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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

COMPREHENSIVE CARE CORPORATION
(Exact name of Registrant as specified in its charter)

(813) 288-4808
(Registrant’s telephone number, including area code)

     SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

     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 19, 2002, was $4,080,005 based on the average bid and ask price of the Common Stock on August 19, 2002, as reported on the Over The Counter Bulletin Board.

     At August 19, 2002, the Registrant had 3,885,719 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates by reference to the Registrant’s definitive proxy statement for the Registrants 2002 annual meeting of stockholders. The definitive proxy statement will be filed no later than 120 days after the close of the Registrant’s fiscal year ended May 31, 2002.

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COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES

PART I

ITEM 1. BUSINESS

ORGANIZATIONAL HISTORY

     Comprehensive Care Corporation® (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”®⁽²⁾ or “CBC”) and subsidiary corporations.

     The Company, through its operating subsidiaries, manages the delivery of a continuum of psychiatric and substance abuse services to commercial, Medicare, and Medicaid members on behalf of employers, health plans, including health maintenance organizations (“HMOs”) and preferred provider organizations (“PPOs”), government organizations, third-party claims administrators, and commercial and other group purchasers of behavioral healthcare services. Current services include a broad spectrum of inpatient and outpatient mental health and substance abuse therapy, counseling, and supportive interventions.

RECENT DEVELOPMENTS

•		Effective July 22, 2002, the National Committee on Quality Assurance (“NCQA”) has awarded Full Accreditation to Comprehensive Behavioral Care’s Southeast regional operations, extending CBC’s accreditation to July 22, 2005. This accreditation covers the Company’s health plan membership in Connecticut, Florida, Georgia, and Michigan (see Page 4 — “ACCREDITATION”).
•		During July 2002, the Company entered into a Repayment Agreement with the California Department of Health Services to resolve the Medi-Cal liability. This liability and the terms of the Repayment Agreement are more fully described below under Item 3-(1), Legal Proceedings.
•		During April 2002, the Company implemented a new contract to provide behavioral healthcare benefits to approximately 130,000 members in Michigan. The Company estimates that annual revenues from this contract will be $2.3 million.

BUSINESS GENERAL

     The services provided by the Company are delivered through management service agreements, administrative service agreements, and capitated contracts. Under capitated contracts, the primary payer 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. Programs are contracted through inpatient facilities as well as through experienced outpatient practitioners.

     The Company currently provides behavioral healthcare services to recipients in seven states, primarily through subcontracts with health plans. Members are usually directed to the Company by their employer, health plan, or physician and receive an initial authorization for an assessment. Based upon the initial assessment, a treatment plan is established for the member. 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. Though not a significant part of the Company’s business as a percentage of revenue, the Company also manages behavioral healthcare services in correctional settings or for parolees and probationers in Idaho and may seek to pursue business in similar markets in the future (see “Growth Strategy” below). Fully integrated capitated lives (i.e. where the company has contractual, financial risk) totaled approximately 805,000 and 560,000 at May 31, 2002 and 2001, respectively. ASO lives were approximately 375,000 and 295,000 at May 31, 2002 and 2001, respectively. EAP lives were approximately 2,000 at May 31, 2002 and 2001. The Company manages its clinical service programs using proven treatment technologies and trains its providers to use effective, science-based treatment.

     The Company’s objective is to provide easily accessible, high quality behavioral healthcare services and products and to manage its costs through measures such as the monitoring of hospital inpatient admissions and the

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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 recipients, primarily through subcontracts with HMOs who have historically carved out these functions to third parties such as CompCare. Generally, the Company receives a negotiated amount on a PMPM or capitated basis in exchange for providing these services. The Company then contracts directly with behavioral healthcare providers who receive a pre-determined fee-for-service rate or case rate. Behavioral healthcare providers include psychiatrists, clinical psychologists, hospitals, therapists, and other licensed healthcare professionals. As of May 31, 2002, the Company has approximately 5,600 behavioral healthcare practitioners in its network who are primarily located in the four states in which the Company has its principal contracts. Under such full-risk capitation arrangements, profit is a function of utilization and the claims payments made by the Company to its network providers.

     Alternatively, the Company may subcontract with a network provider company on a sub-capitated basis. 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.

     During Fiscal 2002, the Company provided services under capitated arrangements for commercial, Medicare, Medicaid, and Children’s Health Insurance Program patients in Florida and Texas, commercial and Medicaid patients in Michigan, Medicaid patients in Connecticut, and commercial patients in California, Georgia, Idaho, Kentucky and Ohio.

     In Fiscal 2002, new business included one Medicaid and one commercial contract in Michigan, and one PPO and one Medicaid contract in Texas. The Company performs periodic reviews of its current contracts with payers to determine profitability. In the event a contract is not profitable, the company may seek to revise the terms of the contract or to terminate the agreement in accordance with the specific contract terms.

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 health plans, corporations, government agencies, and other payers through its reputation of providing quality managed behavioral healthcare services with the most cost-effective use of healthcare resources. The Company’s principal means for pursuing new business is through the submission of proposals in response to formal, competitive bidding proceedings that are initiated by health plans or government agencies. New products for existing and potential clients include preferred provider organization management, psychotropic pharmacy benefit management, and administrative service capacity management for public systems.

     CompCare has developed its behavioral corrections program and currently has contracts in two states to provide behavioral healthcare services to inmates and parolees. While this business is not currently a significant part of the Company’s business as a percentage of revenue, the Company believes that the privatization of corrections healthcare services may 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 market areas such as child welfare, behavioral pharmacy management and preferred provider organization product management for health plans and self-insured employers, and juvenile justice behavioral health.

COMPETITION

     The behavioral healthcare industry is highly competitive, with approximately two-dozen managed behavioral healthcare companies providing service for an estimated 209 million covered lives in the United States. The industry provides products and services that are price sensitive. Competition is also built around the quality of service provided and the extent of the managed behavioral healthcare organization’s network facilities.

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GOVERNMENT REGULATION

REGULATORY MONITORING AND COMPLIANCE

     The Company is subject to extensive and evolving state and federal regulations as well as changes in Medicaid and Medicare reimbursement that could have an effect on the profitability of the Company’s contracts. 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 currently licensed in one state to operate as a Limited Health Service Organization 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. The Company holds licenses or certificates to perform utilization review and third party administrator (“TPA”) services in certain states. Certain of the services provided by the Company’s managed behavioral healthcare subsidiaries may be subject to such licensing requirements in other states. There can be no assurance that additional utilization review or TPA licenses will not be required or, if required, that the Company will qualify to obtain such licenses. In many states, entities that assume risk under contract with licensed insurance companies or health plans 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. If the regulatory positions of these states were to change, the Company’s business could be materially affected until such time as the Company meets the regulatory requirements. 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.

     As of May 31, 2002, the Company managed approximately 772,000 lives in connection with behavioral and substance abuse services covered through Medicaid in Connecticut, Florida, Michigan and Texas. In addition, the Company manages approximately 33,000 lives covered through Medicare in Florida. Any changes in Medicaid and Medicare reimbursement could ultimately affect the Company through contract bidding and cost structures with the health plans first impacted by such changes. At this time, the Company is unable to predict what effect, if any, changes in Medicaid and Medicare legislation may have on its business.

     The Company is subject to the requirements of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). The purpose of the HIPAA provisions is to improve the efficiency and effectiveness of the healthcare system through standardization of the electronic data interchange of certain administrative and financial transactions and, also, to protect the security and privacy of transmitted information. Entities subject to HIPAA include all healthcare providers and all healthcare plans. To meet the specific requirements of HIPAA, the Company will incur costs to insure the adequacy and security of its healthcare information system and communication networks. Additionally, the Company may incur costs to implement the specific transaction codes required by HIPAA for claims, payment, enrollment, eligibility, or to become compliant with security and privacy rules, which may be more stringent for providers of certain behavioral healthcare services. The expected timetable to be compliant is currently October 2002 for transaction code changes, although recent legislation allows for a one-year delay of this compliance date if a formal compliance plan is filed by October 2002, and April 2003 for compliance with the privacy rules. The Company is currently evaluating its systems and policies that are impacted by HIPAA. While these efforts will be ongoing, the Company expects to meet all compliance rules and timetables with respect to the HIPAA regulations. Failure to do so may result in penalties and have a material adverse effect on the Company’s ability to retain its customers or to gain new business.

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; 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

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provides. In 2001, NCQA introduced these standards to health plan accreditations and now requires 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 a one-year NCQA accreditation in July 1999 and Full Accreditation in December 2000. Effective July 22, 2002, CompCare’s Full Accreditation award extends the NCQA accreditation to July 22, 2005 and covers membership in Connecticut, Florida, Georgia, and Michigan. Full Accreditation is granted for a period of three years to those plans that have excellent programs for continuous quality improvement and that meet NCQA’s rigorous standards.

     The Company believes its NCQA accreditation to be beneficial to its clients and their members that are served by the Company. Additionally, NCQA accreditation may be an important consideration to prospective clients of the Company.

ADMINISTRATION AND EMPLOYEES

     The Company’s executive and administrative offices are located in Tampa, Florida, where management maintains operations, business development, accounting, reporting and information systems, and provider and member service functions. The Company currently employs a total of 115 full-time and part-time employees.

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.

     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 management 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. The Company views the TXEN system to be adequate for its current and future needs.

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 Chief Executive Officer manages marketing initiatives, along with the Company’s President of Public Sector Services. Regional and administrative operations personnel strengthen the Company’s marketing efforts by providing a local presence. Sales expectations are integrated into the performance requirements for executive staff and local sales personnel.

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DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The executive officers of the Company are as follows:

     THOMAS CLAY, MSW, age 54. Mr. Clay has been employed by the Company since December 1999 and has served as President, Public Sector Services, for Comprehensive Behavioral Care, Inc. (“CBC”) since June 2002. Mr. Clay previously served as CBC’s Senior Vice President of Clinical Operations from October 2000 through May 2002. During 1997, until joining the Company, Mr. Clay worked as a behavioral healthcare consultant specializing in adapting managed care technology to public sector services for providers and behavioral healthcare organizations. From January 1991 through July 1997, Mr. Clay served in a variety of executive positions for Tarrant County Mental Health Mental Retardation Services in Fort Worth, Texas. Mr. Clay received a Master of Social Work degree from Tulane University and a Bachelor of Arts Degree in Psychology from the University of Texas at Austin.

     MARY JANE JOHNSON, RN, MBA, age 52. Ms. Johnson has served as President and Chief Executive Officer since January 2000. In April 1999, Ms. Johnson was elected a Class I director with her current term expiring at the 2003 Annual Meeting. Since joining the Company in August 1996, Ms. Johnson has also served as Chief Operating Officer of Comprehensive Care Corporation, an appointment that was effective July 1999, and as Chief Executive Officer for the Company’s principal subsidiary, Comprehensive Behavioral Care, Inc., since August 1998. 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 43. Mr. Landis has served as Chairman of the Board of Directors since January 2000 and as Chief Financial Officer and Treasurer since July 1998. In April 1999, Mr. Landis was elected a Class III director with his current term expiring at the 2004 Annual Meeting. Mr. Landis served as Treasurer of Maxicare Health Plans, Inc., a health maintenance organization, from November 1988 to July 1998. Mr. Landis also serves on the Board of Directors of Appiant Technologies, Inc., a unified communication software development company whose common stock is publicly traded on the NASDAQ Small Cap Market. 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.

     PAUL R. MCCARTHY, Ph.D., age 45. Dr. McCarthy rejoined the Company in June 2002 to serve as Chief Operating Officer for Comprehensive Behavioral Care, Inc. From January 2000 through May 2002, Dr. McCarthy was employed by Cigna Behavioral Health (“Cigna”) in Tampa, Florida where as Director of Regional Operations he was responsible for the oversight of operational and financial aspects for two of Cigna’s largest operating units. Prior to joining Cigna, Dr. McCarthy was employed by the Company from February 1998 through January 2000. Dr. McCarthy has also served as Vice President of Quality Improvement and Outcomes Management for Green Spring Health Services/Magellan Health Services from February 1996 through February 1998. Dr. McCarthy holds a Masters Degree in Psychology from Villanova University and a Ph.D. from Pennsylvania State University.

     HOWARD A. SAVIN, Ph.D., age 56. In June 2002, Dr. Savin was appointed as a Class II director, with a term expiring at the 2002 Annual Meeting, to fill the existing vacancy of the Board of Directors. Dr. Savin is currently Senior Vice President of Clinical Affairs at the Devereux Foundation, an organization engaged in providing high-quality human services to children, adults, and families with special needs which derive from

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behavioral, psychological, intellectual or neurological impairments. Dr. Savin has served the Devereux Foundation in this capacity since July 1995. Prior to joining the Devereux Foundation, Dr. Savin served as Vice President of Medco Behavioral Care Corp., which later became Merit Behavioral Health and Magellan, from November 1993 to December 1994. Dr. Savin holds a Masters Degree in Psychology from the University of Bridgeport and a Ph.D. from the University of Georgia.

     CATHY J. WELCH, CPA, age 42. Ms. Welch has been employed by the Company since February 1998, has served as Controller since February 1999 and as Corporate Secretary since her appointment on January 14, 2000. Beginning on July 12, 1999, Ms. Welch is the Vice President of Finance and Controller. Prior to her employment with the Company, Ms. Welch served in a variety of financial management positions, beginning in November 1993 through June 1997, for the Columbia/HCA hospitals in Florida. Ms. Welch, a Certified Public Accountant, received a Bachelor of Arts Degree in Business Administration from the University of South Florida.

ITEM 2. PROPERTIES

     The Company does not currently own any real property. The following table sets forth certain information regarding the properties leased by the Company at May 31, 2002. All leases are triple net leases, under which the Company bears all costs of operations, including insurance, taxes, and utilities.

* Effective June 30, 2002, the Company’s Idaho operations were reduced as a result of the termination of one contract which accounted for less than 2% of operating revenues during Fiscal 2002. The Company’s continuing Idaho business is from prison-based programs requiring only minimal administrative support. As a result, effective August 31, 2002, the Company expects to eliminate its Idaho administrative office.

ITEM 3. LEGAL PROCEEDINGS

(1)		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 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”.
		Effective July 2002, the Company has entered into a Repayment Agreement with the Department to resolve this liability at a substantially reduced amount. The terms of the Repayment Agreement will require the Company to either 1) pay one lump sum of $450,000 to the Department on or before September 1, 2002 or 2) beginning September 1, 2002, the Company will be required to make three monthly installment payments of $160,000 each, with the last payment being due on or before November 1, 2002, for a total of $480,000 as full and complete satisfaction of the outstanding liability. If neither of the arrangements discussed under 1) or 2) above is satisfied, the Company will be considered to be in default and the Department has the right to collect the full amount of the claim plus interest, attorney’s fees, and collections costs.
(2)		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 Internal Revenue Code (“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

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		million. Further, the Company entered into a fee arrangement with its tax advisor that required the Company to advance its tax advisor an amount equal to 20% of any state or federal refunds received. Such fees were due and payable to the Company’s tax advisor within 30 days upon receipt of such tax refunds. However, if it is ultimately determined upon examination and through appellate conference that such tax strategies are unallowable, the Company is entitled to receive a pro rata refund from its tax advisor of any fee that resulted from the disallowed item or items.
		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 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.
		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 $8.2 million through May 31, 2002. In this event, 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. The Company filed a protest letter with the IRS on November 6, 1998. This filing commenced the administrative appeals process.
		On July 11, 2000, the Company submitted an Offer in Compromise (the “Offer”) and, on March 13, 2002, submitted an amended Offer in Compromise (“Amended Offer”) to the IRS to resolve the controversy with respect to the refunds at a substantially reduced amount than the IRS has asserted as indicated above. To assist the IRS in evaluating the Amended Offer, the Company is providing additional documents to the IRS and is continuing its discussions with the IRS. The Amended Offer must be reviewed and approved by the IRS. Pending the resolution of the Amended Offer, the IRS generally suspends any collection activities. There can be no assurance that the IRS will accept the Amended Offer.
		If the IRS were to accept the Amended Offer, the IRS would require that the net operating loss carryforwards are no longer available to the Company. If the IRS were to disallow the refunds claimed and an offer is not accepted, the Company will have additional loss carry forwards of approximately $50 million, which will expire if unused by the year 2010.

     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

     During the fourth quarter of the fiscal year covered by this report, no matters were submitted to a vote of security holders of the Company.

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PART II.

(a)		As of July 31, 2002, the Company had 1,427 common stockholders of record.
(b)		The Company did not pay any cash dividends on its Common Stock during any quarter of Fiscal 2002, 2001, or 2000 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

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. The selected consolidated financial data that follows includes the results of discontinued hospital operations for the fiscal years ended May 31, 1999 and 1998 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”).

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