SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended MAY 31, 2000 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 1-9927
DELAWARE 95-2594724
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4200 WEST CYPRESS STREET, SUITE 300
TAMPA, FLORIDA 33607
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(Address of principal executive offices) (Zip Code)
(813) 876-5036
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(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, PAR VALUE $.01 PER SHARE OVER THE COUNTER BULLETIN BOARD
COMMON SHARE PURCHASE RIGHTS OVER THE COUNTER BULLETIN BOARD
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
7 1/2% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2010 OVER-THE-COUNTER
(Title of class)
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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the Registrant at August 17, 2000, was $775,397 based on the average bid and ask price of the Common Stock on August 17, 2000, as reported on the Over The Counter Bulletin Board.
At August 17, 2000, the Registrant had 3,817,807 shares of Common Stock outstanding.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
PART I
ITEM 1. BUSINESS
ORGANIZATIONAL HISTORY
Comprehensive Care Corporation(R) (the "Company") is a Delaware Corporation organized in 1969. Unless the context otherwise requires, all references to the Company include the Company's principal operating subsidiary, Comprehensive Behavioral Care, Inc.SM (1) ("CompCare"SM (2) or "CBC") and subsidiary corporations. Prior to Fiscal 1993, the Company principally engaged in the ownership, operation and management of psychiatric and substance abuse programs in Company owned, leased, or unaffiliated hospitals. During Fiscal 1999, the Company completed its plan to dispose of its hospital business segment.
Commencing in Fiscal 1993, the Company transitioned its business focus to managed behavioral healthcare products and services through its wholly owned subsidiary, CompCare. In addition to its managed care products, CompCare provides contract services through its subsidiary, Comprehensive Care Integration, Inc. ("CCI"). The Company's chief focus is its managed care business.
As of May 31, 2000, the Company had the following active subsidiaries:
WHOLLY-OWNED SUBSIDIARIES OF COMPREHENSIVE CARE CORPORATION: STATE OF INCORPORATION ------------------------------------------------------------ ---------------------- Comprehensive Behavioral Care, Inc. Nevada Comprehensive Health Associates, Inc. Puerto Rico WHOLLY-OWNED SUBSIDIARIES OF COMPREHENSIVE BEHAVIORAL CARE, INC.: ----------------------------------------------------------------- Comprehensive Care Integration, Inc. Delaware Healthcare Management Services, Inc. Michigan Healthcare Management Services of Michigan, Inc. Michigan Behavioral Healthcare Management, Inc. Michigan AFFILIATES SPONSORED BY COMPREHENSIVE BEHAVIORAL CARE, INC.: ------------------------------------------------------------ Comprehensive Provider Networks of Texas, Inc. Texas |
The following table sets forth, for each of the years in the five-year period ended May 31, 2000, the percentage of operating revenues from the Company's managed care operations, corporate and other operations, and discontinued operations.
YEAR ENDED MAY 31,
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2000 1999 1998 1997 1996
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Managed care operations (1) 98% 87% 83% 72% 49%
Corporate and other operations 2% 3% 3% 11% 18%
Discontinued operations -- 10% 14% 17% 33%
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100% 100% 100% 100% 100%
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
RECENT DEVELOPMENTS
- During the first quarter of Fiscal 2001, the Company's Florida region implemented two new contracts to provide behavioral healthcare benefits to approximately 200,000 new members.
- The Company has successfully retained two contracts with one HMO in Texas, which were previously reported as expected cancellations. These two contracts have accounted for approximately 6.3% and 3.7% of operating revenue from continuing operations for Fiscal 2000 and 1999, respectively.
- As more fully described in Item 3, Legal Proceedings, effective July 11, 2000, the Company submitted an Offer in Compromise (the "Offer") to the Appeals Office of the Internal Revenue Service ("IRS") to resolve a controversy with respect to $12 million of refunds received on the carryback of certain losses under Section 172(f) of the Internal Revenue Code at a substantially reduced amount. There can be no assurance that the IRS will accept the Offer.
- Effective June 30, 2000, Humana, Inc. ("Humana") completed the sale of its North Florida Medicaid business to HealthEase of Florida, Inc. Effective July 1, 2000, the Company has contracted with HealthEase of Florida, Inc. to continue to provide behavioral healthcare services to approximately 100,000 of 160,000 Florida members that were managed by the Company under contracts with Humana. Additionally, Humana's contracts with the Company, which cover specific commercial, Medicaid, and Medicare populations of approximately 60,000 members, will terminate September 30, 2000.
- As more fully described in Note 18 to the audited, consolidated financial statements, the Company has recently reached agreements, which fully settled two prior legal claims.
- The Company had two major contracts that terminated on December 31, 1999. Following the termination of these contracts, the Company underwent a restructuring that included the elimination of the Company's California administrative office and related executive and staff positions and, additionally, the centralization of certain contract management and clinical functions, which was completed during February, 2000. Approximately 50 positions were eliminated during Fiscal 2000.
OPERATIONAL OVERVIEW
For the fiscal year ended May 31, 2000, the Company had a net loss from continuing operations of $5.8 million, which is primarily attributable to the loss of two major contracts during the fourth quarter of Fiscal 1999 and two major contracts during the third quarter of Fiscal 2000. Additionally, this loss included approximately $0.9 million of restructuring expenses in connection with the elimination of the Company's California office and affiliated employees, approximately $0.6 million of increased marketing and other costs specific to the Company's efforts to regain business in Puerto Rico, and in other regions, approximately $0.1 million of operating costs incurred to manage the Company's Year 2000 readiness program and approximately $0.1 million of costs in connection with the NCQA accreditation. These expenses were offset in part by $0.3 million of revenue related to favorable cost report settlements completed during the year and $0.2 million of non-operating gains recognized during Fiscal 2000, primarily related to property tax refunds received specific to assets disposed of during Fiscal 1999 or earlier. This compares to the net loss from continuing operations of $3.0 million for the same period of 1999, which included approximately $0.9 million of bad debt expense specific to two major contracts that terminated during Fiscal 1999, $0.3 million of bad debt expense specific to hospital accounts receivable that were written off after the March 11, 1999 disposal date, and $0.2 million of bad debt expense specific to CCI contracts that terminated prior to May 31, 1999. Additionally, the Company incurred $0.8 million of expense in its unsuccessful bid for a managed care contract in Argentina and approximately $0.6 million of restructuring costs related to the loss of the PCA contract in Puerto Rico during Fiscal 1999. These expenses were offset by an extraordinary gain of $0.1 million related to the debenture exchange that took place during Fiscal 1999.
Stockholders' deficit increased to $10.7 million in Fiscal 2000 from $4.9 million as of May 31, 1999. Cash and cash equivalents decreased to $2.5 million as of May 31, 2000, from $7.8 million as of May 31, 1999. Managed care
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
operations accounted for approximately 98% of the Company's operating revenues with discontinued and other operations accounting for 2% of the Company's operating revenues for the fiscal year ended May 31, 2000.
BUSINESS GENERAL
The Company manages the delivery of a continuum of psychiatric and substance abuse services to commercial, Medicare, and Medicaid members on behalf of employers, health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"), government organizations, third-party claims administrators, and commercial and other group purchasers of behavioral healthcare services. The services provided by the Company are delivered through management service agreements, administrative service agreements, and capitated contracts. Under capitated contracts, the primary payor of healthcare services pre-pays a fixed, per member per month ("PMPM") fee for covered psychiatric and substance abuse services to the Company regardless of actual member utilization. Current services include a broad spectrum of inpatient and outpatient mental health and substance abuse therapy, counseling, and supportive interventions. Programs are contracted through inpatient facilities as well as through experienced outpatient practitioners.
The Company currently provides services to contracted members in seven states and provides managed behavioral healthcare services to recipients through subcontracts with HMOs. The programs and services currently offered by the Company include fully integrated, capitated behavioral healthcare services, Employee Assistance Programs (EAPs), case management/utilization review services, administrative services management (ASOs), provider sponsored health plan development, preferred provider network development, management and physician advisor reviews, and overall care management services. The Company also manages behavioral healthcare services in correctional settings or for parolees and probationers in three states. Fully integrated capitated lives totaled approximately 369,000 and 571,000 at May 31, 2000, and 1999, respectively. ASO lives were approximately 185,000 and 217,000 at May 31, 2000, and 1999, respectively. EAP lives were approximately 60,000 at May 31, 2000 and 1999. The Company manages its clinical service programs using proven treatment technologies and trains its providers to use effective, science-based treatment.
The Company has an incentive to keep its members healthy and to manage its costs through measures such as the monitoring of hospital inpatient admissions and the review of authorizations for various types of outpatient therapy. The goal is to combine access to quality behavioral healthcare services with effective management controls in order to ensure the most cost-effective use of healthcare resources.
SOURCES OF REVENUE
The Company provides managed behavioral healthcare and substance abuse services to its members under contract. Generally, the Company receives a negotiated amount on a PMPM or capitated basis to provide these services. The Company then contracts directly with providers who receive a pre-determined fee-for-service rate, case rate, or, alternatively, the Company may contract with an integrated provider company on a sub-capitated basis. Behavioral healthcare providers include psychiatrists, clinical psychologists, and other licensed healthcare professionals. Under full-risk capitation arrangements, the Company is responsible for the development and management of service networks, including physicians, therapists and hospitalization services and all claims are managed and paid by the Company. In cases where the Company has made sub-capitation arrangements, the outside company manages service delivery through a Company approved and credentialed network that is guided by stringent quality standards. In most cases, claims are paid by the Company and deducted from the capitation payment.
DELIVERY OF HEALTHCARE SERVICES
Members are usually directed to the Company by their employer, HMO, or physician and, if deemed appropriate, receive an initial authorization for a consultation. Based upon the initial consultation, a treatment plan is established for the member. The Company attempts to control its healthcare expense risk by entering into contractual relationships with healthcare providers, including hospitals, physician groups and other managed care organizations, either on a sub-capitated, discounted fee-for-service, or per-case basis. During Fiscal 2000, the Company provided services under capitated arrangements for commercial, Medicare and Medicaid patients in Florida and Texas, commercial and Medicaid patients in Michigan, and commercial patients in California, Georgia, Indiana, Idaho, Kentucky, Ohio, and Pennsylvania.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
The new business in fiscal year 2000 included capitated arrangements under ASO contracts, in which the client reimburses the Company for the costs of overall behavioral healthcare services rendered through contracted providers. Additionally, the Company has recently been awarded ASO, commercial, and Medicaid contracts in Florida and Medicaid and Children's Health Insurance Program contracts in Texas that have effective dates beginning in Fiscal 2001. The Company performs periodic reviews of its current contracts with payors and may amend or review the terms of unprofitable contracts.
OVERVIEW OF BEHAVIORAL HEALTHCARE INDUSTRY
Behavioral healthcare involves the treatment of a variety of behavioral health conditions such as emotional and mental health problems, substance abuse, and other personal concerns that require outpatient and inpatient therapy. The complexity of these conditions has required expanded services to address social issues that exacerbate illness. There is a growing emphasis on the correlation between physical and mental illness, with resultant expansion of joint HMO and managed behavioral healthcare organization ("MBHO") programs. As new psychotropic medications have become available, HMOs have expressed to MBHOs their interest in the expansion of pharmacy management.
Industry sources estimate that approximately $83 billion was spent on behavioral healthcare services in the United States in 1998. In response to escalating costs, behavioral healthcare companies, such as CompCare, have expanded their focus on member care and arranging for the appropriate level of service in a cost-effective manner. As a result of the transition to managed behavioral healthcare, occupancy rates and average length of stay for inpatient facilities have declined, while outpatient treatment and alternative care services have increased.
GROWTH STRATEGY
The Company's objective is to expand its presence in both existing and new managed behavioral healthcare markets by obtaining new contracts with HMOs, corporations, government agencies, and other payors through its reputation of providing quality managed behavioral healthcare services with the most cost-effective use of healthcare resources. New products for existing and potential clients include psychotropic pharmacy benefit management, violence prevention and intervention, and catastrophic care management for medical and psychiatric illness.
CompCare is actively pursuing the expansion of its Criminal Justice programs. CompCare has developed its Behavioral Corrections Program and is currently under contract with the state of Idaho to provide behavioral healthcare services to inmates and parolees. In addition to the full range of corrections healthcare services in the state of Idaho, CompCare is now providing services in Florida and in Michigan under contracts with the Department of Corrections ("DOC") in each of these two states. The Michigan DOC contract has provided a unique opportunity for the Company to apply managed care principles to the management of residential beds. The Company believes that the privatization of corrections healthcare services will continue to provide opportunities for the Company to expand the number and scope of its contracts with state and federal correctional facilities. Additionally, the Company is developing products that will bring its core competencies to new service areas such as behavioral pharmacy management, juvenile justice, and public school systems.
COMPETITION
The behavioral healthcare industry is highly competitive, with approximately two dozen managed behavioral healthcare companies providing service for more than 176 million lives in the United States. Additionally, there are numerous local and regional group practices, community mental health centers and behavioral healthcare hospitals that manage behavioral healthcare on behalf of HMOs, PPOs and local governments. In the last several years, most markets have seen greater migration to fully capitated HMO products, which is the Company's primary niche. As a consequence of these changes, marketplace spending on managed behavioral healthcare services is expected to grow.
The Company is subject to numerous state and federal regulations, as well as changes in Medicaid and Medicare reimbursement. As of May 31, 2000, the Company managed approximately 228,000 lives in connection with behavioral and substance abuse services covered through Medicaid in Florida and Texas. In addition, the Company manages approximately 16,000 lives covered through Medicare in Florida. At this time, the Company is unable to predict what effect, if any, changes in Medicaid and Medicare legislation may have on its business (see "Business - Government Regulation").
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
GOVERNMENT REGULATION
REGULATORY MONITORING AND COMPLIANCE
The Company is subject to extensive and evolving state and federal regulations. These regulations range from licensure and compliance with regulations related to insurance companies and other risk-assuming entities, to licensure and compliance with regulations related to healthcare providers. These laws and regulations may vary considerably among states. As a result, the Company may be subject to the specific regulatory approach adopted by each state for regulation of managed care companies and for providers of behavioral healthcare treatment services.
The Company is licensed to operate in Michigan as a Limited Health Service Organization ("LHSO") and is required to comply with certain laws and regulations that, among other things, may require the Company to maintain certain types of assets and minimum levels of deposits, capital, surplus, reserves, or net worth.
In many states, entities that assume risk under contract with licensed insurance companies or HMOs have not been considered by state regulators to be conducting an insurance or HMO business. As a result, the Company has not sought licensure as either an insurer or HMO in certain states.
Currently, management cannot quantify the potential effects of additional regulation of the managed care industry, but such costs will have an adverse effect on further operations to the extent that they are not able to be recouped in future managed care contracts. Management believes that the Company is currently in material compliance with the laws and regulations of the jurisdictions in which it operates.
ACCREDITATION
To develop standards that effectively evaluate the structure and function of medical and quality management systems in managed care organizations, the National Committee on Quality Assurance, ("NCQA") has developed an extensive review and development process in conjunction with the managed care industry, healthcare purchasers, state regulators, and consumers. The Standards for Accreditation of Managed Behavioral Healthcare Organizations used by NCQA reviewers to evaluate a managed behavioral healthcare organization address the following areas: quality improvement; utilization management; credentialing; members' rights and responsibilities; access, availability, referral and triage; preventative care guidelines; and medical records. These standards validate that a managed behavioral healthcare organization is founded on principles of quality and is continuously improving the clinical care and services it provides. In 2001, NCQA will introduce these standards to health plan accreditations and require more behavioral healthcare expertise to maintain accreditation status. NCQA also utilizes Health Plan Employer Data and Information Set ("HEDIS"), which is a core set of performance measurements developed to respond to complex but clearly defined employer needs as standards for patient care and customer satisfaction. CompCare's Southeast Region operation was awarded NCQA accreditation in August 1999.
ADMINISTRATION AND EMPLOYEES
The Company's executive and administrative offices are located in Tampa, Florida, where management maintains operations, business development, accounting, and governmental and statistical reporting functions. The Company currently employs a total of 101 employees who are assigned to its operations as follows:
Managed care operations................... 97
Corporate or other operations............. 4
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Total.................................. 101
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MANAGEMENT INFORMATION SYSTEMS
The Company utilizes a fully integrated information system designed as a complete managed care, three-tier application. The system, known as Nichols TXEN ("TXEN"), was developed by Nichols Research, and the Company is a licensed user of the TXEN system. The Company has implemented this system as a focused
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
managed behavioral healthcare system in its three regions that are active in providing managed behavioral healthcare services. The Company views the system to be adequate for its current and future needs.
All locations are strategically connected to the Company's frame relay telecommunications network, allowing automated call-path routing to overlap coverage for peak call times. Electronic access is provided and encouraged between the Company and all provider groups wishing to participate in e-mail, electronic billing, and electronic forms. Major care functions such as assessment information, service plans, initial authorizations, extension requests, termination summaries, appeals, credentialing, billing, and claim/encounter processing are backed by decision aids to correctly adjudicate patient-specific transactions.
MARKETING AND SALES
The Company's business development staff is responsible for generating new sales leads and for preparing proposals and responses to formal commercial and public sector Requests for Proposals ("RFPs"). The Company's marketing initiatives are managed by the Chief Executive Officer. The regional sales personnel strengthen the Company's marketing efforts by providing a local presence and accountability. Sales expectations are integrated into the performance requirements for executive staff and local sales personnel.
ITEM 2. PROPERTIES
The following table sets forth certain information regarding the properties owned or leased by the Company at May 31, 2000. All leases are triple net leases, under which the Company bears all costs of operations, including insurance, taxes, and utilities.
OWNED OR MONTHLY RENTAL
NAME AND LOCATION LEASED LEASE EXPIRES (IN DOLLARS)
--------------------------------------------------------------------- -------------- -------------- ---------------
CORPORATE HEADQUARTERS, REGIONAL, ADMINISTRATIVE,
AND OTHER OFFICES
Tampa, Florida, Corporate Headquarters and Southeastern
Regional offices............................................ Leased 2000 $ 26,480
Grand Prairie, Texas........................................... Leased 2001 7,431
Houston, Texas................................................. Leased 2000 1,797
Bloomfield Hills, Michigan..................................... Leased 2001 7,313
Comprehensive Care Integration, Inc., Boise, Idaho............. Leased 2000 $ 2,650
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ITEM 3. LEGAL PROCEEDINGS
(1) In July 2000, Steiner Corporation, a Colorado linen service company, commenced an action against the Company seeking damages in the amount of, approximately, $145,000 by reason of an alleged early termination of a laundry service contract. While this claim has only recently been asserted, the Company intends to deny liability. Additionally, the Company does not believe that this claim will have a material adverse effect on the Company's financial position, results of operations and cash flows.
(2) A collection proceeding has been filed against the Company in connection with the previously active managed care operation in Puerto Rico. This collection effort was filed by a Puerto Rico provider, Hato Rey Psychiatric Hospital d/b/a Mepsi Center ("MEPSI"). MEPSI claims that the Company owes MEPSI a total of $681,000, plus interest and legal fees, for services rendered to patients managed by the Company under the prior Puerto Rico Reforma Program contract, which was held by Humana, Inc. The Company is conducting an audit to determine the final amount, if any, it believes is owed to MEPSI. Such payment would be applied against the Company's existing reserve for Puerto Rico claims and disbursed from the provider funds that are held in escrow (see Note 2 to the audited, consolidated financial statements - "Summary of Significant Accounting Policies", "Restricted Cash"). The Company does not believe that this claim will have a material adverse effect on the Company's financial position, results of operations and cash flows.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
(3) The Company's subsidiary, Careunit Hospital of Ohio, Inc. ("Careunit") has been named as a third party defendant in the principal action entitled "Vencor, Inc. v. Empe, Inc." The principal action arises out of the sale by Careunit of its Ohio hospital facility to Vencor, Inc. ("Vencor") and relates to an alleged asbestos condition at the Ohio facility. Empe, Inc. ("Empe") apparently was Vencor's environmental expert in connection with this transaction. In making Careunit a third party defendant, Empe claims that it was misled and that Careunit allegedly failed to disclose the asbestos condition in the facility when Vencor conducted its environmental assessment. No specific amount of damages is claimed, but rather, the third party complaint seeks apportionment, indemnity and compensatory damages as may be determined at trial. The Company's insurance carrier has provided a defense of this action, which is only in its formative stages. The Company does not believe that this claim will have a material adverse effect on the Company's financial position, results of operations and cash flows.
(4) In May, 1999, the Company commenced an action against Richard Powers, a former Executive Vice President of the Company, and his current employer, American Psych Systems ("APS"), in the Circuit Court in and for Hillsborough County, Florida. The Company claims that Mr. Powers breached his agreements with the Company by attempting to divert customers to APS. The Company further claims that APS tortuously interfered with the Company's business relationships by directing Powers to solicit these customers in violation of his agreements. The suit is still in its early stages. The Court has denied a motion to dismiss filed by Powers and APS, and the parties have begun the discovery process. The complaint seeks unspecified damages.
(5) Although no formal claim has been made or asserted, Humana Health Plans of Puerto Rico, Inc. ("Humana") has claimed that the Company owes $3.0 million to Humana in connection with the contract that was terminated by Humana on March 31, 1999. Humana's claim relates to the pharmacy and laboratory costs incurred by Humana throughout the contract period. The Company has expressed to Humana its total disagreement with Humana's position. The Company believes that Humana owes the Company in excess of $3.0 million in relation to this same issue; however, the Company has not formally asserted such claim. The Company does not believe that Humana's claim will have a material adverse effect on the Company's financial position, results of operations and cash flows.
(6) On February 19, 1999, the California Superior Court denied the Company's Petition for Writ of Mandate of an adverse administrative appeal decision regarding application of the Maximum Inpatient Reimbursement Limitation ("MIRL") to Medi-Cal reimbursement paid to Brea Neuropsychiatric Hospital for its fiscal periods 1983 through 1986. The Company owned this facility until its disposal in fiscal year 1991. The subject matter of the Superior Court action involved the refusal of the administrative law judge to order further reductions in the liability for costs associated with treating high cost, long stay Medi-Cal patients, which are commonly referred to as "outliers". The Company does not plan to appeal the California Superior Court decision for which the Notice of Entry of Judgment was entered on February 26, 1999. As of May 31, 2000, the Company has $1.2 million accrued relating to this matter.
(7) In connection with the filing of its Federal income tax returns for fiscal
years 1995 and 1996, the Company filed a tentative refund claim to carry
back losses described in Section 172(f) of the IRC, requesting a refund to
the Company of $9.4 million and $5.5 million, respectively, of which
refunds of $9.4 million and $5.4 million were received. In addition, the
Company also filed amended Federal income tax returns for fiscal years
prior to 1995, requesting similar refunds of losses carried back under
Section 172(f) of $6.2 million for 1986; $0.4 million for 1985; $0.7
million for 1983; and $0.4 million for 1982, a total of $7.7 million.
During fiscal years 1997 and 1996, the Company recognized a portion of the refunds received as a tax benefit of $0.3 million and $2.4 million, respectively. The balance of the refunds received, $12.1 million, is recorded as a deferred liability, "Unbenefitted tax refunds received" pending resolution by the IRS of the appropriateness of the Section 172(f) carryback. The additional refunds requested under Section 172(f) for prior years of $7.7 million have not been received, nor has the Company recognized any tax benefit related to these potential refunds.
Section 172(f) of the IRC provides for a ten-year net operating loss
carryback for specific losses attributable to (1) a product liability or
(2) a liability arising under a federal or state law or out of any tort if
the act giving rise to such liability occurs at least three years before
the beginning of the taxable year. The applicability of Section 172(f) to
the type of business in which the Company operates is unclear. No assurance
can be provided that the Company will be able to retain the refunds
received to date or that the additional refunds requested will be received.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
As a result of the Section 172(f) carryback claims filed by the Company, and the tentative refunds received, the Company came under audit with respect to the tax years previously mentioned.
On August 21, 1998, the Company received an examination report, dated August 6, 1998, from the IRS advising the Company that it was disallowing $12.4 million of the $14.8 million of refunds previously received, and the additional refunds requested of $7.7 million. If the position of the IRS were to be upheld, the Company would be required to repay $12.4 million in refunds previously received, plus accrued interest of approximately $5.2 million through May 31, 2000. Accordingly, the Company would be entitled to a repayment of the fees advanced to its tax advisor relating to these refund claims of approximately $2.5 million, which is reported as "other receivable" in the accompanying balance sheet. This report commenced the administrative appeals process. The Company filed a protest letter with the IRS on November 6, 1998. The Company's tax advisor relating to these refund claims has advised management that the administrative appeals process could take twelve to eighteen months. In the event the Company wishes to further protest the results of its administrative appeal, it may further appeal to the United States Tax Court following the final determination of the administrative appeal. The Company has been advised that a determination by the United States Tax Court could take up to an additional twelve months from commencement of the appeals process in the United States Tax Court. Additionally, the IRS reserves the right to assess and collect the tax previously refunded to the Company at any time during the appeals process.
Effective July 11, 2000, the Company submitted an Offer in Compromise (the "Offer") to the Appeals Office of the IRS to resolve the controversy with respect to the refunds at a substantially reduced amount. There can be no assurance that the IRS will accept the Offer.
From time to time, the Company and its subsidiaries are also parties to and their property is subject to ordinary, routine litigation incidental to their business. In some pending cases, claims may exceed insurance policy limits and the Company or any one of its subsidiaries may have exposure to liability that is not covered by insurance. Management believes that the outcome of such lawsuits will not have a material adverse impact on the Company's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
PART II.
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Over The Counter Bulletin Board ("OTC-BB") under the symbol CHCR. The following table sets forth the range of high and low closing prices for the Common Stock for the fiscal quarters indicated:
PRICE
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FISCAL YEAR HIGH LOW
----------- ---- ---
2000 FIRST QUARTER $ 13/16 (1) $ 13/32 (1)
SECOND QUARTER 15/32 (1) 3/16 (1)
THIRD QUARTER 45/64 (1) 7/32 (1)
FOURTH QUARTER $ 35/64 (1) $ 13/64 (1)
1999 FIRST QUARTER $10 15/16(2) $ 3 7/8 (2)
SECOND QUARTER 5 1/4 (2) 2 1/8 (2)
THIRD QUARTER 5 3/4 (2) 7/8 (1)
FOURTH QUARTER $ 1 1/16 (1) $ 1/2 (1)
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(2) Indicates high and low closing prices as reported by the New York Stock Exchange. During Fiscal 1999, the Company's Common Stock was traded on the New York Stock Exchange through February 18, 1999.
(a) As of July 31, 2000, the Company had 1,454 stockholders of record of Common Stock.
(b) The Company did not pay any cash dividends on its Common Stock during any quarter of Fiscal 2000, 1999, or 1998 and does not contemplate the initiation of payment of any cash dividends in the foreseeable future (see ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS").
ITEM 6. SELECTED FINANCIAL DATA
The following tables summarize selected consolidated financial data and should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. Reclassifications of prior year amounts have been made to conform to the current year's presentation (see ITEM 7 -- "Management's Discussion and Analysis of Financial Condition and Results of Operations").
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
YEAR ENDED MAY 31,
---------------------------------------------------------
2000 1999 1998 1997 1996
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(Amounts in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
OPERATING REVENUES $ 17,719 $ 39,029 $ 39,787 $ 32,531 $ 21,742
COSTS AND EXPENSES:
Healthcare operating expenses 15,801 29,778 30,808 27,996 18,258
General and administrative expenses 6,974 9,148 7,085 7,383 8,150
Provision for (recovery of) doubtful accounts (606) 1,641 94 228 298
Depreciation and amortization 794 1,037 772 685 715
Restructuring expenses 831 600 -- 195 94
Equity in loss of unconsolidated affiliates -- -- -- -- 191
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23,794 42,204 38,759 36,487 27,706
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OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS (6,075) (3,175) 1,028 (3,956) (5,964)
OTHER INCOME (EXPENSES):
Gain on sale of assets 9 2 314 47 1,336
Loss on sale of assets (1) (4) (9) (33) (82)
Non-operating gain (loss) 204 (79) 50 (390) 860
Interest income 399 309 406 259 210
Interest expense (289) (281) (172) (732) (1,374)
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INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (5,753) (3,228) 1,617 (4,805) (5,014)
Income tax expense (benefit) 13 (146) 63 (341) (2,478)
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INCOME (LOSS) FROM CONTINUING OPERATIONS (5,766) (3,082) 1,554 (4,464) (2,536)
DISCONTINUED OPERATIONS:
Income (loss) from operations -- (334) 417 (505) (1,706)
Loss on disposal, including operating loss of $282 -- (698) -- -- --
-------- -------- -------- -------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (5,766) (4,114) 1,971 (4,969) (4,242)
EXTRAORDINARY GAIN -- 120 -- 2,172 --
-------- -------- -------- -------- ---------
NET INCOME (LOSS) (5,766) (3,994) 1,971 (2,797) (4,242)
Dividends on convertible Preferred Stock -- (55) (82) (31) --
-------- -------- -------- -------- ---------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (5,766) $ (4,049) $ 1,889 $ (2,828) $ (4,242)
======== ======== ======== ======== ========
BASIC EARNINGS PER SHARE:
Income (loss) from continuing operations $ (1.51) $ (0.88) $ 0.44 $ (1.46) $ (0.96)
Discontinued operations:
Income (loss) from operations -- (0.09) 0.12 (0.16) (0.64)
Loss on disposal -- (0.20) -- -- --
Extraordinary item -- 0.03 -- 0.70 --
-------- -------- -------- -------- ---------
Net income (loss) $ (1.51) $ (1.14) $ 0.56 $ (0.92) $ (1.60)
======== ======== ======== ======== ========
DILUTED EARNINGS PER SHARE:
Income (loss) from continuing operations $ (1.51) $ (0.88) $ 0.40 $ (1.46) $ (0.96)
Discontinued operations:
Income (loss) from operations -- (0.09) 0.11 (0.16) (0.64)
Loss on disposal -- (0.20) -- -- --
Extraordinary item -- 0.03 -- 0.70 --
-------- -------- -------- -------- ---------
Net income (loss) $ (1.51) $ (1.14) $ 0.51 $ (0.92) $ (1.60)
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working capital (deficit) $(12,245) $ (9,355) $ (8,859) $(12,657) $(21,171)
Total assets 21,275 29,066 30,405 24,746 25,119
Long-term debt 2,244 2,253 2,704 2,712 24
Long-term debt including current maturities and debentures 2,244 2,256 2,706 2,758 12,026
Stockholders' deficit $(10,672) $ (4,914) $ (1,286) $ (3,570) $ (7,798)
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Annual Report on Form 10-K includes forward-looking statements, the realization of which may be impacted by certain important factors discussed below under "Risk Factors -- Important Factors Related to Forward-Looking Statements and Associated Risks".
GENERAL
The following table summarizes the Company's financial data for the fiscal years ended May 31, 2000 and 1999 (in thousands):
CONSOLIDATED
CORPORATE AND CONTINUING DISCONTINUED
2000 MANAGED CARE OTHER OPERATIONS OPERATIONS OPERATIONS
----- -------------- ------------------ -------------- --------------
Operating revenues $ 17,355 $ 364 $ 17,719 $ --
Healthcare operating expenses 15,474 327 15,801 --
General/administrative expenses 3,753 3,221 6,974 --
Other operating expenses 2,917 (1,898) 1,019 --
-------- -------- -------- -------
22,144 1,650 23,794 --
-------- -------- -------- -------
Operating loss $ (4,789) $ (1,286) $ (6,075) $ --
======== ======== ======== =======
1999
-------
Operating revenues $ 37,691 $ 1,338 $ 39,029 $ 4,187
Healthcare operating expenses 29,250 526 29,776 3,082
General/administrative expenses 5,140 4,010 9,150 16
Other operating expenses 2,622 656 3,278 1,705
-------- -------- -------- -------
37,012 5,192 42,204 4,803
-------- -------- -------- -------
Operating income (loss) $ 679 $ (3,854) $ (3,175) $ (616)
======== ======== ======== =======
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During Fiscal 2000, the Company's operating revenues from continuing operations declined by 54.6%, or $21.3 million. Managed care operations accounted for 98.0%, or $17.4 million of the Company's overall operating revenues.
RESULTS OF OPERATIONS - THE YEAR ENDED MAY 31, 2000, COMPARED TO THE YEAR ENDED
MAY 31, 1999.
The Company reported an operating loss of approximately $6.1 million from continuing operations for the fiscal year ended May 31, 2000, which is primarily attributable to the loss of two major, managed care contracts during the fourth quarter of Fiscal 1999. Additionally, this loss included approximately $0.9 million of restructuring expenses in connection with the elimination of the Company's California office and affiliated employees, approximately $0.6 million of increased marketing and other costs specific to the Company's efforts to regain business in Puerto Rico and in other regions, approximately $0.1 million of operating costs incurred to manage the Company's Year 2000 readiness program, and approximately $0.1 million of costs in connection with the NCQA accreditation. These expenses were offset in part by $0.3 million of revenue related to favorable cost report settlements that took place during the year. This is compared to an operating loss of $3.2 million from continuing operations reported for the fiscal year ended May 31, 1999, which included approximately $0.9 million of bad debt expense specific to two major contracts that terminated during Fiscal 1999, $0.3 million of bad debt expense specific to hospital accounts receivable that were written off after the March 11, 1999 disposal date, and $0.2 million of bad debt expense specific to CCI contracts that terminated prior to May 31, 1999. Additionally, the Company incurred $0.8 million of expense in its unsuccessful bid for a managed care contract in Argentina and approximately $0.6 million of restructuring costs related to the loss of the PCA contract in Puerto Rico during Fiscal 1999.
Operating revenues from continuing operations decreased by approximately 54.6%, or $21.3 million, for the fiscal year ended May 31, 2000 compared to the fiscal year ended May 31, 1999. This decrease is primarily
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
attributable to the loss of two major contracts during the fourth quarter of Fiscal 1999 and two major contracts during the third quarter of Fiscal 2000.
Healthcare operating expenses from continuing operations decreased by 46.9%, or $14.0 million, for the fiscal year ended May 31, 2000 as compared to the fiscal year ended May 31, 1999. This decrease is attributable to the loss of revenue specific to two major contracts that terminated in Fiscal 1999 and two major contracts that terminated in Fiscal 2000. Healthcare operating expense as a percentage of net revenue from continuing operations increased from 76.3% for the fiscal year ended May 31, 1999 to 89.2% for the fiscal year ended May 31, 2000. This percentage increase is attributable to $0.3 million of claims expense recorded during the fiscal year ended May 31, 2000 specific to the Puerto Rico contract, which terminated in Fiscal 1999. Additionally, this percentage increase is attributable to continuing fixed costs that cannot be tied to the specific contracts that were terminated during Fiscal 1999. Efforts are being made to reduce the overall costs to manage the Company's existing contracts, including cost reductions related to managing the Company's healthcare information systems and, also, the centralization of certain contract management and clinical functions, which was completed during February 2000.
General and administrative expenses from continuing operations decreased by approximately 23.8%, or $2.2 million, for the fiscal year ended May 31, 2000 as compared to the fiscal year ended May 31, 1999. This decrease is primarily attributable to $1.5 million of savings in legal and accounting fees, a $0.5 million reduction in building lease costs, a $0.2 million savings in directors fees, $0.2 million of savings in corporate salaries, and a $0.1 million reduction in shareholder reporting costs in comparison to costs incurred for the same period during Fiscal 1999. These savings were offset by $0.3 million of fees paid to marketing consultants during Fiscal 2000. General and administrative costs as a percentage of revenue increased from 23.4% for the fiscal year ended May 31, 1999 to 39.4% for the fiscal year ended May 31, 2000. This percentage increase is attributable to the continuing fixed costs that cannot be tied to the specific contracts that were terminated during Fiscal 1999. The Company has taken steps to reduce its general and administrative costs by making significant staff reductions, including certain executive and staff positions that were eliminated as a result of the decision to close the Company's California office effective January 31, 2000.
Other operating expenses from continuing operations decreased by $2.3 million for the fiscal year ended May 31, 2000 compared to the fiscal year ended May 31, 1999. This decrease is primarily attributable to the $0.9 million of bad debt expense recognized during the fiscal year ended May 31, 1999 specific to the two major, managed care contracts that terminated during Fiscal 1999, $0.3 million of bad debt expense specific to hospital accounts receivable that were written off after the March 11, 1999 disposal date, and $0.2 million of bad debt expense specific to CCI contracts that were terminated prior to May 31, 1999. In contrast to the $1.6 million of bad debt expense recognized in Fiscal 1999, the Company recognized recoveries totaling $0.6 million during the fiscal year ended May 31, 2000. Additionally, expense for depreciation and amortization decreased by $0.2 million during Fiscal 2000 in comparison to the prior year. These gains were offset by a restructuring charge related to the elimination of the Company's California administrative office and related executive staff during Fiscal 2000. Such costs exceeded the prior year restructuring charge, which pertained to the loss of the Puerto Rico contract, by approximately $0.2 million.
The Company is taking steps designed to increase revenues primarily through its managed care operations and continued development of its behavioral medicine products in criminal justice and other markets.
RESULTS OF OPERATIONS - YEAR ENDED MAY 31, 1999 COMPARED TO THE YEAR ENDED
MAY 31, 1998
The Company reported a net loss from continuing operations of $3.0 million, which included approximately $0.9 million of bad debt expense specific to two major contracts that terminated during Fiscal 1999, $0.3 million of bad debt expense specific to hospital accounts receivable that were written off after the March 11, 1999 disposal date, and $0.2 million of bad debt expense specific to CCI contracts that were terminated prior to May 31, 1999. Additionally, the Company incurred $0.8 million of expense in its unsuccessful bid for a managed care contract in Argentina and approximately $0.6 million of restructuring costs related to the loss of the PCA contract in Puerto Rico. These expenses were offset by an extraordinary gain of $0.1 million related to the debenture exchange. This compares to net income of $1.5 million from continuing operations for the same period of 1998, which included $1.3 million of income relating to an adjustment made in the Company's estimated claims payable reserve.
Operating revenues from continuing operations decreased by 1.9% or $0.8 million for the year ended May 31, 1999, compared to the year ended May 31, 1998. The decrease in operating revenues is attributable to decreases in
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
operating revenues of $0.7 million and $0.1 million for managed care and corporate and other operations, respectively. Managed care revenues decreased due to the loss of two major contracts during the fourth quarter of Fiscal 1999 (see Note 4 to the audited consolidated financial statements -- "Major Contracts/Customers"). The decline in operating revenue from corporate and other operations is primarily due to the cancellation or termination of several unprofitable CCI contracts during Fiscal 1999.
Healthcare operating expenses from continuing operations decreased by $1.0 million for the year ended May 31, 1999, as compared to the year ended May 31, 1998. The decrease in healthcare operating expenses is primarily attributable to the decrease in managed care and CCI revenues during Fiscal 1999. Healthcare operating expenses as a percentage of net revenues for managed care operations decreased slightly from 77.4% for the year ended May 31, 1998, to 76.3% for the year ended May 31, 1999.
General and administrative expenses from continuing operations increased by 29.1%, or $2.1 million, for the year ended May 31, 1999, as compared to the year ended May 31, 1998. This increase is primarily due to approximately $1.7 million of increased costs for professional and consulting fees and other administrative costs, including $0.2 million attributable to one legal settlement and $0.7 million of increased costs to manage the Company's information systems. These increases were offset by savings over the prior year of approximately $0.2 million, resulting from the restructuring that was completed during the quarter ended February 28, 1998.
Other operating costs from continuing operations increased by approximately $2.4 million for the fiscal year ended May 31, 1999, compared to the fiscal year ended May 31, 1998. This increase is directly attributable to the $1.5 million of expense for the Company's provision for doubtful accounts, a $0.3 million increase in depreciation expense and $0.6 million of restructuring costs related to the loss of the Company's Puerto Rico contract.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 2000, the Company had unrestricted cash and cash equivalents of $2.5 million. During the fiscal year ended May 31, 2000, the Company used $5.3 million in its continuing operations. Additionally, $0.1 million was provided by its investing activities. The Company reported a loss of $5.8 million from continuing operations for the fiscal year ended May 31, 2000, compared to a loss of $3.1 million from continuing operations for the fiscal year ended May 31, 1999. The Company has an accumulated deficit of $62.5 million and total stockholders' deficit of $10.7 million as of May 31, 2000. Additionally, the Company's current assets at May 31, 2000, amounted to approximately $17.4 million and current liabilities were approximately $29.6 million, resulting in a working capital deficiency of approximately $12.2 million. The Company's primary use of available cash resources is to expand its managed care business and fund operations.
The Company's available sources of cash during the next fiscal year will be derived from operations. In recent months, the Company has taken steps necessary to reduce its operating costs by instituting staff reductions and cost control measures. At this time, the Company cannot state with any degree of certainty whether additional equity or debt financing will be available to it and, if available, that the source of financing would be available on terms and conditions acceptable to the Company. Any potential sources of additional financing may be subject to business and economic conditions outside the Company's control.
The working capital and stockholders' deficits may raise doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classification of liabilities that may result from the outcome of this uncertainty.
IMPACT OF YEAR 2000 COMPUTER ISSUES
The Year 2000 problem exists because many computer programs were designed and developed without considering the upcoming change in century. Historically, certain computerized systems have been designed to have two-digit rather than four-digit fields to define the applicable year and this could mean that many computer programs are unable to distinguish between the year 1900 and
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
the year 2000 when a date of "00" is used for the applicable year. Potential problems could exist for both information technology systems ("IT") and non-IT systems. Non-IT systems typically include embedded technology, such as micro-controllers, and may include equipment ranging from telephone switches and fax machines to copy machines. Any failure to correct a Year 2000 problem could result in an interruption in certain normal business activities or operations due to errors or system failures.
The Company developed a compliance program ("Plan") which used an enterprise wide, phased approach for assessing, remediating or replacing, testing, and implementing each of its mission-critical systems. The Plan covers many diverse systems and components of systems and, as such, each system was treated separately in the Plan. Additionally, since the Company's Plan addresses the Year 2000 problem from an enterprise wide approach, the Plan covers both information technology ("IT") systems and non-IT systems. The Plan also includes reviews of external vendors, EDI exchange partners, and environmental infrastructure, including utilities and security systems.
The Company completed the Remediation, Testing, and Implementation phases of its project for Mission Critical systems in September 1999, with ongoing project management and, also, maintenance of the vendor compliance process.
The Company also completed implementation for all regional offices to its new clinical operating system (TXEN). The system was purchased from Nichols Research Corporation and has been certified Year 2000 compliant. The implementation occurred ahead of the scheduled implementation date of September 30, 1999. The Company has also completed full remediation and testing of its main financial and accounting system. Additionally, the Company has also completed assessment of its mission critical systems, equipment and infrastructure.
As of August 25, 2000, there has been no disruption of normal business activities or system failures experienced by the Company. The Company is continuing to address the potential impact of Year 2000 on its non-essential information systems, its other equipment that may be affected by the Year 2000, and the impact of transacting business with parties who do not have Year 2000 compliant systems. The Company has completed mailing of its Year 2000 survey to all business partners, manufacturers of the Company's non-essential business equipment, and other trade vendors. The Company has continued its vendor compliance program by mailing surveys to all health providers that are utilized by the Company. The Company cannot state with any certainty whether their suppliers, vendors and data exchange partners will remain compliant even if they have stated compliance in previous communications. Even though the Company will observe `On-going Vigilance' for Year 2000 problems, they cannot ensure that their vendors, providers, and manufacturers will be as vigilant.
During the fiscal year ended May 31, 2000, the Company recognized approximately $0.1 million in expense specific to its Year 2000 compliance program which has been paid to consultants or vendors providing services or equipment for the Company's compliance program. Additionally, the Company paid approximately $0.1 million that was recorded as capital expenditures during the fiscal year ended May 31, 2000.
The following chart provides a summary of the Company's actual expenditures to date related to its Year 2000 Plan. As of May 31, 2000, there are no future expected costs related to the Company's Year 2000 Plan.
Capital expenditures................................. $ 825,000
Operating expense.................................... 238,000
-----------
Total................................................ $ 1,063,000
===========
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CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Except for historical information, the matters discussed that may be considered forward-looking statements may be subject to certain risks and uncertainties that could cause the actual results to differ materially from those projected, including uncertainties in the market, pricing, competition, procurement efficiencies, uncertainties inherent in the Year 2000 problem, other matters discussed in this annual report on Form 10-K, and other risks detailed from time to time in the Company's SEC reports.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
RISK FACTORS
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Annual Report on Form 10-K contains certain forward-looking statements that are based on current expectations and involve a number of risks and uncertainties. Factors that may materially affect revenues, expenses and operating results include, without limitation, the Company's success in (i) expanding the managed behavioral healthcare operations, (ii) effective management in the delivery of services, (iii) risk and utilization in context of capitated payouts, and (iv) retaining certain refunds from the IRS (see Note 13 to the audited consolidated financial statements -- "Income Taxes").
Assumptions relating to the foregoing involve judgments that are difficult to predict accurately and are subject to many factors that can materially affect results. Budgeting and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause the Company to alter its budgets which may in turn affect the Company's results. In light of the factors that can materially affect the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved.
CONCENTRATION OF RISK
The Company currently has contracts with Humana, Inc. ("Humana") to provide behavioral healthcare services under commercial, Medicaid, and Medicare plans, to contracted members in Florida. These combined contracts represent approximately 33.8% and 17.4% of the Company's operating revenue from continuing operations for Fiscal 2000 and 1999, respectively. As of June 2000, the Company provides services to approximately 160,000 Humana members in Florida. Effective June 30, 2000, Humana completed the sale of its North Florida Medicaid business to HealthEase of Florida, Inc. Effective July 1, 2000, the Company has contracted with HealthEase of Florida, Inc. to continue to provide behavioral healthcare services to approximately 100,000 of 160,000 Florida members that were managed by the Company under contracts with Humana. Additionally, Humana's contracts with the Company, which cover specific commercial, Medicaid, and Medicare populations of approximately 60,000 members will terminate September 30, 2000.
UNCERTAINTY OF FUTURE PROFITABILITY
As of May 31, 2000, the Company had stockholders' deficit of $10.7 million and a working capital deficiency of approximately $12.2 million. The Company had a loss from continuing operations for the fiscal year ended May 31, 2000, of $5.8 million. There can be no assurance that the Company will be able to achieve and sustain profitability or that the Company can achieve and maintain positive cash flow on an ongoing basis. Present results of operations are not necessarily indicative of anticipated future results of operations.
NEED FOR ADDITIONAL FUNDS; UNCERTAINTY OF FUTURE FUNDING
During prior fiscal years, a principal source of liquidity has been the private sale of equity securities and debt securities convertible into equity. Issuance of additional equity securities by the Company could result in substantial dilution to stockholders.
The Company may be required to repay a portion of the tax refunds received from the Internal Revenue Service for Fiscal 1996 and 1995, which amounted to $9.4 million and $5.4 million, respectively (see "Taxes" below and Note 13 to the audited, consolidated financial statements - "Income Taxes"). Further, the Company may be required to repay some amount to Medi-Cal in connection with the judgment entered on February 26, 1999, which is more fully described under Item 3, Legal Proceedings, above.
TAXES
In connection with the filing of its Federal income tax returns for fiscal years 1995 and 1996, the Company filed a tentative refund claim to carry back losses described in Section 172(f) of the IRC, requesting a refund to the Company of $9.4 million and $5.5 million, respectively, of which refunds of $9.4 million and $5.4 million were received. In addition, the Company also filed
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
amended Federal income tax returns for fiscal years prior to 1995, requesting similar refunds of losses carried back under Section 172(f) of $6.2 million for 1986; $0.4 million for 1985; $0.7 million for 1983; and $0.4 million for 1982, a total of $7.7 million.
During fiscal years 1997 and 1996, the Company recognized a portion of the refunds received as a tax benefit of $0.3 million and $2.4 million, respectively. The balance of the refunds received, $12.1 million, are recorded as a deferred liability, "Unbenefitted tax refunds received" pending resolution by the IRS of the appropriateness of the Section 172(f) carryback. The additional refunds requested under Section 172(f) for prior years of $7.7 million have not been received, nor has the Company recognized any tax benefit related to these potential refunds.
Section 172(f) of the IRC provides for a ten-year net operating loss carryback for specific losses attributable to (1) a product liability or (2) a liability arising under a federal or state law or out of any tort if the act giving rise to such liability occurs at least three years before the beginning of the taxable year. The applicability of Section 172(f) to the type of business in which the Company operates is unclear. No assurance can be provided that the Company will be able to retain the refunds received to date or that the other refunds requested will be received.
As a result of the Section 172(f) carryback claims filed by the Company, and the tentative refunds received, the Company came under audit with respect to the tax years previously mentioned.
On August 21, 1998, the Company received an examination report, dated August 6, 1998, from the IRS advising the Company that it was disallowing $12.4 million of the $14.8 million of refunds previously received, and the additional refunds requested of $7.7 million. If the position of the IRS were to be upheld, the Company would be required to repay $12.4 million in refunds previously received, plus accrued interest of approximately $5.2 million through May 31, 2000. Accordingly, the Company would be entitled to a repayment of the fees advanced to its tax advisor relating to these refund claims of approximately $2.5 million, which is reported as "other receivable" in the accompanying balance sheet. This report commenced the administrative appeals process. The Company filed a protest letter with the IRS on November 6, 1998. The Company's tax advisor relating to these refund claims has advised management that the administrative appeals process could take twelve to eighteen months. In the event the Company wishes to further protest the results of its administrative appeal, it may further appeal to the United States Tax Court following the final determination of the administrative appeal. The Company has been advised that a determination by the United States Tax Court could take up to an additional twelve months from commencement of the appeals process in the United States Tax Court. Additionally, the IRS reserves the right to assess and collect the tax previously refunded to the Company at any time during the appeals process.
Effective July 11, 2000, the Company submitted an Offer in Compromise ("Offer") to the Appeals Office of the IRS to resolve the controversy with respect to the refunds at a substantially reduced amount. There can be no assurance that the IRS will accept the Offer.
UNCERTAINTY OF PRICING; HEALTHCARE REFORM AND RELATED MATTERS
Managed care operations are at risk for costs incurred to supply agreed upon levels of service. Failure to anticipate or control costs could have material, adverse effects on the Company. Additionally, the business of providing services on a full-risk capitation basis exposes the Company to the additional risk that contracts negotiated and entered into may ultimately be determined to be unprofitable if utilization levels require the Company to deliver and provide services at capitation rates which do not account for or factor in such utilization levels.
The levels of revenues and profitability of healthcare companies may be affected by the continuing efforts of governmental and third party payors to contain or reduce the costs of healthcare through various means. In the United States, there have been, and the Company expects that there will continue to be, a number of federal and state proposals to implement governmental controls on the price of healthcare. It is uncertain what legislative proposals will be adopted or what actions federal, state or private payors for healthcare goods and services may take in response to any healthcare reform proposals or legislation. The Company cannot predict the effect healthcare reforms may have on its business and no assurance can be given that any such reforms will not have a material adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company depends and will continue to depend upon the services of its senior management and skilled personnel.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
SHARES ELIGIBLE FOR FUTURE SALE
The Company has issued or committed to issue 9,000 shares related to the 7 1/2% convertible subordinated debentures due April 15, 2010, and options or other rights to purchase approximately 1,120,000 shares. The Company may contemplate issuing additional amounts of debt, equity or convertible securities in public or private transactions for use in fulfilling its future capital needs (see "Need for Additional Funds; Uncertainty of Future Funding"). Issuance of additional equity could adversely affect the trading price of the Company's Common Stock.
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation provides for 60,000 authorized shares of Preferred Stock, the rights, preferences, qualifications, limitations and restrictions of which may be fixed by the Board of Directors without any vote or action by the stockholders that could have the effect of diluting the Common Stock or reducing working capital that would otherwise be available to the Company. As of May 31, 2000, there are no outstanding shares of Preferred Stock (see Note 17 to the audited consolidated financial statements -- "Preferred Stock, Common Stock, and Stock Option Plans"). The Company's Restated Certificate of Incorporation also provides for a classified board of directors with directors divided into three classes serving staggered terms. The Company's stock option plans generally provide for the acceleration of vesting of options granted under such plans in the event of certain transactions which result in a change of control of the Company. Section 203 of the General Corporation Law of Delaware prohibits the Company from engaging in certain business combinations with interested stockholders. In addition, each share of the Company's Common Stock includes one right on the terms and subject to the conditions of the Rights Agreement between the Company and Continental Stock Transfer & Trust Company. These provisions may have the effect of delaying or preventing a change in control of the Company without action by the stockholders and therefore could adversely affect the price of the Company's Common Stock or the possibility of sale of shares to an acquiring person.
LIMITATIONS ON THE DEDUCTIBILITY OF COMPENSATION UNDER CERTAIN CIRCUMSTANCES
Pursuant to the 1993 Omnibus Budget Reconciliation Act, a portion of annual compensation payable after 1993 to any of the Company's five highest paid executive officers would not be deductible by the Company for federal income tax purposes to the extent such officers' overall compensation exceeds $1.0 million per executive officer. Qualifying performance-based incentive compensation, however, would be both deductible and excluded for purposes of calculating the $1.0 million base. The Board of Directors has determined that no portion of anticipated compensation payable to any executive officer in 2000 would be non-deductible.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements and Financial Statement Schedules
Years Ended May 31, 2000, 1999 and 1998
Report of Richard A. Eisner & Company, LLP............................................................. 20 Report of Ernst & Young, LLP............................................................................ 21 Consolidated Balance Sheets, May 31, 2000 and 1999...................................................... 22 Consolidated Statements of Operations, Years Ended May 31, 2000, 1999 and 1998.......................... 23 Consolidated Statements of Stockholders' Deficit, Years Ended May 31, 2000, 1999 and 1998............... 24 Consolidated Statements of Cash Flows, Years Ended May 31, 2000, 1999 and 1998.......................... 25 Notes to Consolidated Financial Statements, Years Ended May 31, 2000, 1999 and 1998..................... 26-43 |
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Comprehensive Care Corporation
We have audited the accompanying consolidated balance sheets of Comprehensive Care Corporation and subsidiaries as of May 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' deficit and cash flows for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Comprehensive Care Corporation and subsidiaries as of May 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the years then ended, in conformity with generally accepted accounting principles.
As discussed in Note 3, the Company's working capital deficiency and stockholders' deficit raise substantial doubt about its ability to continue as a going concern. Management's plans as to these matters are also described in Notes 3 and 13. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Richard A. Eisner & Company, LLP ------------------------------------- Richard A. Eisner & Company, LLP New York, New York July 27, 2000 |
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of Comprehensive Care Corporation
We have audited the consolidated statement of operations, stockholders' deficit and cash flows of Comprehensive Care Corporation and subsidiaries for the year ended May 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of their operations and their cash flows for the year ended May 31, 1998, in conformity with generally accepted accounting principles.
As discussed in Note 3, the Company's net working capital deficiency and stockholders' deficit raise substantial doubt about its ability to continue as a going concern. Management's plans as to these matters are also described in Note 3. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As more fully described in Note 10, the Company changed its method of estimating its claim liability in 1998, which has been accounted for as a change in accounting principle inseparable from a change in estimate.
/s/ Ernst & Young LLP --------------------- Ernst & Young LLP Tampa, Florida August 26, 1998 |
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31,
-------------------------------
2000 1999
-------------- ---------------
(Amounts in Thousands)
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 2,518 $ 7,776
Restricted cash .................................................... 1,444 --
Accounts receivable, less allowance for doubtful accounts of $13
and $923 .......................................................... 276 932
Accounts receivable - pharmacy and laboratory costs ................ 10,469 10,469
Other receivable ................................................... 2,548 2,548
Other current assets ............................................... 147 481
-------- --------
Total current assets .................................................. 17,402 22,206
Property and equipment, net ........................................... 1,086 1,970
Notes receivable ...................................................... 1,145 1,172
Goodwill, net ......................................................... 1,008 1,080
Restricted cash ....................................................... 486 2,173
Other assets .......................................................... 148 465
-------- --------
Total assets .......................................................... $ 21,275 $ 29,066
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities ........................... $ 4,028 $ 4,552
Accrued claims payable ............................................. 3,014 4,369
Accrued pharmacy and laboratory costs payable ...................... 10,469 10,469
Current maturities of long-term debt ............................... -- 3
Unbenefitted tax refunds received .................................. 12,092 12,092
Income taxes payable ............................................... 44 76
-------- --------
Total current liabilities ............................................. 29,647 31,561
-------- --------
Long-term liabilities:
Long-term debt, excluding current maturities ....................... 2,244 2,253
Other liabilities .................................................. 56 166
-------- --------
Total long-term liabilities ........................................... 2,300 2,419
-------- --------
Total liabilities ..................................................... 31,947 33,980
-------- --------
Commitments and Contingencies (Notes 4 and 13)
Stockholders' deficit:
Preferred stock, $50.00 par value; authorized 60,000 shares; none
issued and outstanding ............................................ -- --
Common stock, $0.01 par value; authorized 12,500,000 shares; issued
and outstanding 3,817,822 and 3,817,812 ........................... 38 38
Additional paid-in-capital ......................................... 51,812 51,794
Deferred compensation .............................................. (10) --
Accumulated deficit ................................................ (62,512) (56,746)
-------- --------
Total stockholders' deficit ........................................... (10,672) (4,914)
-------- --------
Total liabilities and stockholders' deficit ........................... $ 21,275 $ 29,066
======== ========
|
See accompanying notes.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED MAY 31,
----------------------------------------------------
2000 1999 1998
-------------- --------------- --------------
(Amounts in thousands, except per share data)
OPERATING REVENUES ......................................... $ 17,719 $ 39,029 $ 39,787
COSTS AND EXPENSES:
Healthcare operating expenses ............................ 15,801 29,778 30,808
General and administrative expenses ...................... 6,974 9,148 7,085
Provision for (recovery of) doubtful accounts ............ (606) 1,641 94
Depreciation and amortization ............................ 794 1,037 772
Restructuring expenses ................................... 831 600 --
-------- -------- --------
23,794 42,204 38,759
-------- -------- --------
OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE ITEMS SHOWN BELOW .............................. (6,075) (3,175) 1,028
OTHER INCOME (EXPENSE):
Gain on sale of assets ................................... 9 2 314
Loss on sale of assets ................................... (1) (4) (9)
Non-operating gain (loss) ................................ 204 (79) 50
Interest income .......................................... 399 309 406
Interest expense ......................................... (289) (281) (172)
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (5,753) (3,228) 1,617
Income tax expense (benefit) ............................... 13 (146) 63
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS ................... (5,766) (3,082) 1,554
DISCONTINUED OPERATIONS:
Income (loss) from operations ............................ -- (334) 417
Loss on disposal, including operating loss of $282 ....... -- (698) --
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN .................... (5,766) (4,114) 1,971
EXTRAORDINARY GAIN ......................................... -- 120 --
-------- -------- --------
NET INCOME (LOSS) .......................................... (5,766) (3,994) 1,971
Dividends on convertible Preferred Stock ................... -- (55) (82)
-------- -------- --------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS ...... $ (5,766) $ (4,049) $ 1,889
======== ======== ========
BASIC EARNINGS PER SHARE:
Income (loss) from continuing operations ................... $ (1.51) $ (0.88) $ 0.44
Discontinued operations:
Income (loss) from operations ............................ -- (0.09) 0.12
Loss on disposal ......................................... -- (0.20) --
Extraordinary item ......................................... -- 0.03 --
-------- -------- --------
Net income (loss) .......................................... $ (1.51) $ (1.14) $ 0.56
======== ======== ========
DILUTED EARNINGS PER SHARE:
Income (loss) from continuing operations ................... $ (1.51) $ (0.88) $ 0.40
Discontinued operations:
Income (loss) from operations ............................ -- (0.09) 0.11
Loss on disposal ......................................... -- (0.20) --
Extraordinary item ......................................... -- 0.03 --
-------- -------- --------
Net income (loss) .......................................... $ (1.51) $ (1.14) $ 0.51
======== ======== ========
|
See accompanying notes
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
--------------- ---------------- PAID-IN ACCUMULATED DEFERRED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT COMPENSATION DEFICIT
------ ------- ------- ------- ---------- ----------- ------------- ------------
BALANCE, MAY 31, 1997 ......................... 41 $ 2,094 3,428 $34 $ 48,888 $(54,586) $ -- $ (3,570)
Net Income ................................. -- -- -- -- -- 1,971 -- 1,971
Adjust shares issued for the HMS acquisition -- -- (6) -- (138) -- -- (138)
Exercise of stock options .................. -- -- 44 -- 451 -- -- 451
Dividends on preferred stock ............... -- 82 -- -- -- (82) -- --
Cancellation of CEO restricted grant ....... -- -- (51) -- -- -- -- --
--- ------- ------ --- -------- -------- ---- --------
BALANCE, MAY 31, 1998 ......................... 41 $ 2,176 3,415 $34 $ 49,201 $(52,697) $ -- $ (1,286)
Net loss ................................... -- -- -- -- -- (3,994) -- (3,994)
Adjust shares issued for the HMS acquisition -- -- -- -- (94) -- -- (94)
Exercise of stock options .................. -- -- 22 -- 155 -- -- 155
Dividends on preferred stock ............... -- 55 -- -- -- (55) -- --
Shares issued for preferred stock conversion (41) (2,231) 344 4 2,227 -- -- --
Shares issued for debenture exchange offer . -- -- 37 -- 305 -- -- 305
--- ------- ------ --- -------- -------- ---- --------
BALANCE, MAY 31, 1999 ......................... -- $ -- 3,818 $38 $ 51,794 $(56,746) $ -- $ (4,914)
Net loss ................................... -- -- -- -- -- (5,766) -- (5,766)
Compensatory stock options granted ......... -- -- -- -- 18 -- (18) --
Amortization of deferred compensation ...... -- -- -- -- -- -- 8 8
--- ------- ------ --- -------- -------- ---- --------
BALANCE, MAY 31, 2000 ......................... -- $ -- 3,818 $38 $ 51,812 $(62,512) $(10) $(10,672)
=== ======= ====== === ======== ======== ==== ========
|
See accompanying notes.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MAY 31,
----------------------------------------
2000 1999 1998
------------ ------------ ------------
(Amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations before extraordinary item ............. $(5,766) $(3,082) $ 1,554
ADJUSTMENTS TO RECONCILE INCOME (LOSS) TO NET CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization ............................................... 794 1,037 772
Asset write-down ............................................................ 10 146 --
Provision for doubtful accounts ............................................. -- 1,641 94
Adjustment to deferred costs ................................................ -- -- 101
Gain on sale of assets ...................................................... (9) (2) (314)
Loss on sale of assets ...................................................... 1 4 9
Compensation expense - stock options issued ................................. 8 -- --
Restructuring expenses ...................................................... 89 455 --
Goodwill impairment ......................................................... -- 27 --
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable ......................................................... 656 (174) (749)
Accounts receivable - pharmacy and laboratory costs ......................... -- (4,814) (5,655)
Other current assets, restricted funds, and other non-current assets ........ 896 (434) (1,670)
Accounts payable and accrued liabilities .................................... (498) (379) (45)
Accrued claims payable ...................................................... (1,355) (477) (1,284)
Accrued pharmacy and laboratory costs payable ............................... -- 4,814 5,655
Income taxes payable ........................................................ (32) (109) (50)
Other liabilities ........................................................... (107) (31) (71)
------- ------- -------
NET CASH USED IN CONTINUING OPERATIONS ...................................... (5,313) (1,378) (1,653)
NET CASH USED IN DISCONTINUED OPERATIONS .................................... -- (1,070) (214)
------- ------- -------
NET CASH USED IN OPERATING ACTIVITIES ....................................... (5,313) (2,448) (1,867)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of hospital property and equipment related to
discontinued operations ................................................... -- 4,820 3,072
Net proceeds from sale of property and equipment ............................ 139 -- --
Payment received on note for sale of property and equipment ................. 25 -- 1,941
Additions to property and equipment ......................................... (107) (768) (1,413)
------- ------- -------
NET CASH PROVIDED BY INVESTING ACTIVITIES ................................... 57 4,052 3,600
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of Common Stock .................................. -- 158 358
Repayment of debt ........................................................... (2) (2) (66)
------- ------- -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ........................ (2) 156 292
------- ------- -------
Net increase (decrease) in cash and cash equivalents ........................... (5,258) 1,760 2,025
Cash and cash equivalents at beginning of year ................................. 7,776 6,016 3,991
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR ....................................... $ 2,518 $ 7,776 $ 6,016
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for
Interest ............................................................... $ 180 $ 180 $ 207
======= ======= =======
Income taxes ........................................................... $ 48 $ 87 $ 34
======= ======= =======
|
See accompanying notes
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998
NOTE 1 -- DESCRIPTION OF THE COMPANY'S BUSINESS
Comprehensive Care Corporation (the "Company") is a Delaware Corporation organized in 1969. Unless the context otherwise requires, all references to the "Company" include Comprehensive Behavioral Care, Inc. ("CompCare" or "CBC") and subsidiary corporations. The Company, through its wholly owned subsidiary, CompCare, primarily provides managed care services in the behavioral health and psychiatric fields. The managed care operations include administrative service agreements, fee-for-service agreements, and capitation contracts. The customer base for its services includes both corporate and governmental entities. The Company's services are provided by employees or by unrelated vendors on a subcontract or subcapitated basis.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Comprehensive Care Corporation and its wholly owned subsidiaries. Significant inter-company accounts and transactions have been eliminated in consolidation. The results of operations of the hospital business segment, which was disposed of during Fiscal 1999, are shown in discontinued operations in the accompanying statements of operations.
RECLASSIFICATION
Certain amounts for 1999 and 1998 have been reclassified to conform to the 2000 presentation. These reclassifications had no effect on the previously reported results of operations or stockholders' deficit.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.
REVENUE RECOGNITION
The Company's managed care activities are performed under the terms of agreements with HMOs, PPOs and other payors to provide contracted medical services to subscribing participants. Under these agreements, revenue arises from agreements to provide contracted services to qualified beneficiaries and is earned monthly based on the number of qualified participants regardless of services actually provided (generally referred to as capitation arrangements). The Company's revenues from providing other behavioral healthcare services are earned on a fee-for-service basis and are recognized as services are rendered.
HEALTHCARE EXPENSE RECOGNITION
The Company attempts to control its costs and risk by entering into contractual relationships with healthcare providers including hospitals, physician groups and other managed care organizations either on a sub-capitated, a discounted fee-for-services, or a per-case basis. The Company's capitation contracts typically exclude risk for chronic care patients. The cost of healthcare services is recognized in the period that the Company is obligated to provide such services. Certain contracted healthcare providers assume the financial risk for participant care rendered by them and they are compensated on a sub-capitated basis.
In cases where the Company retains the financial responsibility for authorizations, hospital utilization, and the cost of other behavioral healthcare services, the Company establishes an accrual for estimated claims payable (see Note 10 -- "Accrued Claims Payable").
PREMIUM DEFICIENCIES
Estimated future healthcare costs and expenses in excess of estimated future premiums are recorded as a loss when determinable. No such deficiencies existed at May 31, 2000 or May 31, 1999.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998
CASH AND CASH EQUIVALENTS
Cash in excess of daily requirements is invested in short-term investments with original maturities of three months or less. These investments aggregated $1.8 million and $7.7 million at May 31, 2000 and 1999, respectively. These investments are included in cash equivalents in the accompanying consolidated balance sheets.
RESTRICTED CASH
Restricted accounts classified as current assets are required under capitated contracts, primarily the Puerto Rico contract that expired March 31, 1999 (see Note 18 -- "Commitments and Contingencies", Item 4). Non-current restricted accounts include $0.3 million of cash held in trust in connection with the Company's Directors and Officers liability insurance policy.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation of furniture and equipment is computed using the straight-line method over the estimated useful lives of 3 to 12 years. Leasehold improvements are amortized over the term of the related lease.
GOODWILL
Goodwill includes costs in excess of the fair value of net assets of businesses purchased. Costs in excess of net assets purchased are amortized on a straight-line basis up to 21 years. The Company evaluates the recoverability and the amortization period of goodwill by determining whether the amount of goodwill recorded can be recovered through undiscounted cash flows of the business acquired excluding interest expense and amortization over the remaining amortization period. The Company believes that the remaining $1.0 million of net recorded goodwill at May 31, 2000 is recoverable from future estimated undiscounted cash flows. The amounts of goodwill reported in the consolidated balance sheets are net of accumulated amortization of $422,000 and $351,000 at May 31, 2000 and 1999, respectively.
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.
The 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. Although considerable variability is inherent in such estimates, management believes that the unpaid claims liability is adequate. The estimates are continually reviewed and adjusted as experience develops or new information becomes known with adjustments included in current operations.
INCOME TAXES
The Company calculates deferred taxes and related income tax expense using the liability method. This method determines deferred taxes by applying the current tax rate to the cumulative temporary differences between the recorded carrying amounts and the corresponding tax basis of assets and liabilities. A valuation allowance is established for deferred tax assets unless their realization is considered more likely than not. The Company's provision for income taxes is the sum of the change in the balance of deferred taxes between the beginning and the end of the period and income taxes currently payable or receivable.
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its employee stock options because the alternative fair value accounting provided for under FASB Statement No.123, "Accounting for Stock-based Compensation" (SFAS 123) requires the use of option
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998
valuation models that were not developed for use in valuing employee stock options. Under APB 25, in the event that the exercise price of the Company's employee stock options is less than the market price of the underlying stock on the date of grant, compensation expense is recognized. Compensation expense recognized in 1998 included $83,000 for taxes paid on behalf of employees in connection with stock options exercised.
In Fiscal 2000, the Company recognized deferred compensation totaling $18,000 in relation to options that were issued to non-employee consultants during Fiscal 2000. Such amount, which is based on the fair value of the options granted in accordance with SFAS 123, is being amortized to expense over the two-year vesting period of the options. Amortization for Fiscal 2000 amounted to $8,000.
EARNINGS PER SHARE
In calculating basic earnings (loss) per share, net income (loss) adjusted for dividends on preferred stock, is divided by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the assumed conversion of all dilutive securities, such as options and convertible preferred stock. No such exercise or conversion is assumed where the effect is antidilutive, such as when there is a loss from continuing operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments" requires disclosure of fair value information about financial instruments whether or not recognized in the balance sheet for which it is practical to estimate that value.
For cash and cash equivalents, notes receivable, and restricted cash, the carrying amount approximates fair value. For long-term debt, the fair value is based on the estimated market price for the Debentures on the last day of the fiscal year.
The carrying amounts and fair values of the Company's financial instruments at May 31, 2000, and 1999, are as follows:
2000 1999
----------------- ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
(AMOUNTS IN THOUSANDS)
ASSETS
Cash and cash equivalents............................ $ 2,518 $ 2,518 $ 7,776 $ 7,776
Notes receivable..................................... 1,172 1,172 1,198 1,198
Restricted cash...................................... 1,930 1,930 2,173 2,173
LIABILITIES
Long-term debt....................................... $ 2,244 $ 978 $ 2,244 $ 1,346
|
SEGMENT INFORMATION
During the fourth quarter of Fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and Related Information" (SFAS 131). SFAS 131 establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial statements. SFAS 131 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is available, that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. The Company has evaluated the effects of this pronouncement and determined that its only operating segment relating to continuing operations is its managed care business.
NOTE 3 -- LIQUIDITY AND CAPITAL RESOURCES
For the years ended May 31, 2000 and 1999, the Company incurred losses from continuing operations of $5.8 million and $3.0 million, respectively. As of May 31, 2000, the Company had a working capital deficiency of approximately $12.2 million and a stockholders' deficit of approximately $10.7 million. In addition, for the years ended May 31, 2000, 1999, and 1998, continuing operations used cash of approximately $5.3 million, $1.4 million, and $1.6 million, respectively. Further, a contract that generated approximately 44% of
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998
operating revenues from continuing operations during Fiscal 1999 expired in March 1999 and was not renewed (see Note 4 -- "Major Contracts/Customers"). The working capital deficiency referred to above results primarily from a $12.1 million liability related to Federal income tax refunds received in prior years. The ultimate outcome of the Internal Revenue Service audit whereby it is seeking recovery of the refunds from the Company, including the amount to be repaid, if any, and the timing thereof, is not determinable (see Note 13 -"Income Taxes").
The Company cannot state with any degree of certainty whether any required additional equity or debt financing to meet its obligations will be available to it during Fiscal 2001 and, if available, that the source of financing would be available on terms and conditions acceptable to the Company.
The above conditions raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustment that may result from the outcome of this uncertainty.
During Fiscal 2000, management has taken steps to trim costs and save cash, including making significant staff reductions, centralizing certain contract management and clinical functions, and eliminating the Company's California administrative office and related executive staff positions. The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing as may be required and, ultimately, to attain profitability.
NOTE 4 -- MAJOR CONTRACTS/CUSTOMERS
(1) During Fiscal 1999, the Company provided services to members of Humana Health Plans of Puerto Rico, Inc. ["Humana of Puerto Rico" (successor in interest to PCA Health Plans of Puerto Rico, Inc.)] under the terms of management service agreements entered into pursuant to healthcare contracts awarded to Humana of Puerto Rico by the Puerto Rico Insurance Administration. These contracts expired on March 31, 1999, with an extension period that ended April 30, 1999. For the fiscal years ended May 31, 1999 and 1998, these agreements accounted for approximately 44%, or $17.1 million, and 47%, or $18.8 million, of the Company's operating revenues from continuing operations, respectively.
Additionally, the contract with Humana established an amount that was withheld from Humana's monthly remittances to the Company to cover pharmacy and laboratory costs that are the financial responsibility of the Company, but were administered by Humana. Because of the uncertainty surrounding the determination of the actual pharmacy and laboratory costs incurred, the Company has reported the contract at a 100% loss ratio for the contract to date pending clarification of the actual costs incurred. As a result, the Company has reported $10.5 million as accounts receivable and accrued claims payable in the accompanying balance sheets at May 31, 2000 and 1999. During Fiscal 1999, Humana sent written notice to the Company that the Company owed $3.0 million to Humana in connection with these pharmacy and laboratory costs. The Company has expressed to Humana its total disagreement with Humana's position. The Company believes that Humana owes the Company in excess of $3.0 million in relation to this same issue. Efforts are being made to work with Humana to resolve the uncertainty.
The Company also has contracts with Humana Health Plans ("Humana") under which it provides services to members in Florida. For the fiscal year ended May 31, 2000, such contracts accounted for 33.8%, or $6.0 million, of the Company's operating revenues from continuing operations compared to 17.4%, or $6.8 million, and 18.1%, or $7.2 million, for the fiscal years ended May 31, 1999 and 1998, respectively.
Effective June 30, 2000, Humana, Inc. ("Humana") completed the sale of its North Florida Medicaid business to HealthEase of Florida, Inc. Effective July 1, 2000, the Company has entered into a one-year contract with HealthEase of Florida, Inc. to continue to provide behavioral healthcare services to approximately 100,000 of 160,000 Florida members that were managed by the Company under contracts with Humana as of June 2000. Additionally, Humana's contracts with the Company, which cover specific commercial, Medicaid and Medicare populations of approximately 60,000 members will terminate September 30, 2000. Further, although the Company has received no formal notice from Humana, Humana has verbally alleged that
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998
there is a payment discrepancy and that payment for at least a portion of the July and August capitation amounts is being withheld by Humana until Humana completes an eligibility reconciliation. The Company does not believe that there will be any material adverse impact on the Company's financial position resulting from the alleged discrepancy.
(2) The Company has two contracts with one HMO to provide behavioral healthcare services to contracted members in Texas. These combined contracts represented approximately 11.8%, 6.0%, and 1.4% of the Company's operating revenue from continuing operations for the fiscal years ended May 31, 2000, 1999, and 1998, respectively. The Company recently renewed these contracts for two years, with effective dates of February 8, 2000.
(3) The Company has two contracts with one HMO to provide behavioral healthcare services to contracted members in Texas. These combined contracts represented approximately 6.3%, 3.7%, and 2.1% of the Company's operating revenue from continuing operations for the fiscal years ended May 31, 2000, 1999, and 1998, respectively. The Company continues to provide behavioral healthcare services to members covered under these contracts, which were previously reported as expected cancellations.
(4) The Company has one contract with one HMO to provide behavioral healthcare services to contracted members in Texas. This contract represented 5.2%, 2.2%, and 0.8% of the Company's operating revenues from continuing operations for the fiscal years ended May 31, 2000, 1999, and 1998, respectively.
(5) During the fiscal year ended May 31, 2000, the Company had one contract with one HMO to provide behavioral healthcare services to contracted members in Indiana. This contract, which represented approximately 6.4%, 4.5%, and 3.6% of operating revenue from continuing operations for the fiscal years ended May 31, 2000, 1999, and 1998, respectively, was terminated effective December 31, 1999.
(6) During the fiscal year ended May 31, 2000, the Company had contracts with one HMO to provide behavioral healthcare services to contracted members in Texas. These contracts represented approximately 5.3%, 1.9%, and 0.5% of operating revenue from continuing operations for the fiscal years ended May 31, 2000, 1999, and 1998, respectively. These contracts were not renewed by the HMO and, as a result, terminated December 31, 1999.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998
NOTE 5 -- ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
MAY 31,
-------------------------------------
2000 1999
------------------ -----------------
(Amounts in thousands)
Accounts receivable - managed care capitation contracts.................... $ 231 $ 456
Accounts receivable withholdings - managed care capitation contracts........ -- 576
Other trade accounts receivable............................................. 58 823
------- ------
Total accounts receivable................................................ $ 289 $ 1,855
====== =====
|
The following table summarizes changes in the Company's allowances for doubtful accounts for the years ended May 31, 2000, 1999 and 1998:
BALANCE ADDITIONS
BEGINNING OF CHARGED TO WRITE-OFF OF BALANCE END OF
YEAR EXPENSE RECOVERIES ACCOUNTS YEAR
---------------- ---------------- --------------- ---------------- ----------------
(Amounts in thousands)
Year ended May 31, 2000............. $ 923 $ 11 $ (268)** $ (653) $ 13
Year ended May 31, 1999*............ 893 3,582 (268) (3,284) 923
Year ended May 31, 1998............. $ 883 $ 575 $ (324) $ (241) $ 893
|
Recoveries are reflected on the Company's statement of operations as a reduction to the provision for doubtful accounts in the period in which they are received.
NOTE 6 -- OTHER RECEIVABLE
Other receivable at May 31, 2000 and 1999 represents $2.5 million paid to a vendor to prepare a federal income tax refund that is more fully described in Note 13. The costs incurred will be refunded to the Company should the Internal Revenue Service ("IRS") disallow the refund and require its repayment. To the extent that all or some portion of the refund is allowed by the IRS, a portion of the fees paid will be recognized as expense in proportion to the amount of refund allowed.
NOTE 7 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
MAY 31,
--------------------
2000 1999
-------- --------
(Amounts in thousands)
Furniture and equipment............................................................ $ 3,346 $ 3,978
Leasehold improvements............................................................. 145 301
Capitalized leases................................................................. -- 17
-------- --------
3,491 4,296
Less accumulated depreciation...................................................... (2,405) (2,326)
-------- --------
Net property and equipment......................................................... $ 1,086 $ 1,970
======== ========
|
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998
NOTE 8 -- NOTES RECEIVABLE
Notes receivable consist of the following:
MAY 31,
------------------------
2000 1999
----------- -----------
(Amounts in Thousands)
8% promissory note, payable in monthly installments of approximately
$10,000, with a $1.0 million principal payment due at maturity on
April 1, 2006 (see Note 14)........................................ $1,172 $1,200
Less current maturities............................................... (27) (28)
------- -------
$1,145 $1,172
======= =======
|
NOTE 9 -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
MAY 31,
------------------------
2000 1999
----------- -----------
(Amounts in Thousands)
Accounts payable...................................................... $ 1,345 $ 1,571
Accrued restructuring................................................. 104 433
Accrued salaries and wages............................................ 558 524
Accrued vacation...................................................... 168 275
Accrued legal and audit............................................... 503 626
Payable to third-party intermediaries................................. 1,321 1,094
Deferred compensation................................................. 29 29
------- -------
$ 4,028 $ 4,552
======= =======
|
NOTE 10 -- ACCRUED CLAIMS PAYABLE
During the fourth quarter of the fiscal year ended May 31, 1998, the Company changed its methodology for estimating accrued claims payable. Prior to Fiscal 1998, the Company based its estimates on open authorizations. The revised method uses a traditional actuarial completion factor methodology. This change in methodology, which is inseparable from a change in estimate, provides a better estimate of the ultimate liability that will be incurred. As a result of the change, the Company reduced the accrued claims payable by $1.3 million which increased basic and diluted earnings per common share applicable to continuing operations and net income for Fiscal 1998 by $.38 and $.34, respectively.
Accrued claims payable consist of the following:
MAY 31,
------------------------
2000 1999
----------- -----------
(Amounts in Thousands)
Actuarially estimated claims payable.................................. $ 2,809 $ 4,093
Subcapitation payable................................................. 205 276
------- --------
Total accrued claims payable.......................................... $ 3,014 $ 4,369
======= ========
|
The Company recognized approximately $1.0 million, $1.6 million, and $2.6 million in subcapitation expense for the years ended May 31, 2000, 1999 and 1998, respectively. The Company would remain liable to perform the services covered under the subcapitation agreements if the parties with which the Company subcapitates were unable to fulfill their responsibilities under the subcapitation agreement.
NOTE 11 - RESTRUCTURING
During Fiscal 2000, following the termination of two major contracts on December 31, 1999, the Company underwent a restructuring that included the closing of the Company's California administrative office, terminating related executive and staff positions, and centralizing certain contract management and
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998
clinical functions. The Company incurred restructuring charges of $881,000 in connection therewith, including a separation payment of $760,000 to the Company's former Chairman and CEO. Rentals under the lease for the California office were assumed by an entity affiliated with the Company's former Chairman and CEO. In addition, during Fiscal 1999, the Company incurred restructuring charges of $600,000 related to the loss of a major contract in Puerto Rico. Following is an analysis of the restructuring charges together with related payments reflected in a reserve for restructuring charges:
BALANCE BALANCE
JUNE 1, PAYMENTS/ MAY 31,
1999 EXPENSE CHARGES 2000
------- ------- --------- -------
(Amounts in thousands)
FISCAL 2000
RESTRUCTURING:
Severance and separation benefits ...... $ -- $ 721 $ (721) $ --
Write-off of assets(1) ................. -- 116 (106) 10
Other closing costs .................... -- 44 (9) 35
---- ----- ------- -----
Totals ................................... $ -- $ 881 $ (836) $ 45
Puerto Rico and other prior reserves 433 (50) (324) 59
---- ----- ------- -----
Totals ................................... $433 $ 831 $(1,160) $ 104(2)
==== ===== ======= =====
|
(1) Includes $90,000 for write-off of leasehold improvements.
(2) Included in Accounts payable and accrued liabilities at May 31, 2000 (see
Note 9 - "Accounts Payable and Accrued Liabilities").
BALANCE BALANCE
JUNE 1, PAYMENTS/ MAY 31,
1998 EXPENSE CHARGES 1999
------- ------- --------- -------
(Amounts in thousands)
FISCAL 1999
RESTRUCTURING:
Severance and separation benefits $ -- $ 178 $ (143) $ 35
Write-down of fixed assets(1) .......... -- 242 (32) 210
Other closing costs .................... -- 180 -- 180
---- ----- ------ -----
Totals ................................... $ -- $ 600 $ (175) $ 425
Other prior reserves .................... 8 -- -- 8
---- ----- ------ -----
Totals ................................... $ 8 $ 600 $ (175) $ 433(2)
==== ===== ====== =====
|
(1) Includes $177,000 for write-off of leasehold improvements.
(2) Included in Accounts payable and accrued liabilities at May 31, 1999 (see
Note 9 - "Accounts Payable and Accrued Liabilities").
NOTE 12 -- LONG-TERM DEBT AND SHORT-TERM BORROWINGS
Long-term debt consists of the following:
MAY 31,
--------------------------
2000 1999
----------- -----------
(Amounts in Thousands)
7 1/2% convertible subordinated debentures due April, 2010, interest
payable semi-annually in April and October .......................... $ 2,244 $ 2,244
Other long-term debt ................................................... -- 12
------- -------
Total long-term debt ................................................... 2,244 2,256
Less current maturities of long-term debt .............................. -- (3)
------- -------
Long-term debt, excluding current maturities ........................... $ 2,244 $ 2,253
======= =======
|
As of May 31, 2000, the Company has no annual maturities of long-term debt until 2010.
On July 24, 1998, the Company completed a debenture exchange offer with its debentureholders. An aggregate of $0.4 million of principal amount of Debentures, representing approximately 17% of the issued and outstanding
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998
Debentures, were tendered for exchange to the Company pursuant to the terms of the Exchange Offer and a total of 33,185 shares of Common Stock were issued by the Company. The resulting gain on the Debenture Exchange of $0.1 million after related costs and expenses was recorded as an extraordinary gain in the accompanying consolidated statement of operations for the year ended May 31, 1999.
NOTE 13 -- INCOME TAXES
Provision for income taxes consists of the following:
YEAR ENDED MAY 31,
-------------------------------------
2000 1999 1998
---- ---- ----
(Amounts in thousands)
Current:
Federal....................................................... $ -- $ -- $ --
State ........................................................ 13 (146) 63
----- ----- ----
$ 13 $(146) $ 63
===== ===== ====
|
Reconciliation between the provision for income tax applicable to continuing operations and the amount computed by applying the statutory Federal income tax rate (34%) to income (loss) from continuing operations before income tax is as follows:
YEAR ENDED MAY 31,
----------------------------
2000 1999 1998
---- ---- ----
(Amounts in thousands)
Expense (Benefit) from income taxes at the statutory tax rate............ $ (1,957) $ (1,407) $ 692
State income taxes, net of federal tax effect............................ (228) (158) 81
Non-deductible items..................................................... 161 52 137
Increase (decrease) in valuation allowance............................... 1,596 3,273 (995)
Adjustment of net operating losses carryforwards......................... 428 (1,987) --
Other, net............................................................... 13 81 148
-------- -------- ------
$ 13 $ (146) $ 63
======== ======== ======
|
Significant components of the Company's deferred tax assets and liabilities are comprised of the following:
MAY 31,
---------------------
2000 1999
---- ----
(Amounts in thousands)
Deferred Tax Assets:
Net operating losses................................................... $ 15,345 $ 13,869
Restructuring/non-recurring costs...................................... 39 164
Alternative minimum tax credits........................................ 667 667
Payable to Third Party Intermediaries.................................. 459 418
Bad debt expense....................................................... 5 350
Employee benefits and options.......................................... 191 152
Other, net............................................................. 362 294
-------- --------
Total Deferred Tax Assets......................................... 17,068 15,914
Valuation Allowance.................................................... (16,151) (14,555)
-------- --------
Net Deferred Tax Assets................................................ 917 1,359
-------- --------
Deferred Tax Liabilities:
Depreciation........................................................... -- (442)
State income taxes..................................................... (386) (386)
Cash to accrual differences............................................ (531) (531)
-------- --------
Total Deferred Tax Liabilities.................................... (917) (1,359)
-------- --------
Net Deferred Tax Assets.................................................... $ 0 $ 0
======== ========
|
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998
At May 31, 2000, the Company had Federal accumulated net operating loss carryforwards of approximately $40 million, which expires in 2010 through 2020. In addition, the Company has a minimum tax credit carryover of approximately $0.7 million against regular tax in the event that regular tax expense exceeds the alternative minimum tax expense.
The Company may be unable to utilize some or all of its allowable tax deductions or losses, which depends upon factors including the availability of sufficient taxable income from which to deduct such losses during limited carryover periods. Further, the Company's ability to use any net operating losses may be subject to limitation in the event that the Company issues or agrees to issue substantial amounts of additional equity. The Company monitors the potential for "change of ownership" and believes that its financing plans as contemplated will not cause a "change of ownership"; however, no assurances can be made that future events will not act to limit the Company's tax benefits.
SFAS 109 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management has determined that a valuation allowance at May 31, 2000, and 1999, was necessary to offset the deferred tax assets based on the likelihood of future realization.
UNBENEFITTED TAX REFUNDS RECEIVED
In connection with the filing of its Federal income tax returns for fiscal year 1995 and 1996, the Company filed a tentative refund claim to carry back losses described in Section 172(f) of the Internal Revenue Code ("IRC"), requesting a refund of $9.4 million and $5.5 million, respectively, of which refunds of $9.4 million and $5.4 million were received. In addition, the Company also filed amended Federal income tax returns for fiscal years prior to 1995, requesting similar refunds for losses carried back under Section 172(f) of $6.2 million for 1986; $0.4 million for 1985; $0.7 million for 1983; and $0.4 million for 1982, a total of $7.7 million.
Section 172(f) of the IRC provides for a ten year net operating loss carryback for specific losses attributable to (1) a product liability or (2) a liability arising under a federal or state law or out of any tort if the act giving rise to such liability occurs at least three years before the beginning of the taxable year. The applicability of Section 172(f) to the type of business in which the Company operates is unclear. No assurance can be provided that the Company will be able to retain the refunds received to date or that the other refunds requested will be received.
During fiscal years 1997 and 1996, the Company recognized a portion of the refunds received as a tax benefit of $0.3 million and $2.4 million, respectively. The balance of the refunds received, $12.1 million, is recorded as a deferred liability, "Unbenefitted tax refunds received", pending resolution by the Internal Revenue Service ("IRS") of the appropriateness of the 172(f) carryback. The other refunds requested under Section 172(f) for prior years of $7.7 million have not been received nor has the Company recognized any tax benefit related to these potential refunds.
On August 21, 1998, the Company received an examination report, dated August 6, 1998, from the IRS advising the Company that it was disallowing $12.4 million of the $14.8 million of refunds previously received, and the additional refunds requested of $7.7 million. If the position of the IRS were to be upheld the Company would be required to repay $12.4 million in refunds previously received, plus accrued interest of approximately $5.2 million through May 31, 2000. Accordingly, the Company would be entitled to a repayment of the fees advanced to its tax advisor relating to these refunds of approximately $2.5 million, which is reported as "other receivable" in the accompanying balance sheets. This report commenced the administrative appeals process. The Company filed a protest letter with the IRS on November 6, 1998 and believes that its position with respect to its right to the tax refunds will be upheld. The Company's tax advisor relating to these refund claims has advised management that the administrative appeals process could take twelve to eighteen months. In the event the Company wishes to further protest the results of its administrative appeal, it may further appeal to the United States Tax Court following the final determination of the administrative appeal. The Company has been advised that a determination by the United States Tax Court could take up to an additional twelve months from the commencement of the appeals process in the United States Tax Court. The IRS reserves the right to assess and collect the tax previously refunded to the Company at any time during the appeals process.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998
Effective July 11, 2000, the Company submitted an Offer in Compromise (the "Offer") to the Appeals Office of the IRS to resolve the controversy with respect to the refunds at a substantially reduced amount. There can be no assurance that the IRS will accept the Offer.
If the IRS were to disallow the refunds claimed, or the terms of the Offer in Compromise as presented or modified are not adhered to, the Company will have additional loss carry forwards of approximately $50 million, which will expire if unused by the year 2010.
NOTE 14 -- DISCONTINUED OPERATIONS
On March 11, 1999, the Company sold its Aurora, Colorado hospital for $3.3 million of cash plus a $1.2 million note receivable, and recognized a loss on sale of $416,000. This sale completed the Company's plan to dispose of its hospital business segment. Financial information relating to the operation of the discontinued hospital business follows:
FISCAL YEAR ENDED MAY 31,
---------------------------
1999* 1998
------------- -----------
(Amounts in thousands)
Operating revenues ......................................... $ 2,713 $ 6,276
------- -------
Costs and expenses:
Healthcare operating expenses ........................... 2,492 5,658
General and administrative expenses ..................... 16 145
Provision for doubtful accounts ......................... 521 2
Depreciation and amortization ........................... 18 54
------- -------
3,047 5,859
------- -------
Income (loss) from operations .............................. $ (334) $ 417
======= =======
|
During the fiscal year ended May 31, 1999, the Company sold its non-operating facility located in Fort Worth, Texas for $1.8 million in cash, which approximated its net book value.
During the fiscal year ended May 31, 1998, the Company sold its non-operating hospital facility in Cincinnati, Ohio for $3.0 million cash. The Company recognized a gain of $0.2 million on the disposition.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998
NOTE 15 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
YEAR ENDED MAY 31,
--------------------------------------------
2000 1999 1998
---------- ---------- -----------
(Amounts in thousands, except per share data)
NUMERATOR:
Income (loss) from continuing operations ....................................... $ (5,766) $ (3,082) $ 1,554
Less preferred stock dividends ................................................. -- (55) (82)
-------- -------- -------
Income (loss) from continuing operations available to common
stockholders before extraordinary item .................................... (5,766) (3,137) 1,472
Effect of dilutive securities:
Preferred Stock dividends ................................................... -- -- 82
-------- -------- -------
Numerator for diluted earnings (loss) per share available to common
stockholders from continuing operations after assumed conversions ......... (5,766) (3,137) 1,554
Discontinued Operations:
Operating income (loss) ..................................................... -- (334) 417
Loss on disposal ............................................................ -- (698) --
Extraordinary item ............................................................. -- 120 --
-------- -------- -------
Net income (loss) available to common stockholders after assumed conversions ... $ (5,766) $ (4,049) $ 1,971
======== ======== =======
DENOMINATOR:
Weighted average shares ........................................................ 3,818 3,562 3,384
Effect of dilutive securities:
Employee stock options ...................................................... -- -- 137
Convertible preferred stock ................................................. -- -- 344
-------- -------- -------
Dilutive potential common shares ............................................ -- -- 481
Denominator for diluted earnings (loss) per share - adjusted weighted average
shares after assumed conversions .......................................... 3,818 3,562 3,865
======== ======== =======
BASIC EARNINGS PER SHARE:
Income (loss) from continuing operations ....................................... $ (1.51) $ (0.88) $ 0.44
Discontinued operations:
Income (loss) from operations ............................................... -- (0.09) 0.12
Loss on disposal ............................................................ -- (0.20) --
Extraordinary item ............................................................. -- 0.03 --
-------- -------- -------
Net income (loss) .............................................................. $ (1.51) $ (1.14) $ 0.56
======== ======== =======
DILUTED EARNINGS PER SHARE:
Income (loss) from continuing operations ....................................... $ (1.51) $ (0.88) $ 0.40
Discontinued operations:
Income (loss) from operations ............................................... -- (0.09) 0.11
Loss on disposal ............................................................ -- (0.20) --
Extraordinary item ............................................................. -- 0.03 --
-------- -------- -------
Net income (loss) .............................................................. $ (1.51) $ (1.14) $ 0.51
======== ======== =======
|
Authorized shares of common stock reserved for possible issuance for convertible debentures and stock options are as follows at May 31, 2000:
Convertible debentures..................................................... 9,044
Outstanding stock options.................................................. 884,675
Possible future issuance under stock option plans.......................... 235,534
---------
Total...................................................................... 1,129,253
=========
|
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998
NOTE 16 -- EMPLOYEE BENEFIT PLANS
The Company offers a 401(k) Plan (the "Plan"), which is a defined
contribution plan qualified under Section 401(k) of the Internal Revenue Code,
for the benefit of its eligible employees. All full-time and part-time employees
who have attained the age of 21 and have completed six consecutive months of
employment are eligible to participate in the Plan. Effective June 1, 1995,
eligibility was modified to six months of employment and a minimum of twenty
(20) regularly scheduled hours per week. Each participant may contribute from 2%
to 15% of his or her compensation to the Plan subject to limitations on the
highly compensated employees to ensure the Plan is non-discriminatory. Company
contributions are discretionary and are determined by the Company's Board of
Directors or the Plan Committee. The Company's employer matching contributions
were $17,000, $22,000, and $31,000 to the Plan in Fiscal 2000, 1999, and 1998
respectively.
NOTE 17 -- PREFERRED STOCK, COMMON STOCK, AND STOCK OPTION PLANS
PREFERRED STOCK
The Company is authorized to issue up to 60,000 shares of Preferred Stock, $50.00 par value, in one or more series, each series to have such designation and number of shares as the Board of Directors may fix 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 the Board of Directors prior to the issuance of any such series.
The Board of Directors had designated 41,260 shares of Preferred Stock as Series A Non-Voting 4% Cumulative Convertible Preferred Stock, $50 par value (the "Preferred Stock). On January 17, 1997, the Preferred Stock was issued in exchange for the secured convertible note due January 9, 1997, in the principal amount of $2.0 million and bearing interest at the rate of 12% per annum and $63,000 of interest accrued thereon. The Preferred Stock had a cumulative quarterly dividend of 4% per annum which was payable when and as declared by the Board of Directors. However, no dividends were to be paid on the Preferred Stock until the Company had positive stockholder's equity. The Preferred Stock was preferred to the extent of $50 per share plus accrued dividends; was convertible into shares of Common Stock at $6 per share, which was the same price at which the principal of the note was exchangeable; and had no voting privileges.
During February 1999, the 41,260 outstanding shares of Preferred Stock were converted into 343,833 shares of Common Stock.
COMMON STOCK
On April 19, 1988, the Company declared a dividend of one common share purchase right ("Right") for each share of Common Stock outstanding at May 6, 1988. Each Right entitles the holder to purchase one share of Common Stock at a price of $300 per share, subject to certain anti-dilution adjustments. The Rights are not exercisable and are transferable only with the Common Stock until the earlier of ten days following a public announcement that a person has acquired ownership of 25% or more of the Company's Common Stock or the commencement or announcement of a tender or exchange offer, the consummation of which would result in the ownership by a person of 30% or more of the Company's Common Stock. In the event that a person acquires 25% or more of the Company's Common Stock or if the Company is the surviving corporation in a merger and its Common Stock is not changed or exchanged, each holder of a Right, other than the 25% stockholder (whose Rights will be void), will thereafter have the right to receive on exercise that number of shares of Common Stock having a market value of two times the exercise price of the Right. If the Company is acquired in a merger or more than 50% of its assets are sold, proper provision shall be made so that each Right holder shall have the right to receive or exercise, at the then current exercise price of the Right, that number of shares of Common Stock of the acquiring company that, at the time of the transaction, would have a market value of two times the exercise price of the Right. The Rights are redeemable at a price of $.20 per Right at any time prior to ten days after a person has acquired 25% or more of the Company's Common Stock.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998
STOCK OPTION PLANS
The Company has a 1995 Incentive Plan (the "1995 Plan"). The 1995 Plan
provides for the granting of options to eligible employees and consultants to
the Company. Options granted as incentive stock options, stock rights, stock
appreciation rights, limited stock appreciation rights and restricted stock
grants under the 1995 Plan may qualify as Incentive Stock Options ("ISOs") under
Section 422A of the Internal Revenue Code. Options for ISOs may be granted for
terms of up to ten years and are generally exercisable in cumulative increments
of either 33% each year or 50% each six months. Options for Non-statutory Stock
Options ("NSOs") may be granted for terms of up to 13 years. The exercise price
for ISOs must equal or exceed the fair market value of the shares on the date of
grant, and 65% in the case of other options. The 1995 Plan also provides for the
full vesting of all outstanding options under certain change of control events.
The maximum number of shares authorized for issuance under the 1995 Plan is
1,000,000. As of May 31, 2000, there were 867,175 options outstanding, and of
these options, 224,525 options were exercisable under the 1995 Plan.
In September 1995, the Board of Directors granted and issued to its former President and Chief Executive Officer ("CEO"), 100,000 Restricted Shares of its Common Stock, $0.01 par value. Such grant of Restricted Shares was issued from the Company's 1995 Incentive Plan and was ratified by the stockholders at the 1995 Annual Meeting. On December 19, 1997, the Company, with the consent of the CEO, terminated a grant of the 50,500 remaining unvested shares of Company common stock originally granted in September 1995. Coincident with this transaction, the Company implemented a new program to grant the CEO 120,000 options of common stock at a price of $6.6875 (fair value on the date of grant). These options are fully vested, non-incentive stock options, exercisable on and after June 17, 1998 and through December 19, 2002, regardless of whether the CEO's employment with the Company continues through that date. In accordance with the terms of the CEO's separation agreement, these options were cancelled effective January 14, 2000.
On November 17, 1998, the Company's Board of Directors approved the re-pricing of stock option grants to employees below the level of Executive Officers, subject to each employee returning his or her old options for cancellation. The cancelled options were replaced by an equivalent number of new options at an exercise price equal to the November 30, 1998 closing price of $3.5625.
On December 14, 1998, the Company's Board of Directors approved the re-pricing of stock option grants for Executive Officers, subject to each Executive Officer returning his or her old options for cancellation. For every two options cancelled under the 1988 Incentive Stock Option and Non-statutory Stock Option Plans, one option was reissued under the 1995 Incentive Stock Option Plan. For every four options cancelled under the 1995 Incentive Stock Option Plan, three new options were reissued. All reissued options are subject to the provisions of the 1995 Plan, including vesting in accordance with the Company's vesting policy. The exercise price of the reissued options equals the December 14, 1998 closing price of $4.00.
The Company has a non-qualified stock option plan for its outside directors (the "Directors' Plan"). Each non-qualified stock option is exercisable at a price equal to the Common Stock's fair market value as of the date of grant. Initial grants vest annually in 25% increments beginning on the first anniversary of the date of grant, provided the individual is still a director on those dates. Annual grants will become 100% vested as of the first annual meeting of the Company's stockholders following the date of grant, provided the individual is still a director as of that date. An optionee who ceases to be a director shall forfeit that portion of the option attributable to such vesting dates on or after the date he or she ceases to be a director. The maximum number of shares authorized for issuance under the Directors' Plan is 250,000. As of May 31, 2000, the Company had no outside directors and there were no options outstanding to former directors.
The Company also has a 1988 ISO Plan and a 1988 NSO Plan. Effective February 3, 1998, the 1988 Plans expired and no new grants will be issued. As of May 31, 2000, there were 17,500 options outstanding and exercisable under the 1988 Plans.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998
Adjusted pro forma information regarding net income or loss and earnings or loss per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS 123. The fair value of these options was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
YEAR ENDED MAY 31,
--------------------------------------------
2000 1999 1998
----------- ------------ -----------
Volatility factor of the expected market price of the
Company's Common Stock............................. 65.0% 63.0% 52.6%
Expected life (in years) of the options............... 6, 5, and 4 5 and 4 6, 5, and 4
Risk-free interest rate............................... 6.5% 5.5% 5.5%
Dividend yield........................................ 0% 0% 0%
|
The Black-Scholes option valuation model was developed for use in estimating the fair market value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair market value estimate, it is management's opinion that the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Pro forma disclosures required by SFAS No. 123 include the effects of all stock option awards that were granted by the Company from June 1, 1995 through May 31, 2000. During the phase-in period, the effects of applying this statement for generating pro forma disclosures are not likely to be representative of the effects on pro forma net income (loss) for future years. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information is as follows (in thousands except for earnings (loss) per share information):
YEAR ENDED MAY 31,
-----------------------------------------------
2000 1999 1998
-------------- --------------- --------------
Pro forma net income (loss) attributed to common stockholders........ $(6,461) $ (4,773) $ 1,212
Pro forma net earnings (loss) per common share:
Basic............................................................. $ (1.69) $ (1.34) $ 0.36
Diluted........................................................... $ (1.69) $ (1.34) $ 0.36
|
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998
A summary of the Company's stock option activity and related information for the years ended May 31 is as follows:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
Outstanding as of May 31, 1997............................................ 629,249 $ 10.02
Cancelled................................................................. (12,000) 13.64
Granted................................................................... 493,949 8.97
Exercised................................................................. (87,300) 8.42
Forfeited................................................................. (299,683) 10.50
Outstanding as of May 31, 1998............................................ 724,215 $ 9.24
Cancelled................................................................. (474,550) 9.15
Granted................................................................... 548,651 5.21
Exercised................................................................. (22,000) 7.20
Forfeited................................................................. (208,283) 8.84
Outstanding as of May 31, 1999............................................ 568,033 $ 5.63
Cancelled................................................................. (222,500) 4.89
Granted................................................................... 896,750 0.48
Exercised................................................................. 0
Forfeited................................................................. (357,608) 4.14
Outstanding as of May 31, 2000............................................ 884,675 $ 1.19
|
The weighted average fair values of options granted were $0.41, $4.91, and $5.18 in Fiscal 2000, 1999, and 1998 respectively.
A summary of options outstanding and exercisable as of May 31, 2000 follows:
WEIGHTED- WEIGHTED-
WEIGHTED- AVERAGE AVERAGE
EXERCISE AVERAGE REMAINING EXERCISE PRICE OF
OPTIONS PRICE EXERCISE CONTRACTUAL OPTIONS EXERCISABLE
OUTSTANDING RANGE PRICE LIFE EXERCISABLE OPTIONS
----------- ----------------- -------- ----------- ----------- -----------------
726,125 $ 0.26 - $ 0.5625 $ 0.46 9.46 120,875 $ 0.56
142,050 $ 3.56 - $ 4.000 $ 3.83 8.51 104,650 $ 3.88
16,500 $10.00 - $11.00 $10.88 7.27 16,500 $10.88
------- -------
884,675 $ 1.19 9.27 242,025 $ 2.70
======= =======
|
NOTE 18 -- COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases certain facilities, furniture and equipment. The facility leases contain escalation clauses based on the Consumer Price Index and provisions for payment of real estate taxes, insurance, and maintenance and repair expenses. Total rental expense for all operating leases applicable to continuing operations was $0.8 million, $1.3 million, and $1.0 million for fiscal years 2000, 1999, and 1998 respectively. During Fiscal 2000 and Fiscal 1999, the Company received rental income of $84,000 and $106,000, respectively, in connection with the sublease of a portion of its California facilities (which were closed in Fiscal 2000) to entities operated by the Company's former Chief Executive Officer ("CEO"). As of February 1, 2000, the Company has no future obligation under the California lease, having completed a transfer of this lease to an entity managed by the Company's former CEO.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998
Future minimum payments, by year and in the aggregate, under non-cancelable operating leases with initial or remaining terms of one year or more, consist of the following at May 31, 2000:
FISCAL YEAR OPERATING LEASES
----------- ----------------------
(Amounts in thousands)
2001........................................ $ 432
2002........................................ 51
2003........................................ 12
2004........................................ 1
2005........................................ 0
Later Years................................. 0
-----
Total minimum lease payments................ $ 496
=====
|
OTHER COMMITMENTS AND CONTINGENCIES
(1) During the fiscal year ended May 31, 2000, the Company renewed one contract, which included a requirement that the Company maintains a $550,000 performance bond throughout the two-year renewal term of the contract. This bond was secured by a $150,000 cash deposit, which is included in the non-current, restricted cash balance at May 31, 2000. The term of the bond is for one year and the bond is automatically renewable as long as the contract remains in force.
(2) In June 2000, the Company submitted a bid to provide substance abuse treatment services to a specific population covered through the Department of Justice in Puerto Rico. The bid included a $300,000 bid bond requirement, which is to be maintained until the bid has been awarded. The Company secured this bond with a $300,000 cash deposit made on June 6, 2000.
(3) In July 2000, Steiner Corporation, a Colorado linen service company, commenced an action against the Company seeking damages in the amount of, approximately, $145,000 by reason of an alleged early termination of a laundry service contract. While this claim has only recently been asserted, the Company intends to deny liability. Additionally, the Company does not believe that this claim will have a material adverse effect on the Company's financial position, results of operations and cash flows.
(4) A collection proceeding has been filed against the Company in
connection with the previously active managed care operation in Puerto
Rico. This collection effort was filed by a Puerto Rico provider, Hato
Rey Psychiatric Hospital d/b/a Mepsi Center ("MEPSI"). MEPSI claims
that the Company owes MEPSI a total of $681,000, plus interest and
legal fees, for services rendered to patients managed by the Company
under the prior Puerto Rico Reforma Program contract, which was held by
Humana, Inc. The Company is conducting an audit to determine the final
amount, if any, it believes is owed to MEPSI. Such payment would be
applied against the Company's existing reserve for Puerto Rico claims
and disbursed from the provider funds that are held in escrow (see Note
2 - "Summary of Significant Accounting Policies", "Restricted Cash").
The Company does not believe that this claim will have a material
adverse effect on the Company's financial position, results of
operations and cash flows.
(5) The Company's subsidiary, Careunit Hospital of Ohio, Inc. ("Careunit") has been named as a third party defendant in the principal action entitled "Vencor, Inc. v. Empe, Inc." The principal action arises out of the sale by Careunit of its Ohio hospital facility to Vencor, Inc. ("Vencor") and relates to an alleged asbestos condition at the Ohio facility. Empe, Inc. ("Empe") apparently was Vencor's environmental expert in connection with this transaction. In making Careunit a third party defendant, Empe claims that it was misled and that Careunit allegedly failed to disclose the asbestos condition in the facility when Vencor conducted its environmental assessment. No specific amount of damages is claimed, but rather, the third party complaint seeks apportionment, indemnity and compensatory damages as may be determined at trial. The Company's insurance carrier has provided a defense of this action, which is only in its formative stages. The Company does not believe that this claim will have a material adverse effect on the Company's financial position, results of operations and cash flows.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998
(6) On February 19, 1999, the California Superior Court denied the Company's Petition for Writ of Mandate of an adverse administrative appeal decision regarding application of the Maximum Inpatient Reimbursement Limitation ("MIRL") to Medi-Cal reimbursement paid to Brea Neuropsychiatric Hospital for its fiscal periods 1983 through 1986. This facility was owned by the Company until its disposal in fiscal year 1991. The subject matter of the Superior Court action involved the refusal of the administrative law judge to order further reductions in the liability for costs associated with treating high cost, long stay Medi-Cal patients, which are commonly referred to as "outliers". The Company does not plan to appeal the California Superior Court decision for which the Notice of Entry of Judgment was entered on February 26, 1999. As of May 31, 2000, the Company has $1.2 million accrued relating to this matter.
(7) With respect to the contingency related to prior years' income taxes, see Note 13, "Income Taxes".
(8) With respect to the contingency related to the Humana claim, see Note 4, "Major Contracts/Customers".
(9) The legal matter involving the Company's former Chief Financial Officer was fully settled effective May 31, 2000.
(10) The legal matter involving PMR Corporation was fully settled effective May 5, 2000.
From time to time, the Company and its subsidiaries are also parties and their property is subject to ordinary, routine litigation incidental to their business. In some pending cases, claims may exceed insurance policy limits and the Company or any one of its subsidiaries may have exposure to a liability that is not covered by insurance. Management believes that the outcome of such lawsuits will not have a material adverse impact on the Company's financial statements.
REGULATORY MONITORING AND COMPLIANCE
The Company is subject to extensive and evolving state and federal regulations, including licensure and compliance with regulations related to healthcare providers, insurance companies, and other risk assuming entities. These laws and regulations may vary considerably among states and, as a result, the Company may be subject to the specific regulatory approach adopted by each state for the regulation of managed care companies and for providers of behavioral healthcare treatment services.
Currently, management cannot quantify the potential effects of additional regulation of the managed care industry, but such costs could have an adverse effect on future operations to the extent that they are not able to be recouped in future managed care contracts. Management believes that the Company is currently in material compliance with the laws and regulations of the jurisdictions in which it operates.
NOTE 19 -- FOURTH QUARTER RESULTS FOR FISCAL 2000 AND 1999 - UNAUDITED
The loss from continuing operations for the fourth quarter of Fiscal 2000 was $0.7 million, or $0.18 loss per share, compared to the loss from continuing operations of $2.5 million, or $0.66 diluted earnings per share, for the quarter ended May 31, 1999. Included in the fourth quarter results from Fiscal 1999 was a non-recurring restructuring charge totaling $0.6 million, related to the loss of the Company's Puerto Rico contract, $0.5 million of bad debt expense, and $0.5 million of operating expense incurred after the termination dates specific to the two major contracts that ended during the fourth quarter. The remaining loss was primarily attributable to the loss of revenue following the termination of the Puerto Rico contract.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
---- --- --------
Mary Jane Johnson 50 President(1)(2), Chief Executive Officer(1)(2),
and Director(1)(2)
Robert Landis 41 Chairman of the Board of Directors(1)(2),
Chief Financial Officer (1)(2), and Treasurer (1)(2)
Chriss W. Street (3) 50 Chairman of the Board of Directors(3),
President(3), and Chief Executive Officer(3)
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The Board of Directors comprises three classes of directors with staggered three-year terms. Directors for each class are elected at the Annual Meeting of Stockholders held in the year in which the term for such class expires. Ms. Johnson is a Class I director whose term expires at the 2000 Annual Meeting. Mr. Landis is a Class III director whose term expires at the 2001 Annual Meeting. Mr. Street served as a Class II director until his separation from the Company on January 14, 2000. The Class II director seat remains vacant as of July 31, 2000.
During Fiscal 2000, recommendations and administrative decisions regarding the compensation of the Company's executives were made by the Board of Directors, which is currently comprised entirely of persons who are officers or employees of the Company.
MARY JANE JOHNSON, RN, MBA, age 50. Ms. Johnson has been employed by the Company since August 1996 and was appointed Executive Vice President Clinical Operations in September 1997. In August 1998, Ms. Johnson was appointed to the position of Chief Executive Officer for the Company's principal subsidiary, CompCare. In July 1999, Ms. Johnson was appointed to the position of Chief Operating Officer of Comprehensive Care Corporation. Beginning on April 23, 1999, Ms. Johnson is a Class I director whose term expires at the 2000 Annual Meeting. Effective January 14, 2000, Ms. Johnson was appointed to the position of President and Chief Executive Officer. Ms. Johnson served as Executive Director for Merit Behavioral Care from 1993 to 1996. Ms. Johnson, a Registered Professional Nurse, has a Bachelors Degree in Nursing from the State University of New York and a Masters Degree in Business Administration from Adelphi University.
ROBERT J. LANDIS, CPA, MBA, age 41. Mr. Landis has served as Executive Vice President, Chief Financial Officer, and Treasurer since July 1998. Beginning on April 23, 1999, Mr. Landis is a Class III director whose term expires at the 2001 Annual Meeting. Effective January 14, 2000, Mr. Landis was selected to serve as Chairman of the Board of Directors. Mr. Landis served as Treasurer of Maxicare Health Plans, Inc., a health maintenance organization, from November 1988 to July 1998. Mr. Landis, a Certified Public Accountant, received a Bachelors Degree in Business Administration from the University of Southern California, and a Masters Degree in Business Administration from California State University at Northridge.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
ITEM 11. EXECUTIVE COMPENSATION
This section discloses the compensation earned by the Company's Chief Executive Officer and its other executive officers whose total salary and bonus for Fiscal 2000 exceed $100,000 (together, these persons are sometimes referred to as the "named executives").
TABLE I - SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
----------------------------------------------------------
RESTRICTED
OTHER ANNUAL STOCK
COMPENSATION AWARD(S)
FY NAME POSITION SALARY($) BONUS($) ($) ($)
-- ---- -------- --------- -------- ------------ ----------
2000 Mary Jane Johnson President(1,2), Chief, 175,000 -- 1,400 (4) --
1999 Mary Jane Johnson Executive Officer(1,2), 146,930 50,000 -- --
1998 Mary Jane Johnson and Director(1,2) 110,040 20,000 -- --
2000 Robert Landis Chairman of the Board of 159,141 -- 3,000 (7) --
1999 Robert Landis Directors(1,2), Chief Financial 139,408 (6) 45,000 32,967 (8) --
1998 Robert Landis Officer(1,2), and Treasurer(1,2) -- (6) -- -- --
2000 Chriss W. Street Chairman of the Board of 190,385 -- 793,646 (10) --
1999 Chriss W. Street Directors(3), President(3) 300,861 80,000 5,831 (11) --
1998 Chriss W. Street and Chief Executive Officer(3) 264,263 -- 6,000 (11) --
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LONG-TERM COMPENSATION
----------------------------------------------
SECURITIES LONG-TERM
UNDERLYING INCENTIVE ALL OTHER
OPTIONS/SARS PAYOUTS COMPENSATION
FY NAME POSITION (#) ($) ($)
-- ---- -------- ------------ --------- ------------
2000 Mary Jane Johnson President(1,2), Chief, 150,000 -- 1,323 (5)
1999 Mary Jane Johnson Executive Officer(1,2), 20,000 -- 1,051 (5)
1998 Mary Jane Johnson and Director(1,2) 37,000 -- 1,012 (5)
2000 Robert Landis Chairman of the Board of 150,000 -- 613 (5)
1999 Robert Landis Directors(1,2), Chief Financial 153,125 (9) -- --
1998 Robert Landis Officer(1,2), and Treasurer(1,2) -- -- --
2000 Chriss W. Street Chairman of the Board of 325,000 (14) -- 884 (5)
1999 Chriss W. Street Directors(3), President(3) 217,501 (12) -- 906 (5)
1998 Chriss W. Street and Chief Executive Officer(3) 120,000 (13) -- 76,998 (15)
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(1) Comprehensive Care Corporation.
(2) Comprehensive Behavioral Care, Inc., Principal Subsidiary of the Company.
(3) Mr. Street separated from the Company and resigned as Chairman of the Board of Directors effective January 14, 2000.
(4) Represents a car allowance in accordance to Ms. Johnson's employment agreement.
(5) Represents amounts contributed by the Company to the indicated person's
401(k) Plan Account.
(6) Mr. Landis was employed by the Company on July 2, 1998.
(7) Represents compensation expense for personal use mileage.
(8) Represents moving expenses paid to Mr. Landis.
(9) Includes 87,500 options issued at $10.00 per share that were cancelled and repriced at $4.00 per share on December 14, 1998.
(10) Includes separation pay of $760,000 and a $4,800 car allowance in accordance with Mr. Street's employment agreement. Also includes payment for accrued vacation, in the amount of $28,846 as of Mr. Street's January 14, 2000 separation date.
(11) Represents a car allowance paid by the Company and in accordance with Mr. Street's employment agreement.
(12) Includes $100,000 of options issued at $6.00 per share that were cancelled and repriced at $4.00 per share on December 14, 1998.
(13) In September 1995, the Board of Directors granted and issued to its President and Chief Executive Officer 100,000 Restricted Shares of its Common Stock, $0.01 per value. The Restricted Shares are subject to vesting at the rate of 5,000 Restricted Shares over a 20-year period. The vesting is subject to acceleration upon the occurrence of certain events as described below. As of May 31, 1998, 49,500 Restricted Shares were vested and 50,500 were unvested, with the holder having sole voting power. On December 16, 1998, the Company, with the consent of Chriss W. Street, terminated a grant of the remaining unvested shares originally granted in September 1995. Coincident with this transaction the Company implemented a new program to grant Mr. Street 120,000 options of Common Stock at a price of $6.6875. The options are fully vested, non-incentive stock options, exercisable on and after June 17, 1999, and through December 19, 2002, regardless of whether Mr. Street's employment with the Company continues through that date. In accordance with the terms of Mr. Street's separation agreement, these options were cancelled effective January 14, 2000.
(14) Includes 62,500 options that were forfeited and 62,500 options that were cancelled effective with Mr. Street's January 14, 2000 termination date.
(15) Represents $75,873 of a one-time bonus for taxes payable due to the acceleration of Restricted Shares and $1,125 in amounts contributed to Mr. Street's 401(k) Plan Account.
EMPLOYMENT AGREEMENTS
On July 2, 1999, the Company entered into an employment agreement with Ms. Mary Jane Johnson. Ms. Johnson's employment agreement provides for a salary at the rate of $175,000 per annum and includes a performance-based bonus of up to a target amount of $75,000 in connection with the Company's Annual Management Bonus Plan ("MBP Plan"). In addition, Ms. Johnson is provided with an auto allowance of $200 per month as well as health insurance and other benefits and a policy of life insurance. Ms. Johnson's employment agreement provides that, in the event of a change in control of the Company as defined, Ms. Johnson will be paid a severance benefit equal to twelve (12) months base salary, together with her incentive bonus.
On September 14, 1998, the Company entered into an employment agreement with Mr. Robert J. Landis. Mr. Landis' employment agreement as amended provides for a salary at the rate of $175,000 per annum and a performance-based bonus of up to a target amount of $60,000 in connection with the Company's MBP Plan. In addition, Mr. Landis is provided with health insurance and other benefits and a policy of life insurance. Mr. Landis' employment agreement provides that, in the event of a change in control of the Company as defined, Mr. Landis will be paid a severance benefit equal to the greater of (i) the balance of his base salary for the remainder of the unexpired term of his agreement or (ii) twelve (12) months base salary, together with his incentive bonus.
On September 14, 1998, the Company entered into an employment agreement with Mr. Chriss W. Street that had a term expiring on November 30, 2001. Mr. Street's employment agreement as amended provided for a salary at the rate of $300,000 per annum and included a performance based bonus of up to a target amount of $100,000 in connection with the Company's MBP Plan. In addition, Mr. Street was provided with health insurance and other benefits and a policy of life insurance. He also received an auto allowance of $600 per month and reimbursement for expenses incurred on behalf of the Company and in connection with the performance of his duties. The agreement provided that the Company procures Directors and Officers Liability Insurance in an amount not less than $1.0 million. Mr. Street's employment agreement provided that in the event of a change of control of the Company as defined, Mr. Street will be paid a severance benefit equal to the greater of (i) the balance of his base salary for the remainder of the unexpired term of his agreement or (ii) two times the sum of Mr. Street's then prevailing base salary. Effective January 14, 2000, Mr. Street separated from the Company and resigned as Chairman of the Board of Directors.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Effective July 2, 1999, Mr. Landis and Ms. Johnson are each eligible to receive a retention bonus in connection with the Company's Stay Bonus Retention Pool program, provided that he or she continues as an active employee through December 31, 2000.
INDEMNIFICATION AGREEMENT
In connection with the Company's indemnification program for executive officers and directors, Ms. Johnson and Mr. Landis, as well as nine former directors and six former executive officers, are entitled to indemnification.
The Company considers it desirable to provide each indemnitee with specified assurances that the Company can and will honor the Company's obligations under the Indemnification Agreements, including a policy of insurance to provide for directors and officers liability coverage.
EXECUTIVE TERMINATION AGREEMENTS
For information related to the termination benefits, see the description of "Employment Agreements" for Ms. Johnson and Mr. Landis under Executive Compensation.
TABLE II - OPTIONS HELD AT MAY 31, 2000
The following tables present information regarding the number of unexercised options held by the Company's named executives at May 31, 2000. There were no options exercised by the Company's named executives during Fiscal 2000. No stock appreciation rights were granted or held by such persons during Fiscal 2000.
OPTION GRANTS IN THE LAST FISCAL YEAR
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE GRANT DATE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE VALUE
------------------- ------------- ---------------- --------- ----------- ----------
Mary Jane Johnson 75,000 8.4% $ 0.5625 07/06/2009 $ 0.37
75,000 8.4% $ 0.2656 01/14/2010 $ 0.17
Robert J. Landis 75,000 8.4% $ 0.5625 07/06/2009 $ 0.37
75,000 8.4% $ 0.2656 01/14/2010 $ 0.17
Chriss W. Street(1) 125,000(2) 13.9% $ 0.5625 07/06/2009 $ 0.11
100,000 11.2% $ 0.5625 01/14/2010 $ 0.09
100,000(3) 11.2% $ 0.5625 01/14/2010 $ 0.18
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(2) Includes 62,500 options that were forfeited and 62,500 options that were cancelled effective with Mr. Street's January 14, 2000 termination date.
(3) Options are contingent upon the Company's success in reducing its existing obligations to the Internal Revenue Service, with respect to both principal and accrued interest, by an amount which is not less than 50% of the obligation that existed at January 14, 2000.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
The present value as of the date of grant, calculated using the Black-Scholes method is based on assumptions about future interest rates, stock price volatility and dividend yield. There is no assurance that these assumptions will prove to be true in the future. The actual value, if any, that may be realized by each individual will depend upon the market price of the common stock on the date of exercise.
AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR
AND AGGREGATED FISCAL YEAR-END OPTION VALUE
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FY OPTIONS/SARS AT
SHARES VALUE END (#) FY END ($)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
-------------------------- ------------------- ------------------- -------------------- -------------------
Mary Jane Johnson -- -- 47,500/122,500 0/0
Robert J. Landis -- -- 103,125/112,500 0/0
Chriss W. Street(1) -- -- 0/200,000 0/0
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(1) Mr. Street separated from the Company and resigned as Chairman of the Board of Directors effective January 14, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the beneficial ownership of Common Stock by the directors of the Company, the executive officers named in the Summary Compensation Table included elsewhere herein and all directors and executive officers as a group and by each person who, to the knowledge of the Company, beneficially owned more than 5% of any class of the Company's voting stock as of July 31, 2000. According to rules adopted by the Securities and Exchange Commission, a person is the "beneficial owner" of securities if he or she has, or shares, the power to vote them or to direct their investment. Except as otherwise noted, the indicated owners have sole voting and investment power with respect to shares beneficially owned.
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
---------------------------------------------- ----------------------------- -------------------
Mary Jane Johnson(4) 122,500 3.2%
Robert J. Landis (1) 178,625 4.7%
Chriss W. Street (2,3) 110,260 2.9%
All executive officers and directors
As a group (3 persons) 411,385 10.8%
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(1) Includes 500 shares held directly and 178,125 shares subject to options that are exercisable within 60 days of July 31, 2000.
(2) Mr. Street separated from the Company and resigned as Chairman of the Board of Directors effective January 14, 2000.
(3) Includes 10,760 shares held directly and 50,000 shares subject to options that are presently exercisable or exercisable within 60 days of July 31, 2000. Also includes 49,500 vested shares under a Restricted Stock Agreement over which the holder has the sole voting power.
(4) Shares subject to options that are exercisable within 60 days of July 31, 2000.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - Included in Part II of this report:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets, May 31, 2000 and 1999
Consolidated Statements of Operations, Years Ended May 31, 2000,
1999 and 1998
Consolidated Statements of Stockholders' Deficit, Years Ended May
31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows, Years Ended May 31, 2000,
1999 and 1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
None.
Other schedules are omitted, as required information is inapplicable or the information is presented in the consolidated financial statements or related notes.
3. Exhibits:
NUMBER DESCRIPTION AND REFERENCE
------ -------------------------
3.1 Restated Certificate of Incorporation as amended. (7)
3.2 Restated Bylaws as amended July 20, 2000 (filed herewith).
3.3 Certificate of Designation of Preferences and Rights of Series A Non-Voting 4% Cumulative
Convertible Preferred Stock. (10)
4.1 Indenture dated April 25, 1985 between the Company and Bank of America, NT&SA, relating to
Convertible Subordinated Debentures. (1)
4.2 Rights Agreement dated as of April 19, 1988 between the Company and Security Pacific National
Bank.(2)
4.3 Rights Agreement between the Registrant and Continental Stock Transfer & Trust Company dated April
19, 1988 restated and amended October 21, 1994. (6)
4.4 Form of Common Stock Certificate. (11)
10.1 Form of Stock Option Agreement. *(3)
10.2 Form of Indemnity Agreement as amended March 24, 1994. *(5)
10.3 The Company's Employee Savings Plan as amended and restated as of June 30, 1993. *(4)
10.4 1988 Incentive Stock Option and 1988 Non-statutory Stock Option Plans, as amended. *(6)
10.5 Employment Agreement dated January 1, 1995 between the Company and Chriss W. Street. *(6)
10.6 Directors and Officers Trust dated February 27, 1995 between the Company and Mark Twain Bank. *(7)
10.7 Comprehensive Care Corporation 1995 Incentive Plan. *(9)
10.8 Amended and Restated Non-Employee Director's Stock Option Plan. *(8)
10.9 Restricted Stock Grant between Chriss W. Street and the Company dated November 9, 1995.*(9)
10.10 Series A Non-Voting 4% Cumulative Convertible Preferred Stock Exchange Agreement. (10)
10.11 Letter Agreement dated April 4, 1997 between the Company and Chriss W. Street. *(12)
10.12 Employment agreement dated September 14, 1998, between the Company and Chriss W. Street. *(13)
10.13 Employment agreement dated September 14, 1998, between the Company and Robert J. Landis. *(14)
10.14 Addendum to employment agreement between the Company and Robert J. Landis. (17)
16. Letter dated May 19, 1999 from Ernst & Young, LLP ("E&Y") in concurrence with the Company's
statement made concerning E&Y's dismissal as the Company's principal accountant. (16)
21. List of the Company's active subsidiaries (filed herewith).
23. Consent of Richard A. Eisner & Company, LLP (filed herewith).
27. Financial Data Schedules (for SEC use only).
99.1 Comprehensive Care Corporation 1995 Incentive Plan, as amended on November 17, 1998. (15)
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
* Management contract or compensatory plan or arrangement with one or more directors or executive officers.
(1) Filed as an exhibit to the Company's Form S-3 Registration Statement No.
2-97160.
(2) Filed as an exhibit to the Company's Form 8-K dated May 4, 1988.
(3) Filed as an exhibit to the Company's Form 10-K for the fiscal year ended
May 31, 1988.
(4) Filed as an exhibit to the Company's Form 10-K for the fiscal year ended
May 31, 1991.
(5) Filed as an exhibit to the Company's Form 10-K for the fiscal year ended
May 31, 1994.
(6) Filed as an exhibit to the Company's Form 10-Q for the quarter ended
November 30, 1994.
(7) Filed as an exhibit to the Company's Form 10-Q for the quarter ended
February 28, 1995.
(8) Filed as an exhibit to the Company's Form 10-K for the fiscal year ended
May 31, 1995.
(9) Filed as an exhibit to the Company's Form 8-K dated November 9, 1995.
(10) Filed as an exhibit to the Company's Form 8-K dated January 30, 1997.
(11) Filed with original of Registration Statement on Form S-1, dated January
29, 1997.
(12) Filed as an exhibit to the Company's Form 10-Q for the quarter ended
February 28, 1997.
(13) Filed as an exhibit to the Company's Form 8-K dated September 24, 1998.
(14) Filed as an exhibit to the Company's Form 8-K dated September 24, 1998.
(15) Filed as an exhibit to the Company's Form 8-K dated November 25, 1998.
(16) Filed as an exhibit to the Company's Form 8-K dated May 19, 1999.
(17) Filed as an exhibit to the Company's Form 8-K dated July 2, 1999.
(b) Reports on Form 8-K.
None
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, August 25, 2000.
COMPREHENSIVE CARE CORPORATION
By /s/ MARY JANE JOHNSON
-------------------------------
Mary Jane Johnson
(Principal Executive Officer)
By /s/ ROBERT J. LANDIS
-------------------------------
Robert J. Landis
(Principal Financial and Accounting Officer)
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates so indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ROBERT J. LANDIS Chairman of the Board of Directors, August 25, 2000
---------------------------------- Chief Financial Officer, and Treasurer
Robert J. Landis (Principal Financial and
Accounting Officer)
/s/ MARY JANE JOHNSON President, Chief Executive Officer, August 25, 2000
----------------------------------- and Director
Mary Jane Johnson
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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Exhibit Index
Fiscal Year Ended May 31, 2000
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
------ ----------- -----------
3.2 Restated Bylaws as amended July 20, 2000 .......... 53-68
21 List of the Company's subsidiaries ................ 69
23 Consent of Richard A. Eisner & Company, LLP ....... 70
27 Financial Data Schedules ........................... 71
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Exhibit 3.2
COMPREHENSIVE CARE CORPORATION
(a Delaware corporation)
AMENDED AND RESTATED
BYLAWS
Adopted July 20, 2000
ARTICLE I
OFFICES
Section 1.01 REGISTERED OFFICE. The registered office of Comprehensive Care Corporation (hereinafter called the "Corporation") in the State of Delaware shall be at 229 South State Street, City of Dover, County of Kent, and the name of the registered agent in charge thereof shall be The Prentice-Hall Corporation Systems, Inc.
Section 1.02 PRINCIPAL OFFICE. The principal office for the transaction of the business of the Corporation shall be at 16305 Swingley Ridge Drive, Suite 100, Chesterfield, Missouri 63017. The Board of Directors (hereinafter called the "Board") is hereby granted full power and authority to change said principal office from one location to another.
Section 1.03 OTHER OFFICES. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01 ANNUAL MEETINGS. Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings may be held at such time, date and place as the Board shall determine by resolution.
Section 2.02 SPECIAL MEETINGS. Special meetings of the Corporation's stockholders for the transaction of any proper business may be called at any time by the Board, the Chairman of the Board, the Vice Chairman, or by the President.
Section 2.03 PLACE OF MEETINGS. All meetings of the stockholders shall be held at such places, within or without the State of Delaware, as may from time to time be designated by the person or persons calling the respective meeting and specified in the respective notices or waivers of notice thereof.
Section 2.04 NOTICE OF MEETINGS. Except as otherwise required by law, notice of each meeting of the stockholders, whether annual or special, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting by delivering a typewritten or printed notice thereof to him personally, or by depositing such notice in the United States mail; in a postage prepaid envelope, directed to him at his post office address furnished by him to the Secretary of the Corporation for such purpose or, if he shall not have furnished to the Secretary his address for such purpose, then at his post office address last known to the Secretary, or by transmitting a notice thereof to him at such address by telegraph, cable, telecopier or wireless. Except as otherwise expressly required by law, no publication of any notice of a meeting of the stockholders shall be required. Every notice of a meeting of the stockholders shall state the place, date and hour of the meeting, and, in the case of a special meeting, shall also state the purpose or purposes for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall have waived such notice and such notice shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, except a stockholder who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Except as otherwise expressly required by law, notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. Whenever notice is required to be given to any stockholder to whom (i) notice of two (2) consecutive annual meetings, and all notices of meetings or of the taking of action by written consent at a meeting to such person between such two (2) consecutive annual meetings, or (ii) all, and at least two (2) payments (if sent by First Class Mail) of dividends or interest on securities during a twelve-month period, have been mailed addressed to such person at his address as shown on the records of the Corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any person shall deliver to the Corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated.
Section 2.05 NOTICE OF STOCKHOLDER BUSINESS AT ANNUAL MEETING. At an
annual meeting of the stockholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before an annual meeting business must be (a) specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the Board, (b)
otherwise properly brought before the meeting by or at the direction of the
Board, or (c) otherwise properly brought before the meeting by a stockholder.
For business to be properly brought before an annual meeting by a stockholder,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation, not less than sixty (60) days nor more than ninety (90) days prior
to the meeting; provided, however, that in the event that less than seventy (70)
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the tenth (10th) day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the books of the Corporation, of the stockholder proposing such business, (c) the class and number of shares of stock of the Corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 2.05. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 2.05, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.
Section 2.06 NOTICE OF STOCKHOLDER NOMINEES FOR DIRECTOR. Only persons who are nominated in accordance with the procedures set forth in this Section 2.06 shall be eligible for election as directors. Nominations of persons for election to the Board of the Corporation may be made at a meeting of stockholders by or at the direction of the Board or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.06. Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than seventy (70) days, notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of stock of the Corporation which are beneficially owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for reelection of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected) ; and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the books of the Corporation, of such stockholder, and (ii) the class and number of shares of stock of the Corporation which are beneficially owned by such stockholder. At the request of the Board any person nominated by the Board for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.
Section 2.07 QUORUM. Except in the case of any meeting for the election of directors summarily ordered as provided by law, the holders of record of a majority in voting interest of
the shares of stock of the Corporation entitled to be voted thereat, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders of the Corporation or any adjournment thereof. In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer entitled to preside at, or to act as secretary of, such meeting may adjourn such meeting from time to time. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called.
Section 2.08 VOTING.
(a) Each stockholder shall, at each meeting of the stockholders, be entitled to vote in person or by each share or fractional share of the stock of the proxy Corporation having voting rights on the matter in question and which shall have been held by him and registered in his name on the books of the Corporation:
(i) On the date fixed pursuant to Section 6.05 of the Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, or
(ii) If no such record date shall have been so fixed, then (a) at the close of business on the day next preceding the day on which notice of the meeting shall be given or (b) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which the meeting shall be held.
(b) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by entirety or otherwise, or with respect to which two (2) or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware.
(c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by his proxy appointed by an instrument in writing, subscribed by such stockholder or by his attorney thereunto authorized and delivered to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three (3) years from its date unless said proxy shall provide for a longer period. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless he shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At any meeting of the stockholders all matters, except as otherwise provided in the
Certificate of Incorporation, in the Bylaws or by law, shall be decided by the vote of a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat and thereon, a quorum being present. The vote at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and it shall state the number of shares voted.
Section 2.09 LIST OF STOCKHOLDERS. The Secretary of the Corporation shall prepare and make, at least ten (10) days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the entire duration thereof, and may be inspected by any stockholder who is present.
Section 2.10 JUDGES. If at any meeting of the stockholders a vote by written ballot shall be taken on any question, the chairman of such meeting may appoint a judge or judges to act with respect to such vote. Each judge so appointed shall first subscribe an oath faithfully to execute the duties of a judge at such meeting with strict impartiality and according to the best of his ability. Such judges shall decide upon the qualification of the voters and shall report the number of shares represented at the meeting and entitled to vote on such question, shall conduct and accept the votes, and, when the voting is completed, shall ascertain and report the number of shares voted respectively for and against the question. Reports of judges shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. The judges need not be stockholders of the Corporation, and any officer of the Corporation may be a judge on any question other than a vote for or against a proposal in which he shall have a material interest.
Section 2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
(a) Any action which may be taken at any annual or special meeting of stockholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. All such consents shall be filed with the Secretary of the Corporation and shall be maintained in the corporate records. Any stockholder giving a written consent, or the stockholder's proxy holders, or a transferee of the shares or a personal representative of the stockholder or their respective proxy holders, may revoke the consent by a writing received by the Secretary before written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the Corporation.
(b) If, in the case of an action taken pursuant to Section 2.11(a), the consents of all stockholders entitled to vote have not been solicited in writing, or if the
unanimous written consent of all such stockholders shall not have been received, the Secretary of the Corporation shall give prompt notice of the corporate action approved by the stockholders without a meeting. This notice shall be given in the manner specified in Section 2.04. In the case of the approval of any (i) amendment to the Certificate of Incorporation of the Corporation; (ii) election to voluntarily wind up and dissolve the Corporation; or (iii) distribution in dissolution other than in accordance with the rights of holders of outstanding preferred stock as set forth in the Certificate of Incorporation of the Corporation, the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval.
(c) Cumulative voting shall apply to any proposed election of
directors by written consent of stockholders to fill vacancies and/or newly
created directorships in the Board of Directors of the Corporation, so that each
stockholder shall be entitled to cast by written consent as many votes as shall
equal the number of votes which (except for this provision and Article FOURTH,
Section 1 of the Restated Certificate of Incorporation of the Corporation) he
would be entitled to cast for the election of directors with respect to his
shares of stock multiplied by the number of vacancies and/or newly created
directorships in the Board of Directors to be filled, and he may cast by written
consent all of such votes for a single such director or may distribute them
among the number of directors to be voted for, or any two or more of them, as he
may see fit. For purposes of this Section 2.11, when action relating to the
election of directors is taken by stockholders by written consent, stockholders
taking such action by written consent shall be referred to as having "cast
vote(s)" for the election of such director(s).
Section 2.12 RECORD DATE FOR STOCKHOLDER NOTICE, VOTING AND GIVING CONSENTS.
(a) For purposes of determining the stockholders entitled to notice of or to vote at any meeting or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than sixty (60) days or less than ten (10) days before the date of any such meeting, and only stockholders of record on the date so fixed are entitled to notice and to vote, notwithstanding any transfer of any shares on the books of the Corporation after the record date, except as otherwise provided in the General Corporation Law of the State of Delaware. If the Board does not so fix a record date, the record date for determining stockholders entitled to notice of or to vote at the meeting of stockholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board to fix a record date. The Board shall
promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or any officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board and prior action by the Board is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board adopts the resolution taking such prior action.
(c) In the event of the delivery to the Corporation of a written consent or consents purporting to authorize or take corporate action and/or related revocations (each such written consent or related revocation is referred to in this Section 2.12 as a "Consent"), the Secretary of the Corporation shall provide for safekeeping of such Consent and shall immediately appoint duly qualified and objective inspectors to conduct, as promptly as practical, such reasonable ministerial review as they deem necessary or appropriate for the purpose of ascertaining the sufficiency and validity of such Consent and all matters incident thereto, including, without limitation, whether holders of shares having the requisite voting power to authorize or take the action specified in the Consent have given consent. if after such investigation the Secretary shall determine that the Consent is valid, that fact shall be certified on the records of the Corporation kept for the purpose of recording the proceedings of meetings, of stockholders, and the Consent shall be filed in such records, at which time the Consent shall become effective as stockholder action.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01 POWERS. The business and affairs of the Corporation shall be carried on by or under the direction of the Board of Directors, which shall have all the power authorized by the laws of the State of Delaware, subject to such limitations as may be provided by the Certificate of Incorporation or these Bylaws.
Section 3.02 NUMBER, ELECTION AND QUALIFICATION. Effective as of the date of the 2000 Annual Meeting of Stockholders, the number of directors of the Company shall be fixed at two. The number of directors may thereafter be changed by the affirmative vote of the members of the Board of Directors. Directors shall be elected by a plurality of the shares of stock present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Each director shall serve until the election and qualification of his or her successor or until his or her earlier death, resignation, retirement, disqualification or removal as provided in the Certificate of Incorporation or these Bylaws. In the case of an increase in the number of directors
between elections by the stockholders, the additional directorships shall be considered vacancies and shall be filled in the manner prescribed in Article V of these Bylaws. Directors need not be stockholders.
Section 3.03 COMPENSATION. The Board of Directors, or a committee thereof, may from time to time by resolution authorize the payment of fees or other compensation to the directors for services as such to the Corporation, including, but not limited to, fees for attendance at all meetings of the Board of Directors or any committee thereof. and determine the amount of such fees and compensation. No compensation shall preclude any director from serving the Corporation in any other capacity and receiving compensation thereof.
Section 3.04 NOTICES, MEETINGS AND QUORUM. Except as otherwise expressly provided in these Bylaws, the Certificate of Incorporation or the laws of the State of Delaware, meetings of the Board of Directors, both regular and special, may be held either in or outside of the State of Delaware. At all meetings of the Board of Directors, a majority of the fixed number of directors shall constitute a quorum for the transaction of business. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting, without notice or an announcement at such meeting, until a quorum shall be present.
The Board of Directors shall, at the close of each annual meeting of stockholders and without further notice other than these Bylaws, if a quorum of directors is then present or as soon thereafter as may be convenient, hold a regular meeting for the election of officers and the transaction of any other business.
The Board of Directors may from time to time provide for the holding of regular meetings with or without notice and may fix the times and places at which such meetings are to be held. Meetings other than regular meetings may be called at any time by the Chairman of the Board of Directors, the Chief Executive Officer or the President, and may and must be called by the Secretary or an Assistant Secretary upon the written request of at least one-half (1/2) of the members of the Board of Directors.
Notice of each meeting other than a regular meeting (unless
required by the Board of Directors), shall be given to each director (i) by
mailing the same to each director at his or her residence or business address at
least five (5) days before the meeting; (ii) by sending the same by overnight
courier to each director at his or her residence or business address at least
three (3) days before the meeting; (iii) by facsimile transmission at his or her
business facsimile number and telephonic confirmation of receipt at least two
(2) days before the meeting; or (iv) by delivering the same personally or by
telephone or telegraph at least two (2) days before the meeting.
Notwithstanding the preceding sentence, in the case of exigency, the Chairman of the Board of Directors, the Chief Executive Officer, the President or the Secretary shall be authorized to prescribe a shorter notice to be given personally or by telephone, telegraph, cable, facsimile transmission or wireless to all or any one or more of the directors at their respective residences or place of business.
Notice of any meeting shall state the time and place of such meeting, but need not state the purposes thereof unless otherwise required by the laws of the State of Delaware, the Certificate of Incorporation or the Board of Directors.
Section 3.05 COMMITTEES.
(a) GENERAL PROVISIONS. The Board of Directors may, by resolution adopted by a majority of the whole Board of Directors, designate one or more committees. Each committee shall consist of two or more directors and the Board of Directors shall elect the members thereof to serve at the pleasure of the Board of Directors and may designate each of such members to act as chairperson. The Board of Directors may at any time change the membership of any such committee, fill vacancies in it, designate alternate members to replace any absent or disqualified members at any meeting of any such committee, or dissolve it. Each such committee shall have the powers and perform such duties, not inconsistent with law, as may be assigned to it by the Board of Directors, and shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Each committee may determine its rules of procedure and the notice to be given of its meeting. A majority of the members of each committee shall constitute a quorum.
(b) EXECUTIVE COMMITTEE. The Board of Directors shall, by resolution adopted by a majority of the whole Board of Directors, provide for an Executive Committee. Subject to such limitations as may be imposed by the laws of the State of Delaware, during the intervals between the meeting of the Board of Directors, the Executive Committee shall possess and may exercise any or all of the power of the Board of Directors in the management or direction of the business and affairs of the Corporation, including the full power and authority to declare dividends, of any kind whatsoever, to authorize the issuance of capital stock, of any class or series, of the Corporation and to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of the State of Delaware, as it may be amended from time to time.
Section 3.06 CONFERENCE TELEPHONE MEETINGS. Except as may be otherwise prescribed by the laws of the State of Delaware, the Certificate of Incorporation or these Bylaws, any one or more members of the Board of Directors or any committee thereof may participate in a meeting by means of a conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting.
Section 3.07 ACTION WITHOUT MEETING. Except as may be otherwise prescribed by the laws of the State of Delaware, the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.
Section 3.08 DIRECTORS ELECTED BY PREFERRED STOCKHOLDERS. Notwithstanding anything in these Bylaws to the contrary, whenever the holders of any one or more classes or series of
preferred stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Certificate of Incorporation or the resolutions or the resolutions of the Board of Directors creating such class or series, as the case may be, applicable thereto.
ARTICLE IV
OFFICERS
Section 4.01 TITLES AND ELECTION. The officers of the Corporation shall be the Chairman of the Board of Directors, the Chief Executive Officer, the President, the Treasurer, one or more Vice Presidents and the Secretary. The officers of the Corporation, in the absence of earlier resignations or removals, shall be elected at the first meeting of the Board of Directors following each annual meeting of stockholders. Each officer shall hold office at the pleasure of the Board of Directors except as may otherwise be approved by the Board of Directors, or until his or her earlier resignation, removal under these Bylaws or other termination of his employment. Any person may hold more than one office if the duties can be consistently performed by the same person.
The Board of Directors, in its discretion, may also at any time elect or appoint Assistant Secretaries and Assistant Treasurers and such other officers as it may deem advisable, each of whom shall hold office at the pleasure of the Board of Directors, except as may otherwise be approved by the Board of Directors, or until his or her resignation, removal or other termination of employment, and shall have such authority and shall perform such duties as may be prescribed or determined from time to time by the Board of Directors or, in the case of officers other than the Chairman of the Board, if not prescribed or determined by the Board of Directors, as the Chairman of the Board, the Chief Executive Officer, the President or then senior executive officer may prescribe or determine.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 5.01 EXECUTION OF CONTRACTS. The Board, except as in the Bylaws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances; and unless so authorized by the Board or by the Bylaws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount.
Section 5.02 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from
time to time, shall be determined by resolution of the Board. Each such officer, assistant, agent or attorney shall give such bond, if any, as the Board may require.
Section 5.03 DEPOSITS. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the Chairman, Vice Chairman, President, any Vice President or the Treasurer (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall from time to time be determined by the Board) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation.
Section 5.04 GENERAL AND SPECIAL BANK ACCOUNTS. The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
Section 6.01 CERTIFICATES FOR STOCK. Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, to be in such form as the Board shall prescribe, certifying the number and class of shares of the stock of the Corporation owned by him. The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the Chairman, Vice Chairman, President or a Vice President, and by the Secretary or an Assistant Secretary or by the Treasurer or an Assistant Treasurer. Any of or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any such certificate, shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such officer, transfer agent or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be canceled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so canceled, except in cases provided for in Section 6.04 hereof.
Section 6.02 TRANSFERS OF STOCK. Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by his or her attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.03 hereof, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be so expressed in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so.
Section 6.03 REGULATIONS. The Board may make such rules and regulations as it may deem expedient, not inconsistent with the Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one (1) or more transfer clerks or one (1) or more transfer agents and one (1) or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them.
Section 6.04 LOST, STOLEN, DESTROYED, AND MUTILATED CERTIFICATES. In any case of loss, theft, destruction, or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sum as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper so to do.
Section 6.05 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For purposes of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action (other than action by stockholders by written consent without a meeting), the Board may fix a record date which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which shall not be more than sixty (60) days before any such action, and in that case only stockholders of record on the date so fixed are entitled to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date so fixed, except as otherwise provided in the General Corporation Law of the State of Delaware. If the Board does not so fix a record date, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.
ARTICLE VII
ELECTRONIC TRANSMISSION OF NOTICES TO
DIRECTORS AND STOCKHOLDERS, HOLDING OF
DIRECTORS AND STOCKHOLDERS' MEETINGS BY
REMOTE COMMUNICATION, CONSENT TO ACTION BY
DIRECTORS AND STOCKHOLDERS BY ELECTRONIC TRANSMISSION
Section 7.01. NOTICES OF MEETINGS OF STOCKHOLDERS. Anything to the contrary notwithstanding in Section 2.04 of these Bylaws, in accordance with the provisions of Section 211(a) and Section 222 of the Delaware General Corporation Law, the Board of Directors may, in its sole discretion, with respect to any meeting of stockholders, determine that the meeting may be held solely by means of remote communication, as authorized by Section 211 of the Delaware General Corporation Law. In such case, the Board of Directors shall have the power and authority to determine and set such guidelines and procedures for the holding of any meeting by remote communication, in which case stockholders and proxy holders not physically present at a meeting may, by means of remote communication, participate in such meeting and be deemed to be present in person and vote at a meeting of stockholders.
Section 7.02. VOTING BY ELECTRONIC TRANSMISSION. Anything to the contrary notwithstanding in Section 2.08 of these Bylaws, the voting by stockholders or proxy holders at any meeting conducted by electronic transmission may be effected by a ballot submitted by electronic transmission.
Section 7.03. STOCKHOLDER LIST WHERE MEETING IS HELD BY REMOTE COMMUNICATION. Anything to the contrary notwithstanding in Section 2.09 of these Bylaws, in the event a meeting of stockholders is to be held by means of remote communication, the list of stockholders shall be open to the examination of any stockholder during the whole time of the meeting on a reasonably acceptable electronic network, and the information required to access such list shall be provided to stockholders together with the notice of meeting.
Section 7.04. ACTION OF STOCKHOLDERS WITHOUT A MEETING. Anything to the contrary notwithstanding in Section 2.11 of these Bylaws, any action required or permitted to be taken at an annual or special meeting of stockholders by statute, certificate of incorporation or these Bylaws may, in addition to any other means and method by which such action may be permitted to be taken, be taken by telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxy holder as permitted by Section 228 of the Delaware General Corporation Law, and such communication shall be deemed to be written, signed and dated for the purposes of Section 228 if such communication sets forth or is delivered with information from which the Corporation can determine that same was transmitted by a stockholder or proxy holder and the date that same was transmitted. No consent by telegram, cablegram or other electronic transmission shall be deemed to have been delivered unless such consent is reproduced in paper form and shall be delivered to the Corporation by delivery to its registered office in the state of Delaware, its principal place of business, or the Secretary of the Company.
Section 7.05. EFFECTIVENESS OF NOTICES TO STOCKHOLDERS. Anything to the
contrary notwithstanding in Section 2.04 of these Bylaws, and in accordance with
Section 232 of the Delaware Corporation Law, any notice to stockholders shall be
effective if given by form of electronic transmission consented to by the
stockholder to whom the notice is given. Such consent shall be maintained by the
Secretary of the Corporation together with the records of the Corporation. Where
such consent is given, any notice shall be deemed given, if by facsimile
transmission, when directed to a number at which the stockholder has consented
to receive notice; if by electronic mail, when directed to the electronic mail
address at which the stockholder has consented to receive notice. The Secretary
and Assistant Secretary of the Corporation or the transfer agent of the
Corporation shall file with the Corporation an affidavit that such notice has
been given by form of electronic transmission.
Section 7.06. ELECTRONIC TRANSMISSION. For the purposes of this ARTICLE VII, electronic transmission shall mean any form of communication not directly involving the physical transmission of paper that creates a record that may be retained, retrieved and reviewed by a recipient and that may be directly reproduced in paper form by such a recipient through an automated process.
Section 7.07. NOTICES TO DIRECTORS. Anything to the contrary notwithstanding in Section 3.04 of these Bylaws, any notice permitted or required to be given to any director shall be sufficient if given, in addition to any other permitted means or manner of delivery, by electronic transmission.
Section 7.08. ACTION BY BOARD OF DIRECTORS WITHOUT A MEETING. Anything to the contrary notwithstanding in Section 3.07 of these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof, in addition to any other means or manner otherwise provided for, may be taken by electronic transmission.
ARTICLE VIII
INDEMNIFICATION
Section 8.01 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Corporation shall, to the fullest extent permitted by law, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including without limitation an action by or in the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of anther corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, that he had reasonable cause to believe that his conduct was unlawful.
Section 8.02 ADVANCE OF EXPENSES. Costs and expenses (including
attorneys' fees) incurred by or on behalf of a director, officer, employee or
agent in defending or investigating any action, suit, proceeding or
investigation shall be paid by the Corporation in advance of the final
disposition of such matter, if such director, officer, employee or agent shall
undertake in writing to repay any such advances in the event that it is
ultimately determined that he is not entitled to indemnification.
Notwithstanding the foregoing, no advance shall be made by the Corporation if a
determination is reasonably and promptly made by the Board of Directors by a
majority vote of a quorum of disinterested directors, or (if such a quorum is
not obtainable or, even if obtainable, a quorum of disinterested directors so
directs) by independent legal counsel, that, based upon the facts known to the
Board or counsel at the time such determination is made, (a) the director,
officer, employee or agent acted in bad faith or deliberately breached his duty
to the Corporation or its stockholders, and (b) as a result of such actions by
the director, officer, employee or agent, it is more likely than not that it
will ultimately be determined that such director, officer, employee or agent is
not entitled to indemnification.
Section 8.03 INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article or applicable law.
Section 8.04 NON-EXCLUSIVITY. The right of indemnity and advancement of expenses provided herein shall not be exclusive, and the Corporation may provide indemnification or advancement of expenses to any person, by agreement or otherwise, on such terms and conditions as the Board of Directors may approve. Any agreement for indemnification of or advancement of expenses to any director, officer, employee or other person may provide to any rights of indemnification or advancement of expenses which are broader or otherwise different from those set forth herein.
ARTICLE IX
MISCELLANEOUS
Section 9.01 SEAL. The Board shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words and figures showing that the Corporation was incorporated in the State of Delaware and the year of incorporation.
Section 9.02 WAIVER OF NOTICES. Whenever notice is required to be given by these Bylaws or the Certificate of Incorporation or by law, the person entitled to said notice may waive such
notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice.
Section 9.03 AMENDMENTS. Except as otherwise provided in the Bylaws, the Bylaws, or any of them, may be altered, amended or repealed, and new Bylaws may be made (i) by the Board, by vote of a majority of the number of directors then in office as directors, acting at any meeting of the Board, or (ii) by the vote of the holders of a majority of the total voting power of all outstanding shares of voting stock of the Corporation, at any annual meeting of stockholders, without previous notice, or at any special meeting of stockholders, provided that notice of such proposed amendment, modification, repeal or adoption is given in the notice of special meeting. Except as otherwise provided in these Bylaws, any Bylaws made or altered by the stockholders may be altered or repealed by either the Board or the stockholders.
Exhibit 21
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Exhibit 21 - Schedule of Subsidiaries
As of May 31, 2000, the Company had the following active subsidiaries:
WHOLLY-OWNED SUBSIDIARIES OF COMPREHENSIVE CARE CORPORATION: STATE OF INCORPORATION ------------------------------------------------------------ ---------------------- Comprehensive Behavioral Care, Inc. Nevada Comprehensive Health Associates, Inc. Puerto Rico WHOLLY-OWNED SUBSIDIARIES OF COMPREHENSIVE BEHAVIORAL CARE, INC.: ----------------------------------------------------------------- Comprehensive Care Integration, Inc. Delaware Healthcare Management Services, Inc. Michigan Healthcare Management Services of Michigan, Inc. Michigan Behavioral Healthcare Management, Inc. Michigan AFFILIATES SPONSORED BY COMPREHENSIVE BEHAVIORAL CARE, INC.: ------------------------------------------------------------ Comprehensive Provider Networks of Texas, Inc. Texas |
Exhibit 23
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Exhibit 23 - Consent of Richard A. Eisner & Company, LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements (Forms S-8 No. 33-43841, No. 33-27213, and No. 333-15929) of our report dated July 27, 2000 with respect to the consolidated financial statements of Comprehensive Care Corporation and subsidiaries for the year ended May 31, 2000, included in the Annual Report (Form 10-K) for the year ended May 31, 2000.
/s/ Richard A. Eisner & Company, LLP ------------------------------------ New York, New York August 24, 2000 |
| ARTICLE 5 |
| MULTIPLIER: 1,000 |
| CURRENCY: U.S. DOLLARS |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | MAY 31 2000 |
| PERIOD START | JUN 01 1999 |
| PERIOD END | MAY 31 2000 |
| EXCHANGE RATE | 1,000 |
| CASH | 2,518 |
| SECURITIES | 0 |
| RECEIVABLES | 10,758 |
| ALLOWANCES | 13 |
| INVENTORY | 0 |
| CURRENT ASSETS | 17,402 |
| PP&E | 3,491 |
| DEPRECIATION | 2,405 |
| TOTAL ASSETS | 21,275 |
| CURRENT LIABILITIES | 29,647 |
| BONDS | 2,244 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 38 |
| OTHER SE | (10,710) |
| TOTAL LIABILITY AND EQUITY | 21,275 |
| SALES | 17,719 |
| TOTAL REVENUES | 17,719 |
| CGS | 0 |
| TOTAL COSTS | 24,400 |
| OTHER EXPENSES | (611) |
| LOSS PROVISION | (606) |
| INTEREST EXPENSE | 289 |
| INCOME PRETAX | (5,753) |
| INCOME TAX | 13 |
| INCOME CONTINUING | (5,766) |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (5,766) |
| EPS BASIC | (1.51) |
| EPS DILUTED | (1.51) |