<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN">
<HTML><HEAD><TITLE>SECURITIES AND EXCHANGE COMMISSION</TITLE>
<META content=08/25/2010 name=date>
</HEAD>
<BODY
style="FONT-SIZE: 10pt; COLOR: #000000; LINE-HEIGHT: 12pt; FONT-FAMILY: Times New Roman">
<P style="FONT-SIZE: 14pt; MARGIN: 0px; LINE-HEIGHT: 16pt"
align=center><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt"
align=center><B>Washington, D.C. &nbsp;20549</B></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 14pt; MARGIN: 0px; LINE-HEIGHT: 16pt" align=center><B>FORM
8-K</B></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt"
align=center><B>CURRENT REPORT</B></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt"
align=center><B>Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934</B></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>Date of
Report: &nbsp;August 25, 2010</P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>Date of
Earliest Event Reported: &nbsp;August 17, 2010</P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 18.5pt; MARGIN: 0px; LINE-HEIGHT: 20.5pt"
align=center><B>AdCare Health Systems, Inc.</B></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt"
align=center><I>(Exact Name of Registrant as specified in its Charter)</I></P>
<P style="MARGIN: 0px" align=center><BR></P>
<TABLE style="FONT-SIZE: 10pt" cellSpacing=0 align=center>
<TR style="DISPLAY: none; FONT-SIZE: 0px" height=0>
<TD width=309></TD>
<TD width=218></TD>
<TD width=248></TD></TR>
<TR>
<TD vAlign=bottom width=309>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><B>Ohio</B></P></TD>
<TD vAlign=top width=218>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><B>333-131542</B></P></TD>
<TD vAlign=bottom width=248>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><B>31-1332119</B></P></TD></TR>
<TR>
<TD vAlign=top width=309>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><I>(State or other jurisdiction of</I></P>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><I>incorporation or organization)</I></P></TD>
<TD vAlign=top width=218>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><I>(Commission File Number)</I></P></TD>
<TD vAlign=top width=248>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><I>(I.R.S. Employer Identification No.)</I></P></TD></TR>
<TR>
<TD vAlign=bottom width=528 colSpan=2>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><B>5057 Troy Rd, Springfield, OH</B></P></TD>
<TD vAlign=bottom width=248>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><B>45502-9032</B></P></TD></TR>
<TR>
<TD vAlign=top width=528 colSpan=2>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><I>(Address of principal executive offices)</I></P></TD>
<TD vAlign=top width=248>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><I>(Zip Code)</I></P></TD></TR></TABLE>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><B>Registrant&#146;s Telephone Number, Including Area Code</B></P>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><B>(937) 964-8974</B></P>
<P style="MARGIN: 0px"><BR></P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>Check the appropriate box below if the form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of
the following provisions (See General Instruction A2. below):</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>[ &nbsp;] Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425)</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>[ &nbsp;] Soliciting material pursuant to Rule 14a-12 under the
Exchange Act (17 CFR 240.14a-12)</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>[ &nbsp;] Pre-commencement communications pursuant to Rule
14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>[ &nbsp;] Pre-commencement communications pursuant to Rule
13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c)).</P>
<P style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 16px" align=justify><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>1</P>
<P style="MARGIN: 0px"><BR></P>
<HR style="MARGIN-TOP: 9px; MARGIN-BOTTOM: 9px" noShade SIZE=1>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; PAGE-BREAK-BEFORE: always; LINE-HEIGHT: 12.5pt"
align=justify><B>Item 2.02. &nbsp;Financial Statements and Exhibits.</B></P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>On Tuesday, August 17, 2010, AdCare Health Systems, Inc. (the
&#147;Company&#148;) issued a press release announcing its financial results for the three
and six months ended June 30, 2010.&nbsp; A copy of this press release is
furnished as Exhibit 99.1 hereto.&nbsp; Pursuant to the rules and regulations of
the Securities and Exchange Commission, the information in this Current Report
on Form 8-K, including the attached exhibit and the information set forth
therein, shall not be deemed &#147;filed&#148; for purposes of Section 18 of the
Securities Exchange Act of 1934, nor shall it be deemed to be incorporated by
reference in any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, regardless of any general incorporation language in such
filing.</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify><B>Item 9.01. &nbsp;Financial Statements and Exhibits.</B></P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; TEXT-INDENT: 48px; LINE-HEIGHT: 12.5pt"
align=justify>Exhibits</P>
<TABLE style="FONT-SIZE: 10pt" cellSpacing=0>
<TR style="DISPLAY: none; FONT-SIZE: 0px" height=0>
<TD width=127></TD>
<TD width=511></TD></TR>
<TR>
<TD vAlign=top width=127>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify><U>Exhibit Number</U></P></TD>
<TD vAlign=top width=511>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify><U>Description of Exhibit</U></P></TD></TR>
<TR>
<TD vAlign=top width=127>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>99.1</P></TD>
<TD vAlign=top width=511>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>Press Release dated August 17, 2010</P></TD></TR></TABLE>
<P style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 14px" align=justify><BR></P>
<P style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 16px" align=center><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>2</P>
<P style="MARGIN: 0px"><BR></P>
<HR style="MARGIN-TOP: 9px; MARGIN-BOTTOM: 9px" noShade SIZE=1>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; PAGE-BREAK-BEFORE: always; TEXT-INDENT: 48px; LINE-HEIGHT: 12.5pt"
align=center>SIGNATURES</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; TEXT-INDENT: 48px; LINE-HEIGHT: 12.5pt"
align=justify>Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereto duly authorized.</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>Date: &nbsp;August 25, 2010</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 336px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt">ADCARE
HEALTH SYSTEMS, INC.</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 336px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt">By:<U>
&nbsp;/s/ Scott Cunningham</U></P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 336px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt">Name:
Scott Cunningham</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 336px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt">Title:
&nbsp;Chief Financial Officer</P>
<P style="MARGIN: 0px"><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>3</P>
<P style="MARGIN: 0px"><BR></P>
<HR style="MARGIN-TOP: 9px; MARGIN-BOTTOM: 9px" noShade SIZE=1>
<P style="PAGE-BREAK-BEFORE: always; MARGIN: 0px"><BR></P>
<P style="MARGIN: 0px" align=center><IMG height=47 alt=[f8kitem282510002.gif]
src="f8kitem282510002.gif" width=151 align=middle></P>
<P style="MARGIN: 0px"><BR></P>
<P style="MARGIN: 0px"><BR></P>
<P style="MARGIN: 0px"><BR></P>
<P style="MARGIN: 0px"><BR></P>
<P style="MARGIN: 0px"><BR></P>
<P
style="PADDING-RIGHT: 2px; FONT-SIZE: 15.5pt; MARGIN: 0px; LINE-HEIGHT: 17pt; FONT-FAMILY: Calibri"
align=center><B>AdCare Health Systems Reports Second Quarter 2010
Results</B></P>
<P
style="PADDING-RIGHT: 2px; MARGIN-TOP: 16px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0px; LINE-HEIGHT: 17pt; FONT-FAMILY: Calibri"
align=center><B><I>Company to Issue 5% Stock Dividend to All Shareholders of
Record on September 30, 2010</I></B></P>
<P style="MARGIN: 0px; LINE-HEIGHT: 17pt"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"><B>SPRINGFIELD,
Ohio, August 17, 2010</B> <B>&#151;</B> <B>AdCare Health Systems, Inc. </B>(NYSE
AMEX: ADK), an Ohio-based long-term care, home care and management company,
reported financial results for the second quarter ended June 30, 2010.</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"><B>Q2
2010 Financial Results</B></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Revenue
in the second quarter of 2010 was $6.2 million, as compared to $6.6 million in
the same year-ago quarter. The decline was due to a decrease in occupancy (and
particularly a decrease in the number of residents covered by Medicare as
compared to the same year-ago period), resulting in a decrease in revenue of
$322,000 in the company&#146;s nursing homes and $199,000 in home health operations.
This was offset by a $58,000 increase in revenue in the company&#146;s assisted
living centers and a $74,000 increase in management, consulting, and development
fee revenue.</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Loss
from operations in the second quarter of 2010 was $270,000, as compared to
income from operations of $527,000 in the same year-ago quarter. The loss in the
second quarter of 2010 was primarily due to a $213,000 increase in non-cash
compensation expense over the year-ago quarter related to warrants and
restricted stock, employee wage increases and $146,000 increase related to
director compensation, higher legal fees, and consulting fees for investment
bankers and investor relations, in combination with lower revenue in the quarter
due to occupancy.</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Net
income in the second quarter of 2010 totaled $195,000, as compared to net income
of $164,000 in the same year-ago period. Excluding the gain of $980,000 as a
result of the acquisition of the 105-unit assisted living facility in Alabama by
AdCare&#146;s consolidated variable interest entity, Riverchase Village ADK, LLC,
AdCare&#146;s net loss in the second quarter of 2010 totaled $610,000 or $0.11 per
basic and diluted share, as compared to net income of $147,000&nbsp;or $0.04 per
basic and diluted shares in the same year-ago quarter.</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">EBITDA
in the second quarter of 2010 was $737,000, as compared to EBITDA of $699,000 in
the same year-ago period. The company defines EBITDA as net income before
interest income, interest expense, income tax expense, depreciation and
amortization (see the important discussion about the presentation of EBITDA, a
non-GAAP term, below). </P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Cash
at June 30, 2010 totaled $2.8 million, as compared to $3.6 million in the
previous quarter. The decrease in cash is primarily attributed to approximately
$203,000 in net cash used in operating activities, approximately $200,000 used
for completed and pending acquisitions, and $394,000 in capital
expenditures.</P>
<P style="MARGIN: 0px"><BR></P>
<P style="MARGIN: 0px"><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>4</P>
<P style="MARGIN: 0px"><BR></P>
<HR style="MARGIN-TOP: 9px; MARGIN-BOTTOM: 9px" noShade SIZE=1>
<P
style="FONT-SIZE: 12pt; PAGE-BREAK-BEFORE: always; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"><B>Q2
2010 Operational Highlights</B></P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 48px; FONT-SIZE: 12pt; MARGIN-BOTTOM: -18px; TEXT-INDENT: -24px; LINE-HEIGHT: 14pt; FONT-FAMILY: Symbol">&#183;</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 48px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 16px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">AdCare
signed an agreement and subsequently closed a major lease for five
privately-held nursing homes located across Georgia, with an aggregate of 615
beds that generate approximately $35 million in annualized revenues. </P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 48px; FONT-SIZE: 12pt; MARGIN-BOTTOM: -18px; TEXT-INDENT: -24px; LINE-HEIGHT: 14pt; FONT-FAMILY: Symbol">&#183;</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 48px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 16px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">The
company entered into a five year management agreement with Riverchase Village, a
105-unit assisted living facility located in Hoover, Alabama (a suburb of
Birmingham) with an estimated annualized revenue run-rate of approximately $1.9
million at 59% occupancy. The company believes under its new management it will
be able to increase occupancy and revenue. AdCare has a one-year option
agreement (expiring June 2011) to acquire Riverchase Village at an exercise
price of $100,000, plus the assumption of bonds payable. In Q2 2010, AdCare was
required to consolidate the revenues of Riverchase under GAAP accounting rules.
</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 48px; FONT-SIZE: 12pt; MARGIN-BOTTOM: -18px; TEXT-INDENT: -24px; LINE-HEIGHT: 14pt; FONT-FAMILY: Symbol">&#183;</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 48px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 16px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">AdCare
initiated a public offering of common stock during the quarter, which resulted
in aggregate net proceeds to the company of approximately $6.1 million upon
closing of the underwriter&#146;s overallotment at the beginning of August. AdCare
has and plans to continue to use the net proceeds of the offering for
acquisition purposes, working capital and general corporate purposes. As of the
close of the exercise of the over-allotment, the company had approximately 7.5
million common shares outstanding.</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 48px; FONT-SIZE: 12pt; MARGIN-BOTTOM: -18px; TEXT-INDENT: -24px; LINE-HEIGHT: 14pt; FONT-FAMILY: Symbol">&#183;</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 48px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 16px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">The
company received a long-anticipated approval to provide Medicare and Medicaid
funded home healthcare services in two additional Ohio counties, which includes
the state&#146;s capital city of Columbus, and thereby opening up new opportunities
to grow this area of its business. </P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"><B>Management
Commentary</B></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">&#147;During
the second quarter, we continued to focus on acquisitions that significantly
increase the scale of our business and thereby diminish the effects of
fluctuations in Medicare patients as well as expenses relating to our growth
this year,&#148; said David A. Tenwick, AdCare&#146;s chairman. &#147;The new lease of five
nursing homes in Georgia is moving us solidly in this direction and is expected
to add $35 million in annualized revenue. We are now on track to reporting
approximately $12.5 million in revenues in Q3 2010, representing an increase of
more than 80% over Q3 2009.&#148;</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">&#147;Our
other pending agreements to purchase and lease facilities are expected to add an
additional $55 million in annualized revenue upon their closings, which are
anticipated in the third quarter,&#148; continued Tenwick. &#147;Combined with existing
revenue, this would total approximately $115 million on an aggregate revenue
run-rate basis and represent a 330% increase over FY2009 revenue. We believe
this is achievable, since it does not take into account the positive effects we
expect to realize from the improved operations of these facilities as they come
under our management and larger economy of scale.&#148;</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Chris
Brogdon, AdCare&#146;s chief acquisition officer, commented: &#147;Our M&amp;A program has
now expanded our operations to Georgia and Alabama, and attractive opportunities
continue to emerge in the southern region. In addition to closing on pending
transactions outlined in the summary below, we are working to establish the
terms and necessary financings for several new potential acquisitions in our
pipeline of equal or greater potential.&#148;</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Concluded
Tenwick: &#147;As we work to make 2010 a transformative year for AdCare, our
overriding priorities will continue to focus upon delivering the best quality of
care and services for our patients and residents, and sustaining AdCare&#146;s
position as the provider of choice in the areas we serve.&#148;</P>
<P style="MARGIN: 0px"><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>5</P>
<P style="MARGIN: 0px"><BR></P>
<HR style="MARGIN-TOP: 9px; MARGIN-BOTTOM: 9px" noShade SIZE=1>
<P style="PAGE-BREAK-BEFORE: always; MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"><B>Summary
of Pending Transactions and Option to Purchase</B></P>
<P style="MARGIN: 0px"><BR></P>
<TABLE style="FONT-SIZE: 10pt" cellSpacing=0>
<TR style="DISPLAY: none; FONT-SIZE: 0px" height=0>
<TD width=85></TD>
<TD width=59></TD>
<TD width=65></TD>
<TD width=34></TD>
<TD width=44></TD>
<TD width=19></TD>
<TD width=17></TD>
<TD width=46></TD>
<TD width=47></TD>
<TD width=17></TD>
<TD width=48></TD>
<TD width=57></TD>
<TD width=62></TD>
<TD width=60></TD></TR>
<TR>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-TOP: #000000 1px solid; BORDER-LEFT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #f2f2f2"
width=85>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"><B>Description </B></P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-TOP: #000000 1px solid; BORDER-BOTTOM: #000000 1px solid"
width=59>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"><B>Size </B></P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-TOP: #000000 1px solid; BORDER-BOTTOM: #000000 1px solid"
width=65>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"><B>Location</B></P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-TOP: #000000 1px solid; BORDER-BOTTOM: #000000 1px solid"
width=79 colSpan=2>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"><B>Type</B></P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-TOP: #000000 1px solid; BORDER-BOTTOM: #000000 1px solid"
width=84 colSpan=3>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"><B>AAR*</B></P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-TOP: #000000 1px solid; BORDER-BOTTOM: #000000 1px solid"
width=114 colSpan=3>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"><B>Financing/Term</B></P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-TOP: #000000 1px solid; BORDER-BOTTOM: #000000 1px solid"
width=180 colSpan=3>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"><B>Status</B></P></TD></TR>
<TR>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-LEFT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #f2f2f2"
vAlign=top width=85>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"><B>Two Nursing
Homes</B></P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid"
vAlign=top width=59>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">312 Beds</P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid"
vAlign=top width=65>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Gadsden, AL</P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid"
vAlign=top width=79 colSpan=2>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Purchase</P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid"
vAlign=top width=84 colSpan=3>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">$18 million</P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid"
vAlign=top width=114 colSpan=3>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Long-term fixed rate loan,
guaranteed by USDA.</P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid"
vAlign=top width=180 colSpan=3>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Closing expected Sept. 1,
2010.</P></TD></TR>
<TR>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-LEFT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #f2f2f2"
vAlign=top width=85>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"><B>Assisted Living Facility
</B></P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid"
vAlign=top width=59>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">105 Units</P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid"
vAlign=top width=65>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Hoover, AL
&nbsp;&nbsp;</P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid"
vAlign=top width=79 colSpan=2>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">1 yr purchase option,
expiring June 2011</P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid"
vAlign=top width=84 colSpan=3>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Currently $1.9 million at 59%
occupancy.</P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid"
vAlign=top width=114 colSpan=3>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">$100,000, plus assumption of
existing bonds payable.</P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid"
vAlign=top width=180 colSpan=3>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Currently a consolidated
variable interest entity (Riverchase ADK), with management
contract.</P></TD></TR>
<TR>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-LEFT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #f2f2f2"
vAlign=top width=85>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"><B>Five Nursing
Homes</B></P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid"
vAlign=top width=59>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">580 Beds</P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid"
vAlign=top width=65>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Across Georgia</P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid"
vAlign=top width=79 colSpan=2>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Lease</P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid"
vAlign=top width=84 colSpan=3>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">&nbsp;$37 million</P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid"
vAlign=top width=114 colSpan=3>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">3 Leases @ 10 yrs</P>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">2 leases @ 27 yrs </P></TD>
<TD
style="BORDER-RIGHT: #dfdfdf 1px solid; BORDER-BOTTOM: #000000 1px solid"
vAlign=top width=180 colSpan=3>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Closing expected Sept. 30,
2010.</P></TD></TR>
<TR>
<TD vAlign=bottom width=244 colSpan=4>
<P
style="FONT-SIZE: 9pt; MARGIN: 0px; LINE-HEIGHT: 11pt; FONT-FAMILY: Calibri">*
Annualize Revenue Run-rate (AAR), est</P></TD>
<TD vAlign=bottom width=64 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=94 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=122 colSpan=2>
<P>&nbsp;</P></TD></TR></TABLE>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"><B>Stock
Dividend</B></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">On
August 11, 2010, AdCare declared a 5% stock dividend to all AdCare shareholders
of record on September 30, 2010. </P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"><B>About
AdCare Health Systems</B></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">AdCare
Health Systems, Inc. (NYSE AMEX: ADK<FONT
style="FONT-FAMILY: Times New Roman"></FONT>) develops, owns and manages
assisted living facilities, nursing homes and retirement communities and
provides home health care services. Prior to becoming a publicly traded company
in November of 2006, AdCare operated as a private company for 18 years. In the
ever expanding marketplace of long term care, AdCare's mission is to provide
quality healthcare services to the elderly.</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"><B>Important
Cautions Regarding Forward-Looking Statements </B></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Statements
contained in this press release that are not historical facts may be
forward-looking statements within the meaning of federal law. Such statement can
be identified by the use of forward-looking terminology, such as "believes,"
"expects, " &#147;plans,&#148; &#147;intends,&#148; &#147;anticipates&#148; and variations of such words or
similar expressions, but their absence does not mean that the statement is not
forward-looking. Statements in this announcement that are forward-looking
include, but are not limited to, the contents of the table titled, &#147;Summary of
Pending Transactions and Option to Purchase,&#148; and statements made by Mr. Tenwick
that the company&#146;s five nursing homes in Georgia will help diminish the effects
of fluctuations in Medicare patients as well as expenses relating to the
company&#146;s growth this year, and are expected to add an additional $35 million in
annual revenue; the company is now on track to reporting revenue of
approximately $12.5 million in the third quarter of this year; other pending
agreements to purchase and lease facilities are expected to add an additional
$55 million in annualized revenue upon their closings, which are anticipated in
the third quarter, and if combined with existing revenue, this would total
approximately $115 million on an aggregate revenue run-rate basis and represent
a 330% increase over FY2009 revenue, and this is achievable since it does not
take into account the positive effects expected to be realized from the improved
operations of these facilities as they come under AdCare&#146;s management and larger
economy of scale. Such forward-looking statements reflect management's beliefs
and assumptions and are based on information currently available to management.
The forward-looking statements involve known and unknown risks, results,
performance or achievements of the Company to differ materially from those
expressed or implied in such statements. Such </P>
<P style="MARGIN: 0px"><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>6</P>
<P style="MARGIN: 0px"><BR></P>
<HR style="MARGIN-TOP: 9px; MARGIN-BOTTOM: 9px" noShade SIZE=1>
<P
style="FONT-SIZE: 12pt; PAGE-BREAK-BEFORE: always; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">factors
are identified in the public filings made by the Company with the Securities and
Exchange Commission and include the Company's ability to secure lines of credit
and/or an acquisition credit facility, find suitable acquisition properties at
favorable terms, changes in the health care industry because of political and
economic influences, changes in regulations governing the industry, changes in
reimbursement levels including those under the Medicare and Medicaid programs
and changes in the competitive marketplace. There can be no assurance that such
factors or other factors will not affect the accuracy of such forward-looking
statements.</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"><B>Use
of Non-GAAP Financial Information</B></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">EBITDA
is a measure of operating performance that is not calculated in accordance with
U.S. generally accepted accounting principles (&#147;GAAP&#148;). EBITDA should not be
considered in isolation or as a substitute for net income, income from
operations or cash flows provided by or used in operations, as determined in
accordance with GAAP. EBITDA is a key measure of AdCare Health Systems&#146;
operating performance used by management to focus on operating performance and
management without mixing in items of income and expense that relate to the
financing and capitalization of the business. The company defines EBITDA as net
income (loss) before interest income, interest expense, income tax expense, and
depreciation and amortization. </P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">The
company believes EBITDA is useful to investors in evaluating their performance,
results of operations and financial position for the following reasons:</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 36px; FONT-SIZE: 12pt; MARGIN-BOTTOM: -18px; TEXT-INDENT: -18px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">&#149;</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 36px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 16px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">It&#146;s
helpful in identifying trends in the company&#146;s day-to-day performance because
the items excluded have little or no significance to the company&#146;s day-to-day
operations;</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 36px; FONT-SIZE: 12pt; MARGIN-BOTTOM: -18px; TEXT-INDENT: -18px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">&#149;</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 36px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 16px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">It
provides an assessment of controllable expenses and affords management the
ability to make decisions which are expected to facilitate meeting current
financial goals as well as achieve optimal financial performance; and </P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 36px; FONT-SIZE: 12pt; MARGIN-BOTTOM: -18px; TEXT-INDENT: -18px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">&#149;</P>
<P
style="PADDING-LEFT: 36px; FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">It&#146;s
an indication to determine if adjustments to current spending decisions are
needed.</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">AdCare
believes that the use of EBITDA provides a meaningful and consistent comparison
of their underlying business between periods by eliminating certain items
required by GAAP, which have little or no significance in the day-to-day
operations. </P>
<P style="MARGIN: 0px"><BR></P>
<P style="MARGIN: 0px"><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>7</P>
<P style="MARGIN: 0px"><BR></P>
<HR style="MARGIN-TOP: 9px; MARGIN-BOTTOM: 9px" noShade SIZE=1>
<P style="PAGE-BREAK-BEFORE: always; MARGIN: 0px"><BR></P>
<TABLE style="FONT-SIZE: 10pt" cellSpacing=0 align=center>
<TR style="DISPLAY: none; FONT-SIZE: 0px" height=0>
<TD width=31></TD>
<TD width=120></TD>
<TD width=99></TD>
<TD width=102></TD>
<TD width=15></TD>
<TD width=81></TD>
<TD width=15></TD>
<TD width=81></TD>
<TD width=15></TD>
<TD width=81></TD></TR>
<TR>
<TD vAlign=bottom width=644 colSpan=10>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=center><B>ADCARE HEALTH
SYSTEMS, INC. AND SUBSIDIARIES</B></P></TD></TR>
<TR>
<TD vAlign=bottom width=644 colSpan=10>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=center>Reconciliation
of Net Income to EBITDA</P></TD></TR>
<TR>
<TD vAlign=bottom width=644 colSpan=10>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=center>(Unaudited)</P></TD></TR>
<TR>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=120>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=99>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=102>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=81>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=81>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=81>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=120>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=99>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=199 colSpan=3>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=center>Three-Months
Ended</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=178 colSpan=3>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=center>Six-Months
Ended</P></TD></TR>
<TR>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=120>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=99>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=199
colSpan=3>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=center>June 30,</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=178
colSpan=3>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=center>June
30,</P></TD></TR>
<TR>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=120>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=99>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=102>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=center>2010</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=center>2009</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=center>2010</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=center>2009</P></TD></TR>
<TR>
<TD vAlign=bottom width=250 colSpan=3>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Net Income</P></TD>
<TD vAlign=bottom width=102>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=right>$
194,817&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=right>$
163,978&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=right>$
609,022&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=right>$
267,910&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=219 colSpan=2>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Interest income</P></TD>
<TD vAlign=bottom width=102>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=right>(1,635)</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=right>(1,098)</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=right>(7,360)</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=right>(2,406)</P></TD></TR>
<TR>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=219 colSpan=2>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Interest expense,
others</P></TD>
<TD vAlign=bottom width=102>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>299,550&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>299,804&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>592,101&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>593,947&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=219 colSpan=2>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Interest expense, related
parties</P></TD>
<TD vAlign=bottom width=102>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=right>325&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=right>510&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=right>719&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>1,228&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=219 colSpan=2>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Income tax expense</P></TD>
<TD vAlign=bottom width=102>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>10,642&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>10,642&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>21,284&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>21,284&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=219 colSpan=2>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Depreciation and
amortization</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=102>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>233,410&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>225,878&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>475,974&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>451,186&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=250 colSpan=3>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">EBITDA</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=102>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=right>$
737,109&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=right>$
699,714&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>$1,691,740&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=81>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>$1,333,149&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=644 colSpan=10>
<P>&nbsp;</P></TD></TR></TABLE>
<P style="MARGIN: 0px"><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>8</P>
<P style="MARGIN: 0px"><BR></P>
<HR style="MARGIN-TOP: 9px; MARGIN-BOTTOM: 9px" noShade SIZE=1>
<P style="PAGE-BREAK-BEFORE: always; MARGIN: 0px"><BR></P>
<TABLE style="FONT-SIZE: 10pt" cellSpacing=0 align=center>
<TR style="DISPLAY: none; FONT-SIZE: 0px" height=0>
<TD width=16></TD>
<TD width=28></TD>
<TD width=28></TD>
<TD width=363></TD>
<TD width=125></TD>
<TD width=31></TD>
<TD width=106></TD></TR>
<TR>
<TD vAlign=bottom width=700 colSpan=7>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="MARGIN: 0px" align=center><B>ADCARE HEALTH SYSTEMS, INC. AND
SUBSIDIARIES</B></P></TD></TR>
<TR>
<TD vAlign=bottom width=700 colSpan=7>
<P style="MARGIN: 0px" align=center>CONSOLIDATED BALANCE SHEET</P></TD></TR>
<TR>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=363>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=262 colSpan=3>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=363>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=125>
<P style="MARGIN: 0px" align=center>June 30,</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P style="MARGIN: 0px" align=center>December 31, </P></TD></TR>
<TR>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=363>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=125>
<P style="MARGIN: 0px" align=center>2010</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=106>
<P style="MARGIN: 0px" align=center>2009</P></TD></TR>
<TR>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=363>
<P style="MARGIN: 0px" align=center><U>ASSETS</U></P></TD>
<TD vAlign=bottom width=125>
<P style="MARGIN: 0px" align=center>(Unaudited)</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=437 colSpan=4>
<P style="MARGIN: 0px">Current Assets:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=125>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=106>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=74 colSpan=3>
<P style="MARGIN: 0px">Cash</P></TD>
<TD vAlign=bottom width=363>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=125>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,757,015&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;4,481,100&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=437 colSpan=4>
<P style="MARGIN: 0px">Accounts receivable:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=125>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=106>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=421 colSpan=3>
<P style="MARGIN: 0px">Long-term care resident receivables, net</P></TD>
<TD vAlign=bottom width=125>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,708,678&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,838,560&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=421 colSpan=3>
<P style="MARGIN: 0px">Management, consulting and development receivables,
net</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=125>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;159,792&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=106>
<P style="MARGIN: 0px" align=right>124,761&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=421 colSpan=3>
<P style="MARGIN: 0px">Advances and receivables from affiliates</P></TD>
<TD vAlign=bottom width=125>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,444&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,407&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=421 colSpan=3>
<P style="MARGIN: 0px">Other receivables, stock offering</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=125>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,580,001&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=106>
<P style="MARGIN: 0px" align=right>-&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=437 colSpan=4>
<P style="MARGIN: 0px">Prepaid expenses and other</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=125>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;410,311&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=106>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;541,958&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=363>
<P style="MARGIN: 0px">Total current assets</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=125>
<P style="MARGIN: 0px" align=right>10,632,241&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=106>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,002,786&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=363>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=125>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=437 colSpan=4>
<P style="MARGIN: 0px">Restricted cash</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=125>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,869,572&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=106>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,430,674&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=437 colSpan=4>
<P style="MARGIN: 0px">Property and equipment, net</P></TD>
<TD vAlign=bottom width=125>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;23,761,757&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,445,028&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=437 colSpan=4>
<P style="MARGIN: 0px">Licenses</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=125>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,189,307&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=106>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,189,307&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=437 colSpan=4>
<P style="MARGIN: 0px">Goodwill</P></TD>
<TD vAlign=bottom width=125>
<P style="MARGIN: 0px" align=right>2,679,482&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,679,482&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=437 colSpan=4>
<P style="MARGIN: 0px">Other assets</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=125>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,395,671&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=106>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,357,160&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=363>
<P style="MARGIN: 0px">Total assets</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=125>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;42,528,030&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=106>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;30,104,437&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=363>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=125>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=106>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=363>
<P style="MARGIN: 0px" align=center><U>LIABILITIES AND STOCKHOLDERS&#146;
EQUITY</U></P></TD>
<TD vAlign=bottom width=125>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=437 colSpan=4>
<P style="MARGIN: 0px">Current Liabilities:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=125>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=106>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=437 colSpan=4>
<P style="MARGIN: 0px">Current portion of notes payable and other
debt</P></TD>
<TD vAlign=bottom width=125>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;691,390&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;698,504&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=437 colSpan=4>
<P style="MARGIN: 0px">Current portion of notes payable to
stockholder</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=125>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;22,595&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=106>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,432&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=437 colSpan=4>
<P style="MARGIN: 0px">Accounts payable </P></TD>
<TD vAlign=bottom width=125>
<P style="MARGIN: 0px" align=right>759,456&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,039,422&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=437 colSpan=4>
<P style="MARGIN: 0px">Accrued expenses</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=125>
<P style="MARGIN: 0px" align=right>2,652,001&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=106>
<P style="MARGIN: 0px" align=right>2,597,151&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=363>
<P style="MARGIN: 0px">Total current liabilities</P></TD>
<TD vAlign=bottom width=125>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4,125,442&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P style="MARGIN: 0px" align=right>4,344,509&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=363>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=125>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=106>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=437 colSpan=4>
<P style="MARGIN: 0px">Notes payable and other debt, net of current
portion</P></TD>
<TD vAlign=bottom width=125>
<P style="MARGIN: 0px" align=right>22,805,372&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,701,028&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=437 colSpan=4>
<P style="MARGIN: 0px">Notes payable to stockholder, net of current
portion</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=125>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=106>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;24,444&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=437 colSpan=4>
<P style="MARGIN: 0px">Other liabilities</P></TD>
<TD vAlign=bottom width=125>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;965,063&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P style="MARGIN: 0px" align=right>746,074&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=437 colSpan=4>
<P style="MARGIN: 0px">Deferred tax liability</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=125>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;233,858&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=106>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;212,574&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=392 colSpan=2>
<P style="MARGIN: 0px">Total liabilities</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=125>
<P style="MARGIN: 0px; TEXT-INDENT: 13px"
align=right>28,129,735&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=106>
<P style="MARGIN: 0px; TEXT-INDENT: 13px"
align=right>&nbsp;22,028,629&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=363>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=125>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=106>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=437 colSpan=4>
<P style="MARGIN: 0px">Stockholders' equity:</P></TD>
<TD vAlign=bottom width=125>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=421 colSpan=3>
<P style="MARGIN: 0px">Preferred stock, no par value; 1,000,000 shares
authorized;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=125>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=106>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=392 colSpan=2>
<P style="MARGIN: 0px">no shares issued or outstanding</P></TD>
<TD vAlign=bottom width=125>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=421 colSpan=3>
<P style="MARGIN: 0px">Common stock and additional paid-in capital, no par
value;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=125>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=106>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=392 colSpan=2>
<P style="MARGIN: 0px">29,000,000 shares authorized; 7,564,089 and
5,628,007 shares issued and outstanding</P></TD>
<TD vAlign=bottom width=125>
<P style="MARGIN: 0px" align=right>23,596,602&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P style="MARGIN: 0px" align=right>17,571,801&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=421 colSpan=3>
<P style="MARGIN: 0px">Accumulated deficit</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=125>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;(10,005,789)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=106>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;(9,805,249)</P></TD></TR>
<TR>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=392 colSpan=2>
<P style="MARGIN: 0px">Total stockholders' equity</P></TD>
<TD vAlign=bottom width=125>
<P style="MARGIN: 0px" align=right>13,590,813&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,766,552&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=421 colSpan=3>
<P style="MARGIN: 0px">Noncontrolling interest in subsidiaries</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=125>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;807,482&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=106>
<P style="MARGIN: 0px" align=right>309,256&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=392 colSpan=2>
<P style="MARGIN: 0px">Total equity</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=125>
<P style="MARGIN: 0px" align=right>14,398,295&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=106>
<P style="MARGIN: 0px" align=right>8,075,808&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=392 colSpan=2>
<P style="MARGIN: 0px">Total liabilities and stockholders' equity</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=125>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;42,528,030&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=106>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;30,104,437&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=28>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=392 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=125>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=106>
<P>&nbsp;</P></TD></TR></TABLE>
<P style="MARGIN: 0px"><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>9</P>
<P style="MARGIN: 0px"><BR></P>
<HR style="MARGIN-TOP: 9px; MARGIN-BOTTOM: 9px" noShade SIZE=1>
<P style="PAGE-BREAK-BEFORE: always; MARGIN: 0px"><BR></P>
<TABLE style="FONT-SIZE: 10pt" cellSpacing=0 align=center>
<TR style="DISPLAY: none; FONT-SIZE: 0px" height=0>
<TD width=19></TD>
<TD width=15></TD>
<TD width=298></TD>
<TD width=88></TD>
<TD width=19></TD>
<TD width=96></TD>
<TD width=36></TD>
<TD width=84></TD>
<TD width=19></TD>
<TD width=62></TD>
<TD width=33></TD></TR>
<TR>
<TD vAlign=bottom width=775 colSpan=11>
<P style="MARGIN: 0px" align=center>ADCARE HEALTH SYSTEMS, INC. AND
SUBSIDIARIES</P></TD></TR>
<TR>
<TD vAlign=bottom width=775 colSpan=11>
<P style="MARGIN: 0px" align=center>CONSOLIDATED STATEMENTS OF
OPERATIONS</P></TD></TR>
<TR>
<TD vAlign=bottom width=775 colSpan=11>
<P style="MARGIN: 0px" align=center>(Unaudited)</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96 colSpan=2>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=204 colSpan=3>
<P style="MARGIN: 0px" align=center>Three-Months Ended</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=200 colSpan=4>
<P style="MARGIN: 0px" align=center>Six-Months Ended</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=204
colSpan=3>
<P style="MARGIN: 0px" align=center>June 30,</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=200
colSpan=4>
<P style="MARGIN: 0px" align=center>June 30,</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=center>2010</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=center>2009</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=center>2010</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96
colSpan=2>
<P style="MARGIN: 0px" align=center>2009</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Revenues:</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96 colSpan=2>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Patient care revenues</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>&nbsp;$ &nbsp;5,700,272&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>&nbsp;$ &nbsp;6,162,746&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>$11,567,059&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96 colSpan=2>
<P style="MARGIN: 0px" align=right>$12,079,581&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Management, consulting and development fee
revenue</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;523,941&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;450,381&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>1,031,672&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96
colSpan=2>
<P style="MARGIN: 0px" align=right>918,435&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=298>
<P style="MARGIN: 0px">Total revenue</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;6,224,213&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>6,613,127&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>&nbsp;&nbsp;12,598,731&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96 colSpan=2>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;12,998,016&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96 colSpan=2>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Expenses:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96 colSpan=2>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Payroll and related payroll costs</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,965,010&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,709,728&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>8,025,974&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96 colSpan=2>
<P style="MARGIN: 0px" align=right>7,447,457&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Other operating expenses</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,296,288&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,150,161&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;4,481,164&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96 colSpan=2>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;4,168,087&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Depreciation and amortization</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>233,410&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>225,878&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=84>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;475,974&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96
colSpan=2>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;451,186&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=298>
<P style="MARGIN: 0px">Total expenses</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>6,494,708&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>6,085,767&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>&nbsp;&nbsp;12,983,112&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96 colSpan=2>
<P style="MARGIN: 0px" align=right>&nbsp;&nbsp;12,066,730&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96 colSpan=2>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">(Loss) Income from Operations</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>(270,495)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>527,360</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>(384,381)&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96 colSpan=2>
<P style="MARGIN: 0px" align=right>931,286&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Other Income (Expense):</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96 colSpan=2>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Interest income</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=center>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,635</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>1,098&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,360&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96 colSpan=2>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,406&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Interest expense, others</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(299,550)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(299,804)</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(592,101)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96 colSpan=2>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(593,947)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Interest expense, related parties</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(325)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(510)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(719)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96 colSpan=2>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1,228)</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Other expense</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>(205,558)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>(53,524)</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>(205,593)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96
colSpan=2>
<P style="MARGIN: 0px" align=right>(49,324)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(503,798)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(352,740)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>(791,053)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96 colSpan=2>
<P style="MARGIN: 0px" align=right>(642,092)</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96 colSpan=2>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Gain on Acquisitions</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>979,752&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>-&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>1,805,740&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96 colSpan=2>
<P style="MARGIN: 0px" align=right>-</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=3>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96 colSpan=2>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Income Before Income Taxes</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>205,459&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>174,620&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>630,306&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96 colSpan=2>
<P style="MARGIN: 0px" align=right>289,194&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Income Tax Expense</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>(10,642)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>(10,642)</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>(21,284)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96
colSpan=2>
<P style="MARGIN: 0px" align=right>(21,284)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Net Income </P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>194,817&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>163,978&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>609,022&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96 colSpan=2>
<P style="MARGIN: 0px" align=right>267,910&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Net Income Attributable to Noncontrolling
Interests</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>(804,858)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>(16,877)</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>(809,562)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96 colSpan=2>
<P style="MARGIN: 0px" align=right>(24,995)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Net (Loss) Income &nbsp;Attributable to AdCare
Health Systems</P></TD>
<TD
style="BORDER-TOP: #000000 1px solid; BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>$ &nbsp;&nbsp;(610,041)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-TOP: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;147,101&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-TOP: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>$ &nbsp;&nbsp;(200,540)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-TOP: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96 colSpan=2>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;242,915&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-TOP: #000000 3px double" vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-TOP: #000000 3px double" vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-TOP: #000000 3px double" vAlign=bottom width=96
colSpan=2><P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Net (Loss) Income Per Share, Basic:</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.11)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.04&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.04)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96 colSpan=2>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.06&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Net (Loss) Income Per Share, Diluted:</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.11)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.04&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.04)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=96
colSpan=2>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.06&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=3>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96 colSpan=2>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Weighted Average Common Shares Outstanding,</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96 colSpan=2>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Basic</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>5,710,696&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,975,435&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>5,688,659&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96 colSpan=2>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,975,435&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Diluted</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;5,710,696&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>4,085,215&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=84>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;5,688,659&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=96
colSpan=2>
<P style="MARGIN: 0px" align=right>4,085,215&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=775 colSpan=11>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=775 colSpan=11>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=775 colSpan=11>
<P>&nbsp;</P></TD></TR></TABLE>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 8px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"><B>Company
Contacts</B></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">David
A. Tenwick, Chairman &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">AdCare
Health Systems, Inc.</P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Tel
(740) 549-0400</P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Email:
info@adcarehealth.com<FONT style="FONT-FAMILY: Times New Roman"></FONT></P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Investor
Relations</P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Scott
Liolios or Ron Both</P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Liolios
Group, Inc.</P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Tel
(949) 574-3860</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 8px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Email:
info@liolios.com</P>
<P style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 8px"><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>10</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 14px; PAGE-BREAK-BEFORE: always">&nbsp;</P>
<H1>&nbsp;</H1></BODY>
<!-- EDGAR Validation Code: 7AC5161A -->
</HTML>
[{"type": "8-K", "sequence": "1", "filename": "f8kitem282510.htm", "description": "ADCARE HEALTH SYSTEMS INC 8K 82510", "secsgml_size_bytes": 98851}]
{"company-data": {"conformed-name": "ADCARE HEALTH SYSTEMS INC", "cik": "0001004724", "assigned-sic": "8051", "irs-number": "311332119", "state-of-incorporation": "OH"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "001-33135", "film-number": "101037366"}, "business-address": {"street1": "5057 TROY RD", "city": "SPRINGFEILD", "state": "OH", "zip": "45502", "phone": "937-964-8974"}, "mail-address": {"street1": "5057 TROY RD", "city": "SPRINGFIELD", "state": "OH", "zip": "45502"}}
SECURITIES AND EXCHANGE COMMISSION
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM
8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
Date of
Report:  August 25, 2010
Date of
Earliest Event Reported:  August 17, 2010
AdCare Health Systems, Inc.
(Exact Name of Registrant as specified in its Charter)
Ohio
333-131542
31-1332119
(State or other jurisdiction of
incorporation or organization)
(Commission File Number)
(I.R.S. Employer Identification No.)
5057 Troy Rd, Springfield, OH
45502-9032
(Address of principal executive offices)
(Zip Code)
Registrant's Telephone Number, Including Area Code
(937) 964-8974
Check the appropriate box below if the form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of
the following provisions (See General Instruction A2. below):
[  ] Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425)
[  ] Soliciting material pursuant to Rule 14a-12 under the
Exchange Act (17 CFR 240.14a-12)
[  ] Pre-commencement communications pursuant to Rule
14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)
[  ] Pre-commencement communications pursuant to Rule
13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c)).
1
Item 2.02.  Financial Statements and Exhibits.
On Tuesday, August 17, 2010, AdCare Health Systems, Inc. (the
"Company") issued a press release announcing its financial results for the three
and six months ended June 30, 2010.  A copy of this press release is
furnished as Exhibit 99.1 hereto.  Pursuant to the rules and regulations of
the Securities and Exchange Commission, the information in this Current Report
on Form 8-K, including the attached exhibit and the information set forth
therein, shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, nor shall it be deemed to be incorporated by
reference in any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, regardless of any general incorporation language in such
filing.
Item 9.01.  Financial Statements and Exhibits.
Exhibits
Exhibit Number
Description of Exhibit
99.1
Press Release dated August 17, 2010
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereto duly authorized.
Date:  August 25, 2010
ADCARE
HEALTH SYSTEMS, INC.
By:
/s/ Scott Cunningham
Name:
Scott Cunningham
Title:
 Chief Financial Officer
3
AdCare Health Systems Reports Second Quarter 2010
Results
Company to Issue 5% Stock Dividend to All Shareholders of
Record on September 30, 2010
SPRINGFIELD,
Ohio, August 17, 2010
—
AdCare Health Systems, Inc.
(NYSE
AMEX: ADK), an Ohio-based long-term care, home care and management company,
reported financial results for the second quarter ended June 30, 2010.
Q2
2010 Financial Results
Revenue
in the second quarter of 2010 was $6.2 million, as compared to $6.6 million in
the same year-ago quarter. The decline was due to a decrease in occupancy (and
particularly a decrease in the number of residents covered by Medicare as
compared to the same year-ago period), resulting in a decrease in revenue of
$322,000 in the company's nursing homes and $199,000 in home health operations.
This was offset by a $58,000 increase in revenue in the company's assisted
living centers and a $74,000 increase in management, consulting, and development
fee revenue.
Loss
from operations in the second quarter of 2010 was $270,000, as compared to
income from operations of $527,000 in the same year-ago quarter. The loss in the
second quarter of 2010 was primarily due to a $213,000 increase in non-cash
compensation expense over the year-ago quarter related to warrants and
restricted stock, employee wage increases and $146,000 increase related to
director compensation, higher legal fees, and consulting fees for investment
bankers and investor relations, in combination with lower revenue in the quarter
due to occupancy.
Net
income in the second quarter of 2010 totaled $195,000, as compared to net income
of $164,000 in the same year-ago period. Excluding the gain of $980,000 as a
result of the acquisition of the 105-unit assisted living facility in Alabama by
AdCare's consolidated variable interest entity, Riverchase Village ADK, LLC,
AdCare's net loss in the second quarter of 2010 totaled $610,000 or $0.11 per
basic and diluted share, as compared to net income of $147,000 or $0.04 per
basic and diluted shares in the same year-ago quarter.
EBITDA
in the second quarter of 2010 was $737,000, as compared to EBITDA of $699,000 in
the same year-ago period. The company defines EBITDA as net income before
interest income, interest expense, income tax expense, depreciation and
amortization (see the important discussion about the presentation of EBITDA, a
non-GAAP term, below).
Cash
at June 30, 2010 totaled $2.8 million, as compared to $3.6 million in the
previous quarter. The decrease in cash is primarily attributed to approximately
$203,000 in net cash used in operating activities, approximately $200,000 used
for completed and pending acquisitions, and $394,000 in capital
expenditures.
4
Q2
2010 Operational Highlights
·
AdCare
signed an agreement and subsequently closed a major lease for five
privately-held nursing homes located across Georgia, with an aggregate of 615
beds that generate approximately $35 million in annualized revenues.
·
The
company entered into a five year management agreement with Riverchase Village, a
105-unit assisted living facility located in Hoover, Alabama (a suburb of
Birmingham) with an estimated annualized revenue run-rate of approximately $1.9
million at 59% occupancy. The company believes under its new management it will
be able to increase occupancy and revenue. AdCare has a one-year option
agreement (expiring June 2011) to acquire Riverchase Village at an exercise
price of $100,000, plus the assumption of bonds payable. In Q2 2010, AdCare was
required to consolidate the revenues of Riverchase under GAAP accounting rules.
·
AdCare
initiated a public offering of common stock during the quarter, which resulted
in aggregate net proceeds to the company of approximately $6.1 million upon
closing of the underwriter's overallotment at the beginning of August. AdCare
has and plans to continue to use the net proceeds of the offering for
acquisition purposes, working capital and general corporate purposes. As of the
close of the exercise of the over-allotment, the company had approximately 7.5
million common shares outstanding.
·
The
company received a long-anticipated approval to provide Medicare and Medicaid
funded home healthcare services in two additional Ohio counties, which includes
the state's capital city of Columbus, and thereby opening up new opportunities
to grow this area of its business.
Management
Commentary
"During
the second quarter, we continued to focus on acquisitions that significantly
increase the scale of our business and thereby diminish the effects of
fluctuations in Medicare patients as well as expenses relating to our growth
this year," said David A. Tenwick, AdCare's chairman. "The new lease of five
nursing homes in Georgia is moving us solidly in this direction and is expected
to add $35 million in annualized revenue. We are now on track to reporting
approximately $12.5 million in revenues in Q3 2010, representing an increase of
more than 80% over Q3 2009."
"Our
other pending agreements to purchase and lease facilities are expected to add an
additional $55 million in annualized revenue upon their closings, which are
anticipated in the third quarter," continued Tenwick. "Combined with existing
revenue, this would total approximately $115 million on an aggregate revenue
run-rate basis and represent a 330% increase over FY2009 revenue. We believe
this is achievable, since it does not take into account the positive effects we
expect to realize from the improved operations of these facilities as they come
under our management and larger economy of scale."
Chris
Brogdon, AdCare's chief acquisition officer, commented: "Our M&A program has
now expanded our operations to Georgia and Alabama, and attractive opportunities
continue to emerge in the southern region. In addition to closing on pending
transactions outlined in the summary below, we are working to establish the
terms and necessary financings for several new potential acquisitions in our
pipeline of equal or greater potential."
Concluded
Tenwick: "As we work to make 2010 a transformative year for AdCare, our
overriding priorities will continue to focus upon delivering the best quality of
care and services for our patients and residents, and sustaining AdCare's
position as the provider of choice in the areas we serve."
5
Summary
of Pending Transactions and Option to Purchase
Description
Size
Location
Type
AAR*
Financing/Term
Status
Two Nursing
Homes
312 Beds
Gadsden, AL
Purchase
$18 million
Long-term fixed rate loan,
guaranteed by USDA.
Closing expected Sept. 1,
2010.
Assisted Living Facility
105 Units
Hoover, AL
1 yr purchase option,
expiring June 2011
Currently $1.9 million at 59%
occupancy.
$100,000, plus assumption of
existing bonds payable.
Currently a consolidated
variable interest entity (Riverchase ADK), with management
contract.
Five Nursing
Homes
580 Beds
Across Georgia
Lease
$37 million
3 Leases @ 10 yrs
2 leases @ 27 yrs
Closing expected Sept. 30,
2010.
*
Annualize Revenue Run-rate (AAR), est
Stock
Dividend
On
August 11, 2010, AdCare declared a 5% stock dividend to all AdCare shareholders
of record on September 30, 2010.
About
AdCare Health Systems
AdCare
Health Systems, Inc. (NYSE AMEX: ADK
) develops, owns and manages
assisted living facilities, nursing homes and retirement communities and
provides home health care services. Prior to becoming a publicly traded company
in November of 2006, AdCare operated as a private company for 18 years. In the
ever expanding marketplace of long term care, AdCare's mission is to provide
quality healthcare services to the elderly.
Important
Cautions Regarding Forward-Looking Statements
Statements
contained in this press release that are not historical facts may be
forward-looking statements within the meaning of federal law. Such statement can
be identified by the use of forward-looking terminology, such as "believes,"
"expects, " "plans," "intends," "anticipates" and variations of such words or
similar expressions, but their absence does not mean that the statement is not
forward-looking. Statements in this announcement that are forward-looking
include, but are not limited to, the contents of the table titled, "Summary of
Pending Transactions and Option to Purchase," and statements made by Mr. Tenwick
that the company's five nursing homes in Georgia will help diminish the effects
of fluctuations in Medicare patients as well as expenses relating to the
company's growth this year, and are expected to add an additional $35 million in
annual revenue; the company is now on track to reporting revenue of
approximately $12.5 million in the third quarter of this year; other pending
agreements to purchase and lease facilities are expected to add an additional
$55 million in annualized revenue upon their closings, which are anticipated in
the third quarter, and if combined with existing revenue, this would total
approximately $115 million on an aggregate revenue run-rate basis and represent
a 330% increase over FY2009 revenue, and this is achievable since it does not
take into account the positive effects expected to be realized from the improved
operations of these facilities as they come under AdCare's management and larger
economy of scale. Such forward-looking statements reflect management's beliefs
and assumptions and are based on information currently available to management.
The forward-looking statements involve known and unknown risks, results,
performance or achievements of the Company to differ materially from those
expressed or implied in such statements. Such
6
factors
are identified in the public filings made by the Company with the Securities and
Exchange Commission and include the Company's ability to secure lines of credit
and/or an acquisition credit facility, find suitable acquisition properties at
favorable terms, changes in the health care industry because of political and
economic influences, changes in regulations governing the industry, changes in
reimbursement levels including those under the Medicare and Medicaid programs
and changes in the competitive marketplace. There can be no assurance that such
factors or other factors will not affect the accuracy of such forward-looking
statements.
Use
of Non-GAAP Financial Information
EBITDA
is a measure of operating performance that is not calculated in accordance with
U.S. generally accepted accounting principles ("GAAP"). EBITDA should not be
considered in isolation or as a substitute for net income, income from
operations or cash flows provided by or used in operations, as determined in
accordance with GAAP. EBITDA is a key measure of AdCare Health Systems'
operating performance used by management to focus on operating performance and
management without mixing in items of income and expense that relate to the
financing and capitalization of the business. The company defines EBITDA as net
income (loss) before interest income, interest expense, income tax expense, and
depreciation and amortization.
The
company believes EBITDA is useful to investors in evaluating their performance,
results of operations and financial position for the following reasons:
•
It's
helpful in identifying trends in the company's day-to-day performance because
the items excluded have little or no significance to the company's day-to-day
operations;
•
It
provides an assessment of controllable expenses and affords management the
ability to make decisions which are expected to facilitate meeting current
financial goals as well as achieve optimal financial performance; and
•
It's
an indication to determine if adjustments to current spending decisions are
needed.
AdCare
believes that the use of EBITDA provides a meaningful and consistent comparison
of their underlying business between periods by eliminating certain items
required by GAAP, which have little or no significance in the day-to-day
operations.
7
ADCARE HEALTH
SYSTEMS, INC. AND SUBSIDIARIES
Reconciliation
of Net Income to EBITDA
(Unaudited)
Three-Months
Ended
Six-Months
Ended
June 30,
June
30,
2010
2009
2010
2009
Net Income
$
194,817
$
163,978
$
609,022
$
267,910
Interest income
(1,635)
(1,098)
(7,360)
(2,406)
Interest expense,
others
299,550
299,804
592,101
593,947
Interest expense, related
parties
325
510
719
1,228
Income tax expense
10,642
10,642
21,284
21,284
Depreciation and
amortization
233,410
225,878
475,974
451,186
EBITDA
$
737,109
$
699,714
$1,691,740
$1,333,149
8
ADCARE HEALTH SYSTEMS, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30,
December 31,
2010
2009
ASSETS
(Unaudited)
Current Assets:
Cash
$
     2,757,015
$
   4,481,100
Accounts receivable:
Long-term care resident receivables, net
1,708,678
1,838,560
Management, consulting and development receivables,
net
159,792
124,761
Advances and receivables from affiliates
16,444
16,407
Other receivables, stock offering
5,580,001
-
Prepaid expenses and other
410,311
541,958
Total current assets
10,632,241
7,002,786
Restricted cash
1,869,572
1,430,674
Property and equipment, net
23,761,757
16,445,028
Licenses
1,189,307
1,189,307
Goodwill
2,679,482
2,679,482
Other assets
2,395,671
1,357,160
Total assets
$
    42,528,030
$
 30,104,437
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Current portion of notes payable and other
debt
$
        691,390
$
      698,504
Current portion of notes payable to
stockholder
22,595
9,432
Accounts payable
759,456
1,039,422
Accrued expenses
2,652,001
2,597,151
Total current liabilities
4,125,442
4,344,509
Notes payable and other debt, net of current
portion
22,805,372
16,701,028
Notes payable to stockholder, net of current
portion
-
24,444
Other liabilities
965,063
746,074
Deferred tax liability
233,858
212,574
Total liabilities
28,129,735
22,028,629
Stockholders' equity:
Preferred stock, no par value; 1,000,000 shares
authorized;
no shares issued or outstanding
-
-
Common stock and additional paid-in capital, no par
value;
29,000,000 shares authorized; 7,564,089 and
5,628,007 shares issued and outstanding
23,596,602
17,571,801
Accumulated deficit
(10,005,789)
(9,805,249)
Total stockholders' equity
13,590,813
7,766,552
Noncontrolling interest in subsidiaries
807,482
309,256
Total equity
14,398,295
8,075,808
Total liabilities and stockholders' equity
$
    42,528,030
$
 30,104,437
9
ADCARE HEALTH SYSTEMS, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
Three-Months Ended
Six-Months Ended
June 30,
June 30,
2010
2009
2010
2009
Revenues:
Patient care revenues
$  5,700,272
$  6,162,746
$11,567,059
$12,079,581
Management, consulting and development fee
revenue
523,941
450,381
1,031,672
918,435
Total revenue
6,224,213
6,613,127
12,598,731
12,998,016
Expenses:
Payroll and related payroll costs
3,965,010
3,709,728
8,025,974
7,447,457
Other operating expenses
2,296,288
2,150,161
4,481,164
4,168,087
Depreciation and amortization
233,410
225,878
475,974
451,186
Total expenses
6,494,708
6,085,767
12,983,112
12,066,730
(Loss) Income from Operations
(270,495)
527,360
(384,381)
931,286
Other Income (Expense):
Interest income
1,635
1,098
7,360
2,406
Interest expense, others
(299,550)
(299,804)
(592,101)
(593,947)
Interest expense, related parties
(325)
(510)
(719)
(1,228)
Other expense
(205,558)
(53,524)
(205,593)
(49,324)
(503,798)
(352,740)
(791,053)
(642,092)
Gain on Acquisitions
979,752
-
1,805,740
-
Income Before Income Taxes
205,459
174,620
630,306
289,194
Income Tax Expense
(10,642)
(10,642)
(21,284)
(21,284)
Net Income
194,817
163,978
609,022
267,910
Net Income Attributable to Noncontrolling
Interests
(804,858)
(16,877)
(809,562)
(24,995)
Net (Loss) Income  Attributable to AdCare
Health Systems
$   (610,041)
$
   147,101
$   (200,540)
$
    242,915
Net (Loss) Income Per Share, Basic:
$
       (0.11)
$
            0.04
$
        (0.04)
$
          0.06
Net (Loss) Income Per Share, Diluted:
$
       (0.11)
$
            0.04
$
        (0.04)
$
          0.06
Weighted Average Common Shares Outstanding,
Basic
5,710,696
3,975,435
5,688,659
3,975,435
Diluted
5,710,696
4,085,215
5,688,659
4,085,215
Company
Contacts
David
A. Tenwick, Chairman
AdCare
Health Systems, Inc.
Tel
(740) 549-0400
Email:
info@adcarehealth.com
Investor
Relations
Scott
Liolios or Ron Both
Liolios
Group, Inc.
Tel
(949) 574-3860
Email:
info@liolios.com
10