data becomes available to permit a comparison of actual claims costs to targeted claims costs. Such adjustments are made when we believe such adjustments are probable and reasonably estimable, but are subject to the effects of unforeseen fluctuations in utilization, among other factors.

Cost of Care Recognition

Cost of care is recognized in the period in which an eligible member actually receives services and includes an estimate of the cost of behavioral health services that have been incurred but not yet reported. See “Accrued Claims Payable” below for a discussion of claims incurred but not yet reported. We contract with various healthcare providers, including hospitals, physician groups and other licensed behavioral healthcare professionals either on a fee-for-service or a per-case basis. We determine that a member has received services when we receive a claim within the contracted timeframe with all required billing elements correctly completed by the healthcare provider. We then determine whether (1) the member is eligible to receive the service, (2) the service provided is medically necessary

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and is covered by the benefit plan’s certificate of coverage, and (3) the service is pre-authorized (if applicable). If all of these requirements are met, the claim is entered into our claims system for payment.

Goodwill

Goodwill represents the cost in excess of the fair value of net assets acquired in purchase transactions. Pursuant to Accounting Standards Codification (“ASC”) 350-20, “Intangibles – Goodwill and Other,” goodwill is not amortized but is periodically evaluated for impairment to carrying amount, with decreases in carrying amount recognized immediately. We review goodwill for impairment annually, or more frequently if changes in circumstances or the occurrence of events suggest impairment exists. The tests for impairment of goodwill require us to make estimates about fair value, which are based on discounted projected future cash flows and the quoted market price of our common stock.

Accrued Claims Payable

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

Premium Deficiencies

We accrue losses under our managed care contracts when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. We perform this loss accrual analysis on a contract-by-contract basis by taking into consideration various factors such as future contractual revenue, projected future healthcare and maintenance costs, and each contract’s specific terms related to future revenue increases as compared to expected increases in healthcare costs. The projected future healthcare and maintenance costs are estimated based on historical trends and our estimate of future cost increases.

We generally have the ability to cancel a contract with 60 to 90 days written notice or request a renegotiation of terms under certain circumstances, if a managed care contract is not meeting our financial goals. Prior to a cancellation, we typically submit a request for a rate increase accompanied by supporting utilization data. Although our clients have historically been generally receptive to such requests, no assurance can be given that such requests will be fulfilled in our favor in the future. If a rate increase is not granted, we have the ability, in some cases, to terminate the contract and limit our risk to a short-term period.

We perform a review of our portfolio of contracts on a quarterly basis to identify loss contracts (as defined in the American Institute of Certified Public Accountants Audit and Accounting Guide – Health Care Organizations) and develop a contract loss reserve, if applicable, for succeeding periods. At September 30, 2010, no contract loss reserve for future periods was necessary in management’s opinion.

Fair Value Measurements

ASC 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820-10 also establishes a fair value hierarchy that prioritizes the inputs used in valuation techniques and creates the following three broad levels, with Level 1 being the highest priority:

    Level 1:  Observable inputs that reflect quoted (unadjusted) market prices in active markets for identical assets or liabilities that are accessible at the measurement date;

    Level 2:  Inputs other than quoted market prices included in Level 1 that are observable for the asset or liability either directly or indirectly; and

    Level 3:  Unobservable inputs that reflect a reporting entity’s own assumptions in pricing an asset or liability.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

ASC 820-10 requires us to segregate our assets and liabilities measured at fair value in accordance with the above hierarchy. At September 30, 2010 and 2009, we had no assets or liabilities required to be measured at fair value on a recurring basis. Therefore, no disclosure concerning assets or liabilities measured at fair value on a recurring basis is necessary. Other non-financial assets that are measured at fair value on a nonrecurring basis for the purposes of determining impairment include goodwill and identifiable intangible assets. See “Fair Value of Nonfinancial Assets” below.

ASC 825-10, “Financial Instruments” (“ASC 825-10”), provides that companies may elect to measure many financial instruments and certain other items at fair value on a contract-by-contract basis, with changes in fair value recognized in earnings each reporting period. The election, called the “fair value option,” will enable some companies to reduce the variability in reported earnings caused by measuring related assets and liabilities differently. We chose not to measure at fair value our eligible financial assets and liabilities existing at September 30, 2010. Consequently, ASC 825-10 has had no impact on our consolidated financial statements.

Fair Value of Financial Instruments

ASC 825-10 requires disclosure of fair value information about financial instruments for which it is practical to estimate fair value.

For cash and cash equivalents and restricted cash, our carrying amount approximates fair value. Our financial assets and liabilities other than cash are not traded in an open market and therefore require us to estimate their fair value. Pursuant to the disclosure requirements prescribed by ASC 825-10, we use a present value technique, which is a type of income approach, to measure the fair value of these financial instruments. The rate used for discounting expected cash flows is a risk-free rate adjusted for systematic and unsystematic risk.

The carrying amounts and fair values of our financial instruments at September 30, 2010 and December 31, 2009 are as follows:

	September 30, 2010				December 31, 2009
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Amounts in thousands)
Assets
Cash and cash equivalents		$  1,023		$  1,023		$  694		$  694
Restricted cash		--		--		1		1
Liabilities
Promissory notes		2,790		2,900		350		334
Callable promissory notes		--		--		2,500		2,588
Zero coupon promissory notes		280		275		--		--
Debentures		609		593		2,244		2,256
Senior promissory notes		1,696		1,650		--		--
Less: Unamortized discount on notes payable		(877)		--		(173)		--
Net liabilities		$4,498		$5,418		$4,921		$5,178

Income Taxes

Under the asset and liability method of ASC 740-10, “Income Taxes” (“ASC 740-10”), deferred tax assets and liabilities are recognized for the future tax consequences attributable to net operating loss carryforwards and to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10, the effect of a change in tax rates on deferred tax assets or liabilities is recognized in the consolidated statements of operations in the period that included the enactment. A valuation allowance is established for deferred tax assets unless their realization is considered more likely than not.

Prior to being acquired by CompCare, Core purchased in January 2009 a 49% ownership interest in CompCare from Hythiam, Inc. (“Hythiam”). This purchase resulted in a change in control of CompCare. As a result, our ability to carryforward and deduct losses incurred prior to January 20, 2009 on current federal tax returns is subject to a limitation of approximately $361,000 per year. Any unused portion of such limitation can be carried

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forward to the following year. We may be subject to further loss carryforward limitations in the event that we issue or agree to issue substantial amounts of additional equity. At September 30, 2010, our estimated net operating loss carryforwards totaled $27.7 million.

ASC 740-10 also clarifies the accounting for uncertainty in income taxes and requires that companies recognize in their consolidated financial statements the impact of a tax position, if that position is more likely than not to be sustained on audit based on the technical merits of the position. ASC 740-10 additionally provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The provisions of ASC 740-10 are effective for fiscal years beginning after December 15, 2006. Our adoption of ASC 740-10 had no impact on our consolidated financial statements.

Stock Ownership Plans

We grant stock options to our employees, non-employee directors and certain consultants (“grantees”) which allow grantees to purchase shares of our common stock pursuant to stock option plans. We currently maintain three such incentive plans: our 1995 Incentive Plan, our 2002 Incentive Plan and our 2009 Equity Compensation Plan (collectively, the “Plans”). The Plans provide for the granting of stock options, stock appreciation rights, limited stock appreciation rights, restricted preferred stock, and common stock grants to grantees. Grants issued under the Plans may qualify as incentive stock options (“ISOs”) under Section 422A of the Internal Revenue Code of 1986, as amended. Options for ISOs may be granted for terms of up to ten years. The vesting of options issued under the 1995 and 2002 plans generally occurs after six months for one-half of the options and after 12 months for the remaining options. Under the 2009 Equity Compensation Plan, the vesting period is determined by the Board of Directors’ Compensation and Stock Option Committee. The exercise price for ISOs must equal or exceed the fair market value of the shares on the date of grant. The Plans also provide for the full vesting of all outstanding options under certain change of control events. The maximum number of shares authorized for issuance is 10,000,000 under the 2009 Equity Compensation Plan, 1,000,000 under the 2002 Incentive Plan, and 1,000,000 under the 1995 Incentive Plan. As of September 30, 2010, there were 8,335,000 options available for grant and 1,665,000 options outstanding under the 2009 Equity Compensation Plan. Under the 2002 Incentive Plan, there were 375,000 options available for grant and 585,000 options outstanding and exercisable as of September 30, 2010. Additionally, as of September 30, 2010, there were 70,500 options outstanding and exercisable under the 1995 Incentive Plan. There are no further options available for grant under the 1995 Incentive Plan.

Under our Non-employee Directors’ Stock Option Plan, we are authorized to issue 1,000,000 shares of our common stock pursuant to non-qualified stock options to our non-employee directors. Each non-qualified stock option is exercisable at a price equal to the average of the closing bid and asked prices of our common stock in the over-the-counter market for the most recent day prior to the grant date on which there was a sale of the stock. Option grants vest in accordance with vesting schedules established by our Board of Directors’ Compensation and Stock Option Committee. Upon joining our Board of Directors, directors receive an initial grant of 25,000 options. Annually, directors are granted 15,000 options on the date of our annual meeting. As of September 30, 2010, there were 801,668 shares available for option grants and 100,000 options outstanding under the Non-employee Directors’ Stock Option Plan, 20,000 of which were exercisable.

A summary of our option activity for the three months ended September 30, 2010 is as follows:

Options	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at June 30, 2010		2,440,500		$    0.52		8.39 years
Granted		--		--
Exercised		--		--
Forfeited or expired		(20,000)		$    0.38
Outstanding at September 30, 2010		2,420,500		$    0.52		8.13 years
Exercisable at September 30, 2010		675,500		$    0.87		5.53 years		--

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The following table summarizes information about options granted, exercised, and vested for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Options granted		0		0		0		150,000
Weighted-average grant-date fair value ($)		--		--		--		0.51
Options exercised		--		--		--		1,000
Total intrinsic value of exercised options ($)		--		--		--		287
Fair value of vested options ($)		--		--		10,078		139,270

We recognized approximately $41,000 in compensation costs related to stock options during the three months ended September 30, 2010. No options were granted during the three and nine months ended September 30, 2010. At September 30, 2010, unrecognized expense related to unvested stock options totaled approximately $493,000, which we expect to recognize over 2.23 years.

The following table lists the assumptions utilized in applying the Black-Scholes valuation model to our options. We use historical data and management judgment to estimate the expected term of the option. Expected volatility is based on the historical volatility of our traded stock. We have not declared dividends in the past nor do we expect to do so in the near future and as such we assume no expected dividend. The risk-free rate is based on the U.S. Treasury yield curve with the same expected term as that of the option at the time of grant.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Volatility factor of the expected market price of the Company’s common stock		--		--		--		225%
Expected life (in years) of the options		--		--		--		5-6
Risk-free interest rate		--		--		--		1.54-1.60%
Dividend yield		--		--		--		0%

Warrants - Employees and Non-employee Directors

We periodically issue warrants to purchase shares of our common stock, and have in the past issued warrants to purchase shares of our preferred stock in exchange for the services of employees and non-employee directors.

Warrants to Purchase Series D Convertible Preferred Stock

At September 30, 2010, there were outstanding warrants to purchase up to 290 shares of our Series D Convertible Preferred Stock, par value $50.00 per share (“Series D Convertible Preferred Stock”). These warrants were issued to members of our Board of Directors and certain members of management as an equity incentive to further align the interests of our directors and management with those of our stockholders. Each warrant has a three year term and may be exercised at any time to purchase shares of Series D Convertible Preferred Stock at an exercise price of $25,000 per share. If the market value of a share of Series D Convertible Preferred Stock exceeds the exercise price for a share of Series D Convertible Preferred Stock, then the holder may exercise the warrant by a cashless exercise and receive the number of shares of Series D Convertible Preferred Stock representing the net value of the warrant. The market value of a share of Series D Convertible Preferred Stock is equal to the product of (a) the per share market price of our common stock multiplied by (b) the number of shares of our common stock into which a share of Series D Convertible Preferred Stock is then convertible.

The number of shares of Series D Convertible Preferred Stock for which a warrant is exercisable is subject to adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting the Series D Convertible Preferred Stock. In the event of a Change of Control (as defined in the warrants) of CompCare,

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the holder has the right to require us to redeem the warrant in exchange for an amount equal to the value of the warrant determined using the Black-Scholes pricing model.

Each holder of shares of Series D Convertible Preferred Stock is entitled to notice of any stockholders’ meeting and to vote on any matters on which our common stock may be voted. Each share of Series D Convertible Preferred Stock is entitled to the number of votes that the holder of 500,000 shares of our common stock would be entitled to by virtue of holding such shares of common stock. Unless otherwise required by applicable law, holders of Series D Convertible Preferred Stock will vote together with holders of common stock as a single class on all matters submitted to a vote of our stockholders.

Each share of Series D Convertible Preferred Stock acquired through exercise of a warrant is convertible into 100,000 shares of our common stock at any time. For the presentation below, warrants to purchase shares of Series D Convertible Preferred Stock are stated in common shares, as if the warrant was exercised and the resulting Series D Convertible Preferred Stock was converted. The exercise price of the warrant has been similarly adjusted to an as-converted to common stock equivalent. A summary of our warrant activity for the three months ended September 30, 2010 is as follows:

	Underlying		Weighted- Average Exercise	Weighted-Average Remaining	Aggregate
Warrants	Shares		Price	Contractual Term	Intrinsic Value
Outstanding at June 30, 2010		29,000,000	$    0.25	1.79 years
Granted		--	--
Exercised		--	--
Forfeited or expired		--	--
Outstanding at September 30, 2010		29,000,000	$    0.25	1.54 years
Exercisable at September 30, 2010		29,000,000	$    0.25	1.54 years		--

The following table summarizes information about warrants granted, exercised and vested for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Warrants granted		0		0		0		39,000,000
Weighted-average grant-date fair value ($)		--		--		--		0.21
Warrants exercised		--		--		--		--
Total intrinsic value of exercised warrants ($)		--		--		--		--
Fair value of vested warrants ($)		--		--		--		8,071,900

No warrants to purchase shares of Series D Convertible Preferred Stock were issued during the three months ended September 30, 2010.

We use historical data and management judgment to estimate the expected term of the warrant. Expected volatility is based on the historical volatility of our traded stock. We have not declared dividends in the past nor do we expect to do so in the near future and as such we assume no dividend yield. The risk-free rate is based on the U.S. Treasury yield curve with the same expected term as that of the warrant at the time of grant. We adjusted our quoted stock price in the valuation to appropriately reflect trading restrictions on the warrant’s underlying asset. Valuation of our warrants using the Black-Scholes pricing model was based on the following information:

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Volatility factor of the expected market price of the Company’s common stock		--		--		--		142-175%
Expected life (in years) of the warrants		--		--		--		3
Risk-free interest rate		--		--		--		1.15-1.31%
Dividend yield		--		--		--		0%

Warrants to Purchase Common Stock

During 2010, we have issued warrants to purchase common stock to key employees. Shares acquirable pursuant to the warrants vest at the warrant grant date and/or specified dates throughout the 36 or 60 month term of the warrants, or upon achieving a specified performance condition. A summary of warrant activity for the three months ended September 30, 2010 is as follows:

Warrants	Underlying Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at June 30, 2010		8,675,000	$	0.50	4.86 years
Granted		1,600,000	$	0.81
Exercised		--		--
Forfeited or expired		--		--
Outstanding at September 30, 2010		10,275,000	$	0.55	4.65 years
Exercisable at September 30, 2010		8,325,000	$	0.50	4.69 years		--

The following table summarizes information about warrants granted, exercised and vested for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Warrants granted		1,600,000		600,000		9,600,000		600,000
Weighted-average grant-date fair value ($)		0.18		0.46		0.08		0.46
Warrants exercised		--		--		--		--
Total intrinsic value of exercised warrants ($)		--		--		--		--
Fair value of vested warrants ($)		38,108		32,685		502,908		32,685

We recognized approximately $29,000 of compensation expense during the three months ended September 30, 2010. At September 30, 2010, unrecognized expense related to unvested warrants totaled approximately $341,000, which we expect to recognize over 3.69 years.

We recognized approximately $11,000 of tax benefits attributable to equity-based expense recorded for warrants during the three months ended September 30, 2010. This benefit was fully offset by a valuation allowance of the same amount due to the uncertainty of future realization.

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Valuation of our warrants using the Black-Scholes pricing model was based on the following information:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Volatility factor of the expected market price of the Company’s common stock		160%		160%		160%		160%
Expected life (in years) of the warrants		5		3-5		5		3-5
Risk-free interest rate		1.43-1.85%		1.57-2.37%		1.43-1.85%		1.57-2.37%
Dividend yield		0%		0%		0%		0%

Warrants – Nonemployees

We periodically issue warrants to purchase shares of our common stock to nonemployees such as consultants, note holders, and customers. In accordance with ASC 505-50, “Equity” (“ASC 505-50”), such transactions are measured at the fair value of the goods and services received or the fair value of the warrants issued, whichever is more reliably measurable. We estimate the fair value of warrants issued using the Black-Scholes pricing model.

For warrants that are fully vested and non-forfeitable at the date of issuance, the estimated fair value is recorded in additional paid-in capital and expensed when the services are performed and benefit is received as prescribed by ASC 505-50. For unvested warrants of which fair value is more reliably measurable than the fair value of the goods and services received, we expense the change in fair value during each reporting period using the graded vesting method.

We also issue warrants in conjunction with our debt financing, which warrants are also measured using the Black-Scholes pricing model. A portion of the proceeds from debt financing is allocated to warrants and accounted for as additional paid-in capital based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at the time of issuance.

A summary of the activity of our warrants issued to non-employees for the three months ended September 30, 2010 is as follows:

Warrants	Underlying Shares		Weighted- Average Exercise Price
Outstanding at June 30, 2010		10,502,000	$    0.28
Granted		6,158,250	$    0.25
Exercised		--	--
Forfeited or expired		(75,000)	$    0.50
Outstanding at September 30, 2010		16,585,250	$    0.27

We recognized approximately $974,000 in expense related to warrants granted to nonemployees during the three months ended September 30, 2010. Valuation of such warrants was based on the following information:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Volatility factor of the expected market price of the Company’s common stock		160%		160%		160%		156-160%
Expected life (in years) of the warrants		3		3		3		3
Risk-free interest rate		0.81-0.99%		1.46-1.56%		0.81-1.65%		1.21-2.00%
Dividend yield		0%		0%		0%		0%

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Per Share Data

In calculating basic loss per share, net loss is divided by the weighted average number of common shares outstanding for the period. For the periods presented, diluted loss per share is equivalent to basic loss per share. The following table sets forth the computation of basic and diluted loss per share in accordance with ASC 260-10, “Earnings Per Share” (amounts in thousands, except per share data):

	Three Months Ended September 30, 2010		Three Months Ended September 30, 2009		Nine Months Ended September 30, 2010		Nine Months Ended September 30, 2009
Numerator:
Net loss		$  (3,690)		$  (2,578)		$  (8,587)		$  (13,919)
Denominator:
Weighted average shares – basic		52,150		39,762		43,414		29,738
Effect of dilutive securities:
Employee stock options		--		--		--		--
Warrants		--		--		--		--
Weighted average shares – diluted		52,150		39,762		43,414		29,738
Loss per share – basic and diluted		$    (0.07)		$    (0.06)		$    (0.20)		$    (0.47)

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Capitalization Table

As of September 30, 2010

Common Stock (Authorized 100 million shares)	Issued		Reserved		Total
Common Stock issued and outstanding		54,259,803		--		54,259,803
Reserved for convertible debentures(a)		--		13,448		13,448
Reserved for convertible promissory notes(b)		--		10,980,000		10,980,000
Reserved for outstanding stock options(c)		--		2,420,500		2,420,500
Reserved for outstanding warrants(d)		--		26,860,250		26,860,250
Reserved for Series C Convertible Preferred Stock(e)		--		4,554,379		4,554,379
Reserved for Series D Convertible Preferred Stock(f)		--		29,000,000		29,000,000
Reserved for future issuance under stock option plans		--		9,511,668		9,511,668
Total shares issued or reserved for issuance		54,259,803		83,340,245		137,600,048
Preferred Stock (Authorized 995,660 shares)	Issued		Reserved		Total
Series C Convertible Preferred Stock(g)		14,400		--		14,400
Reserved for warrants for Series D Convertible Preferred Stock(h)		--		290		290
Total Preferred Stock issued or reserved for issuance		14,400		290		14,690

(a) At September 30, 2010, the remaining debentures are convertible into an aggregate of 13,448 shares of common stock at a conversion price of $45.29 per share. For further information regarding our 7 ¹/2% convertible subordinated debentures see Note 8 “Subordinated Debentures.”

(b) Promissory notes convertible into shares of our common stock totaled $2,770,000 at September 30, 2010. Such notes are convertible at any time at conversion prices ranging from $0.25 to $0.50. See Note 7 “Note Obligations Due within One Year.”

(c) Options to purchase shares of common stock have been issued to employees and non-employee Board of Director members with exercise prices ranging from $0.25 to $2.16, with an average price of $0.52.

(d) Warrants to purchase shares of our common stock have been issued to the following:

• key employees, and

• individuals or companies in exchange for consulting, financial advisory, or investment banking services in lieu of cash compensation.

(e) The Series C Convertible Preferred Stock is convertible directly into 4,554,379 shares of our common stock. This class of preferred stock controls five out of the nine seats on our Board of Directors.

(f) Once issued, shares of Series D Convertible Preferred Stock are convertible into shares of common stock at any time.

(g) The Series C Convertible Preferred Stock was issued in June 2009 as a result of the conversion of the Series B-1 Convertible Preferred Stock.

(h) During 2009, our directors and senior management were issued warrants to purchase an aggregate of 390 shares of Series D Convertible Preferred Stock. One warrant for the purchase of 100 shares of Series D Convertible Preferred Stock was cancelled in July 2009. Warrants outstanding at September 30, 2010 may be exercised to purchase 290 shares of Series D Convertible Preferred Stock, which convert into 29,000,000 shares of common stock at a strike price of $25,000 per share (equal to $0.25 per common share). Each share of Series D Convertible Preferred Stock is entitled to 500,000 votes per share in a stockholder vote.

NOTE 3 – LIQUIDITY

During the nine months ended September 30, 2010, cash and cash equivalents increased by a net of approximately $0.3 million, attributable primarily to $1.5 million in cash provided by the sale of our stock in private placements and $1.9 million in net proceeds from the issuance of note obligations, offset primarily by $2.8 million in cash used in operating activities, $135,000 paid to acquire the remaining outstanding stock of one of our subsidiaries held by a third party, and $154,000 in investments in equipment and software.

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At September 30, 2010, cash and cash equivalents were approximately $1.0 million. We had a working capital deficit of $14.0 million at September 30, 2010 and an operating loss of $7.3 million for the nine months ended September 30, 2010. We believe that with our existing contracts plus the possible addition of new contracts we are seeking and the expected continued financial support from our major shareholders, that we will be able to reduce our operating losses and sustain our current operations over the next 12 months. We are looking at various sources of financing if operations cannot support our ongoing plan; however, there are no assurances that we will be able to find such financing in the amounts or on terms acceptable to us, if at all. Failure to obtain sufficient debt or equity financing, and, ultimately, to achieve profitable operations and positive cash flows from operations during 2010, would adversely affect our ability to achieve our business objectives and continue as a going concern. There can be no assurance as to the availability of any additional debt or equity financing, the ability or likelihood of obtaining the new contracts we are seeking, or that we will be able to achieve profitable operations and positive cash flows. These conditions raise doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

Although management believes that our current cash position plus the expected continued support of our major stockholders will be sufficient to meet our current levels of operations, additional cash resources may be required should we wish to accelerate sales or complete one or more acquisitions. Additional cash resources may be needed if we do not meet our sales targets, cannot refinance our debt obligations, exceed our projected operating costs, or incur unanticipated expenses. We do not currently maintain a line of credit or term loan with any commercial bank or other financial institution and have not made any arrangements to obtain such additional financing. We can provide no assurance that we will not require additional financing or that we will be able to refinance our existing debt obligations in the event such refinancing should be needed or advisable. Likewise, we can provide no assurance that if we need additional financing that it will be available in an amount or on terms acceptable to us, if at all. If we are unable to obtain additional funds when they are needed, or if such funds cannot be obtained on terms favorable to us, we may be unable to execute our business plan or pay our costs and expenses as they are incurred, which could have a material adverse effect on our business, financial condition and results of operations.

Our unpaid claims liability is estimated using an actuarial paid completion factor methodology and other statistical analyses. These estimates are subject to the effects of trends in utilization and other factors. Any significant increase in member utilization that falls outside of our estimations would increase healthcare operating expenses and may impact our ability to achieve and sustain profitability and positive cash flow. Although considerable variability is inherent in such estimates and no assurances can be given that such variability will not be significant, we believe that our unpaid claims liability is adequate. However, actual results could differ from the $5.5 million claims payable amount reported as of September 30, 2010.

NOTE 4 – GOODWILL AND INTANGIBLE ASSETS

On January 20, 2009, CompCare acquired Core, a privately held company, through a merger and in exchange for CompCare common and convertible preferred stock. As a result of the merger, the former Core stockholders as a collective group obtained voting control of CompCare. Consequently, the transaction was accounted for as a reverse acquisition with Core designated as the accounting acquirer and CompCare as the predecessor.

The assets acquired by Core included identifiable intangible assets, such as CompCare’s customer contracts, provider network, and its accreditation from the National Committee for Quality Assurance (“NCQA”). Identifiable intangible assets were valued using either an income or cost approach, while the other assets acquired and liabilities assumed were recorded at their carrying values, which approximated their fair values.

Customer contracts

We valued customer contracts with an income approach based on a discounted cash flow analysis utilizing management’s best estimates of inherent assumptions such as the discount rate and expected life of the contract.

Provider network

We used a cost approach that estimated the average cost to recruit a provider derived from historical external costs and multiplied by the number of providers existing at acquisition.

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NCQA accreditation

Utilizing a cost approach, we estimated the value of CompCare’s NCQA accreditation as the sum of the fee charged by the NCQA plus the estimated internal and external costs of preparing for the review.

In January 2009, prior to acquiring CompCare, Core purchased a 49% interest in CompCare for $1,500,000, yielding an implied purchase price of $3,071,000 for the entire company. In accordance with ASC 805-10, “Business Combinations,” the implied purchase price of CompCare was first allocated to the fair value of CompCare’s assets and liabilities, including identifiable intangible assets. The excess of implied purchase price over the fair value of net assets acquired was assigned to goodwill. Goodwill related to this acquisition is not deductible for tax purposes and in accordance with ASC 350-20, “Intangibles – Goodwill and Other,” is not amortized, but instead is subject to periodic impairment tests. Identifiable intangible assets with definite useful lives are amortized on a straight-line basis over three years, which approximates their remaining lives. Deferred tax liabilities resulting from the difference between the assigned values and tax bases of identifiable intangible assets were not recorded due to net operating loss carryforwards.

The following table summarizes the allocation of implied purchase price to the assets acquired and liabilities assumed at the acquisition date (amounts in thousands):

			January 20, 2009
Implied purchase price				$    3,071
Less: recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	522
Trade accounts receivable	616
Other current assets	325
Intangible assets:
Customer contracts	800
NCQA accreditation	500
Provider networks	434
Property and equipment	230
Other non-current assets	322
Accounts payable and accrued liabilities	(2,156	)
Accrued claims payable	(5,637	)
Long-term debt	(2,444	)
Other liabilities and non-controlling interest	(2,591	)
Total identifiable net assets				(9,079	)
Goodwill from acquisition of CompCare				$    12,150

NOTE 5 – SOURCES OF REVENUE

Our revenue can be segregated into the following significant categories (amounts in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Capitated contracts		$    6,020		$    2,757		$    13,946		$    8,143
Administrative services only contracts		591		600		1,642		1,696
Pharmacy contracts		1,287		202		1,727		572
Other		3		9		29		18
Sub total		$    7,901		$    3,568		$    17,344		$    10,429
Less: Pre-acquisition revenues		--		--		--		710
Total		$    7,901		$    3,568		$    17,344		$    9,719

Under our capitated contracts, we assume the financial risk for the costs of member behavioral healthcare services in exchange for a fixed, per member per month fee. Under our ASO only contracts, we may manage behavioral healthcare programs or perform various managed care functions, such as clinical care management,

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provider network development and claims processing without assuming financial risk for member behavioral healthcare costs. Under our pharmacy contracts, we manage behavioral pharmaceutical services for the members of health plans on a capitated or ASO basis. Other revenues represent commissions earned through the sale of durable goods.

NOTE 6 – MAJOR CUSTOMERS/CONTRACTS

(1) We currently provide behavioral healthcare services to approximately 224,000 members of a health plan providing Medicaid and Medicare benefits. Services are provided on a capitated and ASO basis. The contract accounted for 16.9% of our revenues for the nine month period ended September 30, 2010 and 22.4% of our revenues for the nine months ended September 30, 2009. The health plan has been a customer since June of 2002. The initial contract was for a one-year period and has been automatically renewed on an annual basis. Either party may terminate upon 90 days written notice to the other party.

(2) We currently contract with a health plan to provide behavioral healthcare services to approximately 231,000 Medicaid and Medicare members on a capitated and ASO basis. Our contract with the health plan accounted for 20.9% of our operating revenues for the nine months ended September 30, 2010 and 27.1% of our operating revenues for the nine months ended September 30, 2009. The initial contract was for a one-year term and has been automatically renewed on an annual basis since 2003. In September 2010, the client provided notice that one of its affiliates would manage its behavioral health care benefits and, as a result, will discontinue contracting with us effective December 31, 2010.

(3) We currently furnish behavioral healthcare services to approximately 91,000 CHIP and Medicaid members on a capitated basis under a contract that began in April 2010. This contract accounted for 15.6% of our operating revenues during the nine months ended September 30, 2010. The term of the contract is for one year and nine months and will automatically renew at the end of the initial term and annually thereafter unless either party provides written notice of termination to the other party at least 90 days in advance of the then current termination date.

(4) On September 18, 2010, we began providing mental health and substance abuse services and pharmacy prescription drugs management services to approximately 185,000 members of a health plan in Puerto Rico on a capitated basis. The contract accounted for 20.5% of our revenues for the three months ended September 30, 2010 and 9.3% of our revenues for the nine months ended September 30, 2010. The contract has an initial two year term with automatic renewals for additional one year terms unless either party provides 90 days prior written notice of its intention not to renew the agreement.

In general, our contracts with our customers have one or two year initial terms, with automatic annual extensions. Such contracts generally provide for cancellation by either party upon 60 to 90 days written notice or the right to request a renegotiation of terms under certain circumstances. No assurance can be given that we will be able to renegotiate any such terms if we make such a request.

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NOTE 7 – NOTE OBLIGATIONS DUE WITHIN ONE YEAR

Note obligations due within one year consist of the following (amounts in thousands):

	September 30, 2010	December 31, 2009
7 1/2% convertible subordinated debentures due April 2010, interest payable semi-annually in April and October (1)	$    609	2,244
10% callable convertible promissory note due June 2010 (2)	--	2,000
10% callable promissory notes/zero coupon promissory notes due May 2010 (3)	--	200
10% convertible promissory notes due November 2010 (4)	90	150
10% callable convertible promissory notes issued with detachable warrants and no specified maturity date (5)	--	300
7% convertible promissory notes due March 2011 (6)	150	--
24% convertible promissory notes issued with detachable warrants due April and June 2011 (7)	2,100	--
Zero coupon convertible promissory note due November 2010 (8)	230	--
9% promissory note due December 2010 (9)	250	--
8% promissory note due October 2010 (10)	50	--
Total note obligations due within one year before discount	3,479	4,894
Less: Unamortized discount on notes payable	(290)	(173)
Total note obligations due within one year	$    3,189	4,721

(1) At September 30, 2010, the outstanding debentures were convertible into 13,448 shares of common stock at a conversion price of $45.29 per share. Approximately 74%, or $1.7 million, of the debentures outstanding at the maturity date of April 15, 2010 were exchanged for senior promissory notes due April 2012, with an annual interest rate of 10% payable semi-annually in April and October. For further information on the debentures, see Note 8 “Subordinated Debentures.”

(2) In June 2009, we issued a callable convertible promissory note to an existing investor. The note accrued interest at an annual rate of 10% per annum and matured June 24, 2010. On the maturity date, the principal plus accrued interest was converted into 6,285,714 shares of our common stock at a conversion price of $0.35 as payment in full of the outstanding principal balance of the note and all accrued interest thereon.

(3) In October 2009, we issued a $100,000 promissory note to each of two individuals. At issuance the notes bore interest at an annual rate of 10% with interest payable at maturity. In March 2010, the notes plus accrued interest of approximately $8,000 were exchanged for zero coupon notes, each with a face value of $115,000. Both notes were repaid in May 2010. The effective return to each investor on the zero coupon notes was 56.2% and we recognized approximately $22,000 in interest expense for each note during the nine months ended September 30, 2010.

(4) In November 2009, we issued convertible promissory notes in the amounts of $100,000 and $50,000 to two individuals, respectively. The notes bear interest at an annual rate of 10% with interest payable quarterly in arrears. At the option of the note holders, all or a portion of the principal and accrued but unpaid interest may be converted into shares of our common stock at maturity or at any time prior to maturity at a conversion price of $0.25 per share. At maturity, the balance of the notes and accrued but unpaid interest not converted into shares of our common stock will be repaid. As of September 30, 2010, we had partially redeemed $60,000 of the $100,000 convertible promissory note.

(5) In December 2009, we issued $100,000 convertible promissory notes to each of three individuals. The notes had no stated maturity date but were callable by the note holder with five days notice. We repaid two of the notes in January 2010 and the remaining note in May 2010. The notes each bore interest at an annual rate of 10% and were convertible into our shares of common stock at any time at a conversion price of $0.25 per share. In conjunction with the loans, each note holder received a warrant to purchase 200,000 shares of our common stock at $0.25 per share. The warrants were vested upon issuance and have terms of three years. We allocated the proceeds from the notes into two components, debt and warrants, based on their relative fair values. The warrants were valued at approximately $89,000 in the aggregate using the Black-Scholes option valuation model. We also determined that the convertible

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

promissory notes contained beneficial conversion features valued at $84,000 in the aggregate. The values of the warrants and beneficial conversion features were recorded as a discount on notes payable. At the stated interest rate of 10%, we recognized approximately $4,000 of interest expense for the nine months ended September 30, 2010. For accounting purposes we also recognized approximately $173,000 of interest expense attributable to the amortization of the discount recorded on the notes. The overall theoretical return to the investor, computed taking into account the coupon, the beneficial conversion feature and the warrants, was 2,179.2%.

(6) In March 2010, we issued two one-year convertible promissory notes: $100,000 to one individual and $50,000 to one entity. The notes bear interest at an annual rate of 7%, payable quarterly in arrears. At the option of the note holders, the principal and accrued but unpaid interest may be converted into common stock of the Company at a conversion price of $0.25 and $0.50 per share, respectively. In conjunction with the loans, the note holders received warrants to purchase an aggregate of 75,000 shares of our common stock at $0.75 per share. The warrants were vested upon issuance and have a three-year term. We allocated the proceeds from the notes into two components, debt and warrants, based on their relative fair values. The warrants were valued at approximately $14,000 using the Black-Scholes option valuation model. We also determined that the convertible promissory note contained beneficial conversion features valued at $13,000. The values of the warrants and beneficial conversion features were recorded as discount on notes payable. At the stated interest rate of 7%, we recognized approximately $2,600 and $5,800 of interest expense for the three and nine months ended September 30, 2010, respectively. For accounting purposes we also recognized approximately $6,500 and $13,900 of interest expense for the three and nine months ended September 30, 2010, respectively, which is attributable to the amortization of the discount recorded on the notes. The overall theoretical return to the investor, computed taking into account the coupon, the beneficial conversion feature and the warrants, is 28.1%.

(7) In April and June 2010, we issued two one-year convertible promissory notes: $100,000 and $2,000,000 to two of our shareholders. The notes bear interest at the annual rate of 24%, payable quarterly in arrears. The principal and accrued interest may be converted at any time prior to maturity into our common stock at a conversion price of $0.25 per share. In conjunction with the loans, the note holders received warrants to purchase an aggregate of 1,050,000 shares of our common stock at $0.25 per share. The warrants were vested upon issuance and have a five-year term. We allocated the proceeds from the notes into two components, debt and warrants, based on their relative fair values. The warrants were valued at approximately $220,000 using the Black-Scholes option valuation model. We also determined that the convertible promissory notes contained beneficial conversion features valued at $168,000. The allocated value of the warrants and the value of beneficial conversion features were recorded as a discount on notes payable. At the stated interest rate of 24%, we recognized approximately $127,000 and $166,000 of interest expense for the three and nine months ended September 30, 2010. For accounting purposes we also recognized approximately $80,000 and $103,000 of interest expense for the three and nine months ended September 30, 2010, which is attributable to the amortization of the discount recorded on the notes. As of September 30, 2010, interest of approximately $143,000 was due and not yet paid. The overall theoretical return to the investors, computed taking into account the coupon, the beneficial conversion feature and the warrants, is 46.1%.

(8) In February 2010, we issued a zero coupon convertible promissory note with a face value of $220,000 for net proceeds of $200,000 and a maturity date in April 2010. The net proceeds of $200,000 included an issuance fee of $6,000 plus a yield of 24%. The original note was replaced with new notes in April and August 2010. The note holder may elect to convert all or a portion of the face value of the note into our common stock at a conversion price of $0.25 per share. For the nine months ended September 30, 2010, approximately $69,000 of interest expense was recognized related to the accretion to its carrying value. The overall return to the investor inclusive of the issuance fee was 51.8%. At the note’s maturity in August 2010, it was replaced by a new note of similar terms with a face value of $230,000 and a maturity date in November 2010.

(9) In March 2010, we issued to an individual a zero coupon convertible promissory note with a face value of $250,000 for net proceeds of $200,000 and a maturity date in May 2010. The net proceeds of $200,000 include an issuance fee of $42,000 plus a yield of 24%. In May 2010, the note’s maturity was extended to July 2010 for an additional fee of 200,000 shares of our common stock, which were issued on July 9, 2010. In July 2010, the note’s maturity was further extended to September 2010 for a fee of 300,000 shares of our common stock, issued on September 15, 2010. The note due in September 2010 was again extended to December 2010 in exchange for a monthly interest payment of 9% per annum. For the nine months ended September 30, 2010, we accreted its carrying value approximately $8,000 to interest expense with an overall return to the investor of 14.9%, exclusive of the value of our common stock which approximates $87,000.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

(10) On July 8, 2010, we entered into a settlement agreement with MDwise, Inc. (“MDwise”) whereby MDwise would relinquish all claims against us in exchange for four payments of $50,000 to be paid by us during the remainder of 2010. As security for our obligation to make the payments, we issued to MDwise a promissory note in the amount of $350,000 bearing interest at the rate of 8% per annum. If the four installments of $50,000 are paid as scheduled, the promissory note will be cancelled and all disputes between the parties will be considered resolved. The last payment of $50,000 was made in October 2010. As a result, the note was later cancelled with no interest payment.

NOTE 8 – SUBORDINATED DEBENTURES

We were unable to repay our 7 ¹/2% convertible subordinated debentures in the amount of $2,244,000 of principal or to pay the final interest installment of $84,150 on the debentures’ maturity date of April 15, 2010. However, we have reached agreement with certain owners of the debentures representing approximately 74%, or $1.7 million, of the debentures to cancel such debentures in exchange for the issuance by us of senior promissory notes, warrants to purchase our common stock, and cash payments of approximately $86,000 in the aggregate. The senior promissory notes bear interest at a rate of 10% per annum, payable semiannually on April 15 and October 15 of each year through April 15, 2012, the maturity date of the senior promissory notes. The warrants allow for the purchase of an aggregate of approximately 6.8 million shares of our common stock at an exercise price of $0.25 per share. All of the warrants have five year terms and are currently exercisable. We are not able to estimate the financial effect resulting from a state of default with respect to the debentures held by the remaining bond holders.

NOTE 9 – SALE OF SUBSIDIARY

On February 28, 2010, Core sold Direct Ventures International, Inc. (“DVI”), a Core subsidiary, to its former owner in exchange for 2.1 million shares of CompCare common stock. The former owner took possession of all assets and assumed certain liabilities as of February 28, 2010. We canceled the reacquired shares and recorded a gain on the sale of approximately $0.5 million, which was credited directly to the retained earnings of Core.

NOTE 10 – COMMON STOCK

During the three months ended September 30, 2010, the number of our shares of common stock outstanding changed due to the following activity:

• On July 9, 2010, we issued 200,000 shares of our common stock to a note holder of the Company in lieu of cash paid for interest.

• On July 27, 2010 we sold 4,600,000 shares of our common stock to an existing investor in the Company for aggregate proceeds of $1,150,000.

• On August 12, 2010, we sold 1,000,000 shares of our common stock in a private placement transaction to one accredited investor for aggregate proceeds of $250,000.

• On September 12, 2010, we issued 80,000 shares of our common stock to a consultant who accepted the shares in lieu of $20,000 of cash compensation.

• On September 15, 2010, we issued 300,000 shares of our common stock to a note holder of the Company in lieu of cash paid for interest.

NOTE 11 – PREFERRED STOCK

We are authorized to issue shares of preferred stock, $50.00 par value (“Preferred Stock”), in one or more series, each series to have such designation and number of shares as the Board of Directors may determine prior to the issuance of any shares of such series. Each series may have such preferences and relative participation, optional or special rights with such qualifications, limitations or restrictions stated in the resolution or resolutions providing for the issuance of such series as may be adopted from time to time by our Board of Directors prior to the issuance of any such series.

As of September 30, 2010, 995,660 shares of our Preferred Stock were authorized and 14,400 shares were issued and outstanding. The outstanding shares consist of Series C Convertible Preferred Stock, $50.00 par value (“Series C Convertible Preferred Stock”), which are convertible into our common stock at the initial rate of

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

approximately 316.28 shares of common stock for each share of Series C Convertible Preferred Stock. The conversion rate is adjustable for any dilutive issuances of common stock occurring in the future. The rights and preferences of the Series C Convertible Preferred Stock include, among other things, the following:

• liquidation preferences;

• dividend preferences;

• the right to vote with the common stockholders on matters submitted to the Company’s stockholders; and

• the right, voting as a separate class, to elect five directors of the Company.

In March 2009, we designated 7,000 shares of Series D Convertible Preferred Stock. No shares of Series D Convertible Preferred Stock are outstanding as of September 30, 2010. Of the 7,000 designated shares, 290 are presently acquirable through the exercise of warrants issued to members of our Board of Directors and certain members of management during 2009. Once issued, a share of Series D Convertible Preferred Stock is convertible at any time after the date of issuance and without the payment of additional consideration into 100,000 shares of common stock, subject to adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization. Each holder of a share of Series D Convertible Preferred Stock is entitled to notice of any stockholders’ meeting and to vote on any matters on which the shares of our common stock may be voted. In a stockholder vote, a share of Series D Convertible Preferred Stock is entitled to the number of votes that the holder of 500,000 shares of common stock would be entitled to by virtue of holding such shares of common stock. Holders of Series D Convertible Preferred Stock also have certain liquidation and dividend preferences.

NOTE 12 – COMMITMENTS AND CONTINGENCIES

(1) A complaint entitled “MDwise, Inc. vs. Comprehensive Behavioral Care, Inc.” was filed against us in April 2009 in the Marion County Superior Court in Indiana by MDwise, a former client located in Indiana. The complaint sought unspecified damages and a declaratory judgment requiring us to pay outstanding provider claims that are allegedly our responsibility under the expired contract. On July 8, 2010, we entered into a settlement agreement with MDwise whereby MDwise would relinquish all claims against us in exchange for four payments of $50,000 to be paid by us during the remainder of 2010. As security for our obligation to make the payments, we issued to MDwise a promissory note in the amount of $350,000 bearing interest at the rate of 8% per annum. During the three months ended September 30, 2010, we paid three installments of $50,000 as scheduled. The last payment was made in October 2010. As a result, the promissory note was cancelled and the complaint was dismissed with prejudice.

(2) We initiated an action against Jerry Katzman in July 2009 in the U.S. District Court for the Middle District of Florida alleging that Mr. Katzman, a former director, fraudulently induced us to enter into an employment agreement and, alternatively, that Mr. Katzman breached that alleged employment agreement. In December 2009, Mr. Katzman filed an answer and counterclaim. The counterclaim requested judgment in Mr. Katzman’s favor and compensatory damages to remedy alleged breaches of contract by us. The matter was tried before a jury on September 27, 2010, and a verdict was rendered by the jury on October 1, 2010. The jury found that Mr. Katzman did not fraudulently induce CompCare to enter into the contract. The jury also found that Mr. Katzman was entitled to no award on his counterclaim. Mr. Katzman and the Company have filed post trial motions. Mr. Katzman also simultaneously initiated litigation in the Delaware Court of Chancery seeking indemnification for his fees and costs incurred, in part, in the litigation described above. The company is vigorously opposing the Delaware litigation and seeking sanctions against Mr. Katzman for frivolous litigation and forum shopping.

In April, 2010, the Company initiated litigation against Mr. Katzman and his domestic partner, Margaret “Peggy” Husted (the “Defendants”), relating to shares of Company stock that the Company contends were improperly issued. The Company asserted claims against the Defendants for violation of various provisions of the Securities Exchange Act, conversion, and breach of fiduciary duty as to Mr. Katzman, only. Discovery in this matter has just begun and the Company will continue to vigorously pursue the recovery of the disputed stock and damages, as appropriate.

(3) On April 5, 2010 a complaint entitled “Inspira Mental Health Management, Inc. v. Comprehensive Behavioral Care, Inc., John Hill, Clark Marcus, Giuseppe Crisafi” was filed in the Court of First Instance, Superior Court of Puerto Rico by Inspira Mental Health Management, Inc. (“Inspira”). The complaint claimed breach of contract and bad faith on the part of CBC with respect to the terms and conditions of the Shareholders Agreement, dated December 8, 2008, between Inspira and CBC and a Memorandum of Understanding, executed July 24, 2008,

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between Inspira and CBC, each relating to CompCare de Puerto Rico, Inc. (“CCPR”). CBC and Inspira owned 51% and 49%, respectively, of the capital stock of CCPR. On July 2, 2010, Inspira and CBC entered into a settlement agreement whereby CBC would, among other things, pay $135,000 to acquire Inspira’s 49% equity interest in CCPR. As part of the acquisition, Inspira would dismiss all claims against CBC and Messrs. Hill, Marcus, and Crisafi. All actions contemplated by the settlement agreement were completed by July 22, 2010 resulting in CCPR becoming a 100% owned subsidiary of CBC.

(4) On September 21, 2010, a complaint entitled “InfoMc, Inc. v. Comprehensive Behavioral Care, Inc. and CompCare de Puerto Rico, Inc.” was filed against us in the U.S. District Court for the Eastern District of Pennsylvania alleging, among other things, that we improperly used InfoMC, Inc.’s trademarks in connection with CompCare de Puerto Rico, Inc’s. proposal to obtain a managed behavioral healthcare services contract in Puerto Rico. The complaint asserts claims for federal trademark infringement, false advertising, unfair competition, conversion, promissory estoppel and unjust enrichment. InfoMC, Inc. is seeking monetary damages in an unspecified amount and certain injunctive relief. We will vigorously defend ourselves against the allegations asserted. However, until the complaint is withdrawn or settled, we will incur legal fees in defending against this action and may be subject to awards of compensatory and other damages, including attorneys’ fees.

(5) In connection with an agreement with a new client to provide mental health and substance abuse services and pharmacy prescription drugs management services in Puerto Rico, we obtained a letter of credit from a bank in the amount of $4,000,000 for the benefit of the client to secure our compliance with our obligations under the agreement. The client may draw on all or part of the letter of credit under certain circumstances, including our lack of compliance with certain of our obligations under the agreement. Collateral for the letter of credit was provided by a major stockholder of the Company. If the client draws upon the letter of credit, we may be liable to our major stockholder for the amount of collateral accessed by the bank to fulfill its obligations under the letter of credit.

Additionally in relation to this Puerto Rico agreement, certain of our companies, specifically, the parent Comprehensive Care Corporation (“CCC”) and principal operating subsidiary, CBC, have executed guarantees of the payment and performance obligations of our subsidiary that is party to the agreement, CCPR. Should CCPR default on its obligations, the client will be able to seek satisfaction under the contract from CCC and CBC.

NOTE 13 – RELATED PARTY TRANSACTIONS

In connection with employment agreements executed with our Chairman and Chief Executive Officer, our former President and Co-Chief Executive Officer, and our Chief Financial Officer, we have deferred compensation owing to these individuals of approximately $368,077, $65,438 and $177,272, respectively, as of September 30, 2010.

On September 24, 2010, we entered into a consulting agreement with our former Co-Chief Executive Officer, John M. Hill, in conjunction with his resignation effective of the same date. The agreement states that in exchange for payments aggregating $250,000 to be paid over the next twelve months, Mr. Hill will perform consulting services to improve the efficiency of our clinical operations. Mr. Hill is a related party to the Company by virtue of the position he held as Co-Chief Executive Officer and his ownership of more than five per cent of our common stock, calculated on a beneficial ownership basis.

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NOTE 14 – SEGMENT INFORMATION

Summary financial information for our two reportable segments and Corporate and other is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Managed Care
Revenues	$	7,898		$	3,559		$	17,315		$	10,411
Gross Margin		350			52			1,801			450
Loss before income taxes		(1,428	)		(905	)		(1,667	)		(1,608	)
Consumer Marketing
Revenues		3			9			29			18
Gross Margin		(2	)		4			1			9
Loss before income taxes		(53	)		(214	)		(353	)		(606	)
Corporate and Other
Revenues		--			--			--			--
Gross Margin		--			--			--			--
Loss before income taxes		(2,178	)		(1,547	)		(6,517	)		(12,428	)
Consolidated Operations
Revenues		7,901			3,568			17,344			10,429
Gross Margin		348			56			1,802			459
Loss before income taxes		(3,659	)		(2,666	)		(8,537	)		(14,642	)
Pre-acquisition loss before income taxes		--			--			--			(720	)
Loss before income taxes – post-acquisition		(3,659	)		(2,666	)		(8,537	)		(13,922	)

NOTE 15 – SUBSEQUENT EVENTS

For the purpose of this disclosure we have evaluated potential subsequent events through the date these financial statements were issued, November 12, 2010. Other than the events previously disclosed in the preceding footnotes, there were no reportable subsequent events.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In addition to historical information, the following information contains forward-looking statements as defined under federal securities laws. Such statements include, but are not limited to, statements concerning the integration of the operations of Core into our business, the impact on revenues and profits that Core is expected to have in marketing its products, the potential represented by ethnic markets and the overall performance of the healthcare market, our anticipated operating results, financial resources, increases in revenues, increased profitability, interest expense, growth and expansion, the ability to obtain new and maintain existing behavioral healthcare contracts and the profitability, if any, of such behavioral healthcare contracts. These statements are based on current expectations, estimates and projections about the industry and markets in which we operate, the customers we serve and management’s beliefs and assumptions. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, changes in local, regional, and national economic and political conditions, the effect of governmental regulation, competitive market conditions, varying trends in member utilization, our ability to manage healthcare operating expenses, our ability to achieve expected results from new business, the profitability of our capitated contracts, cost of care, seasonality, our ability to obtain additional financing, and other risks detailed herein and from time to time in our

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filings with the SEC. The following discussion should be read in conjunction with the accompanying consolidated financial statements and notes thereto of CompCare appearing elsewhere in this report.

OVERVIEW

GENERAL

The Company is a Delaware corporation organized in 1969 that provides health care services and products through its primary operating subsidiaries, CBC and Core.

Primarily through CBC and its subsidiaries, we provide managed healthcare services in the behavioral health and psychiatric fields. Recent federal and state legislation provides a new focus for CBC in specialty behavioral health care areas such as Autism Spectrum Disorders (“ASD”) and Attention Deficit Disorder (“ADD”). Additionally, CBC provides pharmacy and analytic services for its health plan customers to integrate medical claims data and pharmacy data into actionable information so patient care can be coordinated cost effectively. We coordinate and manage the delivery of a continuum of psychiatric and substance abuse services and products to:

— commercial members;

— Medicare members;

— Medicaid members; and

— CHIP members.

on behalf of:

— health plans;

— government organizations;

— third-party claims administrators;

— commercial purchasers; and

— other group purchasers of behavioral healthcare services.

Our customer base includes both private and governmental entities. We provide services primarily through a network of contracted providers that includes:

— psychiatrists;

— psychologists;

— therapists;

— other licensed healthcare professionals;

— psychiatric hospitals;

— general medical facilities with psychiatric beds;

— residential treatment centers; and

— other treatment facilities.

The services provided through our provider network include outpatient programs (such as counseling or therapy), intermediate care programs (such as intensive outpatient programs and partial hospitalization services), inpatient programs and crisis intervention services. We do not directly provide treatment or own any provider of treatment services or treatment facility.

We typically enter into contracts on an annual basis to provide managed behavioral healthcare and substance abuse treatment to our clients’ members. Our arrangements with our clients fall into two broad categories:

— at-risk or capitation arrangements where our clients pay us a fixed fee per member in exchange for our assumption of the financial risk of providing services; and

— ASO arrangements where we manage behavioral healthcare programs or perform various managed care services, such as clinical care management, provider network development, and claims processing without assuming financial risk for member behavioral healthcare costs.

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Under capitation arrangements, the number of covered members as reported to us by our clients determines the amount of premiums we receive, which amount is independent of the cost of services rendered to members. The amount of premiums we receive for each member is fixed at the beginning of our contract term. These premiums under certain circumstances may be subsequently adjusted up or down, generally at the commencement of each renewal period.

Our largest expense is the cost of the behavioral health services that we provide, which is based primarily on our arrangements with healthcare providers. Since we are subject to increases in healthcare operating expenses based on an increase in the number and frequency of our members seeking behavioral care services, our profitability depends on our ability to predict and effectively manage healthcare operating expenses in relation to the fixed premiums we receive under capitation arrangements. Providing services on a capitation basis exposes us to the risk that our contracts may ultimately be unprofitable if we are unable to anticipate or control healthcare costs. Estimation of healthcare operating expense is our most significant critical accounting estimate. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” below.

ANCILLARY PRODUCTS

Through our subsidiaries, including Core, we provide healthcare related ancillary products through various distribution channels.

Our ancillary products include:

Ø     Pharmaceutical Management -	With this product we integrate multiple sets of clinical data to perform an analysis of behavioral pharmaceutical usage and trends to effectively quantify, monitor, strategically plan, and most importantly implement the most effective quality and cost management strategies.
Ø     LifeGuide247™ -	This is a 24-hour service that provides guidance through life’s difficult situations, such as job stress, financial troubles, relationships, grievance and simple legal matters. Service is available online or by telephone.
Ø     Emergency Vital Records -	This product provides access to members’ vital medical records to emergency responders in the case of an emergency. Paramedics and emergency room practitioners can now access a member’s medical records quickly and easily in cases where the member may not be able to provide key information at such a critical time. The product provides answers to 25 key questions patients need to provide an emergency room. We have immediate interest in this product.
Ø     Vision/Dental/Medical -	These are inexpensive discount programs that are low cost to us but provide an excellent annuity.
Ø     Other Insurance Products -	We plan on marketing these insurance products to our existing customer base sometime in the future.
Ø     Pharmacy Discounts -	This is a prescription discount program. The program incorporates two tiers. Tier one is a free card that gives discounts on prescription drugs. Tier two provides deeper discounted rates on name brand and generic prescription drugs. Tier two requires the payment of a monthly fee by members.

RECENT DEVELOPMENTS

Agreement to serve Puerto Rico Medicare Members

On August 13, 2010, CompCare de Puerto Rico, Inc. (“CCPR”), a wholly-owned subsidiary of CBC, entered into an Agreement for the Provision of Services with MMM Healthcare, Inc. and its corporate affiliate PMC Medicare Choice, Inc. (collectively, “MMM/PMC”) to provide on an exclusive basis mental health and substance abuse services

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

and pharmacy prescription drugs management services to members of MMM/PMC’s benefit health plans in Puerto Rico. The agreement became effective on September 18, 2010.

The agreement provides for an initial two year term, with automatic renewals for additional one year terms unless either party gives 90 days prior written notice of its intention not to renew the agreement. In the event MMM/PMC should terminate the agreement without cause, it is required under the terms of the agreement to pay CCPR certain monetary penalties.

Pursuant to the agreement, MMM/PMC is required to pay CCPR a per member per month fee on a capitation basis for certain administrative, mental health and pharmacy management services based on MMM/PMC’s then monthly number of health plan members. The projected annual revenues of CCPR due to this agreement are expected to exceed $45 million with net income from the contract estimated at break-even.

Accordingly, CCPR will be assuming the financial risk of providing the contracted mental health services and psychotropic pharmacy management services. Under certain circumstances we may enter into negotiations to adjust the capitation rates paid to CCPR. No assurance can be given that such negotiations will be fulfilled in our favor.

In connection with the agreement, CBC and CCPR obtained a letter of credit from a bank in the amount of $4,000,000 (the “Letter of Credit”) for the benefit of MMM/PMC to secure CCPR’s compliance with its obligations under the agreement. MMM/PMC may draw on all or part of the Letter of Credit under certain circumstances, including CCPR’s failure to comply with certain of its obligations under the agreement. The collateral for the Letter of Credit was provided by a major stockholder of the Company. The Letter of Credit is to remain in full force during the term of the agreement and for six months thereafter, reducing in amount by $666,666 per month. Additionally, and as part of the agreement, we and our primary operating subsidiary, CBC, executed a guarantee of CCPR’s payment and performance of its obligations under or relating to the agreement.

Pursuant to the agreement, MMM/PMC provided an interest-free advance of $600,000 on September 20, 2010 against any compensation due to CCPR in the final month of the initial contract term. In exchange for the $600,000 advance, the Company issued to an affiliate of MMM/PMC a five-year warrant effective September 18, 2010 to purchase up to 5,000,000 shares of the Company’s common stock at an exercise price of $0.25 per share.

Opening of Puerto Rico office

On September 7, 2010, CompCare launched a full-service office in San Juan, Puerto Rico that provides an on-site customer service call center, care management, claims processing and the administration of special patient requests, including 24/7 access to emergency services. The Puerto Rico office is staffed by 39 employees who are dedicated to serving our Puerto Rico clients and members.

Other Recent Developments

On September 24, 2010, John M. Hill, our then Co-Chief Executive Officer, President and a member of our Board of Directors, upon mutual agreement with our Board, resigned from his position as our Co-Chief Executive Officer, President and as a member of our Board. Clark Marcus thus became the sole Chief Executive Officer of the Company.

On July 22, 2010, we acquired the remaining 49% interest owned by the minority partner in our jointly owned subsidiary, CCPR. CCPR was established in 2008 to develop our managed behavioral health care business in Puerto Rico. With this transaction, we now own 100% of CCPR, positioning the Company to take full advantage of additional opportunities in the Puerto Rico market.

In addition to the aforementioned new contract in Puerto Rico, we added five other new customers to our portfolio of clients during the first three quarters of 2010. In the aggregate, we will manage an additional 250,000 members on a capitated or ASO basis for health plans servicing Medicaid, Medicare, CHIP, and commercial members. We expect revenues of approximately $8 million from these new contracts in 2010, resulting in associated net income of approximately $0.4 million and $0.01 in earnings per share. In 2011, we anticipate revenues of approximately $11 million that will generate net income of approximately $0.6 million and earnings per share of $0.01. Our expectations of the financial performance of these contracts are estimates and are subject to the effects of future trends in utilization and our ability to control costs, among

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

many factors. Accordingly, no assurance can be given that such annual revenues, results of operations, and earnings per share will actually be realized on such contracts.

We were unable to repay our 7 ¹/2% convertible subordinated debentures in the amount of $2,244,000 of principal or to pay the final interest installment of $84,150 on the debentures’ maturity date of April 15, 2010. However, we have reached agreement with certain owners of the debentures representing approximately 74%, or $1.7 million, of the debentures to cancel such debentures in exchange for the issuance by us of senior promissory notes, warrants to purchase shares of our common stock, and cash payments of approximately $86,000 in the aggregate. The senior promissory notes bear interest at a rate of 10% per annum, payable semiannually on April 15 and October 15 of each year through April 15, 2012, the maturity date of the senior promissory notes. The warrants allow for the purchase of an aggregate of approximately 6.8 million shares of our common stock at an exercise price of $0.25 per share. All of the warrants have five year terms and are currently exercisable. We are not able to estimate the financial effect resulting from a state of default with respect to the debentures held by the remaining bond holders.

RESULTS OF OPERATIONS

For the three months ended September 30, 2010, we reported an operating loss of $3.2 million and a net loss of $3.7 million, or $0.07 loss per share (basic and diluted).

The following table summarizes our operating results from continuing operations for the three months ended September 30, 2010 and 2009 (amounts in thousands):

	THREE MONTHS ENDED SEPTEMBER 30,
	2010			2009
Operating revenues:
Managed care		$    7,898			$    3,559
Consumer marketing		3			9
Total revenues		7,901			3,568
Costs of services and sales:
Claims expense		6,079			2,605
Other healthcare operating expenses		1,469			902
Other costs of services and sales		5			5
Total costs of services and sales		7,553			3,512
Gross margin		348			56
Other Expenses:
General and administrative expenses		2,259			2,224
Bad debt expense		--			--
Depreciation and amortization		201			187
Total operating expenses		2,460			2,411
Equity based expenses		1,127			212
Total expenses		3,587			2,623
Operating loss before pre-acquisition loss		$    (3,239	)		$    (2,567	)

Managed care revenues increased by 121.9%, or $4.3 million, to $7.9 million for the three months ended September 30, 2010 compared to $3.6 million for the three months ended September 30, 2009, attributable primarily to $3.1 million of new business with customers located in Texas, Wisconsin, Puerto Rico and Louisiana.

Claims expense on capitated contracts increased by approximately $3.5 million, or 133.4%, for the three months ended September 30, 2010, as compared to the three months ended September 30, 2009, due primarily to an increase of $3.9 million in claims expense attributable to the aforementioned new business with customers in Texas, Wisconsin, Puerto Rico and Louisiana. Claims expense as a percentage of capitated revenues decreased from 88.0% for the three months ended September 30, 2009 to 83.2% for the three months ended September 30, 2010 due to rate increases totaling approximately $0.3 million received on two major contracts in Michigan as well as lower utilization of services in Michigan. Other healthcare operating expenses, attributable to servicing both capitated contracts and ASO contracts, increased by 62.9%, or approximately $567,000, due primarily to costs associated with opening a new office location in Puerto Rico during the three months ended September 30, 2010. Overall, gross margin increased by

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

$292,000 from $56,000 for the three months ended September 30, 2009 to $348,000 for the three months ended September 30, 2010.

The following table summarizes our operating results from continuing operations for the nine months ended September 30, 2010 and 2009 (amounts in thousands):

	NINE MONTHS ENDED SEPTEMBER 30,
	2010			2009
Operating revenues:
Managed care		$    17,315			$    10,411
Consumer marketing		29			18
Total revenues		17,344			10,429
Costs of services and sales:
Claims expense		11,696			6,893
Other healthcare operating expenses		3,818			3,068
Other costs of services and sales		28			9
Total costs of services and sales		15,542			9,970
Gross margin		1,802			459
Other Expenses:
General and administrative expenses		6,506			4,994
Bad debt expense		--			4
Depreciation and amortization		553			498
Total operating expenses		7,059			5,496
Merger transaction costs		--			589
Equity based expenses		2,031			8,813
Total expenses		9,090			14,898
Operating loss before pre-acquisition loss		$    (7,288	)		$    (14,439	)

Managed care revenues increased 66.3%, or $6.9 million, to $17.3 million for the nine months ended September 30, 2010 compared to $10.4 million for the nine months ended September 30, 2009. The increase is primarily attributable to $5.0 million of new business from customers located in Texas, Wisconsin, Puerto Rico and Louisiana and approximately $1.3 million of additional revenue from existing customers in Michigan.

Claims expense on capitated contracts increased approximately 69.7%, or $4.8 million, for the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009, due primarily to an increase of $5.8 million in claims expense attributable to the aforementioned new business with customers in Texas, Wisconsin, Puerto Rico and Louisiana, offset by a reduction of $1.2 million of claims expense following a settlement with a former customer. The claims expense reduction resulting from the settlement also accounted for the decrease in claims expense as a percentage of capitated revenues, which decreased from 79.1% for the nine months ended September 30, 2009 to 74.6% for the nine months ended September 30, 2010. Other healthcare operating expenses, attributable to servicing both capitated contracts and ASO contracts, increased 24.4%, or approximately $750,000, due primarily to costs associated with opening a new office location in Puerto Rico, higher physician case review fees, and costs related to increasing the size of our employee base to accommodate expected growth prospects in the near future. Overall, gross margin increased by $1.3 million from $459,000 for the nine months ended September 30, 2009 to $1.8 million for the nine months ended September 30, 2010.

General and administrative expenses increased by 30.3%, or approximately $1.5 million, for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009, due primarily to settlement expenses, legal fees, and costs related to increasing the size of the executive management team to accommodate expected growth prospects in the near future.

We had no merger transaction costs for the nine months ended September 30, 2010 compared to $589,000 incurred during the nine months ended September 30, 2009, which consisted primarily of financial advisory and legal fees. Equity based expenses of $2.0 million recorded in the nine months ended September 30, 2010 are comprised of $874,000 of expenses related to stock options and warrants granted to employees and directors and $1.2 million of expenses for stock options and warrants issued to consultants and clients. Equity based expenses of $8.9 million in

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2009 is comprised of $8.2 million of expenses related to stock options and warrants granted to employees and directors, $500,000 of expenses for stock options and warrants issued to consultants, and $91,000 of expenses due to the early vesting of stock options as a result of the change in control.

SEASONALITY OF BUSINESS

Historically, we have experienced increased member utilization during the months of March, April and May and consistently low utilization by members during the months of June, July, and August. Such variations in member utilization impact our costs of care during these months, generally having a positive impact on our gross margins and operating profits during the June through August period and a negative impact on our gross margins and operating profits during the months of March through May.

CONCENTRATION OF RISK

For the nine months ended September 30, 2010, approximately 54.0% of our operating revenue was concentrated in contracts with three health plans to provide behavioral healthcare services under CHIP, Medicare and Medicaid plans. In addition, 43.2% of our operating revenue was attributable to health plan clients servicing Medicaid members in the state of Michigan. The terms of the contracts ranged from one to two years and are automatically renewable for additional one-year periods unless terminated by either party by giving the requisite written notice.

On September 23, 2010, we received notice from a major customer located in Michigan serving Medicaid and Medicare members that it would manage its members’ behavioral health care benefits through an affiliate and consequently discontinue contracting with us effective December 31, 2010. Revenues from this client accounted for 20.9% of our operating revenues for the nine months ended September 30, 2010 and 27.1% of our operating revenues for the nine months ended September 30, 2009. The loss of further clients in which our revenue is concentrated, unless replaced by new business, would have a material negative impact on us.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

Our primary source of liquidity on an on-going basis consists of the monthly capitation payments we receive from our clients for providing managed care services. Based on historical experience, there is a high degree of certainty with respect to the reliability and timing of these payments from continuing contracts. However, the expiration of existing contracts or commencement of new contracts may cause our operational cash flow to vary significantly.

Our external sources of funds consist primarily of borrowings, lease financing, and the use of our common stock as a form of liquidity:

Borrowings. We have used on an as-needed basis unsecured loans from individuals and companies to meet on-going working capital needs. The duration of the borrowings has ranged from one week to three years, with stated interest rates ranging from 7% to 24%. Certain of the loans have contained features such as the ability to convert all or a portion of the loan into our common stock, or have had a warrant for the purchase of our common stock issued in conjunction with the loan, or both. During the nine months ended September 30, 2010, we obtained approximately $3.6 million in loans to fund our operations, of which $1.5 had been repaid at September 30, 2010. Repayments of borrowings were made with cash generated from operations and new borrowings. Future repayments are expected to be made from similar sources.

A further source of liquidity via borrowing is the renegotiation of a portion of our convertible subordinated debentures that were due in full on April 15, 2010. We were not able to repay the debentures on the due date, but have converted approximately $1.7 million, or 74%, of the outstanding debentures to three-year senior promissory notes with an interest rate of 10%.

Lease Financing. Liquidity has also been provided by the use of lease financing to acquire capital equipment. The leases are secured by the equipment acquired, have implied interest rates ranging from 13.4 to 18.6% and have 36 and 48 month terms. During the nine months ending September 30, 2010, we financed through capital leases the acquisition of approximately $419,000 of software and equipment.

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Sales of common stock. We periodically sell our common stock in private placements. The funds from such sales have been used for working capital purposes. During the nine months ended September 30, 2010, we raised approximately $1.5 million through the sale of our common stock.

Use of common stock in lieu of cash. Certain vendors and note holders have accepted our common stock as payment for services, interest and debt. During the nine months ended September 30, 2010, we avoided cash outlays of approximately $2.4 million for services, interest and debt repayment by issuing our common stock.

We do not have any unused sources of liquidity, collateral to use in obtaining a secured loan or line of credit, or access to debt markets. Our ability to continue to borrow funds on an unsecured basis is unknown, as well as our ability to sell our common stock in private placements. With the exception of contracted maturities of debt, there are no other known future liquidity commitments or events. We do not have any off-balance sheet financing arrangements.

The following is a schedule of our contractual commitments as of September 30, 2010:

	Payments Due by Period
	Total		Less Than 1 Year		1 – 3 Years		4 – 5 Years		After 5 Years
	(Amounts in thousands)
Subordinated Debentures (a)		637		637		--		--		--
Debt Obligations (b)		$    5,547		3,759		1,788		--		--
Capital Lease Obligations (c)		735		329		370		36		--
Operating Lease Obligations (d)		290		211		79		--		--
Total		$    7,209		4,936		2,237		36		--

(a) Amount represents the remaining balance plus accrued interest at 10% of our convertible subordinated debentures for which we have not been able to convert to senior promissory notes. We were unable to repay our subordinated debentures in the amount of $2,244,000 of principal on the debentures’ maturity date of April 15, 2010. However, we have reached agreement with certain owners of the debentures representing approximately 74%, or $1.7 million, of the debentures to cancel such debentures in exchange for the issuance by us of 10% senior promissory notes. At September 30, 2010, the resolution of the remaining debentures is unknown.

(b) Represents amounts due under promissory notes, zero-coupon promissory notes, and the senior promissory notes issued as a result of conversions of certain of our subordinate debentures.

(c) Capital lease obligations is secured debt incurred under non-cancelable financing leases of computer hardware, telecommunications equipment, and computer software.

(d) Represents amounts due under non-cancelable rental agreements for office equipment and building office space.

During the nine months ended September 30, 2010, cash and cash equivalents increased by a net of approximately $0.3 million, attributable primarily to $1.5 million in cash provided by the sale of our stock in private placements and $1.9 million in net proceeds from the issuance of note obligations, offset by $2.8 million in cash used in operating activities, $135,000 paid to acquire the stock of a jointly owned subsidiary held by a third party, and $154,000 in investments in equipment and software.

At September 30, 2010, cash and cash equivalents were approximately $1.0 million. We had a working capital deficit of $14.0 million at September 30, 2010 and an operating loss of $7.3 million for the nine months ended September 30, 2010. We expect that with our existing contracts plus the possible addition of new contracts we are seeking and the expected continued financial support from our major stockholders, that we will be able to reduce our operating losses and sustain current operations over the next 12 months. We are looking at various sources of financing if operations cannot support our ongoing plan; however, there are no assurances that we will be able to find such financing in the amounts or on terms acceptable to us, if at all. Failure to obtain sufficient debt or equity financing, and, ultimately, to achieve profitable operations and positive cash flows from operations during 2010 would adversely affect our ability to achieve our business objectives and continue as a going concern. There can be no assurance as to the availability of any additional debt or equity financing, or that we will be able to achieve profitable operations and positive cash flows. These conditions raise doubt about our ability to continue as a going concern.

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The accompanying consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

Although management believes that our current cash position plus the expected continued support of our major stockholders will be sufficient to meet our current levels of operations, additional cash resources may be required should we wish to accelerate sales or complete one or more acquisitions. Additional cash resources may be needed if we do not meet our sales targets, cannot refinance our debt obligations, exceed our projected operating costs, or incur unanticipated expenses. We do not currently maintain a line of credit or term loan with any commercial bank or other financial institution and have not made any arrangements to obtain such additional financing. We can provide no assurance that we will not require additional financing or that we will be able to refinance our existing debt obligations in the event such refinancing should be needed or advisable. Likewise, we can provide no assurance that if we need additional financing that it will be available in an amount or on terms acceptable to us, if at all. If we are unable to obtain additional funds when they are needed, or if such funds cannot be obtained on terms favorable to us, we may be unable to execute our business plan or pay our costs and expenses as they are incurred, which could have a material adverse effect on our business, financial condition and results of operations.

Our unpaid claims liability is estimated using an actuarial paid completion factor methodology and other statistical analyses. These estimates are subject to the effects of trends in utilization and other factors. Any significant increase in member utilization that falls outside of our estimations would increase healthcare operating expenses and may impact our ability to achieve and sustain profitability and positive cash flow. Although considerable variability is inherent in such estimates and no assurances can be given that such variability will not be significant, we believe that our unpaid claims liability is adequate. However, actual results could differ from the $5.5 million claims payable amount reported as of September 30, 2010.

CRITICAL ACCOUNTING ESTIMATES

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

We believe our accounting policies specific to revenue recognition, accrued claims payable, premium deficiencies, goodwill, and equity based expense involve our most significant judgments and estimates that are material to our consolidated financial statements (see Note 1 “Description of the Company’s Business and Basis of Presentation” to the unaudited, interim, condensed, consolidated financial statements).

REVENUE RECOGNITION

We provide managed behavioral healthcare and substance abuse services to recipients, primarily through subcontracts with health plans. Revenue under the vast majority of these agreements is earned and recognized monthly based on the number of covered members as reported to us by our clients regardless of whether services actually provided are lesser or greater than anticipated when we entered into such contracts (generally referred to as capitated arrangements). The information regarding the number of covered members is supplied by our clients and we review membership eligibility records and other reported information to verify its accuracy in calculating the amount of revenue to be recognized. Consequently, the vast majority of our revenue is determined by the monthly receipt of covered member information and the associated payment from the client, thereby removing uncertainty and precluding us from needing to make assumptions to estimate monthly revenue amounts.

During the nine months ended September 30, 2010, we entered into a contract to provide autism treatment services to a health plan’s membership for which there was no historical claims data. In the absence of data upon which to base pricing, we included cost sharing/cost savings provisions in the agreement with the health plan whereby we share in the additional cost or cost savings when comparing actual claims costs to the estimated claims costs incorporated into the contract’s pricing. Accordingly, we may adjust our revenue periodically as claims data becomes available to permit a comparison of actual claims costs to targeted claims costs. Such adjustments are made when we believe such adjustments are probable and reasonably estimable, but are subject to the effects of unforeseen fluctuations in utilization, among other factors.

We may experience adjustments to our revenues to reflect changes in the number and eligibility status of members subsequent to when revenue is recognized. Subsequent adjustments to our revenue have not been material to date.

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ACCRUED CLAIMS PAYABLE AND COST OF CARE

Cost of care includes amounts paid to hospitals and treatment facilities, healthcare professionals, physician groups and other managed care organizations under capitated contracts and healthcare expenses which include items such as information systems, case management and quality assurance, attributable to both capitated and ASO contracts.

The cost of behavioral health services is recognized in the period in which an eligible member actually receives services and includes an estimate of IBNR. We contract with various healthcare providers including hospitals, physician groups and other managed care organizations either on a discounted fee-for-service or a per-case basis. We determine that a member has received services when we receive a claim within the contracted timeframe with all required billing elements correctly completed by the service provider. We then determine whether (1) the member is eligible to receive such services, (2) the service provided is medically necessary and is covered by the benefit plan’s certificate of coverage, and (3) the service has been authorized by one of our employees. If all of these requirements are met, the claim is entered into our claims system for payment and the associated cost of behavioral health services is recognized. If the claim is denied, the service provider is notified and has appeal rights under their contract with us.

Accrued claims payable consists primarily of reserves established for reported claims and IBNR claims, which are unpaid through the respective balance sheet dates. Our policy is to record management’s best estimate of IBNR. The IBNR liability is estimated monthly using an actuarial paid completion factor methodology and is continually reviewed and adjusted, if necessary, to reflect any change in the estimated liability as more information becomes available. In deriving an initial range of estimates, we use an industry accepted actuarial model that incorporates past claims payment experience, enrollment data and key assumptions such as trends in healthcare costs and seasonality. Authorization data, utilization statistics, calculated completion percentages and qualitative factors are then combined with the initial range to form the basis of management’s best estimate of the accrued claims payable balance.

The accrued claims payable ranges were between $5.3 and $5.5 million at September 30, 2010 and between $4.6 and $4.7 million at December 31, 2009. Based on the information available, we determined our best estimate of the accrued claims liability to be $5.5 million at September 30, 2010 and $4.7 million at December 31, 2009. We have used the same methodology and assumptions for estimating the IBNR portion of the accrued claims liability for the last three years.

Accrued claims payable at September 30, 2010 and December 31, 2009 are comprised of approximately $2.1 million and $2.7 million, respectively, of submitted and approved claims, which had not yet been paid, and $3.4 million and $2.0 million for IBNR claims, respectively.

Many aspects of our managed care business are not predictable with consistency, and, as a result, estimating IBNR claims involves a significant amount of management judgment. Actual claims incurred could differ from the estimated claims payable amount presented. The following are factors, among others, that would have an impact on our future operations and financial condition:

• changes in utilization patterns;

• changes in healthcare costs;

• changes in claims submission timeframes by providers;

• success in renegotiating contracts with healthcare providers;

• occurrence of catastrophes;

• changes in benefit plan design; and

• the impact of present or future state and federal regulations.

By way of example, a 5% increase in assumed healthcare cost trends from those used in our calculations of IBNR at September 30, 2010 could increase our claims expense by approximately $64,000 and reduce our net results as illustrated in the table below:

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Change in Healthcare Costs:
(Decrease)   Increase	(Decrease) Increase In Claims Expense
(5%)		($64,000)
5%		$64,000

PREMIUM DEFICIENCIES

We accrue losses under our managed care contracts when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. We perform this loss accrual analysis on a contract-by-contract basis taking into consideration such factors as future contractual revenue, projected future healthcare and maintenance costs, and each contract’s specific terms related to future revenue increases as compared to expected increases in healthcare costs. The projected future healthcare and maintenance costs are estimated based on historical trends and our estimate of future cost increases.

We generally have the ability to cancel a contract with 60 to 90 days written notice or request a renegotiation of terms under certain circumstances, if a managed care contract is not meeting our financial goals. Prior to a cancellation, we typically submit a request for a rate increase accompanied by supporting utilization data. Although our clients have historically been generally receptive to such requests, no assurance can be given that such requests will be fulfilled in the future in our favor. If a rate increase is not granted, we have the ability, in most cases, to terminate the contract and limit our risk to a short-term period.

We perform a review of our portfolio of contracts on a quarterly basis to identify loss contracts (as defined in the American Institute of Certified Public Accountants Audit and Accounting Guide – Health Care Organizations) and developing a contract loss reserve, if applicable, for succeeding periods. At September 30, 2010, no contract loss reserve for future periods was necessary in management’s opinion.

GOODWILL

We evaluate at least annually the amount of our recorded goodwill by performing impairment tests that compare the carrying amount to an estimated fair value. Management considers both the income and market approaches in the fair value determination. In estimating the fair value under the income approach, management makes its best assumptions regarding future cash flows and applies a discount rate to the cash flows to yield a present, fair value of equity. The market approach is based primarily on reference to transactions including our common stock and the quoted market prices of our common stock. As a result of such tests, management believes there is no material risk of loss from impairment of goodwill. However, actual results may differ significantly from management’s assumptions, resulting in a potentially adverse impact to our consolidated financial statements.

EQUITY BASED EXPENSE

We have adopted ASC 718-20, “Compensation – Stock Compensation,” and elected to apply the modified-prospective method to measure expenses for stock options and warrants at fair value on the grant date and recognize these expenses on a straight-line basis over the service period for those options and warrants expected to vest. We use the Black-Scholes option pricing model, which requires certain variables for input to calculate the fair value of a stock award on the grant date. These variables include the expected volatility of our stock price, award exercise behaviors, the risk free interest rate and expected dividends. We use significant judgment in estimating expected volatility of the stock, exercise behavior and forfeiture rates.

Expected Volatility

We estimate the volatility of the share price by using historical data of our traded stock in combination with management’s expectation of the extent of fluctuation in future stock prices. We believe our historical volatility is more representative of future stock price volatility and as such it has been given greater weight in estimating future volatility.

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Expected Term

A variety of factors are considered in determining the expected term of options granted. Options granted are grouped by their homogeneity, based on the optionees’ position, whether managerial or clerical, and length of service and turnover rate. Where possible, we analyze exercise and post-vesting termination behavior. For any group without sufficient information, we estimate the expected term of the options granted by averaging the vesting term and the contractual term of the options.

Expected Forfeiture Rate

We generally separate our option awards into two groups: employee and non-employee awards. The historical data of each group are analyzed independently to estimate the forfeiture rate of options at the time of grant. These estimates are revised in subsequent periods if actual forfeitures differ from estimated forfeitures.

LEGAL PROCEEDINGS

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. Aside from the litigation described in Part II, Item 1, “Legal Proceedings,” as of the date of this report, we are not currently involved in any legal proceeding that we believe would have a material adverse effect on our business, financial condition or operating results.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, our Chief Executive Officer along with the Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

(b) Change in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the ordinary conduct of our business, we are subject to periodic lawsuits and claims. Although we cannot predict with certainty the ultimate resolution of lawsuits and claims asserted against us, we do not believe that any currently pending legal proceedings to which we are a party will have a material adverse effect on our business, results of operations, cash flows or financial condition. Our policy is to assess the likelihood of any adverse judgments or outcomes related to legal matters, as well as ranges of probable losses. A determination of the amount of the liability required, if any, for these contingencies is made after an analysis of each known issue in accordance with ASC 450-10, “Contingencies” (“ASC 450-10”), and related pronouncements. In accordance with ASC 450-10, a liability is recorded and charged to operating expense when we determine that a loss is probable and the amount can

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be reasonably estimated. Additionally, we disclose contingencies for which a material loss is reasonably possible, but not probable. Except as described below, as of September 30, 2010, there were no material contingencies requiring accrual or disclosure.

A complaint entitled “MDwise, Inc. vs. Comprehensive Behavioral Care, Inc.” was filed against us in April 2009 in the Marion County Superior Court in Indiana by MDwise, Inc. (“MDwise”), a former client located in Indiana. The complaint sought unspecified damages and a declaratory judgment requiring us to pay outstanding provider claims that are allegedly our responsibility under the expired contract. On July 8, 2010, we entered into a settlement agreement with MDwise whereby MDwise would relinquish all claims against us in exchange for four payments of $50,000 to be paid by us during the remainder of 2010. As security for our obligation to make the payments, we issued to MDwise a promissory note in the amount of $350,000 bearing interest at the rate of 8% per annum. During the three months ended September 30, 2010, we paid three installments of $50,000 as scheduled. The last payment was made in October 2010. As a result, the promissory note was cancelled and the complaint was dismissed with prejudice.

We initiated an action against Jerry Katzman in July 2009 in the U.S. District Court for the Middle District of Florida alleging that Mr. Katzman, a former director, fraudulently induced us to enter into an employment agreement and, alternatively, that Mr. Katzman breached that alleged employment agreement. In December 2009, Mr. Katzman filed an answer and counterclaim. The counterclaim requested judgment in Mr. Katzman’s favor and compensatory damages to remedy alleged breaches of contract by us. The matter was tried before a jury on September 27, 2010, and a verdict was rendered by the jury on October 1, 2010. The jury found that Mr. Katzman did not fraudulently induce CompCare to enter into the contract. The jury also found that Mr. Katzman was entitled to no award on his counterclaim. Mr. Katzman and the Company have filed post trial motions. Mr. Katzman also simultaneously initiated litigation in the Delaware Court of Chancery seeking indemnification for his fees and costs incurred, in part, in the litigation described above. The company is vigorously opposing the Delaware litigation and seeking sanctions against Mr. Katzman for frivolous litigation and forum shopping.

In April, 2010, the Company initiated litigation against Mr. Katzman and his domestic partner, Margaret “Peggy” Husted (the “Defendants”), relating to shares of Company stock that the Company contends were improperly issued. The Company asserted claims against the Defendants for violation of various provisions of the Securities Exchange Act, conversion, and breach of fiduciary duty as to Mr. Katzman, only. Discovery in this matter has just begun and the Company will continue to vigorously pursue the recovery of the disputed stock and damages, as appropriate.

On July 2, 2010, CBC, our wholly-owned subsidiary, entered into a Settlement Agreement, Release and Other Binding Commitments, by and among Inspira Mental Health Management, Inc. (“Inspira”), CBC and Messrs. John Hill, Clark Marcus, and Giuseppe Crisafi (the “Settlement Agreement”), for the settlement of a complaint filed by Inspira on April 5, 2010 entitled “Inspira Mental Health Management, Inc. v. Comprehensive Behavioral Care, Inc., John Hill, Clark Marcus, Giuseppe Crisafi”. The complaint claimed breach of contract and bad faith by CBC with respect to the Shareholders Agreement, dated December 8, 2008, and a Memorandum of Understanding, executed July 24, 2008, each between Inspira and CBC, each relating to CompCare de Puerto Rico (“CCPR”). Inspira also asserted claims of breach of fiduciary duty against Messrs. Hill, Marcus and Crisafi as CCPR officers and directors. Inspira sought compensatory damages against CBC and Messrs. Hill, Marcus and Crisafi of up to $2,000,000 and a judicial dissolution of CCPR. The Settlement Agreement provides that in exchange for Inspira filing a stipulation of dismissal with prejudice of the above-referenced action, the exchange of mutual releases and the resignation of two CCPR directors nominated by Inspira, CBC would, among other things, acquire Inspira’s 49% equity interest in CCPR for $135,000 and enter into an agreement with Inspira whereby Inspira would become a preferred provider of managed behavioral healthcare services to CCPR clients in Puerto Rico. Such transactions were consummated on July 19, 2010. On July 22, 2010, Inspira filed a Stipulation of Dismissal of the above-referenced action with the Court of First Instance, Superior Court of Puerto Rico.

On September 21, 2010, a complaint entitled “InfoMc, Inc. v. Comprehensive Behavioral Care, Inc. and CompCare de Puerto Rico, Inc.” was filed against us in the U.S. District Court for the Eastern District of Pennsylvania alleging, among other things, that we improperly used InfoMC, Inc.’s trademarks in connection with CompCare de Puerto Rico, Inc’s. proposal to obtain a managed behavioral healthcare services contract in Puerto Rico. The complaint asserts claims for federal trademark infringement, false advertising, unfair competition, conversion, promissory estoppel and unjust enrichment. InfoMC, Inc. is seeking monetary damages in an unspecified amount and certain injunctive relief. We will vigorously defend ourselves against the allegations asserted. However, until the

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complaint is withdrawn or settled, we will incur legal fees in defending against this action and may be subject to awards of compensatory and other damages, including attorneys’ fees.

Management believes that the Company has reserves that are adequate to cover the litigation described above. Management also believes that the resolution of these matters will not have a material adverse effect on the Company’s financial condition or results of operations; however, there can be no assurance that we will not sustain material liability as a result of these claims.

ITEM 1A. RISK FACTORS

The risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2009 have not materially changed.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We sold and issued shares of our common stock and issued warrants to purchase shares of our common stock in private placements not involving a public offering as follows:

- On July 9, 2010, we issued 200,000 shares of our common stock to a note holder of the Company in lieu of cash paid for interest.

- On July 12, 2010, we issued a warrant with a five year term to purchase 300,000 shares of our common stock to a key employee. The warrant may be exercised at the price of $0.50 per share, to the extent vested. The shares acquirable pursuant to the warrant vest in three equal amounts 12 months, 24 months and 36 months following the warrant issuance date.

- On July 27, 2010, we sold 4,600,000 shares of our common stock to an existing investor in the Company for aggregate proceeds of $1,150,000.

- On August 12, 2010, we sold 1,000,000 shares of our common stock in a private placement transaction to one accredited investor for aggregate proceeds of $250,000. In connection with this sale, we issued a warrant to a consultant to the Company for financial services. The warrant has a five year term and enables the holder to purchase 100,000 shares of our common stock. The warrant was vested in full at issuance and may be exercised at the price of $0.25 per share.

- On August 13, 2010, we issued a five-year warrant, dated September 18, 2010, to purchase up to 5,000,000 shares of our common stock at an exercise price of $0.25 to an affiliate of a company for which we have agreed to provide behavioral health and prescription drugs management services beginning September 18, 2010. The warrant was issued in exchange for a $600,000 advance from the customer that is due to be repaid out of the final capitation payment received from the client.

- On August 23, 2010, we issued to a key employee a five year warrant to purchase 300,000 shares of our common stock. The warrant may be exercised at the price of $0.50 per share, to the extent vested. The shares acquirable pursuant to the warrant vest as follows:

• 75,000 vest at the warrant issuance date

• 75,000 vest 12 months after the warrant issuance date

• 75,000 vest 24 months after the warrant issuance date

• 75,000 vest 30 months after the warrant issuance date

- On September 12, 2010, we issued 80,000 shares of our common stock to a consultant who accepted the shares in lieu of $20,000 of cash compensation.

- On September 13, 2010, we issued a warrant with a five year term to purchase 1,000,000 shares of our common stock to a key sales and marketing employee. The warrant may be exercised at the price of $1.00 per share, to the extent vested. Vesting of shares acquirable pursuant to the warrant is dependent on the employee’s attainment of annual sales targets.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

- On September 15, 2010, we issued 300,000 shares of our common stock to a note holder of the Company in lieu of cash paid for interest.

- On October 4, 2010, we issued a five year warrant to purchase 1,058,250 shares of our common stock to a holder of our 7 ¹/2% convertible subordinated debentures who had agreed to exchange his debenture plus accrued interest thereon for a senior promissory notes issued by us. The warrant was vested in full at issuance, will expire in October 2015, and is exercisable at a price of $0.25 per share.

- On November 3, 2010, we issued an aggregate of 66,400 warrants to two holders of our 7 ¹/2% convertible subordinated debentures who had agreed to exchange their debentures plus accrued interest thereon for senior promissory notes issued by us. The warrants were vested in full at issuance, expire in November 2015, and are exercisable at a price of $0.25 per share.

Based on certain representations and warranties of the recipients referenced above, we relied on Section 3(a)(9) and 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) as applicable, for an exemption from the registration requirements of the Securities Act. The shares purchased have not been registered under the Securities Act and may not be sold in the United States absent registration or an applicable exemption from registration requirements.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

We were unable to repay our 7 ¹/2% convertible subordinated debentures in the amount of $2,244,000 of principal or to pay the final interest installment of $84,150 on the debentures’ maturity date of April 15, 2010. However, we have reached agreement with certain owners of the debentures representing approximately 74%, or $1.7 million, of the debentures to cancel such debentures in exchange for the issuance by us of senior promissory notes, warrants to purchase shares of our common stock, and cash payments of approximately $86,000 in the aggregate. The senior promissory notes bear interest at a rate of 10% per annum, payable semiannually on April 15 and October 15 of each year through April 15, 2012, the maturity date of the senior promissory notes. The warrants allow for the purchase of an aggregate of approximately 6.8 million shares of our common stock at an exercise price of $0.25 per share. All of the warrants have five year terms and are currently exercisable. We are not able to estimate the financial effect resulting from a state of default with respect to the debentures held by the remaining bond holders.

ITEM 6. EXHIBITS

EXHIBIT NUMBER	DESCRIPTION
4.2	Form of warrant to purchase Common Stock issued by Comprehensive Care Corporation to MSO of Puerto Rico, Inc. dated September 18, 2010, incorporated by reference to Exhibit 4.2 to our Form 10-Q for the quarterly period ended June 30, 2010 and filed August 16, 2010.
10.21	Agreement for the Provision of Services, dated as of August 13, 2010 between CompCare de Puerto Rico, Inc. and MMM Healthcare, Inc. and its corporate affiliate PMC Medicare Choice, Inc. (the Registrant has submitted an application for confidential treatment with respect to portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

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.

COMPREHENSIVE CARE CORPORATION                

November 12, 2010

By	/s/ CLARK A. MARCUS
	Clark A. Marcus Chief Executive Officer and Chairman (Principal Executive Officer)
By	/s/ GIUSEPPE CRISAFI
	Giuseppe Crisafi Chief Financial Officer (Principal Financial Officer)

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EX-10.21

COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Exhibit 10.21

AGREEMENT FOR THE PROVISION OF SERVICES

THIS AGREEMENT (the “Agreement”), is made and entered into as of the 13th day of August, 2010 with an effective date of September 18, 2010 (the “Effective Date”), by and between CompCare de Puerto Rico, Inc., a Puerto Rico corporation, with a San Juan, Puerto Rico address to be provided on or before the date indicated above (“CompCare”), and MMM Healthcare, Inc. and its corporate affiliate, PMC Medicare Choice, Inc., Puerto Rico corporations, with an address at 350 Avenida Chardon, Suite 500, Torre Chardon, San Juan, Puerto Rico (each, a “Health Plan” or collectively, the “Health Plans”).

WHEREAS, Health Plans are licensed by the Office of the Insurance Commissioner as a Health Services Organization under the laws of the Commonwealth of Puerto Rico, and each respectively has entered into a Medicare Advantage Contract with the Centers for Medicare & Medicaid Services (CMS) to provide, arrange for, and/or administer the provision of prepaid health care services;

WHEREAS, Health Plans are seeking to contract with a third-party to provide and/or arrange for the provision of mental health, substance abuse and certain pharmacy-related services on a capitated basis, to individuals covered by Benefit Plans (as defined below) sponsored or issued by Health Plans, and as otherwise described in this Agreement;

WHEREAS, certain Health Plan obligations will be administered by MSO (as defined below);

WHEREAS, CompCare is in the business of providing and/or arranging such services;

WHEREAS, Health Plans desire to contract with CompCare to provide and arrange for such services for the individuals covered by the Benefit Plans sponsored or issued by Health Plans, upon the terms and conditions set forth below;

WHEREAS, CompCare desires to provide and/or arrange for such services for the individuals covered by the Benefit Plans sponsored or issued by Health Plans, upon the terms and conditions set forth below and in accordance with the Medicare Program Requirements and other Applicable Law; and

WHEREAS, Health Plans and CompCare desire to set forth herein the definitive terms and conditions upon which CompCare shall provide and /or arrange for the services described above.

Section 1

Definitions

For purposes of this Agreement and any attachment, Exhibit or schedule attached hereto, the following terms shall have the meanings set forth below. The insurance and managed care terms defined below are consistent with definitions included in each applicable Member Agreement. In the event that any of the following defined terms are inconsistent with any federal and/or Commonwealth of Puerto Rico law or regulation which requires conformity of such terms, then the term as used herein shall automatically be deemed to be defined consistently with the applicable law and/or regulation.

Accreditation Agency means any nationally recognized, non-governmental accreditation agency generally recognized in the managed care industry, including without limitation the National Committee for Quality Assurance (“NCQA”) and the Utilization Review Accreditation Commission (“URAC”), which monitors, audits, accredits or performs other similar functions with respect to health maintenance organizations and other managed care organizations.

Agreement means this Agreement for the Provision of Services, and all exhibits hereto.

Applicable Law means such federal, state, and Commonwealth of Puerto Rico laws, rules and administrative regulations and guidance, including manuals, guidelines, operational policy letters, court decisions and written directions to Health Plans, that are adopted and/or published or sent to Health Plans by CMS, the Puerto Rico Office of the Insurance Commissioner, or any other governmental body with authority over Health Plans. Applicable Law includes Medicare Program Requirements and all applicable requirements of the Puerto Rico Health Insurance Administration (Administracion de Seguros de Salud de Puerto Rico or “ASES”).

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Behavioral Health Provider means a duly licensed psychiatrist, psychologist, advanced practice registered nurse, physician assistant, clinical nurse practitioner, clinical social worker, or other allied behavioral health provider, licensed and/or certified to render psychiatric, psychological, counseling, crisis intervention, and/or substance abuse services, and who has contracted with CompCare to render MHSA Services to Health Plan Members according to the terms and conditions of this Agreement.

Benefit Plan means a plan of benefits that establishes a Health Plan’s obligations to its Members to provide access to and payment for Covered Services and benefits and contains the terms and conditions of a Member’s coverage, and for which Health Plans have contracted with CompCare to provide MHSA Services within such Benefit Plans. Benefit Plans include Medicare Advantage Plans (“MA Plans”) and Medicare Advantage/Prescription Drug Plans (“MA-PDPs”), including those that cover dual eligibles (i.e., Medicare beneficiaries who are also covered by Medicaid through ASES). Subject to the terms of Section 3.2, Benefit Plan includes a new plan of benefits added by a Health Plan after the Effective Date, but does not include a plan of benefits added by reason of an acquisition by a Health Plan, unless otherwise agreed by the parties. Benefit Plan also does not include any plan of benefits offered by any entity (including a Health Plan affiliate) other than Health Plans.

Capitation means the predetermined monthly payment which is allocated to CompCare for each Member covered under this Agreement as set forth in the Services Payment Addendum attached hereto as Exhibit A.

Case Management means the identification of a Member’s treatment needs, referral of a Member to appropriate CompCare Providers for assessment and treatment, and consultation with CompCare Providers in treatment planning.

Claims Administrator means an entity that processes and adjudicates MHSA Services claims for payment of services rendered by providers. A Claims Administrator can be either CompCare or an entity contracted with CompCare, subject to Health Plans’ consent.

CMS means the Centers for Medicare and Medicaid Services, which is the federal agency within the United States Department of Health and Human Services that administers the Medicare and Medicaid programs.

CompCare Provider means a Behavioral Health Provider or facility that has an agreement in effect with CompCare, either directly or indirectly through a behavioral health network contracted with CompCare, to provide MHSA Services to Members. CompCare Provider also includes a behavioral health network that has entered into a contract with CompCare to furnish the services of its contracted providers to act as CompCare Providers in accordance with this Agreement (e.g., a leased network).

Covered Services means those Medically Necessary services covered pursuant to a Member’s Benefit Plan, including MHSA Services and Covered Prescription Drug Services set forth by and listed in the MHSA Services and Pharmacy Services Addendum attached as Exhibit B of this Agreement.

Covered Prescription Drug Services means those Medically Necessary Psychotropic Drugs and services covered pursuant to a Member’s Benefit Plan and included in Health Plans’ Drug Formulary.

Credentialing means the process of collecting, verifying and evaluating information gathered about a health care professional or entity, including Medical Director interviews, site visits, references and evaluation by peer review committees or organizations, for the purpose of determining whether CompCare shall designate or continue to consider a health care professional or entity as a CompCare Provider.

Delegated Functions means a formal process by which a Health Plan gives a provider group (delegate) the authority to perform certain functions on its behalf in a manner consistent with CMS rules and regulations, NCQA standards and this Agreement, such as administration and management, marketing, utilization management, quality assurance, applications processing, enrollment and disenrollment functions, claims processing, adjudicating Medicare organization determinations, appeals and grievances, and credentialing. A function may be fully or partially delegated. NCQA defines a delegation as a delegated activity associated with any of the four categories of NCQA standards: Quality Improvement, Utilization Management, Credentialing, and Members’ Rights and Responsibilities.

Effective Date means September 18, 2010.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Emergency means a medical condition manifesting itself by acute symptoms of sufficient severity (including severe pain) such that a prudent layperson, with an average knowledge of health and medicine, could reasonably expect the absence of immediate medical attention to result in: (a) serious jeopardy to the health of the individual or, in the case of a pregnant woman, the health of the woman or her unborn child; (b) serious impairment to bodily functions; or (c) serious dysfunction of any bodily organ or part.

Behavioral Health Emergency means, unless otherwise required by Applicable Law, a situation in which the Member is in need of assessment and treatment in a safe and therapeutic setting, is a danger to him/herself or others, exhibits acute onset of psychosis, exhibits severe thought disorganization, or exhibits significant clinical deterioration in a chronic behavioral condition rendering the Member unmanageable and unable to cooperate in treatment. A judgment that a Member is dangerous to self or others is only required to meet the prudent layperson standard. Pre-certification is not required in the event of an Emergency or Behavioral Health Emergency.

Level of Care means the duration, frequency, location, intensity and/or magnitude of a treatment setting, treatment plan, or treatment modality, including, but not limited to: (i) acute care facilities; (ii) less intensive inpatient or outpatient alternatives to acute care facilities such as residential treatment centers, group homes or structured outpatient programs; (iii) outpatient visits; or (iv) medication management.

Medicare Program Requirements means Parts C and D of Title XVIII of the Social Security Act, as amended; the regulations governing the Medicare Advantage and Medicare Prescription Drug Benefit Programs, set forth at 42 C.F.R. Parts 422 and 423, as amended; CMS guidance and instructions related to the Medicare Advantage and Medicare Prescription Drug Benefit Programs; and the Health Plans’ CMS contracts.

Member means a Medicare Advantage eligible individual who is enrolled in a Benefit Plan offered by a Health Plan.

Medically Necessary or Medically Necessary Services means Covered Services which are: (1) necessary to meet the basic health needs of a Member; (2) provided in the most cost-efficient manner and type of setting appropriate for the delivery of the services; (3) consistent in type, frequency and duration of treatment with relevant guidelines of national medical, research and health care coverage organizations or governmental agencies; (4) consistent with the diagnosis of the condition; (5) required for reasons other than the comfort or convenience of Member or his or her physician, or not to be required solely for custodial comfort or maintenance reasons; and (6) of demonstrated medical value.

MHSA Services means mental health and substance abuse services that are covered under a Member’s Benefit Plan and are included in the MHSA Services and Pharmacy Services Addendum attached hereto as Exhibit B.

MHSA Liaison Committee means a review committee comprised of both Health Plans and CompCare employees and designees and established to collaboratively oversee CompCare’s compliance with quality requirements under this Agreement.

MSO means “MSO of Puerto Rico, Inc.,” an affiliate of Health Plan that is responsible for providing management and administrative support services such as claims processing, contracting, credentialing and provider relations among others, to Health Plans, as established in the Delegated Services Agreement between MSO and Health Plans, as may be amended from time to time.

Pharmacy Management Services means management of the provision of Covered Prescription Drug Services on a delegated basis, as described in Exhibit C (Pharmacy Utilization Management Delegation), attached hereto.

Provider or Health Plan Provider means any individual who is engaged in the delivery of health care services in the Commonwealth of Puerto Rico and is licensed or certified by the Commonwealth of Puerto Rico to engage in that activity in the Commonwealth of Puerto Rico; and any entity that is engaged in the delivery of health care services in the Commonwealth of Puerto Rico and is licensed or certified to deliver those services if such licensing or certification is required by Commonwealth of Puerto Rico law or regulation who is eligible to receive payments from CMS, and who has signed an agreement with Health Plans to provide Covered Services to Members or Members of certain Benefit Plans. Health Plan Providers do not include CompCare Providers.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Psychiatric Pharmacy Claims Costs means (i) the fee for service payments which Health Plans pay to their pharmacy benefits manager (“PBM”) in connection with Psychotropic Drugs dispensed to Members; (ii) pharmaceutical dispensing fees (if applicable), and (iii) to the extent not included in (i) or (ii), pharmaceutical transaction, processing or other per claim fees.

Psychotropic Drugs means the mental health and substance abuse agents listed in Exhibit B.

Service Area means the 78 municipalities which comprise the Commonwealth of Puerto Rico.

Urgently Needed MHSA Services means MHSA Services needed for a sudden illness or injury that requires medical care right away, but is not a life threatening or Emergency condition.

Utilization Management Services (“UM Services”) means the process by which CompCare and/or Health Plans evaluate on a prospective, concurrent or retrospective basis, the Medical Necessity of health care services rendered or prescribed to Members and includes a comprehensive effort to monitor and promote effective, efficient, and timely use of Covered Services. UM Services include, but are not limited to pre-certification, concurrent review, discharge planning, and Case Management programs. The purpose of CompCare and Health Plan’s UM Services is to encourage the most appropriate method of treating a Member based on prevailing standards of medical treatment which best meets the needs of the Member.

Section 2

Member Eligibility for MHSA Services and Pharmacy Management Services

2.1 Eligibility of Members.

(1) Verification of Eligibility. Health Plan shall provide CompCare Member eligibility information received from CMS on at least a weekly basis by either: (a) online data linkage or (b) a data transfer in a format specified by Health Plans and deposited in CompCare’s site as agreed by the parties. The eligibility information shall be prepared and provided to CompCare at Health Plan’s expense. CompCare will process and load into its system the eligibility file within two (2) business days of receipt. CompCare may also access Health Plans’ internet website, InnovaMd, to verify eligibility of Members on an ad hoc basis. CompCare shall treat the information received under this paragraph as confidential and shall not distribute or furnish such information to any other person or entity, except (i) as required by law, (ii) as required to provide the service CompCare is required to provide under this Agreement or to otherwise perform its obligations hereunder, or (iii) as required by Commonwealth or federal law or regulation.

(2) Retroactive Adjustments of Eligibility. CompCare acknowledges that there will be retroactive adjustments to the eligibility of Members and that Health Plans are not able to control such adjustments. Notwithstanding the above, the parties agree that CompCare shall not be financially liable for (i) any claims for mental health and/or substance abuse services related to such retroactive adjustments when they represent services rendered prior to the adjustment for a period greater than one (1) year and (ii) any claims for payment from any CompCare Provider for MSHA Services or Pharmacy Management Services rendered to any person who was at the time such services were rendered disenrolled from the Health Plans’ Benefit Plans.

2.2 MHSA Services under Benefit Plan. The Benefit Plan is the exclusive agreement between Health Plans and Members regarding the benefits, exclusions and other conditions for coverage of MHSA Services and Pharmacy Management Services. This Agreement is not intended nor shall it be deemed or construed to modify or expand the contractual obligations of Health Plans to Members as established by the Health Plans’ Benefit Plan.

Section 3

Identification of MHSA Services, Pharmacy Management Services and Communication

3.1 Services under Agreement.   (a) CompCare shall provide or arrange for MHSA Services for all Members, shall pay Psychiatric Pharmacy Claims Costs, and shall perform Delegated Functions in accordance with the terms of this Agreement, including its Exhibits. This Agreement, including its Exhibits, is the only agreement between Health Plans and CompCare that sets forth the rights, responsibilities, and other conditions for the provision and payment of MHSA Services, Psychiatric Pharmacy Claims Costs, Delegated Functions and any other service as agreed by the parties to this Agreement. The responsibilities and obligations of CompCare and Health Plans to each other and the Members

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

with respect to the transactions contemplated herein shall be limited to those defined by the terms and conditions of this Agreement.

(b) CompCare agrees to comply with Health Plans’ policies and procedures in rendering MHSA Services, Pharmacy Management Services and other Delegated Functions hereunder, provided that such policies and procedures are previously delivered to CompCare in writing.

3.2 New Benefit Plans and Modifications to MHSA Services and Pharmacy Management Services under the Benefit Plans. Health Plans shall notify CompCare in writing at least thirty (30) days prior to implementation of any modification to an existing Benefit Plan or development of a new Benefit Plan. In the event (i) a Health Plan modifies the terms of any of its Benefits Plans in a manner not otherwise required by CMS or other regulatory agency, or develops a new Benefit Plan, or (ii) new Members are added to an existing Health Plan pursuant to a CMS-approved transfer of Members from another health plan or transfer of Members by reason of an acquisition of another health plan’s business or assets that results in adding new Members to an existing Benefit Plan; where the terms of such modified or new Benefit Plan or the addition of such Members is deemed by either Health Plans or CompCare to materially decrease or increase the financial obligations or costs of a party under this Agreement, CompCare shall continue to provide MHSA Services and remain responsible for Covered Prescription Drug Services and all Delegated Functions hereunder related to such modified or new Benefit Plan, and in such event CompCare shall be compensated for such services at the Capitation rate already agreed upon; provided that, in such case, either party may request adjustment of CompCare’s compensation, downward or upward under this Agreement pursuant to Section 11.2.

3.3 Health Plan Provider and Member Communications. CompCare shall develop the content of materials regarding CompCare, MHSA Services and Pharmacy Management Services to be periodically sent to Health Plan Providers, CompCare Providers and Members, which are subject to prior approval by Health Plans. During the transition process prior to the Effective Date, CompCare shall be responsible for copying, distribution and postage of such materials to CompCare Providers, and Health Plans shall be responsible for the copying distribution and postage of such material to Health Plan Providers and Members. Thereafter, the party that initiates the communication shall pay for copying, distribution and postage, provided that all communications to Health Plans’ Members or Providers must be approved by Health Plans.

3.4 Health Plan Provider Compliance. In an effort to support CompCare’s services under this Agreement, Health Plans shall use best efforts to cause Health Plan Providers to cooperate with CompCare with respect to CompCare’s role and responsibilities pursuant to this Agreement and the provisions of services to Members contemplated hereby; provided, however, that nothing in this Agreement shall prevent Health Plans from discharging their responsibilities pursuant to the Benefit Plans and Applicable Law.

Section 4

CompCare Services and Responsibilities

4.1 Transition of MHSA Services Commenced Prior to Effective Date.

(1) Outpatient Services. Members who have commenced mental health and substance abuse treatment (including partial hospitalization) with or through Health Plans’ previous contracted MHSA Services provider, APS Healthcare Puerto Rico, Inc. (“APS”), prior to the Effective Date may continue such treatment with the same APS provider for the lesser of the time necessary to complete the treatment or ninety (90) days from the Effective Date, at which time such Members shall be transitioned to CompCare Providers. Health Plans shall use best efforts to provide a list of such Members to CompCare prior to the Effective Date, and to facilitate CompCare’s assumption of management of and payment for MHSA Services on and after the Effective Date for such Members, notwithstanding the provision of services by non-CompCare Providers during such ninety (90) day period. Health Plans will require APS to comply with, and require APS’s contracted providers to comply with, their obligation to continue to provide outpatient MHSA Services and to accept the rates under the APS fee schedule for ninety (90) days after termination of such contract.

(2) Inpatient Services. CompCare shall not be responsible for providing, arranging for the provision of, or paying for inpatient or residential mental health and/or substance abuse services (“Inpatient Care”), which a Member is receiving on a continuing basis prior to the Effective Date, where such Inpatient Care continues on and after the Effective Date. CompCare shall be responsible for arranging outpatient care services for Members being discharged from Inpatient Care on or after the Effective Date, and for any Inpatient Care that commences on or after the Effective Date.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

(3) Psychotropic Drugs. CompCare shall not be financially responsible for the payment of Psychotropic Drugs filled prior to Effective Date. CompCare shall be financially responsible for Psychotropic Drugs prescribed and filled on or after the Effective Date.

4.2 Network Development and Management.   (a) CompCare shall establish, maintain and administer a network of CompCare Providers to provide MHSA Services and UM Services to Members which CompCare deems appropriate, subject to the network adequacy requirements set forth in Section 4.3 hereof. CompCare shall arrange for CompCare Providers as may be necessary to achieve the geographic access to MHSA Services required by Section 4.3. Health Plans may recommend to CompCare that certain providers become CompCare Providers. CompCare Providers shall be subject to final approval by Health Plans. Health Plans shall retain the right to approve, suspend, or terminate the designation of any provider as a CompCare Provider pursuant to this Agreement. CompCare will abide by the determination of Health Plans regarding the selection of the Providers and CompCare Providers. In no case shall this provision be construed to obligate CompCare to contract with or make use of any particular health care facility or professional. Health Plans shall have the right to approve new CompCare Providers and to prohibit a current or proposed CompCare Provider from providing MHSA Services to Members. CompCare makes no representations or guarantees regarding the continued availability of any CompCare Provider. CompCare shall provide Health Plans a copy of CompCare’s then current generic provider agreements. Such agreements must include the terms described in Exhibit D (CMS Requirements for First Tier and Downstream Contractors). CompCare will include in its agreements with CompCare Providers language that allows Health Plans, at their discretion, after notice to CompCare of a material breach of CompCare’s obligations hereunder, or notice of termination or nonrenewal by either party for any reason, to assume CompCare’s rights and obligations under each CompCare Provider agreement with respect to matters relating to services being rendered by CompCare Providers to Health Plans’ Members, effective immediately upon written notice of such assumption of rights and obligations by Health Plans to such CompCare Provider. The parties hereto agree that in the event Health Plans so assume CompCare’s rights and obligations under the CompCare Provider agreements as provided for in the preceding sentence, (i) Health Plans shall pay and be responsible for any and all payments otherwise due by CompCare to such CompCare Provider or any entity or individual with which CompCare contracts to have access to any CompCare Provider (e.g., a behavioral health network) as provided for in such CompCare Provider agreements; provided that if the Agreement remains in effect, Health Plans shall deduct such payments from CompCare’s Capitation payments; and (ii) Health Plans’ rights and obligations with respect to such CompCare Providers shall only apply to services rendered to Health Plans’ Members and not to such CompCare Providers’ agreements with CompCare relating to services to health plans other than the Health Plans. CompCare will have a unique provider contract with CompCare Providers to provide services to Health Plans, different from the one to provide services to other CompCare clients, or will otherwise implement contract terms acceptable to Health Plans that ensure that Health Plans may assume the terms of such contracts with respect to Health Plans, notwithstanding continuation of the CompCare Providers’ contracts with CompCare with respect to other CompCare clients. Nothing in this Agreement precludes Health Plans from entering into agreements directly with CompCare Providers, provided that, during the term of the Agreement, such agreements are not implemented in a manner contrary to the provisions of Section 13.12.

(b) CompCare shall establish and maintain a credentialing process that meets National Committee of Quality Assurance (“NCQA”) and Medicare Program Requirements for such process, including the terms set forth in Exhibit E (Credentialing Delegation), to which all CompCare Providers shall be subject. CompCare Providers shall be contractually required to continually meet CompCare credentialing standards including, but not limited to, maintenance of licensure and malpractice insurance. CompCare’s credentialing process will be reviewed and is subject to approval by Health Plans, and Health Plans shall have the right to audit the credentialing process on an ongoing basis. CompCare’s credentialing process shall comply with the applicable requirements of a nationally recognized accreditation standard as more specifically addressed in Section 9.4.

4.3 Geographic Access.   (a) CompCare shall assure that one hundred percent (100%) of all Members residing within the Service Area are within thirty (30) miles or thirty (30) minutes of a CompCare Provider.

(b) CompCare shall provide on a monthly basis to Health Plans a current listing of CompCare Providers, as required by Exhibit E. In the event Health Plans reasonably determine that there are not sufficient CompCare Providers to provide MHSA Services to Members, Health Plans shall notify CompCare of the alleged deficiency, and within ten calendar (10) days, Health Plans and CompCare shall meet to assess the alleged deficiency, and if directed by Health Plans, CompCare shall develop and successfully implement a correction plan acceptable to Health Plans.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

4.4 CompCare’s Triage of Care. A toll-free twenty-four (24) hour, seven (7) day a week telephone and TTY line (the TTY line shall be located in Tampa, Florida) shall be made available by CompCare for Members in order to provide Member referrals to required MHSA Services, crisis intervention, and responding to Member’s inquiries and questions regarding MHSA Services and Pharmacy Management Services. The services of an appropriately qualified behavioral health care professional shall be available through such telephone and TTY line. CompCare agrees that the toll-free telephone line will be specifically dedicated to Health Plan Members, will be available in English and Spanish, as well as any other language of the Member, and the call center personnel will be locally knowledgeable Puerto Rico-based personnel.

4.5 Provision of MHSA Services and UM Services. (a) CompCare shall provide or arrange for the provision of MHSA Services and UM Services to all Members pursuant to this Agreement beginning on the Effective Date.

(b) With respect to the provision of MHSA Services hereunder, CompCare shall develop and apply standards of medical necessity, appropriateness and efficiency which reflect patterns of care found in established managed care environments. All such CompCare protocols for the provision of UM Services are subject to Health Plans’ approval and shall comply with the applicable requirements of an Accreditation Agency and Applicable Law, as more specifically addressed in Section 9.4 and Exhibit F (Utilization Management Delegation). CompCare shall involve an appropriately licensed professional whenever rendering a recommendation that mental health and/or substance abuse services that have been requested or for which payment has been requested are not Medically Necessary.

(c) CompCare shall have the right to determine the Level of Care of MHSA Services which are appropriate for the treatment of Members, including whether MHSA Services shall be rendered on an inpatient or an outpatient basis, provided that such determination is consistent with the approved CompCare protocols described in Section 4.5(b) above. CompCare shall not be responsible for paying for MHSA Services that are not authorized pursuant to the approved CompCare protocols, where such authorization is required by such protocols, unless such service is appealed through Health Plans’ appeals process and a determination is rendered that the service is a covered MHSA Service, or except as otherwise provided in Section 6. CompCare shall use reasonable efforts to advise CompCare Providers that its utilization management is a recommendation of Medical Necessity only, and not a confirmation of eligibility and/or benefit coverage, and shall prohibit CompCare Providers from billing Health Plans or Members for services denied based on such CompCare Provider’s failure to obtain authorization.

4.6 Accessibility of MHSA Services. (a) CompCare shall make MHSA Services available and accessible to Members twenty-four (24) hours per day, seven (7) days per week, and three hundred sixty-five (365) days per year and in a manner that assures continuity of care. Members shall be allowed to access the services of CompCare Providers directly and CompCare Providers will be required to obtain preauthorization for any Covered Services, if and as required by the applicable Benefit Plan or CompCare policies and procedures approved by Health Plans. If coverage of MHSA Services is denied based on a CompCare Provider’s failure to obtain preauthorization, CompCare will ensure that such CompCare Provider is prohibited from billing Members for such services, and CompCare shall indemnify or require such CompCare Provider to indemnify Health Plans and any affected Member for any medical expense incurred by Health Plans and/or the Member if the CompCare Provider bills, charges or attempts to collect any amount in violation of this section.

(b) CompCare shall comply with the following standards in arranging for the provision of MHSA Services:

(1) Life threatening Emergency MHSA Services shall be made available to a Member through CompCare Providers immediately. Non-life threatening Emergency MHSA Services shall be made available to a Member through CompCare Providers within six (6) hours of the time MHSA Services are requested.

(2) Urgently Needed MHSA Services shall be made available to a Member through CompCare Providers within 24 hours of the time the MHSA Services are requested.

(3) Non-Emergency and non-Urgently Needed MHSA Services shall be made available to a Member within fourteen (14) calendar days of the time the MHSA Services are requested.

CompCare shall be deemed to be in compliance with the above requirements if an appointment with a geographically appropriate CompCare Provider is offered to a Member during regular business hours within the time period specified above, notwithstanding the Member’s preference or availability for appointment times.

(c) If necessary in order to ensure access to MHSA Services, Behavioral Health Providers may use the services of other appropriately qualified practitioners for coverage purposes. Coverage arrangements shall be made with other Behavioral Health Providers except in unusual and unanticipated circumstances. In all cases, CompCare shall require

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its Behavioral Health Providers to arrange with the covering practitioner that he/she will accept payment from CompCare as payment in full, except for any applicable Member cost sharing amounts. CompCare shall assure that the covering practitioners that are not Behavioral Health Providers shall execute a coverage agreement in a form approved by Health Plans, and that covering practitioner will not, under any circumstances, bill Members for Covered Services, except for any applicable Member cost sharing provided for in the Member’s Benefit Plan. CompCare shall indemnify Health Plans and any affected Member for any medical expense incurred by Health Plans and/or the Member if the covering provider bills, charges or attempts to collect any amount that was the payment responsibility of CompCare, or that was billed in violation of such provider’s Member hold harmless agreement.

4.7 Mixed Services. CompCare shall be responsible only for MHSA Services and will not be responsible for the diagnosis and treatment of Members’ medical conditions even when a Member has co-existing behavioral health and medical conditions. When a Member has a condition or illness which requires both MHSA Services and non-MHSA Services, CompCare shall be responsible for providing or arranging for and, with respect to Members, paying for only the MHSA Services. Health Plans and/or the Member shall be responsible for payment of any non-MHSA Services. In determining whether certain services shall be considered MHSA Services or non-MHSA Services, and whether or not CompCare is financially responsible for such services, CompCare and Health Plans shall refer to the MHSA Services and Covered Prescription Drug Services Addendum (Exhibit B).

4.8 Pharmacy Management Service. (a) CompCare shall provide Pharmacy Management Services to Members pursuant to this Agreement and Exhibit C (Pharmacy Utilization Management Delegation) beginning on the Effective Date. CompCare shall provide Pharmacy Management Services through programs approved by CMS for Health Plans’ use; provided, however, that CompCare acknowledges that the following functions will be administered by Health Plans or Health Plans’ PBM: claims adjudication, appeals and grievances. CompCare may make recommendations regarding such programs, which are subject to Health Plans’ approval and submission to CMS for approval if necessary. CompCare shall actively participate in Health Plans pharmacy & therapeutics (P&T) committee.

(b) Health Plan will pay or arrange for payment for Psychiatric Pharmacy Claims Costs from the Pharmacy Allowance (as defined in Exhibit A hereto). Such Pharmacy Allowance will be retained by Health Plans and reconciled against the Psychiatric Pharmacy Claims Costs as further described in Exhibit A. CompCare shall not be financially responsible for the payment of any Psychotropic Drug that has not been preauthorized (if and as required by the applicable Benefit Plan and CompCare policies and procedures approved by Health Plans) consistent with such Psychotropic Drug management programs, except in the case of Emergency or Urgently Needed services or where otherwise required by Applicable Law.

(c) As part of its Pharmacy Management Services, CompCare shall develop [*]. Through the [*], CompCare shall provide [*] with [*]. All such [*] are subject to [*].

(d) CompCare shall refer all complaints and grievances (as defined by Medicare Part D rules and regulations) to Health Plan for resolution within four (4) hours of receiving the complaint or grievance from the Member or the Member’s designated representative. CompCare shall cooperate with Health Plan in the timely investigation of complaints and grievances dealing with Pharmacy Management Services.

4.9 Performance Standards; Corrective Actions. (a) CompCare shall perform its obligations under this Agreement in compliance with this Agreement, Applicable Law, Accreditation Agency requirements and the standards applicable to Delegated Functions as set forth in this Agreement and, including all exhibits to this Agreement.

(b) In the event that Health Plans determine that CompCare is not performing its obligations under the Agreement in accordance with the standards set forth in Section 4.9(a), then, at Health Plans’ option, the procedure set forth in this Section 4.9(b) may be implemented; provided, however, that nothing in this section precludes Health Plans from pursuing other remedies under the Agreement, including termination. In order to implement this section, Health Plans shall issue a written and detailed corrective action request (“CAR”) to CompCare. Upon receipt of such CAR, CompCare must:

(1) take immediate corrective action; and

(2) submit a corrective action plan (“CAP”) to Health Plans within fifteen (15) days of receipt of the CAR (or such other time frame as required by Applicable Law), including time frames for compliance.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Thereafter, CompCare shall immediately implement the CAP, provided that Health Plans may reject a CAP within five (5) working days of its receipt thereof, if Health Plans reasonably determine that such CAP is inadequate. If Health Plans reject a CAP, Health Plans and CompCare shall work together to develop a mutually agreeable CAP. Health Plans may audit CompCare at any time during normal business hours on not less than ten (10) days prior written notice to determine CompCare’s compliance with the CAP.

(c) In the event that: (i) CompCare fails to comply with a CAP, (ii) CompCare notifies Health Plans that it has determined it is unable to meet the conditions of a CAP, or (iii) the Parties cannot reach agreement on a CAP, or as otherwise required by ASES, CMS or other regulatory agency, then Health Plans may, in Health Plans’ sole discretion, take one or more of the following actions:

(1) amend the CAP;

(2) increase the frequency of review and audits;

(3) require CompCare to add necessary resources to ensure CompCare’s compliance with the CAP;

(4) if steady improvement is not demonstrated or CAP goals are not met as specified in the CAP time frame, impose a monetary penalty as specified in Exhibit G (Performance Standards);

(5) if the CAP involves timely and/or accurate payment of CompCare Providers not otherwise provided for in this Agreement, assume responsibility for payment of CompCare Providers and deduct such payment from Capitation payments;

(6) terminate the Agreement with respect to the service that is the subject of the CAP upon thirty (30) days prior written notice to CompCare; in which case the Capitation under the Agreement shall be reduced by an amount equal to Health Plans’ determination of the portion of the Capitation attributable to such service; provided, however, that CompCare may request renegotiation of such adjustment pursuant to Section 11.2; and/or

(7) terminate the Agreement on sixty (60) days prior written notice to CompCare.

Section 5

Quality Management and Reporting Requirements

and MHSA Liaison Committee

5.1 Quality Management and Other Quality Related Programs. CompCare shall establish and maintain its own quality management program and other quality related programs. CompCare shall comply with any similar programs established or required by Health Plans with respect to MHSA Services, Pharmacy Management Services and/or UM Services. CompCare’s quality management program shall be subject to approval by Health Plans and shall comply with the applicable requirements of Exhibit H (Quality Improvement Delegation).

5.2. Reporting Requirements. CompCare shall provide to Health Plans the reports identified in Exhibit I (Reporting Requirements), attached hereto, regarding the MHSA Services furnished to Members pursuant to this Agreement. CompCare shall provide such reports to Health Plans according to the time frames set forth in Exhibit I.

5.3 MHSA Liaison Committee. CompCare and Health Plans shall each designate at least two (2) employees to serve as members of the MHSA Liaison Committee. The MHSA Liaison Committee shall meet no less frequently than once every three (3) months. Specifically, but not by way of limitation, the MHSA Liaison Committee shall:

(1) Review complaints by Members, Health Plans Providers and/or CompCare Providers;

(2) Review cases selected by CompCare or Health Plans;

(3) Discuss operational issues that arise under this Agreement; and

(4) Review CompCare’s performance with respect to complying with Section 9.4. hereof.

5.4 Committee Meetings. At Health Plans’ request, a CompCare representative shall attend meetings of certain committees (e.g., Quality Management Committee, Delegation Entities Committee) established by Health Plans in order to facilitate Health Plans’ duty to oversee the Delegated Functions to CompCare as well as other committees as required from time to time by the Applicable Law.

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Section 6

Claim Administration

Benefit Administration and Coverage Disputes

6.1 Claim Administration. CompCare shall arrange for the processing of claims submitted for MHSA Services. CompCare shall arrange for CompCare Providers to submit claims for MHSA Services to the Claims Administrator, which may be CompCare. Claims shall be paid in accordance with Applicable Law as well as the terms and conditions of the Benefit Plan and this Agreement and, with respect to CompCare Providers, the agreements with the CompCare Providers.

6.2 Benefit Administration. (a) As further provided in Section 4, CompCare and/or the Claims Administrator shall make initial determinations whether services requested by or on behalf of a Member or for which a Member has requested reimbursement are MHSA Services and/or covered Psychotropic Drugs.

(b) If an initial determination is made by CompCare that the requested services and/or supplies are not Covered MHSA Services, such the Member shall be advised of the determination regarding the lack of coverage and the Member’s rights under the Benefit Plan to appeal a denial of coverage.

6.3 Coverage Disputes with Members.

(1) CompCare’s Internal Appeal Process. In the event of a dispute with a Member regarding coverage of MHSA Services and/or Psychotropic Drugs, CompCare shall attempt to resolve the coverage dispute in accordance with Applicable Law. If CompCare is not able to resolve such coverage dispute, CompCare shall refer the Member to Health Plans’ grievance and appeals process.

(2) Health Plans Grievance and Appeals Process. CompCare shall cooperate with Health Plans’ grievance and appeals process as provided in the Member’s Benefit Plan CompCare agrees to abide by any decision, order or mandate of CMS, Medicare Program Requirements or Health Plans’ grievance and appeals process requiring coverage of any specific claim subject to a grievance or appeals procedure.

(3) Arbitration or Litigation. Each party shall promptly inform the other party of any coverage dispute with Members that result in actual or threatened arbitration or litigation against CompCare and/or Health Plans (hereinafter referred to as the “Dispute”). Each party shall fully cooperate with the other in resolving the Dispute. Health Plans may, at its option, tender its defense of the Dispute to CompCare. In the event Health Plans and CompCare agree regarding the terms and conditions of a settlement of the Dispute, each party shall perform their respective obligations under the terms of the settlement. In the event Health Plans at any time elects to settle the Dispute and CompCare does not agree with the terms of the settlement, CompCare shall pay for the provision of the services and/or supplies in dispute (or Health Plans shall pay and deduct such amount from the Capitation), and the parties shall proceed with the dispute resolution procedure described in Section 6.4. CompCare shall indemnify Health Plans for arbitration awards or judgments pursuant to Section 8.2.

6.4 Coverage Disputes Between CompCare and Health Plans Regarding Members (hereinafter referred to as “Coverage Dispute”). In the event of a dispute between Health Plans and CompCare arises regarding whether particular services and/or supplies for a Member are MHSA Services for which CompCare has financial responsibility or if Health Plans enter into a settlement agreement with a Member as a result of actual or threatened grievance, arbitration or litigation and Health Plans and CompCare do not agree on financial liability for such services and the disagreement leads to a Coverage Dispute, the parties shall comply with the following Coverage Dispute resolution procedure.

(1) The Coverage Dispute shall be submitted to Health Plans’ and CompCare’s Medical Directors for review;

(2) The Medical Directors shall issue their determination within seven (7) business days after submission and receipt of appropriate and necessary information. In the event that the Medical Directors do not agree upon a resolution and there continues to be a Coverage Dispute after review by the Medical Directors, CompCare may submit the Coverage Dispute to arbitration pursuant to Section 11.1.

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Section 7

Payment

7.1 Capitation Payment. CompCare shall be paid for MHSA Services, Covered Prescription Drug Services and associated administrative services and Delegated Functions in accordance with the provisions set forth in Services Payment Addendum attached hereto as Exhibit A. CompCare agrees that, throughout the term of the Agreement, the Capitation (or applicable combination of the Capitation elements described in Exhibit A, in the case of an arrangement involving less than all of the capitated services under this Agreement) is and will be [*]. In the event that CompCare has [*], CompCare shall [*] (CompCare shall disclose any information with respect thereto only in the following circumstances: if permitted by law; if not prohibited by any contractual arrangement; in connection with dispute resolution pursuant to Section 11.1; if such information is otherwise available from another source; or otherwise with appropriate confidentiality provisions), and the Capitation paid pursuant to Exhibit A [*]. In the event that CompCare [*] (CompCare shall disclose any information with respect thereto only in the following circumstances: if permitted by law; if not prohibited by any contractual arrangement; in connection with dispute resolution pursuant to Section 11.1; if such information is otherwise available from another source; or otherwise with appropriate confidentiality provisions), and the parties will discuss in good faith how to [*] and whether the Capitation [*] in order to maintain compliance with terms of this Section 7.1. In either such case, if the parties do not agree on an appropriate adjustment, either party may submit the issue for arbitration pursuant to Section 11.1 of this Agreement. [*]

7.2 Financial Liability for Services for Members. (a) CompCare acknowledges that it is financially liable for MHSA Services provided to Members, Psychiatric Pharmacy Claims Costs and the cost of activities that are Delegated Functions hereunder, as well as associated administrative costs. CompCare shall submit unaudited financial statements to Health Plans within forty-five (45) days after the end of each calendar quarter, and annual audited financial statements upon issuance. In addition, at Health Plans’ request, CompCare will provide monthly financial statements.

(b) In the event a payer on the Benefit Plans, does not pay Health Plans amounts due under the terms of its agreement with Health Plans, Health Plans shall nonetheless remain liable to CompCare for amounts owed to CompCare pursuant to the terms and conditions of this Agreement.

7.3 Transfers of Funds for MHSA Services and Administrative Services Capitation Payments. (a) Health Plans shall be responsible for depositing or transferring the MHSA Services Capitation and Administrative Services Capitation on or before the [*] day of each month for which such payment is due into a bank account designated by CompCare (hereinafter referred to as “Claims Account”).

(b) Health Plans acknowledge and agree that the Claims Account into which money from Health Plans is transferred may contain money from one or more other health plans under contract with CompCare. Health Plans also acknowledge and agree that any and all interest earned from the Claims Account shall belong to CompCare.

(c) No such amounts, which are to be or are transferred to CompCare, shall be considered Plan Assets, as this term is defined by the Employee Retirement Income Security Act (hereinafter referred to as “ERISA”).

7.4 Payment in Full. CompCare shall, and shall require CompCare Providers to, accept as payment in full for MHSA Services provided to Members, such amounts as are paid pursuant to CompCare’s agreements with CompCare Providers. CompCare Providers may collect from the Member copayments and deductibles per the Member’s Benefit Plan, and charges for services not covered under the Member’s Benefit Plan.

7.5 Member Protection Provision. (a) Except for non-Covered Services and services rendered to persons for whom Health Plans is not liable for payment, CompCare agrees and shall cause CompCare Providers to agree that, in no event, including, but not limited to non-payment by Health Plans or Health Plans insolvency or breach of this Agreement, will CompCare or CompCare Providers bill, charge, collect a deposit from, seek compensation, remuneration, or reimbursement from, or have any recourse against Members for Covered Services provided pursuant to this Agreement. CompCare shall not, and shall cause CompCare Providers not to, under any circumstances, hold a Member liable for payment of any fees that are the obligation of Health Plans. This provision will not prohibit collection of any applicable copayment/coinsurance/deductible amount billed in accordance with the terms of this Agreement and/or Benefit Plans.

(b) Subject to the rules and regulations of CMS, CompCare and Health Plans shall provide for the continuation of MHSA Services for all Members for the duration of the term for which CMS payment therefore has been made to

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Health Plans and for Members who are hospitalized on the date on which Health Plans’ contract with CMS terminates or on the date Health Plans are declared insolvent or a bankrupt through the date of such Member’s discharge from hospitalization.

(c) The provisions of this Section shall: (1) apply to all Covered Services provided while this Agreement is in force; (2) with respect to Covered Services provided while this Agreement is in force, survive the termination of this Agreement regardless of the cause of termination; (3) be construed to be for the benefit of the Members; and (4) supersede any oral or written agreement, existing or subsequently entered into, between a CompCare Provider and a Member or person acting on a Member’s behalf, that requires the Member to pay for such Covered Services.

7.6 Payment to Providers. CompCare is solely responsible for payment for MHSA Services provided to Members. In the event CompCare fails to pay CompCare Providers or non-CompCare Providers who furnish covered MHSA Services, Health Plans may, after written notice to CompCare and only after such CompCare Provider or non-CompCare Provider has exhausted its remedies under the appeals process set forth in CompCare’s agreement with such CompCare Provider and CompCare’s policies and procedures (in the case of non-CompCare Providers), make payments to such providers on behalf of CompCare; provided that if a provider attempts to collect from a Member, Health Plans may make payment without waiting for exhaustion of CompCare’s appeals process. In such case, Health Plans shall submit an itemized list of such payments to CompCare, and Health Plans shall deduct from CompCare’s future Capitation payment(s) (with the timing of such deductions and the element of the Capitation from which the deduction is made being at Health Plans’ sole discretion) an amount equal to such payments. CompCare hereby agrees to defend and hold harmless Health Plans from any claims for payment by CompCare Providers or non-CompCare Providers for Covered Services rendered to Members that are contemplated as the responsibility of CompCare under this Agreement.

7.7 Coordination of Benefits. CompCare agrees to cooperate with Health Plans in complying with requirements relating to Medicare as a secondary payer (“MSP”). CompCare or CompCare Providers shall be entitled to collect and retain any third party recovery relating to workers compensation, no fault insurance or liability coverage. If a Member has primary coverage through any other health plan, then CompCare shall pay CompCare Providers and execute any documents required in connection with Health Plans’ MSP compliance activities.

Section 8

Insurance, Indemnification and Letter of Credit

8.1 Insurance. Each party, at its sole cost and expense, shall procure and maintain in force throughout the entire term of this Agreement and any renewal thereof, policies of general liability, professional/managed care liability and other insurance policies necessary to cover the party’s business practices and provision of services under this Agreement. CompCare’s coverage shall include general liability coverage of at least $[*] per claim and $[*] annual aggregate; and professional liability of at least $[*] per claim and $[*] annual aggregate; and managed care liability coverage of at least $[*] per claim and $[*] annual aggregate. Annual aggregate limits are shared across all three coverage lines. Upon request, CompCare shall provide Health Plans with certificates of insurance evidencing the insurance policies required by this Section 8.1, and CompCare shall notify Health Plans if such insurance coverage is terminated. CompCare’s agreements with CompCare Providers shall require CompCare Providers to procure and maintain, at their sole expense, professional liability insurance that meets the liability and professional policy limits required by Commonwealth and federal laws, CMS regulations and Health Plan credentialing requirements. Any such agreements shall provide for the termination of any CompCare Provider failing to maintain professional liability insurance or to comply any other requirement under Applicable Law to practice their profession in the Service Area.

8.2 Indemnification. (a) CompCare will indemnify and hold Health Plans harmless from and against any loss, cost, damage, expense, penalties or fines or other liability, including, without limitation, reasonable costs and attorney fees (“Costs”) incurred in connection with any and all third party claims, suits, investigations or enforcement actions, including claims of infringement of any intellectual property rights or claims by any governmental agency (“Indemnification Claims”) which may be asserted against, imposed upon or incurred by Health Plans and arising as a result of (i) CompCare’s negligent acts or omissions or willful misconduct or (ii) CompCare’s breach of this Agreement, including assertions of breach relating to CompCare Providers.

(b) Health Plans will indemnify and hold CompCare harmless from and against any Costs for Indemnification Claims which may be asserted against, imposed upon or incurred by CompCare and arising as a result of (i) Health Plans’ negligent acts or omissions or willful misconduct, benefit design and coverage decisions, or (ii) Health Plans’ breach of this Agreement.

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(c) As a condition of indemnification, the party seeking indemnification (“Indemnified Party”) shall notify the other party (“Indemnifying Party”) in writing promptly upon learning in writing of the assertion of any Indemnification Claim for which indemnification may be sought hereunder; provided, however, that the failure timely to give a notice shall affect the rights of an Indemnified Party hereunder only to the extent that such failure has a material prejudicial effect on the defenses or other rights available to the Indemnifying Party.

(d) The Indemnifying Party shall be entitled to assume and control the defense of the Indemnification Claim at its expense and through counsel of its choice (which counsel shall be reasonably satisfactory to the Indemnified Party) if it gives written notice of its intention to do so to the Indemnified Party within fifteen (15) days of the receipt of such notice from the Indemnified Party and acknowledges in such notice its obligation to indemnify the Indemnified Party hereunder against any Costs that may result from such Indemnified Claim; provided, however, that the Indemnifying Party shall not have the right to assume the defense of the Indemnification Claim if (i) any such claim seeks, in addition to or in lieu of monetary losses, any injunctive or other equitable relief, or (ii) the Indemnification Claim seeks criminal sanctions or imposition of governmental agency penalties (including without limitation sanctions, fines or termination of Health Plans’ CMS contract(s)) against the Indemnified Party. In the event the Indemnifying Party does not have the right to assume the defense or does not elect to assume defense of the Indemnification Claim, the Indemnified Party shall select counsel of its choice (which counsel shall be reasonably satisfactory to the Indemnifying Party) and the Indemnifying Party shall pay the Costs for the Indemnification Claim.

(e) If the Indemnifying Party undertakes defense of an Indemnification Claim pursuant to the provisions of subsection (d), the Indemnified Party may participate in such defense at its own expense unless the Indemnifying Party and the Indemnified Party are both named parties to the proceedings and the parties shall have reasonably concluded that representation of both parties by the same counsel would be inappropriate due to actual or potential conflict of interests between them. In the event of such a conflict of interests, the Indemnifying Party shall pay the reasonable attorneys’ fees of defending the Indemnified Party (which counsel shall be reasonably satisfactory to the Indemnifying Party), subject to the right of the Indemnifying Party, subsequent to payment of such fees by the Indemnifying Party, to seek recoupment of some or all of such legal fees reimbursed for conflicts counsel by the Indemnifying Party based upon a judicial or other binding determination of the relative fault of the parties or as otherwise determined pursuant to agreement or settlement.

(f) If the Indemnifying Party is defending the Indemnification Claim, it shall not, without the prior written consent of the Indemnified Party, settle, compromise or offer to settle or compromise any Indemnification Claim on a basis that would result in (i) the imposition of a consent order, injunction or decree that would restrict the future activity or conduct of the Indemnified Party; (ii) a finding or admission of a violation of the Medicare Program Requirements or other Applicable Law or violation of the rights of any person by the Indemnified Party; or (iii) a finding or admission that could otherwise have an adverse effect on the Indemnified Party.

(g) The Indemnified Party shall cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party, at the Indemnifying Party’s expense, all witnesses, pertinent records, materials and information in the Indemnified Party’s possession or under the Indemnified Party’s control relating thereto as is reasonably requested by the Indemnifying Party.

(h) If the Indemnifying Party elects to direct the defense of the Indemnification Claim, the Indemnified Party shall not make any payment toward a settlement of such claim, unless the Indemnifying Party consents in writing to such payment. If the Indemnifying Party declines or is not entitled to direct the defense of the Indemnification Claim pursuant to this Section, the Indemnified Party shall have the right, at the expense of the Indemnifying Party, (i) to direct the defense of the Indemnification claim, and (ii) to consent to the entry of any judgment or enter into any settlement with respect to the Indemnified Claim in any manner it may reasonably deem appropriate after giving written notice thereof to the Indemnifying Party, and the Indemnifying Party shall cooperate with the Indemnified Party in such defense and make available to the Indemnified Party, at the Indemnified Party’s expense, all witnesses, pertinent records, materials and information in the Indemnifying Party’s possession or under the Indemnified Party’s control relating thereto as is reasonably requested by the indemnified Party.

(i) Except as set forth in subsection (f), if either party refuses to consent to a settlement of an Indemnification Claim and the ultimate Costs exceed the settlement offer, the party refusing consent shall be responsible for all Costs that exceed the Costs that would have been incurred if the settlement offer had been accepted.

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8.3 Letter of Credit. (a) Prior to the Effective Date, CompCare shall obtain and deliver to Health Plans a letter of credit for the benefit of Health Plans in the amount of Four Million Dollars ($4,000,000) upon terms and conditions and with a bank satisfactory to Health Plans, in order to secure the performance of CompCare’s obligations under this Agreement.

(b) CompCare shall be required, during the term of this Agreement and thereafter as provided in the next sentence, to: (1) maintain such letter of credit in force at the full amount of Four Million Dollars ($4,000,000.00) (subject to the adjustments provided for in the following sentence), (2) replenish the letter of credit within five (5) business days of any draw, and (3) renew or otherwise prevent expiration of such letter of credit no less than thirty (30) days prior to any expirations thereof, as necessary to comply with the requirements of this Section 8.3. Upon nonrenewal or termination of the Agreement for any reason, the letter of credit will remain in effect for six (6) months, provided that CompCare may reduce the letter of credit amount by $666,666.66 per month after termination.

(c) CompCare and Health Plans agree that Health Plans may draw on the letter of credit if any of the following has occurred: (i) CompCare has failed to comply with any of its obligations under this Agreement, which has resulted in Financial Exposure to Health Plans; (ii) [*]; (iii) [*]; (iv) [*]; (v) [*]; (vi) [*]; or (vii) [*]. For purposes of this Section 8.3, “Financial Exposure” means that there are circumstances that, [*]. By way of example, Financial Exposure could result from: [*]. Health Plans shall be entitled to [*].

(d) Prior to drawing on any portion of the letter of credit pursuant to Section 8.3(c) above, Health Plan shall first, request payment by CompCare of any amounts being sought by Health Plans, if a request for payment has not otherwise been made; provided that failure to request payment does not affect Health Plans’ right to draw on the letter of credit. Health Plans may also deduct such amounts from the Capitation payments due to CompCare pursuant to Exhibit A; provided, however, that if Health Plans determine that the Capitation deduction would create Financial Exposure to Health Plans, then Health Plans may draw on the letter of credit instead of or in addition to Capitation deduction, as necessary to address the Financial Exposure, and further provided that Health Plans may draw the full amount of the letter of credit under Section 8.3(c)(vi) and (vii), subject to reconciliation thereafter.

Section 9

Regulatory Compliance, Filing Requirements

and NCQA Requirements

9.1 Regulatory Compliance. Health Plans are responsible for ensuring that their activities and those of the delegated entities are in compliance with all Applicable Law. CompCare shall be solely responsible for ensuring that the services it provides under this Agreement comply with any such Applicable Law. Each party shall cooperate with the other party in its efforts to achieve and/or maintain regulatory compliance.

Health Plans acknowledge that CompCare is not licensed as an insurer, health service plan, health maintenance organization or other type of licensed insurer, and to Health Plans’ and CompCare’s knowledge such licensure or other regulatory approval (“licensure/approval”) is not required of CompCare. A regulatory determination that CompCare must obtain such licensure/approval and CompCare’s failure to obtain such licensure/approval on a timely basis in order to continue providing services pursuant to this Agreement constitutes grounds for termination of this Agreement pursuant to Section 12.2(5) herein; provided that, if such regulatory determination results from a change in regulations after the Effective Date and provided CompCare obtains such licensure/approval on a timely basis, if CompCare believes that obtaining and/or maintaining such licensure/certification materially increases CompCare’s costs, CompCare may request renegotiation pursuant to Section 11.2.

9.2 ERISA Compliance. In the event any Benefit Plan is subject to ERISA, CompCare shall not be identified as or understood to be the “Plan Administrator” or a “Named Fiduciary” of the plan, as those terms are used in ERISA. CompCare has no responsibility for the preparation or distribution of the “Plan Document” or “Summary Plan Descriptions”, as those terms are used in ERISA, or for the provision of any notices or for the filing of any reports or information required to be filed in regard to the Benefit Plan. Health Plans is neither a Plan Administrator nor Named Fiduciary with respect to any insurance group.

9.3 Regulatory Filing. Health Plans shall be responsible for filing this Agreement with federal, Commonwealth and local agencies to the extent it is required to do so by any Applicable Law. The parties hereto acknowledge that the corporate parent of CompCare, Comprehensive Care Corporation, is a publicly-traded company subject to the federal securities laws, including, but not limited to, the disclosure requirements of the Exchange Act of 1933 and the rules

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and regulations promulgated thereunder and that pursuant to such laws, rules and regulations this Agreement and the transactions contemplated thereby shall be disclosed in the periodic reports of Comprehensive Care Corporation filed with the Securities and Exchange Commission. CompCare shall redact compensation terms from such reports as well as other information as requested by Health Plans as of the date hereof, if permitted by Applicable Law or the Staff of the Securities and Exchange Commission. If any additional or different disclosure is required to be made by CompCare after the date hereof, CompCare shall notify Health Plans and shall redact compensation terms from such report as well as other information as requested by Health Plans, if permitted by Applicable Law or the Staff of the Securities and Exchange Commission. If, following any such filing, or for any other reason, an agency request changes to this Agreement, CompCare and Health Plans shall jointly discuss such request with the agency and shall implement any required changes, subject to the provisions of Sections 9.1 and 11.2 (relating to a requirement for licensure/approval).

9.4 Delegation; Accreditation Compliance. CompCare shall establish and maintain processes and programs for CompCare Provider credentialing, recredentialing, utilization management, quality assessment/improvement and claims processing which are described in this Agreement and delegated by Health Plans to CompCare. With respect to such activities, CompCare shall adhere to NCQA guidelines, Medicare Program Requirements and the requirements attached hereto as Exhibit C (Pharmacy Utilization Management Delegation), Exhibit E (Credentialing Delegation), Exhibit F (UM Delegation), Exhibit H (Quality Improvement Delegation) and Exhibit J (Claims and , Encounter Data). Comprehensive Behavioral Care Inc. agrees to apply to NCQA for an extension of its National Committee for Quality Assurance (NCQA) accreditation to CompCare de Puerto Rico, Inc. and to assist and cooperate with Health Plans in their NCQA application process, at no cost to Health Plans.

Health Plans may audit CompCare’s records regarding the above processes and programs. At least annually, Health Plans shall provide written feedback to CompCare regarding the results of Health Plans review of CompCare’s reports. Health Plans shall provide written feedback to CompCare sixty (60) days following any audit activities. In the event Health Plans reasonably determine, including pursuant to any audit, that CompCare does not meet nationally recognized accreditation standards, Health Plans may implement the CAP process described in Section 4.9. Failure to cure a deficiency or to comply with a CAP shall be grounds for termination of this Agreement as provided in Sections 4.9 and 12.2.

Section 10

Books, Records and Regulatory Provisions

10.1 Privacy of Records. CompCare and Health Plans shall maintain the confidentiality of all information regarding Members in accordance with any applicable statutes and regulations, including the federal regulations governing Confidentiality of Alcohol and Drug Abuse Patient Records, 42 CFR Part 2. If the provisions of 42 CFR Part 2 are applicable, CompCare and Health Plans shall undertake to resist in judicial proceedings any effort to obtain access to information pertaining to Members otherwise than as expressly provided for in such federal confidentiality regulations.

10.2 Release of Records. Upon request by Health Plans, CompCare shall be responsible for obtaining and releasing to Health Plans all information and records or copies of records regarding MHSA Services, Pharmacy Management Services and/or UM Services provided to a Member. Such information shall be provided to Health Plans by CompCare, or CompCare shall require CompCare Providers to provide such information, at no charge, within five (5) days from the date of such request, or such later time as permitted by the requesting agency.

10.3 Health Plans Access to CompCare’s Records. CompCare acknowledges and recognizes that Health Plans shall have full rights to audit performance data, operational data, patient records, process records, reports and all data pertaining to management and services provided by CompCare, in full or in part, for Health Plans under this Agreement. CompCare also acknowledges and recognize that Health Plans have the right, with prior written notice of at least ten (10) days, except as otherwise provided under this Agreement, and in a manner that does not unreasonably disrupt CompCare’s operations and in compliance with CompCare’s policies and procedures relating to security and confidentiality, to audit the operations, to include all data and process flows and all services provided to Health Plans or its Members covered under this Agreement. Audits shall be conducted in accordance with the conditions of this Agreement, and Applicable Laws and regulations. Health Plans may elect to conduct any and all audits directly or it may elect to contract with an independent third party.

As part of the recognized and acknowledged Health Plans’ right to audit, Health Plans or its authorized representative shall be provided full access to all CompCare data, records and reports , and business and financial records, as

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stipulated above pertaining to operations and services provided to Health Plans under the terms of this contract. This includes but is not limited to operational performance data, policies, procedures, contracts, certifications, personnel data specially as it pertains to qualifications, certifications, training and any other performance or qualification or appropriateness for position related data and any other data or documents that have a bearing on or impacts the services provided.

During the course of the audits or self-audits conducted under the provisions of this Agreement, CompCare and/or Health Plans or the regulator (either directly or through an independent third party), either jointly or independently, may identify situations which can adversely affect Members, groups, providers; areas of improvement, etc. On an ongoing basis CompCare must perform self-audits and report the result of the same not later than fifteen days (15) after the end of the month in which the audit was performed. Upon documentation of the findings, CompCare will immediately prepare an impact report, a copy of which will be submitted to Health Plans. CompCare will also prepare a Corrective Action Plan (CAP) to address and correct the identified deficiency, monitor the CAP or to implement the improvement. Health Plans have the right to establish reasonable specific dates by which the CAP or the improvement must be successfully completed, and to involve or implement any applicable penalties as described in Exhibit G (Performance Standards). The Health Plans also have the right to audit and review the completion of the CAP to ensure that deficiencies have in fact been corrected or that the improvement has been implemented.

CompCare acknowledges and agrees that it must comply with Applicable Law and agree to audits and inspection by CMS and/or its designees or any other government entity and to cooperate, assist, and provide information as requested, and maintain records a minimum of 10 years or for a longer period of time as required by Applicable Law. Also, CompCare acknowledges that it must grant CMS, or its designees the right to inspect all information pertaining to this Agreement during the term of the same and a minimum of 10 years after termination of this Agreement or for a longer period of time as required by the Applicable Law.

Furthermore, CompCare and all related contractors and subcontractors agree: (a) to provide Health Plans with timely access to records, information and data necessary for: (i) Health Plans to meet their obligations under their respective contracts with CMS; and/or (ii) CMS to administer and evaluate the Benefit Plans offered by Health Plans; and (b) to submit all reports and clinical information required by the Health Plans under their respective contracts with CMS.

10.4 Compliance with HIPAA. As CompCare and Health Plans agree that CompCare is a business associate as defined in 45 CFR Sec. 160.103 (the Administrative Simplification provisions of the Health Insurance Portability and Accountability Act of 1996 “HIPAA”) of Health Plans (the covered entity under HIPAA), CompCare agrees to perform its responsibilities hereunder in a manner that complies with the requirements of HIPAA currently in effect, and as may be amended, and as applicable to CompCare’s relationship with Health Plans. Further, Health Plans as the covered entities and CompCare as Health Plans’ identified business associate agree that their use and disclosure of Protected Health Information (PHI) of Health Plans Members will comply with HIPAA’s “minimum necessary” standards without disrupting the normal treatment, payment or business operations of either party. CompCare will execute the Business Associate Agreement attached hereto as Exhibit K as required of all of Health Plans’ business associates.

10.5 Compliance with Law. Each of the parties hereto represents and warrants to the other parties hereto that such party does at the time of executing this Agreement, and shall at all times during the term of this Agreement, comply with Applicable Law, including the Medicare Program Requirements, applicable ordinances, statutes, regulations and other requirements of municipal, Commonwealth of Puerto Rico and federal authorities including but not limited to Federal Prompt Payment, Federal Criminal Law, the False Claims Act (31 U.S.C. 3729 et seq) and the anti kick-back statute (section 1128B(b) of the Social Security Act).

10.6 Policies and Procedures. CompCare shall abide by all policies and procedures adopted and amended from time-to-time by Health Plans as they apply in general to this Agreement. Health Plans shall provide advance written notice of any material changes in Health Plans’ policies and procedures. CompCare will have specific policies and procedures that will be used when performing the Delegated Functions. Such policies must be approved by Health Plans and must comply with the current requirements of Health Plans and its programs. CompCare understands that its policies and procedures must remain in compliance with the requirements of Health Plans’ programs.

10.7 Accountability. CompCare acknowledges that Health Plans oversee and are accountable to CMS for any functions and responsibilities set forth in the regulations governing the Benefit Plans as set forth in 42 CFR 422.502(i)(1). CompCare further acknowledges and agrees that pursuant to the Medicare Program Requirements, Health Plans, or its designees will monitor CompCare’s performance hereunder and that, Health Plans, and/or CMS

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shall have the right to terminate the Agreement (subject to the notice and cure period provisions of Section 12.2(1) hereof) if CompCare does not comply with its duties and obligations under the Agreement.

10.8 CompCare Access to Health Plans’ Records. During regular business hours and upon reasonable notice of not less than fourteen (14) days, CompCare shall have access to information and records or copies of records held by Health Plans only to the extent necessary to verify compliance with the provisions of Exhibit A, Sections 4.9, 7.6 or 8.3, and subject to the confidentiality provisions of Section 13.10. Such records shall be retained by Health Plans for at least ten (10) years after from termination of the Agreement or from the date of completion of any audit, whichever is later. No third party may be allowed or designated to conduct an audit or inspection without the prior written consent of the party whose records are being audited or inspected, which consent shall not be unreasonably withheld.

Section 11

Arbitration and

Renegotiation of this Agreement

11.1 Arbitration between Health Plans and CompCare. In the event a dispute between Health Plans and CompCare arises out of or is related to this Agreement, CompCare and Health Plans shall meet and negotiate in good faith to attempt to resolve the dispute. In the event the dispute is not resolved within thirty (30) days of the date one party sends written notice of the dispute to the other party, and if either party wishes to pursue the dispute, then such party’s exclusive remedy (and the exclusive remedy of the other party with respect to counterclaims, if any) will be to pursue final and binding arbitration pursuant to this Section 11.1. In such circumstance, either party may provide thirty (30) days written notice of its intent to commence binding arbitration before three arbitrators pursuant to the commercial arbitration rules of and under the auspices of the American Arbitration Association (“AAA”). Each party shall select one arbitrator and the two arbitrators shall select the third arbitrator. The arbitrators shall be persons with experience in the area of Medicare Advantage and Medicare Part D capitation arrangements. The arbitration shall be held in Wilmington, Delaware and shall commence no later than sixty (60) days after the receipt of the written notice of arbitration. The arbitrators shall have no authority to award any punitive or exemplary damages or to vary or ignore the terms of this Agreement and shall be bound by controlling law.

11.2 Renegotiation Procedure. If either party requests renegotiation pursuant to Section 3.2, Section 4.9(c)(6) or Section 9.1, or as a result of a breach of the representations and warranties of Health Plans set forth in Exhibit A hereto, the parties shall engage in good faith negotiations with the intent and goal of reaching a consensus which will preserve each party’s anticipated benefit and respective rights and obligations under this Agreement. In the event of failure to agree upon renegotiated amounts pursuant to Section 3.2, Section 4.9(c)(6) or Section 9.1 within thirty (30) days of one party issuing notice of a request for renegotiation, CompCare shall continue to provide MHSA Services, pay for Covered Prescription Drug Services, and perform all Delegated Functions hereunder (or any remaining Delegated Functions or other services, in the case of revocation of any Delegated Function or termination of any other services pursuant to Section 4.9(c)(6)) with respect to the Benefit Plans that are subject to the renegotiation, and in such event CompCare shall be compensated for such services at the Capitation rate already agreed upon, including any adjustment imposed pursuant to Section 4.9(c)(6), subject to either party’s right to request arbitration pursuant to Section 11.1. Unless otherwise agreed by the parties, any adjustment to the amounts paid to CompCare that are subsequently agreed to by the parties shall be retroactive to the effective date of the renegotiation notice issued by the party requesting a renegotiation.

Section 12

Term and Termination

12.1 Term. This Agreement shall be effective on the Effective Date and shall continue until September 30, 2012, unless terminated as provided in this Agreement. After the initial term, this Agreement shall automatically renew for an additional one (1) year term on each October 1, unless either party provides at least ninety (90) days prior written notice to the other party of its intent to not renew this Agreement.

12.2 Termination. This Agreement may be terminated as follows:

(1) by CompCare or Health Plans, upon sixty (60) days prior written notice in the event of a material breach by either party of any term of this Agreement; provided that the notice period shall be thirty (30) days in the event that the breach involves either party’s financial obligations. The written notice shall specify the nature of the breach. In the event the breaching party cures the breach within thirty (30) days after the non-breaching party’s written notice, this Agreement shall not terminate. If a notice of breach is a party’s third

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(or more) notice of breach to the other party within any twelve (12) month period, the non-breaching party, at its sole discretion, need not provide the breaching party an opportunity to cure.

(2) by Health Plans, at any time “without cause,” for convenience or for any other reason or for no reason at all, upon at least ninety (90) days prior written notice to CompCare; provided that no such “without cause” termination shall be effective before September 18, 2011. If Health Plans terminates the Agreement without cause effective on or after September 18, 2011 and before September 18, 2012, then Health Plans shall pay CompCare a termination payment as follows: $500,000 if termination is effective on or after September 18, 2011 and before December 18, 2011; $375,000 if termination is effective on or after December 18, 2011 and before March 18, 2012; $250,000 if termination is effective on or after March 18, 2012 and before June 18, 2012; and $125,000 if termination is effective on or after June 18, 2012 and before September 18, 2012. Health Plans shall not make any such payment in connection with a termination or nonrenewal of this Agreement effective on or after September 18, 2012. If Health Plans terminates the Agreement without cause prior to September 18, 2012, Health Plans shall have a right of first refusal to purchase any assets (including, without limitation, any lease of real or personal property) that CompCare disposes of in the Commonwealth of Puerto Rico within one year following such termination.

(3) by Health Plans or CompCare, immediately upon written notice to the other party in the event that either party (i) has filed involuntarily against it, not otherwise discharged or bonded to the satisfaction of Health Plans within forty-five (45) days of such filing, a petition under the United States Bankruptcy Code, including a petition for Chapter 11 reorganization as set forth in the United States Bankruptcy Code; (ii) voluntarily files a petition under the United States Bankruptcy Code, including a petition for Chapter 11 reorganization as set forth in the United States Bankruptcy Code; or (iii) is unable to pay its debts generally as they become due.

(4) by CompCare, immediately upon written notice to a Health Plan, in the event that Health Plan loses its licenses to operate as a health plan or no longer has any Members subscribed under its Benefit Plans, provided that such termination shall apply only to the affected Health Plan, and the Agreement shall continue in full force and effect with respect to any remaining Health Plan.

(5) by Health Plans, immediately upon written notice to CompCare, in the event that: (a) CompCare loses any license or accreditation required in order to perform any of the services required pursuant to this Agreement; (b) CompCare fails to obtain any license or accreditation required in order to perform any of the services required pursuant to this Agreement at least ninety (90) days before such license or accreditation is required; or (c) any governmental authority otherwise prohibits Health Plans from using CompCare as a contractor.

(6) by Health Plans, pursuant to Section 4.9(c).

(7) by Health Plans, upon notice to CompCare, in the event of a breach of any of CompCare’s obligations under Section 8.3.

12.3 Effect of Termination.

(1) Immediately upon termination of this Agreement, Health Plans shall notify Members subject to this Agreement of such termination.

(2) CompCare shall cooperate with Health Plans or Health Plans’ new mental health and substance abuse vendor in transitioning the care and management of Members in treatment on the date of termination of this Agreement.

(3) With respect to MHSA Services after the effective date of termination of this Agreement:

(a)         Outpatient MHSA Services. CompCare has no obligation to provide or arrange for the provision of outpatient MHSA Services after the effective date of termination of this Agreement; provided that CompCare’s agreements with CompCare Providers shall require CompCare Providers to agree to continue to provide MHSA Services to Members for up to ninety (90) days after termination of the Agreement or until completion of treatment, whichever occurs first, at the rates set forth in such CompCare Provider’s contract with CompCare, upon a Member’s request. Upon Health Plans’ request, CompCare shall continue to administer payments to CompCare Providers during such period.

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(b)         Inpatient MHSA Services. In the event a Member was admitted to a hospital pursuant to the terms of this Agreement prior to the effective date of termination, CompCare shall continue to provide and arrange for the provision of inpatient MHSA Services after the effective date of termination until the earlier of the date of the Member’s discharge in compliance with applicable requirements under this Agreement, including Medical Necessity, or the date on which the Member’s coverage ceases under a Benefit Plan.

(c)         Pharmacy Management Services. CompCare has no obligation to provide, arrange for or be financially responsible for any Psychotropic Drugs dispensed to a Member after the effective date of termination of this Agreement.

12.4 Immediate Termination with cause by Health Plans of a CompCare Provider. Health Plans shall have the right to immediately terminate any CompCare Provider’s status as a CompCare provider under this Agreement upon the occurrence of one or more of the following events: (1) the withdrawal, expiration, or non-renewal of any state or local license, certificate, approval or authorization that impairs the CompCare Provider’s ability to practice; (2) exclusion from participation in any federal or state health care program; (3) in cases involving imminent harm to patient care; or (4) a determination of fraud involving the rendering of MHSA Services or other related medical services.

Section 13

Miscellaneous

13.1 Amendment. This Agreement may be amended only in writing and the amendment must be executed by both parties.

13.2 Assignment. Health Plans may assign any of their rights and responsibilities under this Agreement to an Affiliate or to any entity that assumes a Health Plan’s contract with CMS or otherwise acquires the right to provide or arrange for Covered Services to the Health Plan’s Members.

Unless otherwise agreed by Health Plans in their sole and absolute discretion, this Agreement shall terminate upon CompCare’s assignment any of its rights and responsibilities under this Agreement to any person or entity. Notwithstanding the foregoing, if CompCare provides at least ninety (90) days prior written notice to Health Plans of the proposed assignment, including the timing and identity of the proposed party(ies) to the proposed transaction (“Assignment Notice”), Health Plans shall have sixty (60) days from the Assignment Notice to give notice of termination, to be effective upon such proposed assignment. Health Plans may request additional information regarding the proposed assignment, and any such information provided by CompCare shall be deemed part of the Assignment Notice. If Health Plans do not provide written notice of termination to CompCare within sixty (60) days of the Assignment Notice, then the Agreement will not terminate upon assignment, provided that the assignment is consistent with the terms described in the Assignment Notice. For purposes of this section, “assignment” includes a “Change of Control.” “Change of Control” of a party means any change involving such party or its direct or indirect parent, however it occurs, that results in voting control of the party or its direct or indirect parent being acquired by an entity that, before such transaction, was not an Affiliate of such party. An “Affiliate” is an entity that controls, is controlled by, or is under common control of a party. CompCare shall provide prompt written notice to Health Plans of any proposed assignment pursuant to this section. CompCare and Health Plans acknowledge that the Agreement contemplates that persons and entities under contract or affiliated with CompCare or Health Plans, including MSO and CompCare Providers, may perform certain services under this Agreement.

13.3 Successors and Assigns. This Agreement shall be binding upon the successor and assigns of the parties hereto.

13.4 Entire Agreement. This Agreement and any of its Exhibits, Amendments, and Addenda constitute the entire agreement between the parties in regard to its subject matter and, except as expressly stated herein, supersedes any and all prior oral or written agreements, negotiations or understandings between the parties pertaining to the subject matter herein.

13.5 Relationship between the Parties. The relationship between CompCare and Health Plans is solely that of independent contractors and nothing in this Agreement or otherwise shall be construed or deemed to create any other relationship, including one of employment, agency or joint venture. CompCare shall have sole responsibility for the payment of all federal and Commonwealth of Puerto Rico income taxes applicable to the services rendered hereunder by CompCare and its agents and representatives.

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CompCare expressly acknowledges its understanding that this Agreement constitutes a legally binding agreement between CompCare and Health Plans. CompCare further acknowledges and agrees that it has not entered into the Agreement based upon representations by any person other than Health Plans and that no person, entity, or organization other than Health Plans shall be held accountable or liable to CompCare for any of Health Plans’ obligations to CompCare created under this Agreement. This paragraph shall not create any additional obligations on the part of Health Plans other than those obligations created under this Agreement. No affiliates of Health Plans, present or future, are or will be bound by this Agreement. Health Plans shall not have nor exercise any control or direction over the methods by which CompCare or CompCare Providers shall perform their professional duties.

13.6 Patient Care. CompCare Providers shall remain solely responsible for exercising independent judgment in decisions about patient care. CompCare hereby expressly acknowledges that Health Plans do not practice medicine, and that CompCare Providers shall be solely responsible for all clinical decisions regarding the admission, treatment and discharge of Members under such CompCare Providers’ care.

13.7 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware; provided, however, (a) if Medicare Program Requirements expressly require the application of a choice of law other than Delaware, then such other law shall apply and (b) if a claim must be brought under the law of a jurisdiction other than the State of Delaware (such as under the law of the Commonwealth of Puerto Rico or federal laws) in order to be validly asserted, then the law of such jurisdiction shall apply to such claim and matters relating to or arising from such claim. In the event that any Applicable Law enacted after the Effective Date expressly requires specific language be included in this Agreement, such provisions are hereby incorporated by reference without further notice by or action of the parties, and such provisions shall be effective as of the effective date stated in such Applicable Law.

13.8 Severability. If any clause, sentence, provision or other portion of this Agreement is, or becomes, illegal, null void, or unenforceable for any reason, or is held by a court of competent jurisdiction to be so, the remainder of this Agreement shall remain in full force and effect.

13.9 Notices. Any notice under this Agreement shall be in writing and hand-delivered or sent by prepaid, first class mail or overnight courier to the addresses and addressees identified below, except as otherwise provided in the Agreement. The addresses and the addressees to which notices are sent for either party may be changed by proper notice to the other party using the notice procedures required by this Section 13.9.

CompCare de Puerto Rico, Inc.	MMM Healthcare, Inc and PMC
	Medicare Choice, Inc..
[CompCare shall provide a Puerto Rico	350 Avenida Chardon
address on or before the date first written	Suite 500, Torre Chardon
above.]	San Juan, Puerto Rico, 00918
With a copy to:	With a copy to:
Comprehensive Behavioral Care, Inc.	General Counsel
3405 West Dr. Martin Luther King Jr. Blvd.	Aveta Inc.
Suite 101	173 North Bridge Plaza North
Tampa, Florida 33607	Ft. Lee, NJ 07024
Attn: Chairman

13.10 Confidentiality and Intellectual Property. The Confidential Information of a party (the “Disclosing Party”) which is disclosed to the other party (the “Receiving Party”) will be held by the Receiving Party in strictest confidence at all times and will not be used by the Receiving Party (or its representatives, including but not limited to affiliates, employees, officers, directors or limited liability company managers and agents) for any purpose not previously authorized by the Disclosing Party or under the terms of this Agreement. The Confidential Information of the Disclosing Party will not be disclosed or divulged by the Receiving Party to anyone, except as required by law, regulation or regulatory authority requirement, or with the prior written permission of the Disclosing Party and on the condition that the party to whom the Confidential Information is disclosed agrees in writing in advance to be bound by these terms and conditions. The Receiving Party may disclose the Confidential Information to those of its employees, advisors or affiliates (and the employees and advisors thereof) who need to review the Confidential Information for

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the purposes authorized by the Disclosing Party but only after the Receiving Party has informed them of the confidential nature of the Confidential Information and directs them to treat the Confidential Information in accordance with the terms of this Agreement. The Disclosing Party retains all right, title and interest in and to its Confidential Information.

The term “Confidential Information” includes, but is not limited to, any information of either the Receiving or Disclosing Party (whether oral, written, visual or fixed in any tangible medium of expression), relating to either party’s services, operations, systems, programs, inventions, techniques, suppliers, customers and prospective customers, contractors, cost and pricing data, trade secrets, know-how, processes, plans, reports, designs and any other information of or relating to either party’s business, including its therapeutic, disease management, and health education programs, but does not include information which (a) was known to the Receiving Party before it was disclosed to the Receiving Party by the Disclosing Party, (b) was or becomes available to the Receiving Party from a source other than the Disclosing Party, provided such fact is evidenced in writing and the source is not bound by a confidentiality obligation to the Disclosing Party, or (c) is developed by the Receiving Party independently of the Disclosing Party’s Confidential Information, provided that such fact can be documented. Each party will also keep the terms of this Agreement confidential as Confidential Information, except as required by law or regulation.

If the Receiving Party is requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand, any informal or formal investigation by any government or governmental agency or authority, law or regulation, or otherwise) to disclose any of the Confidential Information, the Receiving Party will notify the Disclosing Party promptly in writing so that the Disclosing Party may seek a protective order or other appropriate remedy or, in its sole discretion, waive compliance with the terms of this Agreement. The Receiving Party agrees not to oppose any action by the Disclosing Party to obtain a protective order or other appropriate remedy. If no such protective order or other remedy is obtained, or the Disclosing Party waives compliance with the terms of this Agreement, the Receiving Party will furnish only that portion of the Confidential Information which it is advised by counsel is legally required and will exercise its reasonable best efforts to obtain reliable assurance that confidential treatment will be accorded the Confidential Information.

CompCare and Health Plans will comply with all Applicable Law regarding patient confidentiality. CompCare will not furnish any patient identifiable or Health Plans identifiable data or information to any third party without the written consent of Health Plans, except under the terms of this Agreement or as required by Applicable Law. The restrictions set forth in this Section 13.10 will not apply to claims data or information that is not identifiable on a Health Plans or patient basis in compliance with Applicable Law.

13.10.1         Return or Destruction of Information. All Confidential Information will remain the property of the Disclosing Party, and except to the extent required to be maintained in accordance with the Agreement, Applicable Law or the party’s standard audit procedure, the Receiving Party will return or destroy all written or tangible materials, and all copies thereof, upon request of the Disclosing Party or upon termination of this Agreement, and shall notify the Disclosing Party of such destruction or such need to retain such documentation.

13.10.2         Software Proprietary to CompCare. All CompCare software, hard coding, and logic used to generate the compilations of information contained in CompCare’s claims adjudication system and in all other software developed by CompCare or its designees in connection with performing under this Agreement, and any prior and future versions thereof by any name, are the property of CompCare and are protected by copyright which shall be owned by CompCare

13.10.2         Proprietary to Health Plans. All CompCare and Health Plans’ data and databases made available or provided to the other party, and any prior and future versions thereof by any name, are and will at all times remain the property of either CompCare or Health Plans (as the case may be) or its licensors and are deemed such party’s Confidential Information for the purposes of this Section 13.10. Neither CompCare not Health Plans will have any rights in such data or database of the other party other than the limited right to use them for the purposes of performing the services hereunder, as expressly set forth in this Agreement and in accordance with the Business Associate Agreement, attached hereto as Exhibit K.

13.10.3         Trade Names; Trademarks; and Service Marks. Neither party shall use any trade names, trademarks or service marks of the other party, or any word or symbol likely to be confused with such trade names, trademarks or service marks, unless authorized by the other party in writing or as expressly permitted by this Agreement.

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13.10.3.1 Health Plans shall have sole responsibility for the advertising and marketing of all Health Plans. CompCare shall not promote or use Health Plans in any advertising or marketing efforts without prior written approval of Health Plans; provided, however, that CompCare shall have the right to use Health Plans’ names for the purposes of performing its obligations under this Agreement.

13.10.3.2 Health Plans and CompCare shall have the right to use the name of the other party for purposes of marketing (with the prior consent of the other party), informing Members of the identity of CompCare as a Health Plan contractor, and otherwise to carry out the terms of this Agreement.

13.10.4         Access to Information. For a period of ten (10) years after termination of this Agreement or such longer time period as may be required by Applicable Law, Health Plans and their representatives shall have reasonable access to all of the books and records of CompCare to the extent that such access may reasonably be required by Health Plans in order for Health Plans to comply with their applicable legal obligations and requirements and to enforce any other rights under the Agreement. Such access shall be afforded by CompCare upon receipt of reasonable advance notice and during normal business hours.

13.10.5         Remedies. Any unauthorized disclosure or use of Confidential Information would cause CompCare or Health Plans immediate and irreparable injury or loss that cannot be adequately compensated with money damages. Accordingly, if either party fails to comply with this Section 13.10, the other party will be entitled to specific performance including immediate issuance of a temporary restraining order or preliminary injunction enforcing this Agreement and to judgment for damages (including reasonable attorneys’ fees) caused by the breach, and to any other remedies provided by law.

13.11 No Solicitation of Employees. Unless otherwise agreed to by the affected party, from the date hereof until either party submits a notice of termination or nonrenewal to the other, neither party shall, without the prior consent of the other party, directly or indirectly solicit, employ or engage any employee of the other party for the purpose of designing, developing and/or managing a program to provide managed mental health and/or substance abuse treatment services. Notwithstanding this provision, a party will not be precluded from hiring any such person who has been terminated by a party prior to commencement of employment discussions between the other party or its representatives and such employee.

13.12 Exclusive Nature of Agreement. Health Plans and CompCare agree that, except as otherwise set forth in this Agreement or in the case of written waiver by CompCare, CompCare shall be the sole and exclusive provider of MHSA Services for the Benefit Plans issued by Health Plans as of the Effective Date of this Agreement. This provision does not prohibit Health Plans from contracting with any other provider, including a provider of behavioral health services, so long as such contract is not used by Health Plans in violation of, or contrary to, any of the provisions this Agreement. By way of example, Health Plans may have contracts with behavioral health providers that are not used in connection with providing MHSA Services for the Benefit Plans during the term of this Agreement.

13.13 Transition of Services to CompCare. CompCare will have two full time employees in its primary office located in Puerto Rico who will be available to be at Health Plan’s offices, as needed, during the transition period between the previous MHSA provider and CompCare.

13.14 Representation and Warranty Regarding Settlement. CompCare represents and warrants that (a) it and Inspira Mental Health Management, Inc (“Inspira”) have executed and delivered that certain Settlement Agreement, Release and Other Binding Commitments dated July 2, 2010 (“Settlement Agreement”), whereby it and Inspira have fully and completely settled all disputes and litigations between them, (b) all transactions contemplated by the Settlement Agreement have been completed, including filing of a stipulation of dismissal in the underlying litigation; (c) the releases contemplated by the Settlement Agreement are effective; (d) there are no disputes relating to such Settlement Agreement either pending or threatened by either CompCare or Inspira; and (e) CompCare. is wholly owned by Comprehensive Behavioral Care, Inc.

13.15 Fraud, Waste and Abuse Program. CompCare acknowledges that Health Plan has established a fraud, waste and abuse (FWA) program applicable to services performed in accordance with this Agreement. CompCare acknowledges that it will train employees and CompCare Providers at least once a year and shall comply with the provisions of the FWA program and CMS requirements in order to detect, prevent and correct fraud, waste and abuse and that it shall be in compliance with all Applicable Law, including, but not limited to monitoring and auditing internal processes and activities. CompCare shall assist Health Plan in improving a FWA program. CompCare will

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also cooperate with Health Plans by providing information, data, records, files and/or documents required and available related to the operation of the FWA program. CompCare shall provide to Health Plans a copy of the protocol including but not limited to detection and prevention tools when requested.

Health Plans have established a Special Investigations Unit (SIU). The primary objective of the SIU is to prevent, detect and conduct preliminary or full investigations of situations that rise from suspicion or allegations of potential fraud, waste or abuse in the processing and payments of claims for services rendered to our subscribers and beneficiaries, including mental health claims.

CompCare shall establish a protocol or detection tools to verify and validate that CompCare Providers are in compliance with CMS general practice guidelines and Health Plans’ rules for mental health services. CompCare must ensure that it will pay the right amount for covered and correctly coded mental health services rendered to Members. CompCare shall provide to SIU a copy of the protocol or detection tools when requested by ISU upon reasonable written notice to CompCare.

The protocol or detection tools must take in consideration unlawful practices and most common fraud, waste or abuse practices, including, but not limited to:

• Upcoding – incorrect reporting of procedures to maximize payments

• Double billing – duplicate payments for same subscribers or beneficiaries, same date of services, etc.

• Unbundling or exploding charges

• Overutilization

• False claims – billing for services not rendered

• Alteration of claims forms, electronic claims records, medical documentation, etc.

• Collusion between a provider and a Member

• Unnecessary services

• Using the adjustment payment process to generate fraudulent payments

• Using another Member’s card to obtain mental health services

CompCare shall notify Health Plans of any situation that may raise suspicion or allegations of potential FWA during the processing and payment of claims. Such notice shall be provided to Health Plans immediately, and in any event, no later than ten (10) days after such suspicion or allegations of potential FWA comes to the attention of CompCare.

Section 13.16 Force Majeure. Neither party shall be liable in damages or have the right to terminate this Agreement for any delay or default in performing hereunder if such delay or default is caused by conditions beyond its control including, but not limited to Acts of God, wars, insurrections and/or any other cause beyond the control of the party whose performance is affected.

Section 13.17. Waiver. No course of dealing or failure by either party to enforce any term, right or condition of the Agreement shall be construed as a waiver or discharge of such term, right or condition. No waiver or discharge shall be valid unless in writing, singed by an authorized representative of the party against whom such waiver of discharge is sought to be enforced.

Section 13.18 Advance. On the Effective Date of this Agreement, Health Plans shall advance to CompCare Six Hundred Thousand Dollars ($600,000) of the Net Capitation Amount (as defined in Exhibit A) that will be due to CompCare pursuant to Exhibit A hereto for the final month of the initial term (or earlier termination) of this Agreement, and in consideration thereof, on the Effective Date, CompCare’s parent, Comprehensive Care Corporation, in consideration of this benefit provided to its indirect subsidiary, CompCare, shall issue to Health Plans’ designee, MSO of Puerto Rico, Inc., a warrant to purchase five million (5,000,000) shares of Comprehensive Care Corporation common stock, with a strike price of $0.25 per share and a term of five (5) years, in the form attached hereto as Exhibit L. The portion of the Net Capitation Amount advanced hereunder will be credited to Health Plans on the date that the Net Capitation Amount is due for the final month of the initial term (or earlier termination).

23

COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized officers to execute and deliver this Agreement as of the date first written above, to be effective on the Effective Date.

COMPCARE DE PUERTO RICO, INC.		PMC MEDICARE CHOICE, INC. MMM HEALTHCARE, INC.
By:	/s/ Remedios Rodriquez	By:	/s/ Orlando Gonzalez
Printed Name: Remedios Rodriquez		Printed Name: Orlando Gonzalez
Title: President		Title:	President

Comprehensive Behavioral Care Inc. and Comprehensive Care Corporation, jointly and severally, hereby guarantee all the payment and performance obligations of CompCare de Puerto Rico, Inc. under or relating to this Agreement.

COMPREHENSIVE BEHAVIORAL CARE, INC.		COMPREHENSIVE CARE CORPORATION
By:	/s/ Clark Marcus	By:	/s/ Clark Marcus
Printed Name: Clark Marcus		Printed Name:
Title: Co-Chief Executive Officer		Title:

24

COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

EXHIBIT A

SERVICES PAYMENT ADDENDUM

[*]

25

EX-31.1

COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Clark A. Marcus, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Comprehensive Care Corporation;

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements and other financial information included in this quarterly 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 quarterly report;

4. The registrant’s other certifying officers 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officers 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.

	/s/ CLARK A. MARCUS
November 12, 2010	Clark A. Marcus
	Chief Executive Officer and Chairman
	(Principal Executive Officer)

EX-31.2

COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Giuseppe Crisafi, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Comprehensive Care Corporation;

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements and other financial information included in this quarterly 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 quarterly report;

4. The registrant’s other certifying officers 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officers 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.

	/s/ GIUSEPPE CRISAFI
November 12, 2010	Giuseppe Crisafi
	Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Exhibit 32.1

Certification of CEO Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report of Comprehensive Care Corporation (the “Company”) on Form 10-Q for the quarter ending September 30, 2010 as filed with the Securities and Exchange Commission on November 12, 2010 (the “Report”), Clark A. Marcus, as Chief Executive Officer and Chairman of the Company, hereby certifies, pursuant to 18 U.S.C.§ 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:

(1)         The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)         The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/    CLARK A. MARCUS

Clark A. Marcus

Chief Executive Officer and Chairman

November 12, 2010

EX-32.2

COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

Exhibit 32.2

Certification of CFO Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report of Comprehensive Care Corporation (the “Company”) on Form 10-Q for the quarter ending September 30, 2010 as filed with the Securities and Exchange Commission on November 12, 2010 (the “Report”), Giuseppe Crisafi, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:

(1)         The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)         The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ GIUSEPPE CRISAFI

Giuseppe Crisafi

Chief Financial Officer

November 12, 2010