3405 W. Dr. Martin Luther King Jr. Blvd
Suite 101
Tampa, Florida 33607
www.CompCare.com

Full Report - PDF Version

Comprehensive Care Corporation “CompCare” (OTCBB:CHCR) is a national leader in providing discounted behavioral health and substance abuse networks to governmental agencies, managed care companies and employer groups. Established in 1969, CompCare specializes in managing behavioral and psychiatric health issues for more than 1 million members nationwide, providing a wide range of services, including the delivery of psychiatric, Autism and ADHD products, substance abuse services and consumer healthcare products to health plans and employer groups for Commercial, Medicaid, and Medicare members. With $35.2 million in revenues for FY 2008, the Company has historically operated under capitation agreements where plans pay CompCare a fixed monthly fee for each member.

Investment Highlights:

• CompCare is a 40 year company with a strong growth story.
• Small float, historical low stock price ($0.63), excellent Wall Street reputation.
• Management team has track record of building companies through organic growth and strategic acquisitions.
• Management is working on significant new business in the US and Puerto Rico that will significantly grow its revenues and bottom line over the next 12 months.
• With recent equity raisings, CompCare has significantly improved its balance sheet.
• New Business Model – Moving Forward into “Obama Healthcare”.It’s the right industry at the right time.
• Merger with Core creates national distribution network, new products with cross selling.

Financial

* Waterville projection

** Unaudited

CompCare has a 7 ½% Convertible Subordinated Debenture due April 15, 2010, dated from April 25, 1985. The original amount was $46 million, and the current amount outstanding is $2.2 million. The note converts into 15,873 shares with a conversion price of $141.37. CompCare is currently grossing $16 million, and needs to raise revenue to $30 million to break even. The industry standard is EBITDA of 8% and a growth rate of 28%, the current figures of Magellan Health Services, Inc., one of CompCare’s publicly listed competitors. If CompCare, combined with Core, which has greater profit margins, is able to manage that, economies of scale should give them a higher EBITDA. Larger sales of Core’s direct sale of medical products should also increase profitability as a result of higher margins. A stronger balance sheet will alleviate the Company’s need to post cash collateral or expensive performance bonds when entering into large managed care contracts. This will lead to improved profit margins and increased opportunities. As managed care growth continues to outpace the growth of all health care (and the economy), the Company is well positioned to profit.

CompCare negotiates with health care providers to attain the best rates and marks up the fees. With the FY 2008 and 2009 changes in management, CompCare is transitioning from a fixed fee per head model, to an administration model with less risk and gross margins of 45%+. The Company is projecting to achieve approximately $20 million in 2009 sales.

The heart of CompCare’s clinical philosophy is the integration and coordination of communication between medical and behavioral care. Understanding the mind/body connection is key to treating the whole individual, not just one aspect of the problem. Comprehensive, compassionate, cost-effective products and services optimize treatment outcomes. Unifying CompCare clinical staff, network practitioners, primary care physicians and other treatment providers creates an integrated delivery system unsurpassed by other organizations. The firm maintains a network of 10,000+ behavioral health providers, through which it manages the care of private health plan members, as well as Medicare and Medicaid participants. CompCare’s clinical goals are:

1. Provide high quality behavioral healthcare services and products and to manage costs through monitoring of hospital inpatient admissions and review of authorizations for outpatient therapy.
2. Reduce claims for chronic diseases through behavioral counseling.
3. Concentrate on compliance issues such as end users taking their medications.
4. Expand health offerings into other areas such as hearing and ophthalmic.

The Company currently provides behavioral healthcare services to recipients in fifteen states through subcontracts with health plans. The customer base is both corporate and governmental entities in the domestic market. It also provides inpatient and outpatient mental health and substance abuse therapy, counseling, and supportive interventions.

Clients include small to medium sized HMOs who carve out behavioral healthcare functions. Client arrangements fall into the following two categories:

1. Capitation arrangements: clients pay CompCare a fixed fee per member and CompCare incurs the cost of behavioral health services provided by its network of providers; and
2. Fee-for-service and administrative service arrangements: CompCare manages behavioral healthcare programs or performs managed care services.

CompCare manages programs through which services are provided to recipients in fifteen states. Its programs and services include:

• Fully integrated capitated behavioral healthcare services
• Case management/utilization review services
• Administrative services management
• Provider sponsored health plan development
• Preferred provider network development
• Management and physician advisor reviews
• Overall care management services
• Employee Assistance Programs (“EAPs”)
• Integrated Medical/Behavioral coordinated care management

Healthcare Product Line

CompCare uses THE BRIDGE™ as its trade-marked name for a behavioral medication analysis and management product. The BRIDGETM has resulted in a cost savings to health plans of $10,131 per member enrolled in the program through proactive intervention and education. The Bridge product line includes:

• The BridgeBH™ - Managed Behavioral Health carve-out with a strong medical/behavioral integration component;
• The BridgeCD™ - Substance Abuse Disease Management which provides medical interventions to control cravings and clear thinking and offers intensive coaching and coordination of care to maximize health;
• The BridgeRx™ - Behavioral Pharmacy Management which identifies prescribing patterns outside best practice guidelines, educates prescribers and identifies high risk members for intensive care management services;
• The BridgeDM™ - Integrated Healthcare management for complex conditions where there is a behavioral health condition and co-occurring medical diagnosis;
• The BridgeEAP™ - Employee Assistance Program and work life services.

FY 2009 - CompCare Has Stemmed the Losses and Completed its Turnaround

In January 2008, CompCare appointed John Hill as its new CEO and President and charged him with the responsibility of turning around CompCare’s poor financial performance. Following a review of operations and all sales contracts, Mr. Hill drew up a turnaround plan and immediately began implementation.

The plan identified changes to CompCare’s operations to better streamline its processes. CompCare began to re-organize its operations in Q2 of 2008 and completed this restructuring in Q4 of 2008. CompCare also identified all of its loss-making contracts, many of which were losing money at a gross profit level. CompCare then began the process to negotiate increased prices for each of those contracts. The Company terminated money losing contracts when they were either up for renewal or the Company was contractually permitted to terminate. The majority of the unprofitable contracts were terminated by December 2008. As a result of the turnaround undertaken at CompCare, CompCare was able to reduce its costs significantly. Although CompCare reduced its revenues as a result of the termination of unprofitable contracts, the resultant costs associated with those contracts was greater than the revenues.

CompCare’s Purchase of Core to Better Leverage its Infrastructure

On January 20, 2009, CompCare acquired Core Corporate Consulting Group, Inc. in an all stock transaction. This acquisition expands CompCare’s marketing capabilities, both domestically and internationally, as well as providing CompCare with a substantially expanded product line to be marketed as companion products to its already existing line of healthcare offerings.

Core is a company specializing in the healthcare sector and is a national leader in product sourcing and the direct response market. Core markets a variety of health-related products under its Medquip™ brand name and insurance and discounted health products branded as Core Select™ through multiple distribution channels. In addition to traditional distribution channels, the Company directs its distribution into highly targeted ethnic markets. In particular, CompCare services Medicare/Medicaid and affordable healthcare solution market segments – segments that are all “booming” in this economic climate.

Core’s Business Model

Core Select™ products include:

• LifeGuide247™ - This is a 24-hour service that provides guidance through life’s difficult situations, such as job stress, financial troubles, relationships, grievance and simply legal matters. Service is available online or by telephone;
• Emergency Vital Records - This product provides access to members’ vital medical records to emergency responders in the case of an emergency;
• Vision/Dental - These are inexpensive discount programs. They are low cost but an excellent annuity;
• Pharmacy Discounts - This is a prescription discount program. The program incorporates two tiers. Tier one is a free card that gives discounts averaging 28% on prescriptions. The second tier provides deeper discounted rates on name brand and generic prescriptions for a monthly fee.

Sales, Marketing and Distribution Channels

Distribution of products is done through the following channels:

• Licensed Call Centers – CompCare currently has a variety of licensed call centers totaling approximately 5000 seats.
• Consumer Call Centers - These are call centers running existing non-insurance campaigns. CompCare’s non-insurance products are offered as cross sell promotions within their existing efforts. They can additionally have them read qualifying scripts and then transfer the call to a licensed call center when an insurance product is being offered.
• Live Agent Groups - These are groups or organizations that are sales forces. They target different groups or customers.
  • Baker Street Consulting: This is a sales force of live agents targeting unions consisting of 1 million plus members, self-funded employer plans and affinity groups.
• Embedded Programs - These are programs where products are bundled into other product offerings.
  • American Modern: Embeds LifeGuide247 with each sale of their unemployed motorist insurance product. This is a policy sold when people buy a new car that covers the car payment in the event that the buyer becomes unemployed. Last year, American Modern sold approximately two million units of their product.
• Church Groups - Associations with groups that provide products and services to churches.
• 3rd Party Marketers - Established relationships with marketers that will include CompCare’s products into their marketing efforts. This works like the consumer call center model. After their initial sale is made, CompCare’s products are offered as a cross promotion.
• Internet Marketing - Through existing relationships with affiliate and internet marketers, CompCare offers products through a number of efforts on-line.
  • Succeed.com: This is an affiliate site where business opportunists go seeking opportunity and products to sell. They have 50,000 current members.
  • AsSeenOnTV.com: One of the largest affiliate sites for As Seen On TV products. They have roughly 20,000 affiliates.
  • SMC Marketing: A large internet affiliate marketer. They have in excess of 30,000 affiliates.
  • Permissions Interactive: Another large As Seen On TV marketing affiliate marketing company. They have approximately 10,000 affiliates.
  • Salco Distributing: Affiliate marketing company with 3,000 members.
• Colleges - Through a unique effort CompCare is including products through marketers focused on college campuses around the country. These include historic Black Colleges and Universities.

As a direct result of CompCare’s acquisition of Core, the Company can expect strong revenue growth and sustainable increased margins. All new sales generated by the Company will have a visible impact to the bottom line. In addition, CompCare’s existing back office and fulfillment capabilities will support additional sales.

Core’s President, Bill Barlow, is a direct-response marketing veteran with more than 25 years of experience, and claims product sales in excess of $1 billion on television alone and nearly another $1 billion through other channels.

The Core acquisition dramatically expands CompCare’s marketing capabilities, domestically and internationally, as well as providing CompCare with a substantially expanded product line to be marketed as companion products to its existing line of healthcare offerings. Combining CompCare and Core create an opportunity to reach millions of people globally, many for the first time, with affordable healthcare products. CompCare has budgeted $1.0 million in upfront costs to accelerate sales. This expenditure is expected to generate approximately $15 million in revenues over the next year at an average gross margin of 50%. It is important to note that this revenue is renewable/recurring revenue with retention rates expected to be above 70% on average across all products.

Cross Selling and Synergies Post Merger

The combination between CompCare and Core provides CompCare with some unique industry opportunities, including:

• Sale of Core Products – Core’s discount products can be bundled with CompCare’s products and embedded into the HMO market. In addition, Core can create products that can be directly marketed to CompCare’s one million customers.
• Sale of CompCare Products – CompCare’s behavioral products can be bundled with Core’s products and sold through Core’s distribution channels. CompCare is creating a Discount Behavioral Healthcare product utilizing CompCare’s provider network to be sold through Core’s distribution channels.
• Crossing client bases – CompCare can expand its reach by tapping into Core’s business partners, especially in the government sector and college students. In addition, they will benefit from Core’s HMO client base, in particular the insurance companies that will be attracted to CompCare’s behavioral products.

Real World Case Study – Autism in Indiana - A mother called CompCare’s toll-free hotline to obtain information on finding a provider for her son, who was diagnosed with Autism. The clinician referred her to our Specialized Care Manager (CM) for the Autism Program. There were limited providers in the area where the member lives, so CompCare’s CM made many calls to locate an appropriate location. The CM successfully located a treatment center featuring a full range of behavioral services for children and adolescents. The CM gathered information and explained to the mother how to access treatment at this location and then gave her a direct line to contact the CM should there be any problems. The CM also informed the mother about Indiana’s ASK website, a parent led and staffed organization that answers questions about children with special needs and information on a variety of topics such as community resources and special education. Lastly, the CM referred the mother back to the pediatrician for further coordination and gave the mother information on who to contact on the medical side of the health plan to arrange neurology consult, which was also recommended. (It should be noted that the author of this report Michael Sweeney is the father of an autistic son. Communication of appropriate resources has always been a challenge, and CompCare seems to have made significant steps forward with their Specialized Care Manager model.)

New Business Model – Moving Forward in the Obama World

The healthcare industry is changing; the Obama administration and Congress are undertaking plans to materially change and/or enhance health coverage for the uninsured, underinsured, and reducing the cost of healthcare costs and premiums for the insured. As Obama states, “Making sure every American has access to high quality health care is one of the most important challenges of our time. The number of uninsured Americans is growing, premiums are skyrocketing, and more people are being denied coverage every day. A moral imperative by any measure, a better system is also essential to rebuilding our economy -- we want to make health insurance work for people and businesses, not just insurance and drug companies. We will take steps to reform our system by expanding coverage, improving quality, lowering costs, honoring patient choice and holding insurance companies accountable. In order to keep our people healthy and provide more efficient treatment we need to promote smart preventative care, like cancer screenings and better nutrition, and make critical investments in electronic health records, technology that can reduce errors while ensuring privacy and saving lives.”

While the Obama plan is a work in progress, as a “Discounted Behavioral Health Network” CompCare is well positioned for the coming changes.

CompCare is well positioned

1. Better health begins from the head down.
2. CompCare has a number of behavioral health programs it will roll out in conjunction with its partners to the communities around the US.
3. Lowering the cost of healthcare for the consumer.
4. Cross sell to its 1MM customer base.
5. Working with its HMO partners to distribute their products – locking in the inter-dependency of the HMO which imbeds CompCare’s behavioral health network and CompCare which sells the HMO’s products to the end consumer.
6. Distributing its free Pharmacy Discount Card, which provides an average of 28% discount on pharmaceutical products, will provide CompCare with access to millions of customers and an excellent, high margin revenue stream as CompCare gets paid for each filled prescription.

Competition

Competition is strong, with six major players operating profitably, and five more stressed to cut costs and achieve more market share. One typical large competitor is Magellan Health Services, Inc. (NASDAQ: MGLN) which does $2.6 billion in revenues, has EBITDA of $170 million and has a Market Cap of $1.1 billion. Magellan provides managed behavioral healthcare, radiology benefits management, and pharmaceutical management services to health plans, insurance companies, corporations, labor unions, and various governmental agencies in the United States. The company offers various managed behavioral healthcare services, including outpatient programs, such as counseling or therapy; intermediate care programs comprising intensive outpatient programs and partial hospitalization services; and inpatient treatment and crisis intervention services through its provider network of psychiatrists, psychologists, behavioral health professionals, psychiatric hospitals, general medical facilities with psychiatric beds, residential treatment centers, and other treatment facilities.

Management Team

CompCare has established a distinguished panel of Directors and Executives, each, with a proven track record of success and each being extraordinarily well placed in their respective fields. They each bring to the Company substantial expertise and extraordinary personal business relationships in their respective fields. For example, Mr. Smith is invaluable to CompCare in not only identifying the members of the various minority groups with whom he has worked with over the past thirty years, but, just as importantly, understanding the very particular needs of those members so that the Company can adequately design programs and products to fit those needs at an affordable price.

Clark A. Marcus is Chairman and Co-Chief Executive Officer. In the 1970’s and early 1980’s, Mr. Marcus was the driving force in the successful growth of a number of various private ventures. He was also a senior partner of the New York law firms Victor & Marcus and Marcus & Marcus. In the late 1980’s, Mr. Marcus founded and initially funded Dimensional Vision Group Limited (DVG) and Fountain Pharmaceuticals, Inc., resulting in both companies engaging in a public offering within their first year. Mr. Marcus was also one of the founders, CEO and Chairman of the Board of The Amacore Group, Inc., a premier healthcare distribution company whose sales grew from zero to over $30 million per year. Mr. Marcus brings over 35 years of building public and private companies and strong relationships with business leaders and political associates.

John M. Hill is Co-Chief Executive Officer and President. Mr. Hill joined CompCare in January 2008. He has a proven track record of driving top line growth and profitability and brings strong, relevant operating experience from more than 30 years of leading companies in health insurance and healthcare services. Mr. Hill previously worked for Healthmedia, Inc., as Director of Channel Sales, an internet-based provider of behavior change services designed to increase compliance, reduce medical utilization and enhance productivity for health plans, employees, pharmaceutical companies and behavioral health. Prior to that, Mr. Hill worked at Ultrasis Group PLC as Vice President, a London-based provider of web-based and computer-delivered interactive behavioral healthcare products and associated services. Before joining Ultrasis, Mr. Hill was President of ValueOptions, a national managed behavioral healthcare organization where he oversaw commercial, federal and Medicaid contracts in the US and Puerto Rico.

Joe Crisafi is Chief Financial Officer. Mr. Crisafi has over 20 years experience in Finance and has worked in a number of industries internationally, including healthcare, banking, public accounting and utilities. Prior to joining CompCare, Mr. Crisafi served as a Director and the Chief Financial Officer of Core Corporate Consulting Group, Inc. from November 2008 to January 2009. He also served as the Chief Financial Officer of The Amacore Group, Inc. from September 2007 to August 2008. During the period January 2007 to September 2007, Mr. Crisafi provided specialist consulting services to Madison Partners, a public accounting firm in Australia. From August 2005 to December 2006 he was Vice President of Finance at Lehman Brothers. He operated his own consulting practice from November 2000 to September 2003. Prior to starting his own consulting practice, Mr. Crisafi was a Director at KPMG, where he worked for 10 years in the Forensic, Risk Management, Corporate Finance and Corporate Turnaround divisions. Mr. Crisafi holds an MBA degree from Columbia University, a Diploma in Applied Investment & Finance awarded by the Securities Institution of Australia, and a Bachelors of Economics degree from Monash University. He is a CPA in the United States and a Chartered Accountant in Australia and also the UK.

Bill Barlow is President of Core and Senior Vice President of New Business Ventures for CompCare. He has been selling direct-to-consumer products since 1979. During his career, Mr. Barlow has achieved product sales of more than $1 billion to date on television alone and nearly another $1 billion collectively in other channels. Throughout his career, he has written and produced wide varieties of television projects as well as print, Internet, direct mail, interactive CD-ROM, and interactive voice response (IVR) programs.

Board of Directors - CompCare has established a well experienced board of directors. Each director has years of experience in the health care and marketing fields. The board is made up of eight (8) directors as follows:

• Clark A. Marcus – Chairman and Co-Chief Executive Officer
• John Hill – Co-Chief Executive Officer and President
• Joe Crisafi – Chief Financial Officer

CompCare Independent Directors

Joshua Smith, Vice Chairman. Mr. Smith is a nationally renowned entrepreneur and lecturer, who is and has been Chairman and Managing Partner of The Coaching Group since 1998. In this capacity he is the "coach," senior advisor/consultant, to the CEO's of portfolio companies. He has agreed to join the Company’s Board of Directors as its Vice Chancellor and to serve as a consultant to the Company, devoting such time as he may deem necessary and appropriate. Mr. Smith also currently serves on the board of directors for Caterpillar, Inc.; FedEx Corp.; the U.S. Chamber of Commerce and Allstate Insurance Corp. In July 2008, Mr. Smith launched Biz Talk With Josh, a small and emerging business and entrepreneurship talk show, on CBS Radio. As recently as 2003, Mr. Smith chaired the special Task Force on Minority Business Reform for the State of Maryland, and subsequently served as an advisor to the Maryland Governor’s Commission on Minority Business Reform. He was also appointed by former President George H.W. Bush to serve in the following capacities: Chairman of the U.S. Commission on Minority Business Development from 1989 to 1992; the Executive Committee of the 1990 Economic Summit of Industrialized Nations; the Board of Trustees of the John F. Kennedy Center for the Performing Arts; and the George H.W. Bush Memorial Library Board of Trustees.

Arnold B. Finestone, Ph.D. Dr. Finestone is a business management consultant. From 1982 – 1985, he was President of Dartco Inc., a subsidiary of Dart & Kraft Inc., which was engaged in marketing and manufacturing of high-performance engineering plastics for consumer, industrial and military uses, and from 1970 to 1982, he was Executive Vice President of the Chemical–Plastics Group of Dart Industries and Dart & Kraft, Inc. From 1957 to 1970, he was Vice President and Director of Planning, Development and Marketing for Foster Grant, Inc. Since 1985 to the present, he has served on the Boards of public companies and start-up business ventures.

Sharon Kay Ray. Since March 1989, she has served as regional marketing representative for Novo Nordisk, a multi-national pharmaceutical company, and as a special marketing consultant for a number of public and non-public corporations.

Arthur Yeap. Since 1983, Mr. Yeap has been Chief Executive officer of Novo Group, consultants and manufacturers of customer audio and video products for professional use. He also has been a principal investigator on the staff of the University of California at Berkley, engaged in research for advanced military and consumer uses for the Internet. From 1996 to 1999, he was Director of Marketing, Consumer Products for ITV Corp. From 1995 to 1996 Mr. Yeap was Chief Engineer for WYSIWYG networks.

Prospects for the Future

CompCare believes it will be awarded a major contract with the government of Puerto Rico, to be launched in October, 2009. There are 8 regions that are being bid by the PR government. Being the only NCQA accredited behavioral healthcare provider in the bidding process, CompCare is well positioned to win at least one or two of the 8 regions, with each region worth approximately $20 million per annum and expected to generate a 15% gross margin.

On January 20, 2009 CompCare completed its acquisition of Core, which also rounded out the strong management team. Through management, CompCare has strong associations to TV, print media and radio. The Company provides consumers with affordable health insurance and health discount solutions through its Core Select™ suite of products and has excellent source contracts for distribution of medical devises and equipment branded as Medquip™. According to CompCare, its newest product The BRIDGETM has resulted in a cost savings of $10,131 per member enrolled in the program, through proactive intervention and education. In the current economic client, cost savings is the number one driver of healthcare, and CompCare is a national leader in providing discounted behavioral health and substance abuse networks

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