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<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: 11pt; MARGIN: 0px; LINE-HEIGHT: 13pt"
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: 11pt; MARGIN: 0px; LINE-HEIGHT: 13pt" align=center>CURRENT
REPORT</P>
<P style="FONT-SIZE: 11pt; MARGIN: 0px; LINE-HEIGHT: 13pt" align=center>PURSUANT
TO SECTION 13 OR 15(d) OF </P>
<P style="FONT-SIZE: 11pt; MARGIN: 0px; LINE-HEIGHT: 13pt" align=center>THE
SECURITIES EXCHANGE ACT OF 1934</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;May 18, 2009</P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>Date of
Earliest Event Reported: &nbsp;May 18, 2009</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=400></TD>
<TD width=357></TD></TR>
<TR>
<TD vAlign=bottom width=400>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><B>Ohio</B></P></TD>
<TD vAlign=bottom width=357>
<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=400>
<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; TEXT-INDENT: 87px; LINE-HEIGHT: 12.5pt"><I>incorporation
or organization)</I></P></TD>
<TD vAlign=top width=357>
<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=400>
<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=357>
<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=400>
<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=357>
<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;] &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;] &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;] &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 Monday, May 18, 2009, AdCare Health Systems, Inc. (the
&#147;Company&#148;) issued a press release announcing its financial results for the three
months ended March 31, 2009.&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 May 18, 2009</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;May 18, 2009</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-TOP: 0px; MARGIN-BOTTOM: 13px" 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>3</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=center><B>EXHIBIT INDEX</B></P>
<TABLE style="FONT-SIZE: 10pt" cellSpacing=0>
<TR style="DISPLAY: none; FONT-SIZE: 0px" height=0>
<TD width=84></TD>
<TD width=18></TD>
<TD width=298></TD>
<TD width=17></TD>
<TD width=301></TD></TR>
<TR>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=top width=84>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 10.5pt"><B>Exhibit
No.</B></P></TD>
<TD vAlign=top width=18>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 10.5pt"
align=center><B></B>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=617
colSpan=3>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 10.5pt"
align=center><B>Description</B></P></TD></TR>
<TR>
<TD vAlign=top width=84>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px">&nbsp;</P></TD>
<TD vAlign=top width=18>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px">&nbsp;</P></TD>
<TD vAlign=top width=298>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px">&nbsp;</P></TD>
<TD vAlign=top width=17>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px">&nbsp;</P></TD>
<TD vAlign=top width=301>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px">&nbsp;</P></TD></TR>
<TR>
<TD vAlign=top width=84>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center>99.1</P></TD>
<TD vAlign=top width=18>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px">&nbsp;</P></TD>
<TD vAlign=top width=617 colSpan=3>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt">AdCare
Health Systems, Inc. Press Release, dated May 18,
2009.</P></TD></TR></TABLE>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 16px; LINE-HEIGHT: 10.5pt">&nbsp;</P>
<P style="MARGIN: 0px" align=right><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"
align=right>Exhibit 99.1</P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt">Press Release</P>
<P style="MARGIN: 0px"><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt"
align=center><B>&nbsp;&nbsp;AdCare Health Systems, Inc. Turns Profitable
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reports
2009 First Quarter Earnings Results</B></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt"
align=center><B></B>&nbsp;</P>
<P style="MARGIN: 0px"><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt">SPRINGFIELD, OHIO,
May 18, 2009 /PRNewswire-FirstCall/ AdCare Health Systems, Inc. (NYSE AMEX:
ADK), an Ohio-based long-term care, home health care and management company,
today reported financial results for its first quarter of 2009. &nbsp;</P>
<P style="MARGIN: 0px"><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt">Revenues for the
quarter ended March 31<SUP>st</SUP>, 2009 were $6,384,889 as compared to
$5,992,542 for the same quarter in 2008, an increase of $392,347. &nbsp;The
increase was primarily due to improved occupancy at its assisted living
communities, an increase in Medicare patients at its nursing homes, and the
acquisition of the Lincoln Lodge.</P>
<P style="MARGIN: 0px"><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt">Income from
operations for the quarter ended March 31, 2009 was $403,926 as compared to
$155,195 for the first quarter ended March 31, 2008, an increase of $248,731.
&nbsp;Net income for the quarter ended March 31, 2009 was $95,814 as compared to
a net loss of $139,468 for the quarter ended March 31, 2008, an increase of
$235,282. &nbsp;Basic and diluted net income per share for the three months
ended March 31, 2009 was $0.03
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;as compared to a net loss
per share of $0.02 for the three months ended March 31, 2008, an improvement of
$0.05 per share for the quarter.</P>
<P style="MARGIN: 0px"><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt">David A. Tenwick,
Chairman of AdCare, stated &#147;I am pleased that the Company has turned profitable
and continues to make progress. &nbsp;It is a testament to the strength of our
senior management team to have made such considerable financial improvements
during this economic downturn.&#148; &nbsp;He continued, &#147;AdCare has improved its
working capital by $490,000 since year end. &nbsp;The Company&#146;s current
liabilities are only about $50,000 more than its current assets which is a
significant improvement from year end. &nbsp;In addition, EBITDA (earnings
before interest, taxes, depreciation and amortization) was $629,234 for the
first quarter as compared to $381,889 for the first quarter last year, an
increase of $247,345 or 65%. &nbsp;</P>
<P style="MARGIN: 0px"><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt">About AdCare Health
Systems, Inc.</P>
<P style="MARGIN: 0px"><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt">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. &nbsp;Prior to becoming a publicly traded company in November of
2006, AdCare operated as a private company for 18 years. &nbsp;AdCare&#146;s 900
employees provide high-quality care for patients and residents residing in the
14 facilities that they manage, six of which are assisted living facilities, six
skilled nursing centers and two independent senior living communities. &nbsp;The
Company has ownership interests in eight of those facilities. &nbsp;In the ever
expanding marketplace of long-term care, AdCare&#146;s mission is to provide quality
healthcare services to the elderly.</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; PADDING-BOTTOM: 4px; MARGIN: 0px; LINE-HEIGHT: 14pt; BORDER-BOTTOM: #000000 2px solid">Safe
Harbor Statement</P>
<P style="MARGIN: 0px"><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt">Statements contained
in this press release that are not historical facts may be forward-looking
statements within the meaning of federal law. &nbsp;Such forward-looking
statements reflect management&#146;s beliefs and assumptions and are based on
information currently available to management. &nbsp;The forward-looking
statements involve known and &nbsp;unknown &nbsp;risks, results, performance or
achievements of the Company to differ materially from those expressed or implied
in such statements. &nbsp;Such factors are identified in the public filings made
by the Company with the Securities and Exchange Commission and include the
Company&#146;s ability to secure lines of </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="FONT-SIZE: 12pt; PAGE-BREAK-BEFORE: always; MARGIN: 0px; LINE-HEIGHT: 14pt">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. &nbsp;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; PADDING-BOTTOM: 4px; MARGIN: 0px; LINE-HEIGHT: 14pt; BORDER-BOTTOM: #000000 2px solid">Contact:</P>
<P style="MARGIN: 0px"><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt">&nbsp;April
Spittle</P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt">Manager of Corporate
Communications</P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt">1-703-893-0021 ext.
108</P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; COLOR: #0000ff; LINE-HEIGHT: 14pt"><U>aspittle@galencc.com</U><FONT
style="COLOR: #000000"></FONT></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; COLOR: #0000ff; LINE-HEIGHT: 14pt"><U>www.adcarehealth.com</U><FONT
style="COLOR: #000000"></FONT></P>
<P style="MARGIN: 0px"><BR></P><A name=OLE_LINK1></A><A name=RANGE!A1:I66></A>
<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="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=17></TD>
<TD width=17></TD>
<TD width=17></TD>
<TD width=448></TD>
<TD width=105></TD>
<TD width=26></TD>
<TD width=97></TD></TR>
<TR>
<TD vAlign=bottom width=728 colSpan=7>
<P style="MARGIN: 0px" align=center><B>ADCARE HEALTH SYSTEMS, INC. AND
SUBSIDIARIES</B></P></TD></TR>
<TR>
<TD vAlign=bottom width=728 colSpan=7>
<P style="MARGIN: 0px" align=center>CONSOLIDATED BALANCE SHEET</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=448>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=228 colSpan=3>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=448>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px" align=center>March 31,</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=center>December 31, </P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=448>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=105>
<P style="MARGIN: 0px" align=center>2009</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=center>2008</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=448>
<P style="MARGIN: 0px" align=center><U>ASSETS</U></P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px" align=center>(Unaudited)</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Current Assets:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=51 colSpan=3>
<P style="MARGIN: 0px">Cash</P></TD>
<TD vAlign=bottom width=448>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,552,019&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;1,266,315&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Accounts receivable:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=482 colSpan=3>
<P style="MARGIN: 0px">Long-term care resident receivables, net</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,836,336&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,008,847&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=482 colSpan=3>
<P style="MARGIN: 0px">Management, consulting and development receivables,
net</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;285,979&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>258,811&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=482 colSpan=3>
<P style="MARGIN: 0px">Advances and receivables from affiliates</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;23,081&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;17,635&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Prepaid expenses and other</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;516,373&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;478,534&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=448>
<P style="MARGIN: 0px">Total current assets</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>4,213,788&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4,030,142&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=448>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Restricted cash</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,141,777&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,155,596&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Property and equipment, net</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,622,981&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,772,660&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">License, net</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,189,307&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,189,307&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Goodwill</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>2,679,482&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,679,482&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Other assets</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;922,573&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,012,340&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=448>
<P style="MARGIN: 0px">Total assets</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;26,769,908&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;26,839,527&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=448>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=448>
<P style="MARGIN: 0px" align=center><U>LIABILITIES AND STOCKHOLDERS&#146;
EQUITY</U></P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Current Liabilities:</P></TD>
<TD vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=482 colSpan=3>
<P style="MARGIN: 0px">Current portion of notes payable and other
debt</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;725,242&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;713,323&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=482 colSpan=3>
<P style="MARGIN: 0px">Current portion of notes payable to
stockholder</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,432&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<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 style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=482 colSpan=3>
<P style="MARGIN: 0px">Accounts payable </P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;836,203&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,009,002&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=482 colSpan=3>
<P style="MARGIN: 0px">Accrued expenses</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>2,693,637&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>2,838,407&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=448>
<P style="MARGIN: 0px">Total current liabilities</P></TD>
<TD
style="BORDER-TOP: #000000 1px solid; BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4,264,513&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD
style="BORDER-TOP: #000000 1px solid; BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>4,570,164&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=448>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Notes payable and other debt, net of current
portion</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,824,813&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,974,788&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Notes payable to stockholder, net of current
portion</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;32,594&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;34,626&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Other liabilities</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;549,055&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>299,314&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Income tax payable</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;180,649&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;170,007&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=465 colSpan=2>
<P style="MARGIN: 0px">Total liabilities</P></TD>
<TD style="BORDER-TOP: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=105>
<P style="MARGIN: 0px; TEXT-INDENT: 13px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;21,851,623&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-TOP: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px; TEXT-INDENT: 13px"
align=right>&nbsp;22,048,899&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=448>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Stockholders' equity:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=482 colSpan=3>
<P style="MARGIN: 0px">Preferred stock, no par value; 500,000 shares
authorized;</P></TD>
<TD vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=465 colSpan=2>
<P style="MARGIN: 0px">no shares issued or outstanding</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<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 style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<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 vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=482 colSpan=3>
<P style="MARGIN: 0px">Common stock and additional paid-in capital, no par
value;</P></TD>
<TD vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=465 colSpan=2>
<P style="MARGIN: 0px">14,500,000 shares authorized; 3,786,129 shares
issued and outstanding</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>14,790,692&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>14,766,967&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=482 colSpan=3>
<P style="MARGIN: 0px">Accumulated deficit</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;(10,149,718)</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;(10,245,532)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=465 colSpan=2>
<P style="MARGIN: 0px">Total stockholders' equity</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>4,640,974&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4,521,435&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=482 colSpan=3>
<P style="MARGIN: 0px">Noncontrolling interest in subsidiaries</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>277,311&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>269,193&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=465 colSpan=2>
<P style="MARGIN: 0px">Total equity</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>4,918,285&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>4,790,628&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=465 colSpan=2>
<P style="MARGIN: 0px">Total liabilities and stockholders' equity</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;26,769,908&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;26,839,527&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=465 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=728 colSpan=7>
<P style="MARGIN: 0px" align=center>See notes to consolidated financial
statements</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>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=27></TD>
<TD width=16></TD>
<TD width=315></TD>
<TD width=93></TD>
<TD width=20></TD>
<TD width=102></TD></TR>
<TR>
<TD vAlign=bottom width=576 colSpan=6>
<P style="MARGIN: 0px" align=center><B>ADCARE HEALTH SYSTEMS, INC. AND
SUBSIDIARIES</B></P></TD></TR>
<TR>
<TD vAlign=bottom width=576 colSpan=6>
<P style="MARGIN: 0px" align=center>CONSOLIDATED STATEMENT OF
OPERATIONS</P></TD></TR>
<TR>
<TD vAlign=bottom width=576 colSpan=6>
<P style="MARGIN: 0px" align=center>(Unaudited)</P></TD><A name=is></A></TR>
<TR>
<TD vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=315>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=93>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=102>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=315>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=216
colSpan=3>
<P style="MARGIN: 0px" align=center>Three Months Ended March 31,</P></TD></TR>
<TR>
<TD vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=315>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=93>
<P style="MARGIN: 0px" align=center>2009&nbsp;</P></TD>
<TD vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=102>
<P style="MARGIN: 0px" align=center>2008</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=359 colSpan=3>
<P style="MARGIN: 0px">Revenues:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=93>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=102>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=332 colSpan=2>
<P style="MARGIN: 0px">Patient care revenues</P></TD>
<TD vAlign=bottom width=93>
<P style="MARGIN: 0px" align=right>&nbsp;$ &nbsp;5,916,835&nbsp;</P></TD>
<TD vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=102>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;5,568,061&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=332 colSpan=2>
<P style="MARGIN: 0px">Management, consulting and development fee
revenue</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=93>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;468,054&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=102>
<P style="MARGIN: 0px" align=right>424,481&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=315>
<P style="MARGIN: 0px">Total revenue</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=93>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;6,384,889&nbsp;</P></TD>
<TD vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=102>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,992,542&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=315>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=93>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=102>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=359 colSpan=3>
<P style="MARGIN: 0px">Expenses:</P></TD>
<TD vAlign=bottom width=93>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=102>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=332 colSpan=2>
<P style="MARGIN: 0px">Payroll and related payroll costs</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=93>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,737,729&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=102>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,587,397&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=332 colSpan=2>
<P style="MARGIN: 0px">Other operating expenses</P></TD>
<TD vAlign=bottom width=93>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,017,926&nbsp;</P></TD>
<TD vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=102>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,023,256&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=332 colSpan=2>
<P style="MARGIN: 0px">Depreciation and amortization</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=93>
<P style="MARGIN: 0px" align=right>225,308&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=102>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;226,694&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=315>
<P style="MARGIN: 0px">Total expenses</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=93>
<P style="MARGIN: 0px" align=right>5,980,963&nbsp;</P></TD>
<TD vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=102>
<P style="MARGIN: 0px" align=right>5,837,347&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=315>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=93>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=102>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=359 colSpan=3>
<P style="MARGIN: 0px">Income from Operations</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=93>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;403,926&nbsp;</P></TD>
<TD vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=102>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;155,195&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=359 colSpan=3>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=93>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=102>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=359 colSpan=3>
<P style="MARGIN: 0px">Other Income (Expense):</P></TD>
<TD vAlign=bottom width=93>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=102>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=332 colSpan=2>
<P style="MARGIN: 0px">Interest income</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=93>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,308&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=102>
<P style="MARGIN: 0px" align=right>9,133&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=332 colSpan=2>
<P style="MARGIN: 0px">Interest expense, others</P></TD>
<TD vAlign=bottom width=93>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(294,142)</P></TD>
<TD vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=102>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(226,352)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=332 colSpan=2>
<P style="MARGIN: 0px">Interest expense, related parties</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=93>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(718)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=102>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(14,872)</P></TD></TR>
<TR>
<TD vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=332 colSpan=2>
<P style="MARGIN: 0px">Other expense</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=93>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4,200&nbsp;</P></TD>
<TD vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=102>
<P style="MARGIN: 0px" align=right>-&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=315>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=93>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(289,352)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=102>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;(232,092)</P></TD></TR>
<TR>
<TD vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=315>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=93>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=102>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=359 colSpan=3>
<P style="MARGIN: 0px">Income (Loss ) Before Income Taxes</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=93>
<P style="MARGIN: 0px" align=right>114,574&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=102>
<P style="MARGIN: 0px" align=right>(76,896)</P></TD></TR>
<TR>
<TD vAlign=bottom width=359 colSpan=3>
<P style="MARGIN: 0px">Income Tax Expense</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=93>
<P style="MARGIN: 0px" align=right>(10,642)</P></TD>
<TD vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=102>
<P style="MARGIN: 0px" align=right>(10,642)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=359 colSpan=3>
<P style="MARGIN: 0px">Net Income (Loss)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=93>
<P style="MARGIN: 0px" align=right>103,932&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=102>
<P style="MARGIN: 0px" align=right>(87,538)</P></TD></TR>
<TR>
<TD vAlign=bottom width=359 colSpan=3>
<P style="MARGIN: 0px">Net Income Attributable to Noncontrolling
Interest</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=93>
<P style="MARGIN: 0px" align=right>(8,118)</P></TD>
<TD vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=102>
<P style="MARGIN: 0px" align=right>(51,930)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=359 colSpan=3>
<P style="MARGIN: 0px">Net Income (Loss) Attributable to AdCare Health
Systems, Inc.</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=93>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;95,814&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=102>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(139,468)</P></TD></TR>
<TR>
<TD vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=315>
<P>&nbsp;</P></TD>
<TD style="BORDER-TOP: #000000 3px double" vAlign=bottom width=93>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BORDER-TOP: #000000 3px double" vAlign=bottom width=102>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=359 colSpan=3>
<P style="MARGIN: 0px">Net Income (Loss) Per Share, Basic</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=93>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.03&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=102>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.02)</P></TD></TR>
<TR>
<TD vAlign=bottom width=359 colSpan=3>
<P style="MARGIN: 0px">Net Income (Loss) Per Share, Diluted</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=93>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.03&nbsp;</P></TD>
<TD vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=102>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.02)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=359 colSpan=3>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=93>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=102>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=359 colSpan=3>
<P style="MARGIN: 0px">Weighted Average Common Shares Outstanding,</P></TD>
<TD vAlign=bottom width=93>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=102>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=332 colSpan=2>
<P style="MARGIN: 0px">Basic</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=93>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,786,129&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=102>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,786,129&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=332 colSpan=2>
<P style="MARGIN: 0px">Diluted</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=93>
<P style="MARGIN: 0px" align=right>3,815,820&nbsp;</P></TD>
<TD vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=102>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,786,129&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=27>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=332 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=93>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=20>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=102>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=576 colSpan=6>
<P style="MARGIN: 0px" align=center>See notes to consolidated financial
statements</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><A
name=stockholdersequity></A>
<TABLE style="FONT-SIZE: 10pt" cellSpacing=0 align=center>
<TR style="DISPLAY: none; FONT-SIZE: 0px" height=0>
<TD width=17></TD>
<TD width=17></TD>
<TD width=281></TD>
<TD width=80></TD>
<TD width=16></TD>
<TD width=97></TD>
<TD width=16></TD>
<TD width=104></TD>
<TD width=17></TD>
<TD width=97></TD></TR>
<TR>
<TD vAlign=top width=747 colSpan=10>
<P style="MARGIN: 0px" align=center><B>ADCARE HEALTH SYSTEMS, INC. AND
SUBSIDIARIES</B></P></TD></TR>
<TR>
<TD vAlign=top width=747 colSpan=10>
<P style="MARGIN: 0px" align=center>CONSOLIDATED STATEMENT OF
STOCKHOLDERS&#146; EQUITY</P></TD></TR>
<TR>
<TD vAlign=top width=747 colSpan=10>
<P style="MARGIN: 0px" align=center>(Unaudited)</P></TD></TR>
<TR>
<TD vAlign=top width=17>
<P>&nbsp;</P></TD>
<TD vAlign=top width=17>
<P>&nbsp;</P></TD>
<TD vAlign=top width=281>
<P>&nbsp;</P></TD>
<TD vAlign=top width=80>
<P>&nbsp;</P></TD>
<TD vAlign=top width=16>
<P>&nbsp;</P></TD>
<TD vAlign=top width=97>
<P>&nbsp;</P></TD>
<TD vAlign=top width=16>
<P>&nbsp;</P></TD>
<TD vAlign=top width=104>
<P>&nbsp;</P></TD>
<TD vAlign=top width=17>
<P>&nbsp;</P></TD>
<TD vAlign=top width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=top width=17>
<P>&nbsp;</P></TD>
<TD vAlign=top width=17>
<P>&nbsp;</P></TD>
<TD vAlign=top width=281>
<P>&nbsp;</P></TD>
<TD vAlign=top width=80>
<P>&nbsp;</P></TD>
<TD vAlign=top width=16>
<P>&nbsp;</P></TD>
<TD vAlign=top width=97>
<P>&nbsp;</P></TD>
<TD vAlign=top width=16>
<P>&nbsp;</P></TD>
<TD vAlign=top width=104>
<P style="MARGIN: 0px" align=center>Common Stock</P></TD>
<TD vAlign=top width=17>
<P>&nbsp;</P></TD>
<TD vAlign=top width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=top width=17>
<P>&nbsp;</P></TD>
<TD vAlign=top width=17>
<P>&nbsp;</P></TD>
<TD vAlign=top width=281>
<P>&nbsp;</P></TD>
<TD vAlign=top width=80>
<P>&nbsp;</P></TD>
<TD vAlign=top width=16>
<P>&nbsp;</P></TD>
<TD vAlign=top width=97>
<P style="MARGIN: 0px" align=center>Accumulated</P></TD>
<TD vAlign=top width=16>
<P>&nbsp;</P></TD>
<TD vAlign=top width=104>
<P style="MARGIN: 0px" align=center>and Additional</P></TD>
<TD vAlign=top width=17>
<P>&nbsp;</P></TD>
<TD vAlign=top width=97>
<P style="MARGIN: 0px" align=center>Noncontrolling</P></TD></TR>
<TR>
<TD vAlign=top width=17>
<P>&nbsp;</P></TD>
<TD vAlign=top width=17>
<P>&nbsp;</P></TD>
<TD vAlign=top width=281>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=top width=80>
<P style="MARGIN: 0px" align=center>Total</P></TD>
<TD vAlign=top width=16>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=top width=97>
<P style="MARGIN: 0px" align=center>Deficit</P></TD>
<TD vAlign=top width=16>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=top width=104>
<P style="MARGIN: 0px" align=center>Paid-in Capital</P></TD>
<TD vAlign=top width=17>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=top width=97>
<P style="MARGIN: 0px" align=center>Interest</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=top width=316 colSpan=3>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=80>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=104>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=top width=316 colSpan=3>
<P style="MARGIN: 0px">Balance, December 31, 2008:</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=80>
<P style="MARGIN: 0px" align=right>$4,790,628</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>$(10,245,532)</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=104>
<P style="MARGIN: 0px" align=right>$14,766,967</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>$269,193</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=top width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=top width=298 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=80>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=104>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=top width=17>
<P>&nbsp;</P></TD>
<TD vAlign=top width=298 colSpan=2>
<P style="MARGIN: 0px">Warrants issued in connection with
consulting</P></TD>
<TD vAlign=bottom width=80>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=104>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=top width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=top width=298 colSpan=2>
<P style="MARGIN: 0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;agreement</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=80>
<P style="MARGIN: 0px" align=right>12,567</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>-</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=104>
<P style="MARGIN: 0px" align=right>12,567</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>-</P></TD></TR>
<TR>
<TD vAlign=top width=17>
<P>&nbsp;</P></TD>
<TD vAlign=top width=298 colSpan=2>
<P style="MARGIN: 0px">Stock option compensation expense</P></TD>
<TD vAlign=bottom width=80>
<P style="MARGIN: 0px" align=right>11,158</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>-</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=104>
<P style="MARGIN: 0px" align=right>11,158</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>-</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=top width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=top width=298 colSpan=2>
<P style="MARGIN: 0px">Net income</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=80>
<P style="MARGIN: 0px" align=right>95,814</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>95,814</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=104>
<P style="MARGIN: 0px" align=right>-</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>-</P></TD></TR>
<TR>
<TD vAlign=top width=17>
<P>&nbsp;</P></TD>
<TD vAlign=top width=298 colSpan=2>
<P style="MARGIN: 0px">Net income attributable to noncontrolling
interest</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=80>
<P style="MARGIN: 0px" align=right>8,118</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>-</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=104>
<P style="MARGIN: 0px" align=right>-</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>8,118</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=top width=316 colSpan=3>
<P style="MARGIN: 0px">Balance, March 31, 2009</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=80>
<P style="MARGIN: 0px" align=right>$4,918,285</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>$(10,149,718)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=104>
<P style="MARGIN: 0px" align=right>$14,790,692</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>$277,311</P></TD></TR>
<TR>
<TD vAlign=top width=747 colSpan=10>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=top width=747 colSpan=10>
<P style="MARGIN: 0px" align=center>See notes to consolidated financial
statements</P></TD></TR></TABLE>
<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>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><A name=cf></A>
<TABLE style="FONT-SIZE: 10pt" cellSpacing=0 align=center>
<TR style="DISPLAY: none; FONT-SIZE: 0px" height=0>
<TD width=0.533></TD>
<TD width=44></TD>
<TD width=0.467></TD>
<TD width=25></TD>
<TD width=0.467></TD>
<TD width=26></TD>
<TD width=26></TD>
<TD width=26></TD>
<TD width=116></TD>
<TD width=0.467></TD>
<TD width=116></TD>
<TD width=0.467></TD>
<TD width=31></TD>
<TD width=97></TD>
<TD width=16></TD>
<TD width=97></TD></TR>
<TR>
<TD vAlign=top width=0.533>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=625 colSpan=15>
<P style="MARGIN: 0px" align=center><B>ADCARE HEALTH SYSTEMS, INC. AND
SUBSIDIARIES</B></P></TD></TR>
<TR>
<TD vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=625 colSpan=15>
<P style="MARGIN: 0px" align=center>CONSOLIDATED STATEMENTS OF CASH
FLOWS</P></TD></TR>
<TR>
<TD vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=625 colSpan=15>
<P style="MARGIN: 0px" align=center>(Unaudited)</P></TD></TR>
<TR>
<TD vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=116 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=116 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=211
colSpan=3>
<P style="MARGIN: 0px" align=center>Three-Months Ended March 31,</P></TD></TR>
<TR>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=116 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=116 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=31>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=center>2009</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=center>2008</P></TD></TR>
<TR>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=414 colSpan=12>
<P style="MARGIN: 0px">Cash flows from operating activities:</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=369 colSpan=10>
<P style="MARGIN: 0px">Net Income (Loss)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;95,814&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>$ &nbsp;&nbsp;(139,468)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=369 colSpan=10>
<P style="MARGIN: 0px">Adjustments to reconcile net income (loss) to net
cash </P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=369 colSpan=10>
<P style="MARGIN: 0px">provided by operating activities:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=316 colSpan=7>
<P style="MARGIN: 0px">Depreciation and amortization</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>225,308&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>226,694&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=316 colSpan=7>
<P style="MARGIN: 0px">Warrants issued for services</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>24,742&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>7,512&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=316 colSpan=7>
<P style="MARGIN: 0px">Stock option compensation expense</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>11,158&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>9,576&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=316 colSpan=7>
<P style="MARGIN: 0px">Minority interest</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>8,118&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>51,930&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=316 colSpan=7>
<P style="MARGIN: 0px">Note receivable forgiveness exchanged for
rent</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>-&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>9,000&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=316 colSpan=7>
<P style="MARGIN: 0px">Changes in certain assets and liabilities:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=290 colSpan=6>
<P style="MARGIN: 0px">Accounts receivable</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>139,897&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>(110,987)</P></TD></TR>
<TR>
<TD vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=290 colSpan=6>
<P style="MARGIN: 0px">Prepaid expenses and other</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>(55,028)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>24,640&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=290 colSpan=6>
<P style="MARGIN: 0px">Other assets</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>89,766&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>(100,614)</P></TD></TR>
<TR>
<TD vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=290 colSpan=6>
<P style="MARGIN: 0px">Accounts payable and accrued expenses</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>(317,570)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>9,343&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=290 colSpan=6>
<P style="MARGIN: 0px">Income tax liability</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>10,642&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>10,642&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=290 colSpan=6>
<P style="MARGIN: 0px">Other liabilities</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>249,741&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>9,730&nbsp;</P></TD></TR>
<TR>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=369 colSpan=10>
<P style="MARGIN: 0px">Net cash provided by operating activities</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>482,588&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>7,998&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=414 colSpan=12>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=414 colSpan=12>
<P style="MARGIN: 0px">Cash flows from investing activities:</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=342 colSpan=8>
<P style="MARGIN: 0px">Increase in restricted cash</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>13,819&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>230,811&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=342 colSpan=8>
<P style="MARGIN: 0px">Purchase of property plant and equipment</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>(70,615)</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>(157,373)</P></TD></TR>
<TR>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=0.533>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=369 colSpan=10>
<P style="MARGIN: 0px">Net cash (used in) provided by investing activities
</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>(56,796)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>73,438&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=414 colSpan=13>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=414 colSpan=13>
<P style="MARGIN: 0px">Cash flows from financing activities:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=343 colSpan=9>
<P style="MARGIN: 0px">Proceeds from notes payable</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>2,768&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>-&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=343 colSpan=9>
<P style="MARGIN: 0px">Repayment of notes payable to stockholder</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>(2,032)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>-&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=343 colSpan=9>
<P style="MARGIN: 0px">Prepaid financing costs</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>-&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>1,786&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=343 colSpan=9>
<P style="MARGIN: 0px">Repayment on notes payable</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>(140,824)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(123,847)</P></TD></TR>
<TR>
<TD vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=369 colSpan=11>
<P style="MARGIN: 0px">Net cash used in financing activities </P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>(140,088)</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(122,061)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=414 colSpan=13>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=414 colSpan=13>
<P style="MARGIN: 0px">Net Increase (Decrease) in Cash</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>285,704&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(40,625)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=383 colSpan=11>
<P style="MARGIN: 0px">Cash, Beginning</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=31 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,266,315&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;926,625&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=266 colSpan=9>
<P style="MARGIN: 0px">Cash, Ending</P></TD>
<TD vAlign=bottom width=116 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=31 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;1,552,019&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;886,000&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=414 colSpan=13>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=414 colSpan=13>
<P style="MARGIN: 0px">Supplemental Disclosure of Cash Flow
Information:</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=369 colSpan=11>
<P style="MARGIN: 0px">Cash paid during the year for interest</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;292,528&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;265,760&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=414 colSpan=13>
<P style="MARGIN: 0px">Supplemental Disclosure of Non-Cash
Activities:</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=45 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=369 colSpan=11>
<P style="MARGIN: 0px">Rent in exchange of note receivable
repayment</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<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;-</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=16>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,000&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=626 colSpan=16>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=626 colSpan=16>
<P style="MARGIN: 0px" align=center>See notes to consolidated financial
statements.</P></TD></TR></TABLE>
<P style="MARGIN: 0px"><BR></P>
<P style="MARGIN: 0px"><BR>&nbsp;</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>10</P>
<P
style="MARGIN: 0px"><BR></P></BODY>
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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:  May 18, 2009
Date of
Earliest Event Reported:  May 18, 2009
AdCare Health Systems, Inc.
(Exact Name of Registrant as specified in its Charter)
Ohio
31-1332119
(State or other jurisdiction of
incorporation
or organization)
(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)).
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Item 2.02.  Financial Statements and Exhibits.
On Monday, May 18, 2009, AdCare Health Systems, Inc. (the
"Company") issued a press release announcing its financial results for the three
months ended March 31, 2009.  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 May 18, 2009
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:  May 18, 2009
ADCARE
HEALTH SYSTEMS, INC.
By:
/s/ Scott Cunningham
Name:
Scott Cunningham
Title:
 Chief Financial Officer
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EXHIBIT INDEX
Exhibit
No.
Description
99.1
AdCare
Health Systems, Inc. Press Release, dated May 18,
2009.
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Exhibit 99.1
Press Release
AdCare Health Systems, Inc. Turns Profitable
                                                        Reports
2009 First Quarter Earnings Results
SPRINGFIELD, OHIO,
May 18, 2009 /PRNewswire-FirstCall/ AdCare Health Systems, Inc. (NYSE AMEX:
ADK), an Ohio-based long-term care, home health care and management company,
today reported financial results for its first quarter of 2009.
Revenues for the
quarter ended March 31
st
, 2009 were $6,384,889 as compared to
$5,992,542 for the same quarter in 2008, an increase of $392,347.  The
increase was primarily due to improved occupancy at its assisted living
communities, an increase in Medicare patients at its nursing homes, and the
acquisition of the Lincoln Lodge.
Income from
operations for the quarter ended March 31, 2009 was $403,926 as compared to
$155,195 for the first quarter ended March 31, 2008, an increase of $248,731.
 Net income for the quarter ended March 31, 2009 was $95,814 as compared to
a net loss of $139,468 for the quarter ended March 31, 2008, an increase of
$235,282.  Basic and diluted net income per share for the three months
ended March 31, 2009 was $0.03
         as compared to a net loss
per share of $0.02 for the three months ended March 31, 2008, an improvement of
$0.05 per share for the quarter.
David A. Tenwick,
Chairman of AdCare, stated "I am pleased that the Company has turned profitable
and continues to make progress.  It is a testament to the strength of our
senior management team to have made such considerable financial improvements
during this economic downturn."  He continued, "AdCare has improved its
working capital by $490,000 since year end.  The Company's current
liabilities are only about $50,000 more than its current assets which is a
significant improvement from year end.  In addition, EBITDA (earnings
before interest, taxes, depreciation and amortization) was $629,234 for the
first quarter as compared to $381,889 for the first quarter last year, an
increase of $247,345 or 65%.
About AdCare Health
Systems, Inc.
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.  AdCare's 900
employees provide high-quality care for patients and residents residing in the
14 facilities that they manage, six of which are assisted living facilities, six
skilled nursing centers and two independent senior living communities.  The
Company has ownership interests in eight of those facilities.  In the ever
expanding marketplace of long-term care, AdCare's mission is to provide quality
healthcare services to the elderly.
Safe
Harbor Statement
Statements contained
in this press release that are not historical facts may be forward-looking
statements within the meaning of federal law.  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 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
5
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.
Contact:
April
Spittle
Manager of Corporate
Communications
1-703-893-0021 ext.
108
aspittle@galencc.com
www.adcarehealth.com
6
ADCARE HEALTH SYSTEMS, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31,
December 31,
2009
2008
ASSETS
(Unaudited)
Current Assets:
Cash
$
      1,552,019
$
   1,266,315
Accounts receivable:
Long-term care resident receivables, net
1,836,336
2,008,847
Management, consulting and development receivables,
net
285,979
258,811
Advances and receivables from affiliates
23,081
17,635
Prepaid expenses and other
516,373
478,534
Total current assets
4,213,788
4,030,142
Restricted cash
1,141,777
1,155,596
Property and equipment, net
16,622,981
16,772,660
License, net
1,189,307
1,189,307
Goodwill
2,679,482
2,679,482
Other assets
922,573
1,012,340
Total assets
$
    26,769,908
$
 26,839,527
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Current portion of notes payable and other
debt
$
        725,242
$
      713,323
Current portion of notes payable to
stockholder
9,432
9,432
Accounts payable
836,203
1,009,002
Accrued expenses
2,693,637
2,838,407
Total current liabilities
4,264,513
4,570,164
Notes payable and other debt, net of current
portion
16,824,813
16,974,788
Notes payable to stockholder, net of current
portion
32,594
34,626
Other liabilities
549,055
299,314
Income tax payable
180,649
170,007
Total liabilities
21,851,623
22,048,899
Stockholders' equity:
Preferred stock, no par value; 500,000 shares
authorized;
no shares issued or outstanding
-
-
Common stock and additional paid-in capital, no par
value;
14,500,000 shares authorized; 3,786,129 shares
issued and outstanding
14,790,692
14,766,967
Accumulated deficit
(10,149,718)
(10,245,532)
Total stockholders' equity
4,640,974
4,521,435
Noncontrolling interest in subsidiaries
277,311
269,193
Total equity
4,918,285
4,790,628
Total liabilities and stockholders' equity
$
    26,769,908
$
 26,839,527
See notes to consolidated financial
statements
7
ADCARE HEALTH SYSTEMS, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENT OF
OPERATIONS
(Unaudited)
Three Months Ended March 31,
2009
2008
Revenues:
Patient care revenues
$  5,916,835
$
   5,568,061
Management, consulting and development fee
revenue
468,054
424,481
Total revenue
6,384,889
5,992,542
Expenses:
Payroll and related payroll costs
3,737,729
3,587,397
Other operating expenses
2,017,926
2,023,256
Depreciation and amortization
225,308
226,694
Total expenses
5,980,963
5,837,347
Income from Operations
403,926
155,195
Other Income (Expense):
Interest income
1,308
9,133
Interest expense, others
(294,142)
(226,352)
Interest expense, related parties
(718)
(14,872)
Other expense
4,200
-
(289,352)
(232,092)
Income (Loss ) Before Income Taxes
114,574
(76,896)
Income Tax Expense
(10,642)
(10,642)
Net Income (Loss)
103,932
(87,538)
Net Income Attributable to Noncontrolling
Interest
(8,118)
(51,930)
Net Income (Loss) Attributable to AdCare Health
Systems, Inc.
$
       95,814
$
      (139,468)
Net Income (Loss) Per Share, Basic
$
           0.03
$
            (0.02)
Net Income (Loss) Per Share, Diluted
$
           0.03
$
            (0.02)
Weighted Average Common Shares Outstanding,
Basic
3,786,129
3,786,129
Diluted
3,815,820
3,786,129
See notes to consolidated financial
statements
8
ADCARE HEALTH SYSTEMS, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock
Accumulated
and Additional
Noncontrolling
Total
Deficit
Paid-in Capital
Interest
Balance, December 31, 2008:
$4,790,628
$(10,245,532)
$14,766,967
$269,193
Warrants issued in connection with
consulting
agreement
12,567
-
12,567
-
Stock option compensation expense
11,158
-
11,158
-
Net income
95,814
95,814
-
-
Net income attributable to noncontrolling
interest
8,118
-
-
8,118
Balance, March 31, 2009
$4,918,285
$(10,149,718)
$14,790,692
$277,311
See notes to consolidated financial
statements
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ADCARE HEALTH SYSTEMS, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited)
Three-Months Ended March 31,
2009
2008
Cash flows from operating activities:
Net Income (Loss)
$
       95,814
$   (139,468)
Adjustments to reconcile net income (loss) to net
cash
provided by operating activities:
Depreciation and amortization
225,308
226,694
Warrants issued for services
24,742
7,512
Stock option compensation expense
11,158
9,576
Minority interest
8,118
51,930
Note receivable forgiveness exchanged for
rent
-
9,000
Changes in certain assets and liabilities:
Accounts receivable
139,897
(110,987)
Prepaid expenses and other
(55,028)
24,640
Other assets
89,766
(100,614)
Accounts payable and accrued expenses
(317,570)
9,343
Income tax liability
10,642
10,642
Other liabilities
249,741
9,730
Net cash provided by operating activities
482,588
7,998
Cash flows from investing activities:
Increase in restricted cash
13,819
230,811
Purchase of property plant and equipment
(70,615)
(157,373)
Net cash (used in) provided by investing activities
(56,796)
73,438
Cash flows from financing activities:
Proceeds from notes payable
2,768
-
Repayment of notes payable to stockholder
(2,032)
-
Prepaid financing costs
-
1,786
Repayment on notes payable
(140,824)
(123,847)
Net cash used in financing activities
(140,088)
(122,061)
Net Increase (Decrease) in Cash
285,704
(40,625)
Cash, Beginning
1,266,315
926,625
Cash, Ending
$
   1,552,019
$
     886,000
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the year for interest
$
      292,528
$
     265,760
Supplemental Disclosure of Non-Cash
Activities:
Rent in exchange of note receivable
repayment
$
                   -
$
         9,000
See notes to consolidated financial
statements.
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