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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;August 20, 2008</P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>Date of
Earliest Event Reported: &nbsp;August 15, 2008</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>
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<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="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>1</P>
<P style="MARGIN: 0px"><BR></P>
<HR style="MARGIN-TOP: 9px; MARGIN-BOTTOM: 9px" noShade SIZE=1>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; PAGE-BREAK-BEFORE: always; LINE-HEIGHT: 12.5pt"
align=justify><B>Item 2.02. &nbsp;Financial Statements and Exhibits.</B></P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>On Tuesday, August 19, 2008, AdCare Health Systems, Inc. (the
&#147;Company&#148;) issued a press release announcing its financial results for its
second quarter ending June 30, 2008.&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 5.02 &nbsp;Departure of Directors or Certain Officers;
&nbsp;Election of Directors; &nbsp;Appointment of Certain Officers;
&nbsp;Compensatory Arrangements of Certain Officers</B></P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>On Friday, August 15, 2008, at a Special Meeting of Shareholders,
shareholders approved the issuance of warrants, which will vest over a period of
five years, to officers and directors of the Company to purchase an aggregate of
1,092,305 shares of the Company&#146;s common stock as described in the Company&#146;s
definitive proxy statement filed with the SEC on July 24, 2008 and incorporated
herein by reference.</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>Also, on Friday, August 15, 2008, Mr. J. Michael Williams
announced his retirement from the position of Executive Vice President and Chief
Operating Officer of the Company. &nbsp;Also, effective August 15, 2008, Mr.
Gary Wade, Chief Executive Officer, has assumed all the additional
responsibilities of Executive Vice President and Chief Operating Officer.</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>(d) &nbsp;Exhibits</P>
<TABLE style="FONT-SIZE: 10pt" cellSpacing=0>
<TR style="DISPLAY: none; FONT-SIZE: 0px" height=0>
<TD width=127></TD>
<TD width=511></TD></TR>
<TR>
<TD vAlign=top width=127>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify><U>Exhibit Number</U></P></TD>
<TD vAlign=top width=511>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify><U>Description of Exhibit</U></P></TD></TR>
<TR>
<TD vAlign=top width=127>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>99.1</P></TD>
<TD vAlign=top width=511>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>Press Release dated August 19, 2008</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="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>2</P>
<P style="MARGIN: 0px"><BR></P>
<HR style="MARGIN-TOP: 9px; MARGIN-BOTTOM: 9px" noShade SIZE=1>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; PAGE-BREAK-BEFORE: always; TEXT-INDENT: 48px; LINE-HEIGHT: 12.5pt"
align=center>SIGNATURES</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; TEXT-INDENT: 48px; LINE-HEIGHT: 12.5pt"
align=justify>Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereto duly authorized.</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>Date: &nbsp;August 20, 2008</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="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 August 19,
2008.</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="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="MARGIN: 0px"><BR></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>AdCare Health Systems, Inc. Reports 2008 Second Quarter</B></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt"
align=center><B>Earning Results</B></P>
<P style="MARGIN: 0px"><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt">SPRINGFIELD, Ohio,
August 19, 2008 /PRNewswire-FirstCall/ AdCare Health Systems, Inc. (Amex: ADK),
an Ohio based long term care, home care and management company, today reported
financial results for its second quarter of 2008.</P>
<P style="MARGIN: 0px"><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt">Revenues for the
quarter ended June 30, 2008 were $6,016,536 as compared to $5,872,377 for the
same quarter in 2007, an increase of $144,159. &nbsp;The increase was mostly due
to better occupancy at our skilled nursing centers and our assisted living
communities and increased rentals at our assisted living communities.</P>
<P style="MARGIN: 0px"><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt">The net income for
the quarter ended June 30, 2008 was $22,963 as compared to a loss of $212,880
for the second quarter ended June 30, 2007, an improvement of $235,843.
&nbsp;The improvement was due primarily to a gain of $413,593 recognized in the
acquisition of the New Lincoln Lodge, a 50 unit retirement and assisted living
facility located in Columbus, Ohio. &nbsp;Basic and diluted net income per share
for the quarter ended June 30, 2008 was $0.01 as compared to a basic and diluted
net loss per share of ($0.05) for the same quarter ended June 30, 2007.</P>
<P style="MARGIN: 0px"><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt">Revenues for the
six-months ended June 30, 2008 were $12,009,078 as compared to $11,696,726 for
the same period in 2007, an increase of $312,352. &nbsp;Net loss for the
six-months ended June 30, 2008 was $116,507 as compared to a loss of $347,657
for the same period in 2007, an improvement of $231,150. &nbsp;The improvement
again was due primarily to the gain recognized in the acquisition of the New
Lincoln Lodge in the second quarter. &nbsp;Basic and diluted net loss per share
for the six-months ended June 30, 2008 was ($0.03) as compared to a basic and
diluted net loss per share of ($0.09) for the same six-month period ended June
30, 2007.</P>
<P style="MARGIN: 0px"><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt">David A. Tenwick,
Chairman of AdCare, stated that &#147;the Company is continuing to absorb the
increased costs of being a public company and being listed on the American Stock
Exchange. &nbsp;So far this year, we have refinanced three of our assisted
living properties and one of our nursing homes with long term HUD financings.
&nbsp;In addition, we continue to look for suitable acquisitions as well as
raising additional capital. &nbsp;We believe that being a listed company is
helpful in looking for potential acquisitions and raising more capital.&#148;
&nbsp;&nbsp;</P>
<P style="MARGIN: 0px"><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt">The Chairman had two
additional announcements to make. &nbsp;Mr. Tenwick stated, &#148;On August 15, 2008,
J. &nbsp;Michael Williams, AdCare&#146;s Executive Vice President and COO, announced
his retirement from AdCare.&#148; &nbsp;Mr Tenwick added, &#147;We wish Mike well and Gary
Wade, in addition to his duties as President, will take on all of Mike&#146;s
operating responsibilities.&#148; &nbsp;The second announcement from Mr. Tenwick is
that at the special meeting of shareholders held on August 15, 2008, the
shareholders approved the issuance of warrants to officers and directors of
AdCare to purchase up to 1,092,305 shares of common stock of AdCare. &nbsp;As
described in the definitive proxy filed with the SEC on July 24, 2008, the
warrants will vest over a period of five years.</P>
<P style="MARGIN: 0px"><BR><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">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. (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 920 employees </P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt">provide high-quality
care for patients and residents residing in the 16 facilities that they manage,
seven of which are assisted living facilities, six skilled nursing centers and
three 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 unknown 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 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">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>
<P style="MARGIN: 0px"><BR><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>6</P>
<P style="MARGIN: 0px"><BR></P>
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<P style="PAGE-BREAK-BEFORE: always; MARGIN: 0px"><BR></P>
<TABLE style="FONT-SIZE: 10pt" cellSpacing=0 align=center>
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<TD width=97></TD></TR>
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<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 SHEETS</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>
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<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>June 30,</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>2008</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>2007</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 vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Current Assets:</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=51 colSpan=3>
<P style="MARGIN: 0px">Cash</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 style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,053,332 </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;926,625 </P></TD></TR>
<TR>
<TD vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Certificate of deposit, restricted</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;214,363
</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px; TEXT-INDENT: 13px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;209,637 </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;2,041,199
</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;2,115,364
</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;256,086
</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;259,778
</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;21,187
</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;27,558
</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;581,074
</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;&nbsp;453,219
</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>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4,167,241
</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;&nbsp;3,992,181
</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;&nbsp;&nbsp;712,369
</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;973,975
</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;16,965,197
</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;14,425,868 </P></TD></TR>
<TR>
<TD vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Note Receivable, Net</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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-
&nbsp;&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;221,413
</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">License, 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;1,189,307
</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;1,189,307
</P></TD></TR>
<TR>
<TD vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Goodwill</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,638,193
</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;2,638,193
</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Other Assets</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;1,033,726
</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;1,050,506
</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 assets</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;26,706,033 </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;&nbsp;24,491,443
</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=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>LIABILITIES AND STOCKHOLDERS&#146;
EQUITY</U></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">Current Liabilities:</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">Current portion of notes payable and other
debt</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;724,588 </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;773,279</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 to
stockholder</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;9,432
</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;9,026
</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=482 colSpan=3>
<P style="MARGIN: 0px">Accounts payable </P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,531,418
</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;1,416,313
</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">Accrued expenses</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>1,901,010</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>2,060,222</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=482 colSpan=3>
<P style="MARGIN: 0px">Forward purchase contract</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;900,000
</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;900,000
</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;5,066,448
</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>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,158,840
</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;15,217,668
</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;12,813,338 </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;801,776
</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;810,084
</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;480,521
</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;559,509
</P></TD></TR>
<TR>
<TD vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Deferred Tax Liability</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;21,284
</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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-
&nbsp;&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=499 colSpan=4>
<P style="MARGIN: 0px">Minority Interest in Equity of Consolidated
Entities</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;291,411
</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;255,070
</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</P></TD>
<TD style="BORDER-TOP: #000000 1px solid" vAlign=bottom width=105>
<P style="MARGIN: 0px; TEXT-INDENT: 13px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;21,879,108 </P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-TOP: #000000 1px solid" vAlign=bottom width=97>
<P style="MARGIN: 0px; TEXT-INDENT: 13px"
align=right>&nbsp;&nbsp;19,596,841 </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">Stockholders' equity:</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">Preferred stock, no par value; 500,000 shares
authorized;</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=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=465 colSpan=2>
<P style="MARGIN: 0px">no shares issued or outstanding</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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-
&nbsp;&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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-
&nbsp;&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">Common stock and additional paid-in capital, no par
value;</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=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=465 colSpan=2>
<P style="MARGIN: 0px">3,786,129 shares authorized; 3,786,129 shares
issued and outstanding</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>14,112,424</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;14,063,956</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">Accumulated deficit</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;(9,285,499)</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;(9,169,354)</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 stockholders' equity</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;4,826,925
</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;&nbsp;4,894,602
</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 and stockholders' equity</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;26,706,033 </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;&nbsp;24,491,443
</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="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=17></TD>
<TD width=1></TD>
<TD width=15></TD>
<TD width=298></TD>
<TD width=88></TD>
<TD width=19></TD>
<TD width=96></TD>
<TD width=36></TD>
<TD width=84></TD>
<TD width=19></TD>
<TD width=96></TD></TR>
<TR>
<TD vAlign=bottom width=775 colSpan=11>
<P style="MARGIN: 0px" align=center><B>ADCARE HEALTH SYSTEMS, INC. AND
SUBSIDIARIES</B></P></TD></TR>
<TR>
<TD vAlign=bottom width=775 colSpan=11>
<P style="MARGIN: 0px" align=center>CONSOLIDATED STATEMENTS OF
OPERATIONS</P></TD></TR>
<TR>
<TD vAlign=bottom width=775 colSpan=11>
<P style="MARGIN: 0px" align=center>(Unaudited)</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=204 colSpan=3>
<P style="MARGIN: 0px" align=center>Three-Months Ended</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=200 colSpan=3>
<P style="MARGIN: 0px" align=center>Six-Months Ended</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=204
colSpan=3>
<P style="MARGIN: 0px" align=center>June 30,</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=200
colSpan=3>
<P style="MARGIN: 0px" align=center>June 30,</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=center>2008&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=center>2007</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=center>2008</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=center>2007</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=4>
<P style="MARGIN: 0px">Revenues:</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Patient care revenues</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>&nbsp;$ &nbsp;5,574,114&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>&nbsp;$5,457,475&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>$11,142,175&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>&nbsp;$10,824,117&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Management, consulting and development fee
revenue</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;442,422&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;414,902&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=84>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;866,903&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;872,609&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=298>
<P style="MARGIN: 0px">Total revenue</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;6,016,536&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,872,377&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>&nbsp;&nbsp;12,009,078&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;11,696,726&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=4>
<P style="MARGIN: 0px">Expenses:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Payroll and related payroll costs</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,697,477&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,653,871&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;7,284,874&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,342,447&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Other operating expenses</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,113,128&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,924,627&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;4,136,385&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,704,381&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Depreciation and amortization</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>206,324&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;169,683&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=84>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;433,018&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;340,087&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=298>
<P style="MARGIN: 0px">Total expenses</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>6,016,929&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,748,181&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>&nbsp;&nbsp;11,854,277&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;11,386,915&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=4>
<P style="MARGIN: 0px">Income (Loss) from Continuing Operations</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(393)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;124,196&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>154,801&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>309,811&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=4>
<P style="MARGIN: 0px">Other Income (Expense):</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Interest income</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,096&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,728&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14,228&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;33,308&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Interest expense, others</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(393,358)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(289,373)</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(619,710)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(569,945)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Interest expense, related parties</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(13,574)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(17,726)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(28,446)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(35,683)</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Minority interest in earnings (losses) of
&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P style="MARGIN: 0px">consolidated entities</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;22,241&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(36,134)</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=84>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(29,689)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(64,008)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(379,595)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;(326,505)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>(663,617)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(636,328)</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=4>
<P style="MARGIN: 0px">Gain on Acquisition</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>413,593&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>-&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>413,593&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>-</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=4>
<P style="MARGIN: 0px">Income (Loss ) From Continuing Operations Before
</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<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=316 colSpan=3>
<P style="MARGIN: 0px">Income Taxes</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>33,605&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>(202,309)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>(95,223)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>(326,517)</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=4>
<P style="MARGIN: 0px">Income Tax Expense</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>(10,642)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>-&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>(21,284)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>-</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=4>
<P style="MARGIN: 0px">Income (Loss) From Continuing Operations</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>22,963</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>(202,309)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>(116,507)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>(326,517)</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=4>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=4>
<P style="MARGIN: 0px">Discontinued Operations:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Loss from discontinued operations</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>-&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>(10,571)</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>-&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>(21,140)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=4>
<P style="MARGIN: 0px">Net Income (Loss)</P></TD>
<TD
style="BORDER-TOP: #000000 1px solid; BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;22,963&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-TOP: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;(212,880)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>$ &nbsp;&nbsp;(116,507)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(347,657)</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-TOP: #000000 3px double" vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-TOP: #000000 3px double" vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-TOP: #000000 3px double" vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=4>
<P style="MARGIN: 0px">Net Income (Loss) Per Share, Basic:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Continuing operations</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.01&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.05)</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.03)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.09)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Discontinued operations</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&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=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&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=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=84>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&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=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>-</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.01&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.05)</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.03)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.09)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=4>
<P style="MARGIN: 0px">Net Income (Loss) Per Share, Diluted:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Continuing operations</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.01&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.05)&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.03)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.09)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Discontinued operations</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&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=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>-&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>&nbsp;-</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>-&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=4>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.01&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.05)&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=84>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.03)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.09)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=4>
<P style="MARGIN: 0px">Weighted Average Common Shares Outstanding,</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=84>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Basic</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,786,129&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,786,129&nbsp;</P></TD>
<TD vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=84>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;3,786,129&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,786,129 </P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19 colSpan=2>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Diluted</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>5,609,196&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,786,129&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=36>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=84>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;3,786,129&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,786,129 </P></TD></TR>
<TR>
<TD vAlign=bottom width=775 colSpan=11>
<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="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>8</P>
<P style="MARGIN: 0px"><BR></P>
<HR style="MARGIN-TOP: 9px; MARGIN-BOTTOM: 9px" noShade SIZE=1>
<P style="PAGE-BREAK-BEFORE: always; MARGIN: 0px"><BR></P>
<TABLE style="FONT-SIZE: 10pt" cellSpacing=0 align=center>
<TR style="DISPLAY: none; FONT-SIZE: 0px" height=0>
<TD width=44></TD>
<TD width=25></TD>
<TD width=25></TD>
<TD width=25></TD>
<TD width=25></TD>
<TD width=114></TD>
<TD width=114></TD>
<TD width=127></TD>
<TD width=88></TD>
<TD width=25></TD>
<TD width=88></TD></TR>
<TR>
<TD vAlign=bottom width=708 colSpan=11>
<P style="MARGIN: 0px" align=center><B>ADCARE HEALTH SYSTEMS, INC. AND
SUBSIDIARIES</B></P></TD></TR>
<TR>
<TD vAlign=bottom width=708 colSpan=11>
<P style="MARGIN: 0px" align=center>CONSOLIDATED STATEMENTS OF CASH
FLOWS</P></TD></TR>
<TR>
<TD vAlign=bottom width=708 colSpan=11>
<P style="MARGIN: 0px" align=center>(Unaudited)</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=114>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=114>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=127>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=203 colSpan=3>
<P style="MARGIN: 0px" align=center>&nbsp;Six-Months Ended June
30,</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=114>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=114>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=127>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=center>2008</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=center>2007</P></TD></TR>
<TR>
<TD vAlign=bottom width=505 colSpan=8>
<P style="MARGIN: 0px">Cash flows from operating activities:</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=460 colSpan=7>
<P style="MARGIN: 0px">Net Loss</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>&nbsp;$ &nbsp;&nbsp;(116,507)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>&nbsp;$ &nbsp;&nbsp;(347,657)</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=460 colSpan=7>
<P style="MARGIN: 0px">Add back: &nbsp;loss from discontinued
operations</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<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;-</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>(10,571)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=460 colSpan=7>
<P style="MARGIN: 0px">Net loss from continuing operations</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>&nbsp;$ &nbsp;(116,507)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>&nbsp;$ &nbsp;&nbsp;(358,228)</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=114>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=114>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=127>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=460 colSpan=7>
<P style="MARGIN: 0px">Adjustments to reconcile net loss from continuing
operations to net cash </P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=460 colSpan=7>
<P style="MARGIN: 0px">provided by (used in) operating activities:</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=409 colSpan=5>
<P style="MARGIN: 0px">Depreciation and amortization</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;433,018&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;340,087&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=409 colSpan=5>
<P style="MARGIN: 0px">Warrants issued for services</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;55,105&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8,123&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=409 colSpan=5>
<P style="MARGIN: 0px">Stock option compensation expense</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19,151&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6,330&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=409 colSpan=5>
<P style="MARGIN: 0px">Minority interest</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;29,689&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;64,008&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=409 colSpan=5>
<P style="MARGIN: 0px">Note receivable forgiveness exchanged for
rent</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,000&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18,000&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=409 colSpan=5>
<P style="MARGIN: 0px">Gain on acquisition</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>(413,593)</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>-</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=409 colSpan=5>
<P style="MARGIN: 0px">Changes in certain assets and liabilities:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=383 colSpan=4>
<P style="MARGIN: 0px">Accounts receivable</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;78,627&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(86,624)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=383 colSpan=4>
<P style="MARGIN: 0px">Prepaid expenses and other</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>153,084&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(192,513)</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=383 colSpan=4>
<P style="MARGIN: 0px">Other assets</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;780&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(9,645)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=383 colSpan=4>
<P style="MARGIN: 0px">Accounts payable and accrued expenses</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(114,350)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(65,862)</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=383 colSpan=4>
<P style="MARGIN: 0px">Income tax liability</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;21,284&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<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;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=383 colSpan=4>
<P style="MARGIN: 0px">Other liabilities</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(97,485)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;75,926&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=460 colSpan=7>
<P style="MARGIN: 0px">Net cash provided by (used in) operating activities
of continuing operations</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;57,803&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(200,398)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=460 colSpan=7>
<P style="MARGIN: 0px">Net cash used in operating activities of
discontinued operations</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&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=25>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4,278)</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=460 colSpan=7>
<P style="MARGIN: 0px">Net cash provided by (used in) operating
activities</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>57,803&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>(204,676)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=505 colSpan=8>
<P style="MARGIN: 0px">Cash flow from investing activities:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=434 colSpan=6>
<P style="MARGIN: 0px">Proceeds from the sale of assets net of associated
costs</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>2,500&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>-&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=434 colSpan=6>
<P style="MARGIN: 0px">Purchase of property plant and equipment</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(226,160)</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(569,895)</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=460 colSpan=7>
<P style="MARGIN: 0px">Net cash used in investing activities </P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;(223,660)</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(569,895)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=505 colSpan=8>
<P style="MARGIN: 0px">Cash flows from financing activities:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=434 colSpan=6>
<P style="MARGIN: 0px">Amortization of bond issuance costs</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>144,475&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>69,196&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=434 colSpan=6>
<P style="MARGIN: 0px">Decrease in restricted cash</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>276,693&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>8,248&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=434 colSpan=6>
<P style="MARGIN: 0px">Proceeds from notes payable</P></TD>
<TD vAlign=bottom width=88>
<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;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;54,000&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=434 colSpan=6>
<P style="MARGIN: 0px">Cash received upon exercise of warrants</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<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;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20,000&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=434 colSpan=6>
<P style="MARGIN: 0px">Repayment of notes payable to stockholder</P></TD>
<TD vAlign=bottom width=88>
<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;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4,646)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=434 colSpan=6>
<P style="MARGIN: 0px">Prepaid Financing Costs</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;111,984&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=434 colSpan=6>
<P style="MARGIN: 0px">Repayment on notes payable</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(240,588)</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(201,524)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=460 colSpan=7>
<P style="MARGIN: 0px">Net cash provided by (used in) financing activities
of continuing operations</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;292,564</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(54,726)</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=460 colSpan=7>
<P style="MARGIN: 0px">Net cash provided by (used in) financing activities
of discontinued operations:</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=434 colSpan=6>
<P style="MARGIN: 0px">Repayment on notes payable of discontinued
operations</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&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=25>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4,739)</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=460 colSpan=7>
<P style="MARGIN: 0px">Net cash used in financing activities</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;292,564</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(59,465)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=505 colSpan=8>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=505 colSpan=8>
<P style="MARGIN: 0px">Net Increase (Decrease) in Cash</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;126,707&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(834,036)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=377 colSpan=7>
<P style="MARGIN: 0px">Cash, Beginning</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=127>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;926,625&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,136,414&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=263 colSpan=6>
<P style="MARGIN: 0px">Cash, Ending</P></TD>
<TD vAlign=bottom width=114>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=127>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>$ &nbsp;&nbsp;1,053,332&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>$ &nbsp;&nbsp;1,302,378&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=114>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=114>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=127>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=505 colSpan=8>
<P style="MARGIN: 0px">Supplemental Disclosure of Cash Flow
Information:</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=460 colSpan=7>
<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=88>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;265,760&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;523,939&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=505 colSpan=8>
<P style="MARGIN: 0px">Supplemental Disclosure of Non-Cash
Activities:</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=460 colSpan=7>
<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=88>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,000&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18,000&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=44>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=460 colSpan=7>
<P style="MARGIN: 0px">Acquisition of assets in exchange for note
forgiveness</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>$ &nbsp;&nbsp;2,808,736&nbsp;</P></TD>
<TD vAlign=bottom width=25>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=708 colSpan=11>
<P style="MARGIN: 0px" align=center>See notes to consolidated financial
statements.</P></TD></TR></TABLE>
<P style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 16px; LINE-HEIGHT: 10pt">&nbsp;</P>
<P style="MARGIN: 0px"><BR></P>
<P style="MARGIN: 0px"><BR></P>
<P style="MARGIN: 0px"><BR></P>
<P style="MARGIN: 0px"><BR></P>
<P style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 16px; LINE-HEIGHT: 10pt"><BR><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>9</P>
<P
style="MARGIN: 0px"><BR></P></BODY>
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{"company-data": {"conformed-name": "ADCARE HEALTH SYSTEMS INC", "cik": "0001004724", "assigned-sic": "8051", "irs-number": "311332119", "state-of-incorporation": "OH"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "001-33135", "film-number": "081030470"}, "business-address": {"street1": "5057 TROY RD", "city": "SPRINGFEILD", "state": "OH", "zip": "45502", "phone": "937-964-8974"}, "mail-address": {"street1": "5057 TROY RD", "city": "SPRINGFIELD", "state": "OH", "zip": "45502"}}
SECURITIES AND EXCHANGE COMMISSION
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Date of
Report:  August 20, 2008
Date of
Earliest Event Reported:  August 15, 2008
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)).
1
Item 2.02.  Financial Statements and Exhibits.
On Tuesday, August 19, 2008, AdCare Health Systems, Inc. (the
"Company") issued a press release announcing its financial results for its
second quarter ending June 30, 2008.  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 5.02  Departure of Directors or Certain Officers;
 Election of Directors;  Appointment of Certain Officers;
 Compensatory Arrangements of Certain Officers
On Friday, August 15, 2008, at a Special Meeting of Shareholders,
shareholders approved the issuance of warrants, which will vest over a period of
five years, to officers and directors of the Company to purchase an aggregate of
1,092,305 shares of the Company's common stock as described in the Company's
definitive proxy statement filed with the SEC on July 24, 2008 and incorporated
herein by reference.
Also, on Friday, August 15, 2008, Mr. J. Michael Williams
announced his retirement from the position of Executive Vice President and Chief
Operating Officer of the Company.  Also, effective August 15, 2008, Mr.
Gary Wade, Chief Executive Officer, has assumed all the additional
responsibilities of Executive Vice President and Chief Operating Officer.
Item 9.01.  Financial Statements and Exhibits.
(d)  Exhibits
Exhibit Number
Description of Exhibit
99.1
Press Release dated August 19, 2008
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereto duly authorized.
Date:  August 20, 2008
ADCARE
HEALTH SYSTEMS, INC.
By:
/s/ Scott Cunningham
Name:
Scott Cunningham
Title:
 Chief Financial Officer
3
EXHIBIT INDEX
Exhibit
No.
Description
99.1
AdCare
Health Systems, Inc. Press Release, dated August 19,
2008.
4
Exhibit 99.1
Press Release
AdCare Health Systems, Inc. Reports 2008 Second Quarter
Earning Results
SPRINGFIELD, Ohio,
August 19, 2008 /PRNewswire-FirstCall/ AdCare Health Systems, Inc. (Amex: ADK),
an Ohio based long term care, home care and management company, today reported
financial results for its second quarter of 2008.
Revenues for the
quarter ended June 30, 2008 were $6,016,536 as compared to $5,872,377 for the
same quarter in 2007, an increase of $144,159.  The increase was mostly due
to better occupancy at our skilled nursing centers and our assisted living
communities and increased rentals at our assisted living communities.
The net income for
the quarter ended June 30, 2008 was $22,963 as compared to a loss of $212,880
for the second quarter ended June 30, 2007, an improvement of $235,843.
 The improvement was due primarily to a gain of $413,593 recognized in the
acquisition of the New Lincoln Lodge, a 50 unit retirement and assisted living
facility located in Columbus, Ohio.  Basic and diluted net income per share
for the quarter ended June 30, 2008 was $0.01 as compared to a basic and diluted
net loss per share of ($0.05) for the same quarter ended June 30, 2007.
Revenues for the
six-months ended June 30, 2008 were $12,009,078 as compared to $11,696,726 for
the same period in 2007, an increase of $312,352.  Net loss for the
six-months ended June 30, 2008 was $116,507 as compared to a loss of $347,657
for the same period in 2007, an improvement of $231,150.  The improvement
again was due primarily to the gain recognized in the acquisition of the New
Lincoln Lodge in the second quarter.  Basic and diluted net loss per share
for the six-months ended June 30, 2008 was ($0.03) as compared to a basic and
diluted net loss per share of ($0.09) for the same six-month period ended June
30, 2007.
David A. Tenwick,
Chairman of AdCare, stated that "the Company is continuing to absorb the
increased costs of being a public company and being listed on the American Stock
Exchange.  So far this year, we have refinanced three of our assisted
living properties and one of our nursing homes with long term HUD financings.
 In addition, we continue to look for suitable acquisitions as well as
raising additional capital.  We believe that being a listed company is
helpful in looking for potential acquisitions and raising more capital."
The Chairman had two
additional announcements to make.  Mr. Tenwick stated, "On August 15, 2008,
J.  Michael Williams, AdCare's Executive Vice President and COO, announced
his retirement from AdCare."  Mr Tenwick added, "We wish Mike well and Gary
Wade, in addition to his duties as President, will take on all of Mike's
operating responsibilities."  The second announcement from Mr. Tenwick is
that at the special meeting of shareholders held on August 15, 2008, the
shareholders approved the issuance of warrants to officers and directors of
AdCare to purchase up to 1,092,305 shares of common stock of AdCare.  As
described in the definitive proxy filed with the SEC on July 24, 2008, the
warrants will vest over a period of five years.
5
About
AdCare Health Systems, Inc.
AdCare Health
Systems, Inc. (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 920 employees
provide high-quality
care for patients and residents residing in the 16 facilities that they manage,
seven of which are assisted living facilities, six skilled nursing centers and
three 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 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 SHEETS
June 30,
December 31,
2008
2007
ASSETS
(Unaudited)
Current Assets:
Cash
$
      1,053,332
$
       926,625
Certificate of deposit, restricted
214,363
209,637
Accounts receivable:
Long-term care resident receivables, net
2,041,199
2,115,364
Management, consulting and development receivables,
net
256,086
259,778
Advances and receivables from affiliates
21,187
27,558
Prepaid expenses and other
581,074
453,219
Total current assets
4,167,241
3,992,181
Restricted Cash
712,369
973,975
Property and Equipment, Net
16,965,197
14,425,868
Note Receivable, Net
-
221,413
License, Net
1,189,307
1,189,307
Goodwill
2,638,193
2,638,193
Other Assets
1,033,726
1,050,506
Total assets
$
    26,706,033
$   24,491,443
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Current portion of notes payable and other
debt
$
        724,588
$
       773,279
Current portion of notes payable to
stockholder
9,432
9,026
Accounts payable
1,531,418
1,416,313
Accrued expenses
1,901,010
2,060,222
Forward purchase contract
900,000
900,000
Total current liabilities
5,066,448
5,158,840
Notes Payable and Other Debt, Net of Current
Portion
15,217,668
12,813,338
Notes Payable to Stockholder, Net of Current
Portion
801,776
810,084
Other Liabilities
480,521
559,509
Deferred Tax Liability
21,284
-
Minority Interest in Equity of Consolidated
Entities
291,411
255,070
Total liabilities
21,879,108
19,596,841
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;
3,786,129 shares authorized; 3,786,129 shares
issued and outstanding
14,112,424
14,063,956
Accumulated deficit
(9,285,499)
(9,169,354)
Total stockholders' equity
4,826,925
4,894,602
Total liabilities and stockholders' equity
$
    26,706,033
$   24,491,443
See notes to consolidated financial
statements
7
ADCARE HEALTH SYSTEMS, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
Three-Months Ended
Six-Months Ended
June 30,
June 30,
2008
2007
2008
2007
Revenues:
Patient care revenues
$  5,574,114
$5,457,475
$11,142,175
$10,824,117
Management, consulting and development fee
revenue
442,422
414,902
866,903
872,609
Total revenue
6,016,536
5,872,377
12,009,078
11,696,726
Expenses:
Payroll and related payroll costs
3,697,477
3,653,871
7,284,874
7,342,447
Other operating expenses
2,113,128
1,924,627
4,136,385
3,704,381
Depreciation and amortization
206,324
169,683
433,018
340,087
Total expenses
6,016,929
5,748,181
11,854,277
11,386,915
Income (Loss) from Continuing Operations
(393)
124,196
154,801
309,811
Other Income (Expense):
Interest income
5,096
16,728
14,228
33,308
Interest expense, others
(393,358)
(289,373)
(619,710)
(569,945)
Interest expense, related parties
(13,574)
(17,726)
(28,446)
(35,683)
Minority interest in earnings (losses) of
consolidated entities
22,241
(36,134)
(29,689)
(64,008)
(379,595)
(326,505)
(663,617)
(636,328)
Gain on Acquisition
413,593
-
413,593
-
Income (Loss ) From Continuing Operations Before
Income Taxes
33,605
(202,309)
(95,223)
(326,517)
Income Tax Expense
(10,642)
-
(21,284)
-
Income (Loss) From Continuing Operations
22,963
(202,309)
(116,507)
(326,517)
Discontinued Operations:
Loss from discontinued operations
-
(10,571)
-
(21,140)
Net Income (Loss)
$
       22,963
$
    (212,880)
$   (116,507)
$
     (347,657)
Net Income (Loss) Per Share, Basic:
Continuing operations
$
          0.01
$
       (0.05)
$
       (0.03)
$
          (0.09)
Discontinued operations
-
-
-
-
$
          0.01
$
       (0.05)
$
       (0.03)
$
          (0.09)
Net Income (Loss) Per Share, Diluted:
Continuing operations
$
           0.01
$
        (0.05)
$
        (0.03)
$
           (0.09)
Discontinued operations
-
-
-
-
$
           0.01
$
         (0.05)
$
        (0.03)
$
           (0.09)
Weighted Average Common Shares Outstanding,
Basic
3,786,129
3,786,129
3,786,129
3,786,129
Diluted
5,609,196
3,786,129
3,786,129
3,786,129
See notes to consolidated financial
statements.
8
ADCARE HEALTH SYSTEMS, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited)
Six-Months Ended June
30,
2008
2007
Cash flows from operating activities:
Net Loss
$   (116,507)
$   (347,657)
Add back:  loss from discontinued
operations
-
(10,571)
Net loss from continuing operations
$  (116,507)
$   (358,228)
Adjustments to reconcile net loss from continuing
operations to net cash
provided by (used in) operating activities:
Depreciation and amortization
433,018
340,087
Warrants issued for services
55,105
8,123
Stock option compensation expense
19,151
6,330
Minority interest
29,689
64,008
Note receivable forgiveness exchanged for
rent
9,000
18,000
Gain on acquisition
(413,593)
-
Changes in certain assets and liabilities:
Accounts receivable
78,627
(86,624)
Prepaid expenses and other
153,084
(192,513)
Other assets
780
(9,645)
Accounts payable and accrued expenses
(114,350)
(65,862)
Income tax liability
21,284
-
Other liabilities
(97,485)
75,926
Net cash provided by (used in) operating activities
of continuing operations
57,803
(200,398)
Net cash used in operating activities of
discontinued operations
-
(4,278)
Net cash provided by (used in) operating
activities
57,803
(204,676)
Cash flow from investing activities:
Proceeds from the sale of assets net of associated
costs
2,500
-
Purchase of property plant and equipment
(226,160)
(569,895)
Net cash used in investing activities
(223,660)
(569,895)
Cash flows from financing activities:
Amortization of bond issuance costs
144,475
69,196
Decrease in restricted cash
276,693
8,248
Proceeds from notes payable
-
54,000
Cash received upon exercise of warrants
-
20,000
Repayment of notes payable to stockholder
-
(4,646)
Prepaid Financing Costs
111,984
-
Repayment on notes payable
(240,588)
(201,524)
Net cash provided by (used in) financing activities
of continuing operations
292,564
(54,726)
Net cash provided by (used in) financing activities
of discontinued operations:
Repayment on notes payable of discontinued
operations
-
(4,739)
Net cash used in financing activities
292,564
(59,465)
Net Increase (Decrease) in Cash
126,707
(834,036)
Cash, Beginning
926,625
2,136,414
Cash, Ending
$   1,053,332
$   1,302,378
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the year for Interest
$
     265,760
$
     523,939
Supplemental Disclosure of Non-Cash
Activities:
Rent in exchange of note receivable
repayment
$
         9,000
$
       18,000
Acquisition of assets in exchange for note
forgiveness
$   2,808,736
$
                -
See notes to consolidated financial
statements.
9