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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: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt"
align=center><B>Washington, D.C. &nbsp;20549</B></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 14pt; MARGIN: 0px; LINE-HEIGHT: 16pt" align=center><B>FORM
8-K</B></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt"
align=center><B>CURRENT REPORT</B></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt"
align=center><B>Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934</B></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>Date of
Report: &nbsp;May 18, 2010</P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>Date of
Earliest Event Reported: &nbsp;May 17, 2010</P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 18.5pt; MARGIN: 0px; LINE-HEIGHT: 20.5pt"
align=center><B>AdCare Health Systems, Inc.</B></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt"
align=center><I>(Exact Name of Registrant as specified in its Charter)</I></P>
<P style="MARGIN: 0px" align=center><BR></P>
<TABLE style="FONT-SIZE: 10pt" cellSpacing=0 align=center>
<TR style="DISPLAY: none; FONT-SIZE: 0px" height=0>
<TD width=309></TD>
<TD width=218></TD>
<TD width=248></TD></TR>
<TR>
<TD vAlign=bottom width=309>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><B>Ohio</B></P></TD>
<TD vAlign=top width=218>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><B>333-131542</B></P></TD>
<TD vAlign=bottom width=248>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><B>31-1332119</B></P></TD></TR>
<TR>
<TD vAlign=top width=309>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><I>(State or other jurisdiction of</I></P>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><I>incorporation or organization)</I></P></TD>
<TD vAlign=top width=218>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><I>(Commission File Number)</I></P></TD>
<TD vAlign=top width=248>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><I>(I.R.S. Employer Identification No.)</I></P></TD></TR>
<TR>
<TD vAlign=bottom width=528 colSpan=2>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><B>5057 Troy Rd, Springfield, OH</B></P></TD>
<TD vAlign=bottom width=248>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><B>45502-9032</B></P></TD></TR>
<TR>
<TD vAlign=top width=528 colSpan=2>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><I>(Address of principal executive offices)</I></P></TD>
<TD vAlign=top width=248>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><I>(Zip Code)</I></P></TD></TR></TABLE>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><B>Registrant&#146;s Telephone Number, Including Area Code</B></P>
<P style="FONT-SIZE: 10.5pt; MARGIN: 0px; LINE-HEIGHT: 12.5pt"
align=center><B>(937) 964-8974</B></P>
<P style="MARGIN: 0px"><BR></P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>Check the appropriate box below if the form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of
the following provisions (See General Instruction A2. below):</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>[ &nbsp;] Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425)</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>[ &nbsp;] Soliciting material pursuant to Rule 14a-12 under the
Exchange Act (17 CFR 240.14a-12)</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>[ &nbsp;] Pre-commencement communications pursuant to Rule
14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>[ &nbsp;] Pre-commencement communications pursuant to Rule
13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c)).</P>
<P style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 16px" align=justify><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>1</P>
<P style="MARGIN: 0px"><BR></P>
<HR style="MARGIN-TOP: 9px; MARGIN-BOTTOM: 9px" noShade SIZE=1>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; PAGE-BREAK-BEFORE: always; LINE-HEIGHT: 12.5pt"
align=justify><B>Item 2.02. &nbsp;Financial Statements and Exhibits.</B></P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>On Monday, May 17, 2010, AdCare Health Systems, Inc. (the
&#147;Company&#148;) issued a press release announcing its financial results for the three
months ended March 31, 2010.&nbsp; A copy of this press release is furnished as
Exhibit 99.1 hereto.&nbsp; Pursuant to the rules and regulations of the
Securities and Exchange Commission, the information in this Current Report on
Form 8-K, including the attached exhibit and the information set forth therein,
shall not be deemed &#147;filed&#148; for purposes of Section 18 of the Securities
Exchange Act of 1934, nor shall it be deemed to be incorporated by reference in
any filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, regardless of any general incorporation language in such filing.</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify><B>Item 9.01. &nbsp;Financial Statements and Exhibits.</B></P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; TEXT-INDENT: 48px; LINE-HEIGHT: 12.5pt"
align=justify>Exhibits</P>
<TABLE style="FONT-SIZE: 10pt" cellSpacing=0>
<TR style="DISPLAY: none; FONT-SIZE: 0px" height=0>
<TD width=127></TD>
<TD width=511></TD></TR>
<TR>
<TD vAlign=top width=127>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify><U>Exhibit Number</U></P></TD>
<TD vAlign=top width=511>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify><U>Description of Exhibit</U></P></TD></TR>
<TR>
<TD vAlign=top width=127>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>99.1</P></TD>
<TD vAlign=top width=511>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>Press Release dated May 17, 2010</P></TD></TR></TABLE>
<P style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 14px" align=justify><BR></P>
<P style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 16px" align=center><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>2</P>
<P style="MARGIN: 0px"><BR></P>
<HR style="MARGIN-TOP: 9px; MARGIN-BOTTOM: 9px" noShade SIZE=1>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; PAGE-BREAK-BEFORE: always; TEXT-INDENT: 48px; LINE-HEIGHT: 12.5pt"
align=center>SIGNATURES</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; TEXT-INDENT: 48px; LINE-HEIGHT: 12.5pt"
align=justify>Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereto duly authorized.</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt"
align=justify>Date: &nbsp;May 18, 2010</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 336px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt">ADCARE
HEALTH SYSTEMS, INC.</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 336px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt">By:<U>
&nbsp;/s/ Scott Cunningham</U></P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 336px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt">Name:
Scott Cunningham</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 336px; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 14px; LINE-HEIGHT: 12.5pt">Title:
&nbsp;Chief Financial Officer</P>
<P style="MARGIN: 0px" align=right><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>3</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>&nbsp;Exhibit 99.1</P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="MARGIN: 0px"><BR></P>
<P style="MARGIN: 0px"><BR></P>
<P
style="PADDING-RIGHT: 2px; FONT-SIZE: 14pt; MARGIN: 0px; LINE-HEIGHT: 17pt; FONT-FAMILY: Calibri"
align=center><B>AdCare Health Systems Reports First Quarter 2010 Results</B></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P
style="PADDING-RIGHT: 2px; FONT-SIZE: 12.5pt; MARGIN: 0px; LINE-HEIGHT: 17pt; FONT-FAMILY: Calibri"
align=center><I>Revenue of $6.4 Million; EPS of $0.05 versus $0.03 in Same
Year-Ago Quarter</I></P>
<P style="MARGIN: 0px; LINE-HEIGHT: 17pt"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"><B>SPRINGFIELD,
Ohio, May 17, 2010</B> <B>&#151;</B> <B>AdCare Health Systems, Inc. </B>(NYSE AMEX:
ADK), an Ohio-based long-term care, home care and management company, reported
financial results for the first quarter ended March 31, 2010.</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"><B>Q1
2010 Financial Results</B></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Revenue
in the first quarter of 2010 was $6.4 million, unchanged from the same year-ago
quarter. The company&#146;s results were unchanged in the first quarter of 2010
primarily due to a decrease in the number of residents covered by Medicare to
11.3% compared to 16.6% in the same year-ago period, resulting in a decrease in
revenue of $120,000, offset by a $65,000 increase in revenue in the company&#146;s
assisted living centers and a $40,000 increase in management fees.</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Loss
from operations in the first quarter of 2010 was $114,000, as compared to income
from operations of $404,000 in the same year-ago quarter. The loss in the first
quarter of 2010 was partially the result of a $202,000 increase in amortized
non-cash compensation expense over the year-ago quarter related to warrants and
restricted stock issued to management in December 2009.</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Net
income in the first quarter of 2010 totaled $414,000 or $0.05 per diluted share
as compared to net income of $104,000 or $0.03 per diluted share in the same
year-ago period. Net income in the first quarter of 2010 included a gain of
approximately $826,000 as a result of acquiring the remaining 50% interest in
three assisted living facilities during the quarter, partially offset by the
loss from operations. </P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">EBITDA
in the first quarter of 2010 increased 51% to $955,000 from EBITDA of $633,000
in the same year-ago period. The company defines EBITDA as net income before
interest income, interest expense, income tax expense and depreciation and
amortization (see the important discussion about the presentation of EBITDA, a
non-GAAP term, below). </P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Cash
at March 31, 2010 totaled $3.6 million, as compared to $4.5 million at the end
of fiscal 2009. The decrease in cash is primarily attributed to approximately
$118,000 in net cash used in operating activities, and approximately $800,000
used for completed and pending acquisitions.</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"><B>Q1
2010 Operational Highlights</B></P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 48px; FONT-SIZE: 12pt; MARGIN-BOTTOM: -18px; TEXT-INDENT: -24px; LINE-HEIGHT: 14pt; FONT-FAMILY: Symbol">&#183;</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 48px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 16px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">AdCare
signed a definitive purchase agreement for two privately-held nursing homes in
Alabama for $18.5 million. The facilities have a total of 312 beds and generate
an estimated $18 million in annualized revenue. The acquisitions, which
represent the company's first expansion outside of Ohio, are expected to
increase AdCare's annualized revenue by 60% and be immediately accretive to
earnings. The company expects to close the transaction in the third quarter of
2010.</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 48px; FONT-SIZE: 12pt; MARGIN-BOTTOM: -18px; TEXT-INDENT: -24px; LINE-HEIGHT: 14pt; FONT-FAMILY: Symbol">&#183;</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 48px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 16px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Completed
the acquisition of Community&#146;s Hearth &amp; Home (H&amp;H) in which AdCare
acquired its partners&#146; 50% interest in one assisted living facility located in
Urbana, Ohio, and two located in Springfield, Ohio. </P>
<P style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 16px"><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>4</P>
<P style="MARGIN: 0px"><BR></P>
<HR style="MARGIN-TOP: 9px; MARGIN-BOTTOM: 9px" noShade SIZE=1>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 48px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 16px; PAGE-BREAK-BEFORE: always; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">AdCare
will now be able to recognize 100% of the income generated by these facilities,
with no portion being attributed to the non-controlling interest. Additionally,
100% of the cash flow generated by these operations will now be available for
other company initiatives.</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 48px; FONT-SIZE: 12pt; MARGIN-BOTTOM: -18px; TEXT-INDENT: -24px; LINE-HEIGHT: 14pt; FONT-FAMILY: Symbol">&#183;</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 48px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 16px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Entered
into a multiyear management contract to manage 80 nursing home beds located in
two single story buildings in Northeastern Ohio. Third party management
contracts provide an outlet for higher margin services that support AdCare&#146;s
core, long-term care business without requiring large capital outlays.</P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"><B>Management
Commentary</B></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">&#147;During
the first quarter, we continued to focus on initiatives to grow both organically
and through acquisition,&#148; said David A. Tenwick, AdCare&#146;s chairman. &#147;To
compensate for the mix of Medicare-funded residents, and increase occupancy and
usage of our facilities, we continued to market cross-selling opportunities
between our home healthcare services and our centers for assisted and
independent living. We also signed a new multi-year facilities management
contract. Soon after the end of the quarter, we received the long-anticipated
approval to provide Medicare and Medicaid funded home healthcare services in two
additional Ohio counties, which includes the city of Columbus, and thereby
opening up new opportunities for this growing area of our business.</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">&#147;In
addition, by repositioning AdCare to grow more aggressively through acquisitions
during the second half of last year, we set the stage for significant
acquisition activity in 2010. These actions in 2009 included strengthening our
balance sheet by raising new equity, expanding our board of directors, and
appointing Christopher Brogdon, a highly experienced M&amp;A specialist in our
industry, as vice chairman and chief acquisition officer. </P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">&#147;In
the first quarter of 2010, we realized the first outcomes from our acquisition
plans. We acquired the remaining 50% of our three assisted living facilities in
Ohio and signed an agreement to purchase two nursing facilities in Alabama. The
agreement to purchase a 105-unit assisted living facility also in Alabama soon
followed after the end of the quarter<FONT
style="FONT-FAMILY: Times New Roman">. </FONT>When these Alabama acquisitions
are closed as expected &#150; the assisted living facility at the end of the second
quarter and the nursing homes at the beginning of the third &#150; we expect these
facilities to substantially expand our bottom line while adding, on aggregate,
65 to 80% to our top line. They will also represent our first expansion outside
of Ohio.&#148;</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Chris
Brogdon commented: &#147;As the year advances, we continue to see very attractive
opportunities in our highly fragmented market segments. We are working on
several potential acquisitions in our pipeline, with our efforts now assisted by
C.K. Cooper &amp; Company, a leading investment banking firm which we recently
engaged to advise us in these transactions.<FONT
style="FONT-FAMILY: Times New Roman">&#148;</FONT></P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Concluded
Tenwick: &#147;As we set out to accomplish our goals for the remainder of 2010, our
overriding mission will continue to be on maintaining the best quality of care
and services for our residents, and sustaining our position as the provider of
choice in the areas we serve.&#148;</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"><B>About
AdCare Health Systems</B></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">AdCare
Health Systems, Inc. (NYSE AMEX: ADK) develops, owns and manages assisted living
facilities, nursing homes and retirement communities and provides home
healthcare services. Prior to becoming a publicly traded company in November of
2006, AdCare operated as a private company for 18 years. AdCare's 900 employees
provide high-quality care, management services and other services for patients
and residents </P>
<P style="MARGIN: 0px"><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>5</P>
<P style="MARGIN: 0px"><BR></P>
<HR style="MARGIN-TOP: 9px; MARGIN-BOTTOM: 9px" noShade SIZE=1>
<P
style="FONT-SIZE: 12pt; PAGE-BREAK-BEFORE: always; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">residing
in 19 facilities, seven of which are assisted living facilities, 11 skilled
nursing centers and one independent senior living community. 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. For more information about AdCare, visit
www.adcarehealth.com.</P>
<P style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 8px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"><B>Safe
Harbor Statement</B></P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 8px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Statements
contained in this press release that are not historical facts may be
forward-looking statements within the meaning of federal law, which can be
identified by the use of forward-looking terminology such as "believes,"
"expects," &#147;plans&#148; or similar expressions. Statements in this announcement that
are forward-looking include, but are not limited to statements made by Mr.
Tenwick that recent contracts to acquire one assisted living facility and two
nursing facilities are expected to close in the second and third quarter,
respectively, and are expected to expand the company&#146;s bottom line while adding
more than 65 to 80% to the company&#146;s top line. 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
also identified in the public filings made by the company with the Securities
and Exchange Commission and include the company's ability to secure lines of
credit and/or an acquisition credit facility, find suitable acquisition
properties at favorable terms, changes in the health care industry because of
political and economic influences, changes in regulations governing the
industry, changes in reimbursement levels including those under the Medicare and
Medicaid programs and changes in the competitive marketplace. There can be no
assurance that such factors or other factors will not affect the accuracy of
such forward-looking statements.</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 8px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"><B>Use
of Non-GAAP Financial Information</B></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">EBITDA
is a measure of operating performance that is not calculated in accordance with
U.S. generally accepted accounting principles (&#147;GAAP&#148;). EBITDA should not be
considered in isolation or as a substitute for net income, income from
operations or cash flows provided by or used in operations, as determined in
accordance with GAAP. EBITDA is a key measure of AdCare Health Systems&#146;
operating performance used by management to focus on operating performance and
management without mixing in items of income and expense that relate to the
financing and capitalization of the business. The company defines EBITDA as net
income (loss) before interest income, interest expense, income tax expense and
depreciation and amortization. </P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">The
company believes EBITDA is useful to investors in evaluating their performance,
results of operations and financial position for the following reasons:</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 72px; FONT-SIZE: 12pt; MARGIN-BOTTOM: -18px; TEXT-INDENT: -48px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">&#149;</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 72px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 8px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">It&#146;s
helpful in identifying trends in the company&#146;s day-to-day performance because
the items excluded have little or no significance to the company&#146;s day-to-day
operations;</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 72px; FONT-SIZE: 12pt; MARGIN-BOTTOM: -18px; TEXT-INDENT: -48px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">&#149;</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 72px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 8px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">It
provides an assessment of controllable expenses and affords management the
ability to make decisions which are expected to facilitate meeting current
financial goals as well as achieve optimal financial performance; and </P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 72px; FONT-SIZE: 12pt; MARGIN-BOTTOM: -18px; TEXT-INDENT: -48px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">&#149;</P>
<P
style="MARGIN-TOP: 0px; PADDING-LEFT: 72px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 8px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">It&#146;s
an indication to determine if adjustments to current spending decisions are
needed.</P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">AdCare
believes that the use of EBITDA provides a meaningful and consistent comparison
of their underlying business between periods by eliminating certain items
required by GAAP which have little or no significance in the day-to-day
operations. </P>
<P style="MARGIN: 0px"><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>6</P>
<P style="MARGIN: 0px"><BR></P>
<HR style="MARGIN-TOP: 9px; MARGIN-BOTTOM: 9px" noShade SIZE=1>
<P style="PAGE-BREAK-BEFORE: always; MARGIN: 0px"><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; FONT-FAMILY: Calibri"
align=center><B>ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES</B></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"
align=center>Reconciliation of Net Income to EBITDA</P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"
align=center>(Unaudited)</P>
<P style="MARGIN: 0px" align=center><BR></P>
<TABLE style="FONT-SIZE: 10pt" cellSpacing=0>
<TR style="DISPLAY: none; FONT-SIZE: 0px" height=0>
<TD width=17></TD>
<TD width=307></TD>
<TD width=66></TD>
<TD width=15></TD>
<TD width=66></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=307>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=66>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=right><B>Mar
31,</B></P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=66>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=right><B>Mar
31,</B></P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=307>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=66>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right><B>2010</B></P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=66>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right><B>2009</B></P></TD></TR>
<TR>
<TD vAlign=bottom width=325 colSpan=2>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Net Income </P></TD>
<TD vAlign=bottom width=66>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">$414,205</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=66>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">$103,932</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=307>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=66>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=66>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=307>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Interest income</P></TD>
<TD vAlign=bottom width=66>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;(5,725)</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=66>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;(1,308)</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=307>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Interest expense,
others</P></TD>
<TD vAlign=bottom width=66>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>&nbsp;&nbsp;292,551 </P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=66>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>&nbsp;&nbsp;294,142 </P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=307>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Interest expense, related
parties</P></TD>
<TD vAlign=bottom width=66>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;394
</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=66>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;718
</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=307>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Income tax expense </P></TD>
<TD vAlign=bottom width=66>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;10,642 </P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=66>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10,642 </P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=307>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">Depreciation and
amortization</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=66>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>&nbsp;&nbsp;242,564 </P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=66>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>&nbsp;&nbsp;225,308 </P></TD></TR>
<TR>
<TD vAlign=bottom width=325 colSpan=2>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri">EBITDA</P></TD>
<TD vAlign=bottom width=66>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>&nbsp;&nbsp;$954,631</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=66>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=right>&nbsp;&nbsp;$633,434</P></TD></TR></TABLE>
<P style="MARGIN: 0px"><BR></P>
<P style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 8px"><BR></P>
<P style="MARGIN: 0px" align=center><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>7</P>
<P style="MARGIN: 0px"><BR></P>
<HR style="MARGIN-TOP: 9px; MARGIN-BOTTOM: 9px" noShade SIZE=1>
<P
style="FONT-SIZE: 12pt; PAGE-BREAK-BEFORE: always; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"
align=center><B>ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES</B></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; FONT-FAMILY: Calibri"
align=center><B>CONSOLIDATED BALANCE SHEETS</B></P>
<P style="MARGIN: 0px" align=center><BR></P>
<TABLE style="FONT-SIZE: 10pt" cellSpacing=0 align=center>
<TR style="DISPLAY: none; FONT-SIZE: 0px" height=0>
<TD width=17></TD>
<TD width=17></TD>
<TD width=17></TD>
<TD width=461></TD>
<TD width=105></TD>
<TD width=26></TD>
<TD width=97></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=461>
<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=461>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px" align=center>March 31,</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=center>December 31, </P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=461>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=105>
<P style="MARGIN: 0px" align=center>2010</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>2009</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=461>
<P style="MARGIN: 0px" align=center><U>ASSETS</U></P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px" align=center>(Unaudited)</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=512 colSpan=4>
<P style="MARGIN: 0px">Current Assets:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=51 colSpan=3>
<P style="MARGIN: 0px">Cash</P></TD>
<TD vAlign=bottom width=461>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,579,299&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;4,481,100&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=512 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=495 colSpan=3>
<P style="MARGIN: 0px">Long-term care resident receivables, net</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,775,764&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,838,560&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=495 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;155,301&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>124,761&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=495 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;16,407&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;16,407&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=512 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;555,322&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;541,958&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=461>
<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>6,082,093&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,002,786&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=461>
<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=512 colSpan=4>
<P style="MARGIN: 0px">Restricted cash</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,232,897&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,430,674&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=512 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;17,598,315&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,445,028&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=512 colSpan=4>
<P style="MARGIN: 0px">Licenses</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,189,307&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,189,307&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=512 colSpan=4>
<P style="MARGIN: 0px">Goodwill</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>2,679,482&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,679,482&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=512 colSpan=4>
<P style="MARGIN: 0px">Other assets</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,775,685&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,357,160</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=461>
<P style="MARGIN: 0px">Total assets</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;30,557,779&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;30,104,437&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=461>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=461>
<P style="MARGIN: 0px" align=center><U>LIABILITIES AND STOCKHOLDERS&#146;
EQUITY</U></P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=512 colSpan=4>
<P style="MARGIN: 0px">Current Liabilities:</P></TD>
<TD vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=512 colSpan=4>
<P style="MARGIN: 0px">Current portion of notes payable and other
debt</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;695,620&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;698,504&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=512 colSpan=4>
<P style="MARGIN: 0px">Current portion of notes payable to
stockholder</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;28,270&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,432&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=512 colSpan=4>
<P style="MARGIN: 0px">Accounts payable </P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>650,551&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,039,422&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=512 colSpan=4>
<P style="MARGIN: 0px">Accrued expenses</P></TD>
<TD vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>2,677,076&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>2,597,151&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=461>
<P style="MARGIN: 0px">Total current liabilities</P></TD>
<TD
style="BORDER-TOP: #000000 1px solid; BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4,051,517&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD
style="BORDER-TOP: #000000 1px solid; BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>4,344,509&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=461>
<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=512 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>16,569,333&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,701,028&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=512 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;-&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;24,444&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=512 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;1,222,435&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>746,074&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=512 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;223,216&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;212,574&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=478 colSpan=2>
<P style="MARGIN: 0px">Total liabilities</P></TD>
<TD style="BORDER-TOP: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=105>
<P style="MARGIN: 0px; TEXT-INDENT: 13px"
align=right>22,066,501&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-TOP: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px; TEXT-INDENT: 13px"
align=right>&nbsp;22,028,629&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=461>
<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=512 colSpan=4>
<P style="MARGIN: 0px">Stockholders' equity:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=495 colSpan=3>
<P style="MARGIN: 0px">Preferred stock, no par value; 500,000 shares
authorized;</P></TD>
<TD vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=478 colSpan=2>
<P style="MARGIN: 0px">no shares issued or outstanding</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=495 colSpan=3>
<P style="MARGIN: 0px">Common stock and additional paid-in capital, no par
value;</P></TD>
<TD vAlign=bottom width=105>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=97>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=478 colSpan=2>
<P style="MARGIN: 0px">14,500,000 shares authorized; 5,400,007 and
5,360,007 shares issued and outstanding</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>17,884,402&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>17,571,801&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=495 colSpan=3>
<P style="MARGIN: 0px">Accumulated deficit</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=105>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;(9,395,748)</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;(9,805,249)</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=478 colSpan=2>
<P style="MARGIN: 0px">Total stockholders' equity</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>8,488,654&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=97>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,766,552&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=495 colSpan=3>
<P style="MARGIN: 0px">Noncontrolling interest in subsidiaries</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>2,624&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>309,256&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=17>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=478 colSpan=2>
<P style="MARGIN: 0px">Total equity</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>8,491,278&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>8,075,808&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=478 colSpan=2>
<P style="MARGIN: 0px">Total liabilities and stockholders' equity</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=105>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;30,557,779&nbsp;</P></TD>
<TD vAlign=bottom width=26>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=97>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;30,104,437&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=478 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=741 colSpan=7>
<P>&nbsp;</P></TD></TR></TABLE>
<P style="MARGIN: 0px"><BR></P>
<P style="MARGIN: 0px" align=center><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>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" align=center><BR></P>
<TABLE style="FONT-SIZE: 10pt" cellSpacing=0 align=center>
<TR style="DISPLAY: none; FONT-SIZE: 0px" height=0>
<TD width=19></TD>
<TD width=15></TD>
<TD width=298></TD>
<TD width=88></TD>
<TD width=19></TD>
<TD width=96></TD></TR>
<TR>
<TD vAlign=bottom width=538 colSpan=6>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=center><B>ADCARE HEALTH
SYSTEMS, INC. AND SUBSIDIARIES</B></P></TD><A
name=statementofoperations></A></TR>
<TR>
<TD vAlign=bottom width=538 colSpan=6>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri" align=center>CONSOLIDATED
STATEMENTS OF OPERATIONS</P></TD></TR>
<TR>
<TD vAlign=bottom width=538 colSpan=6>
<P style="MARGIN: 0px; FONT-FAMILY: Calibri"
align=center>(Unaudited)</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=204 colSpan=3>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=204
colSpan=3>
<P style="MARGIN: 0px" align=center>Three Months Ended March 31,</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=center>2010</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=center>2009</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Revenues:</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Patient care revenues</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>&nbsp;$ &nbsp;5,866,787&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;5,916,835&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Management, consulting and development fee
revenue</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;507,731&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;468,054&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=298>
<P style="MARGIN: 0px">Total revenue</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;6,374,518&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>6,384,889&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Expenses:</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Payroll and related payroll costs</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>4,060,964&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>3,737,729&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Other operating expenses</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,184,876&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>2,017,926&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Depreciation and amortization</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>242,564&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>225,308&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=298>
<P style="MARGIN: 0px">Total expenses</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>6,488,404&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>5,980,963&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">(Loss) Income from Operations</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>(113,886)</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;403,926</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Other Income (Expense):</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Interest income</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>5,725&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;1,308&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Interest expense, others</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(292,551)</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;(294,142)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Interest expense, related parties</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(394)</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;(718)</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Other expense</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>(36)</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>4,200&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=298>
<P>&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;(287,256)</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;(289,352)</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Gain on Acquisition</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>825,989&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=3>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Income Before Income Taxes</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>424,847&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>114,574</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Income Tax Expense</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>(10,642)</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-BOTTOM: #000000 1px solid" vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>(10,642)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Net Income </P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>414,205&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>103,932</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Net Income Attributable to Noncontrolling
Interests</P></TD>
<TD vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>(4,704)&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P style="MARGIN: 0px" align=right>(8,118)</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Net Income Attributable to AdCare Health
Systems</P></TD>
<TD
style="BORDER-TOP: #000000 1px solid; BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>$
&nbsp;&nbsp;&nbsp;409,501&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;&nbsp;&nbsp;&nbsp;&nbsp;95,814&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=15>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=298>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BORDER-TOP: #000000 3px double" vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Net &nbsp;Income Per Share, Basic:</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.08&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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.03&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Net &nbsp;Income Per Share, Diluted:</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>&nbsp;$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.05&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;&nbsp;&nbsp;&nbsp;0.03&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=333 colSpan=3>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=333 colSpan=3>
<P style="MARGIN: 0px">Weighted Average Common Shares Outstanding,</P></TD>
<TD vAlign=bottom width=88>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=96>
<P>&nbsp;</P></TD></TR>
<TR>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD style="BACKGROUND-COLOR: #ccffcc" vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Basic</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double; BACKGROUND-COLOR: #ccffcc"
vAlign=bottom width=88>
<P style="MARGIN: 0px"
align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,400,007&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></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<P style="MARGIN: 0px">Diluted</P></TD>
<TD style="BORDER-BOTTOM: #000000 3px double" vAlign=bottom width=88>
<P style="MARGIN: 0px" align=right>7,805,910&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;3,815,820&nbsp;</P></TD></TR>
<TR>
<TD vAlign=bottom width=19>
<P>&nbsp;</P></TD>
<TD vAlign=bottom width=314 colSpan=2>
<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></TR>
<TR>
<TD vAlign=bottom width=538 colSpan=6>
<P>&nbsp;</P></TD></TR></TABLE>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 8px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri"><B>Company
Contacts</B></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">David
A. Tenwick, Chairman &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">AdCare
Health Systems, Inc.</P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Tel
(740) 549-0400</P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Email:
info@adcarehealth.com</P>
<P style="MARGIN: 0px"><BR></P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Investor
Relations</P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Scott
Liolios or Ron Both</P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Liolios
Group, Inc.</P>
<P
style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Tel
(949) 574-3860</P>
<P
style="MARGIN-TOP: 0px; FONT-SIZE: 12pt; MARGIN-BOTTOM: 8px; LINE-HEIGHT: 14pt; FONT-FAMILY: Calibri">Email:
info@liolios.com</P>
<H1><BR>&nbsp;</H1>
<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: 8px"><BR><BR></P>
<P style="MARGIN: 0px" align=center><BR></P>
<P style="FONT-SIZE: 12pt; MARGIN: 0px; LINE-HEIGHT: 14pt" align=center>9</P>
<P
style="MARGIN: 0px"><BR></P></BODY>
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SECURITIES AND EXCHANGE COMMISSION
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM
8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
Date of
Report:  May 18, 2010
Date of
Earliest Event Reported:  May 17, 2010
AdCare Health Systems, Inc.
(Exact Name of Registrant as specified in its Charter)
Ohio
333-131542
31-1332119
(State or other jurisdiction of
incorporation or organization)
(Commission File Number)
(I.R.S. Employer Identification No.)
5057 Troy Rd, Springfield, OH
45502-9032
(Address of principal executive offices)
(Zip Code)
Registrant's Telephone Number, Including Area Code
(937) 964-8974
Check the appropriate box below if the form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of
the following provisions (See General Instruction A2. below):
[  ] Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425)
[  ] Soliciting material pursuant to Rule 14a-12 under the
Exchange Act (17 CFR 240.14a-12)
[  ] Pre-commencement communications pursuant to Rule
14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)
[  ] Pre-commencement communications pursuant to Rule
13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c)).
1
Item 2.02.  Financial Statements and Exhibits.
On Monday, May 17, 2010, AdCare Health Systems, Inc. (the
"Company") issued a press release announcing its financial results for the three
months ended March 31, 2010.  A copy of this press release is furnished as
Exhibit 99.1 hereto.  Pursuant to the rules and regulations of the
Securities and Exchange Commission, the information in this Current Report on
Form 8-K, including the attached exhibit and the information set forth therein,
shall not be deemed "filed" for purposes of Section 18 of the Securities
Exchange Act of 1934, nor shall it be deemed to be incorporated by reference in
any filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, regardless of any general incorporation language in such filing.
Item 9.01.  Financial Statements and Exhibits.
Exhibits
Exhibit Number
Description of Exhibit
99.1
Press Release dated May 17, 2010
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereto duly authorized.
Date:  May 18, 2010
ADCARE
HEALTH SYSTEMS, INC.
By:
/s/ Scott Cunningham
Name:
Scott Cunningham
Title:
 Chief Financial Officer
3
Exhibit 99.1
AdCare Health Systems Reports First Quarter 2010 Results
Revenue of $6.4 Million; EPS of $0.05 versus $0.03 in Same
Year-Ago Quarter
SPRINGFIELD,
Ohio, May 17, 2010
—
AdCare Health Systems, Inc.
(NYSE AMEX:
ADK), an Ohio-based long-term care, home care and management company, reported
financial results for the first quarter ended March 31, 2010.
Q1
2010 Financial Results
Revenue
in the first quarter of 2010 was $6.4 million, unchanged from the same year-ago
quarter. The company's results were unchanged in the first quarter of 2010
primarily due to a decrease in the number of residents covered by Medicare to
11.3% compared to 16.6% in the same year-ago period, resulting in a decrease in
revenue of $120,000, offset by a $65,000 increase in revenue in the company's
assisted living centers and a $40,000 increase in management fees.
Loss
from operations in the first quarter of 2010 was $114,000, as compared to income
from operations of $404,000 in the same year-ago quarter. The loss in the first
quarter of 2010 was partially the result of a $202,000 increase in amortized
non-cash compensation expense over the year-ago quarter related to warrants and
restricted stock issued to management in December 2009.
Net
income in the first quarter of 2010 totaled $414,000 or $0.05 per diluted share
as compared to net income of $104,000 or $0.03 per diluted share in the same
year-ago period. Net income in the first quarter of 2010 included a gain of
approximately $826,000 as a result of acquiring the remaining 50% interest in
three assisted living facilities during the quarter, partially offset by the
loss from operations.
EBITDA
in the first quarter of 2010 increased 51% to $955,000 from EBITDA of $633,000
in the same year-ago period. The company defines EBITDA as net income before
interest income, interest expense, income tax expense and depreciation and
amortization (see the important discussion about the presentation of EBITDA, a
non-GAAP term, below).
Cash
at March 31, 2010 totaled $3.6 million, as compared to $4.5 million at the end
of fiscal 2009. The decrease in cash is primarily attributed to approximately
$118,000 in net cash used in operating activities, and approximately $800,000
used for completed and pending acquisitions.
Q1
2010 Operational Highlights
·
AdCare
signed a definitive purchase agreement for two privately-held nursing homes in
Alabama for $18.5 million. The facilities have a total of 312 beds and generate
an estimated $18 million in annualized revenue. The acquisitions, which
represent the company's first expansion outside of Ohio, are expected to
increase AdCare's annualized revenue by 60% and be immediately accretive to
earnings. The company expects to close the transaction in the third quarter of
2010.
·
Completed
the acquisition of Community's Hearth & Home (H&H) in which AdCare
acquired its partners' 50% interest in one assisted living facility located in
Urbana, Ohio, and two located in Springfield, Ohio.
4
AdCare
will now be able to recognize 100% of the income generated by these facilities,
with no portion being attributed to the non-controlling interest. Additionally,
100% of the cash flow generated by these operations will now be available for
other company initiatives.
·
Entered
into a multiyear management contract to manage 80 nursing home beds located in
two single story buildings in Northeastern Ohio. Third party management
contracts provide an outlet for higher margin services that support AdCare's
core, long-term care business without requiring large capital outlays.
Management
Commentary
"During
the first quarter, we continued to focus on initiatives to grow both organically
and through acquisition," said David A. Tenwick, AdCare's chairman. "To
compensate for the mix of Medicare-funded residents, and increase occupancy and
usage of our facilities, we continued to market cross-selling opportunities
between our home healthcare services and our centers for assisted and
independent living. We also signed a new multi-year facilities management
contract. Soon after the end of the quarter, we received the long-anticipated
approval to provide Medicare and Medicaid funded home healthcare services in two
additional Ohio counties, which includes the city of Columbus, and thereby
opening up new opportunities for this growing area of our business.
"In
addition, by repositioning AdCare to grow more aggressively through acquisitions
during the second half of last year, we set the stage for significant
acquisition activity in 2010. These actions in 2009 included strengthening our
balance sheet by raising new equity, expanding our board of directors, and
appointing Christopher Brogdon, a highly experienced M&A specialist in our
industry, as vice chairman and chief acquisition officer.
"In
the first quarter of 2010, we realized the first outcomes from our acquisition
plans. We acquired the remaining 50% of our three assisted living facilities in
Ohio and signed an agreement to purchase two nursing facilities in Alabama. The
agreement to purchase a 105-unit assisted living facility also in Alabama soon
followed after the end of the quarter
.
When these Alabama acquisitions
are closed as expected – the assisted living facility at the end of the second
quarter and the nursing homes at the beginning of the third – we expect these
facilities to substantially expand our bottom line while adding, on aggregate,
65 to 80% to our top line. They will also represent our first expansion outside
of Ohio."
Chris
Brogdon commented: "As the year advances, we continue to see very attractive
opportunities in our highly fragmented market segments. We are working on
several potential acquisitions in our pipeline, with our efforts now assisted by
C.K. Cooper & Company, a leading investment banking firm which we recently
engaged to advise us in these transactions.
"
Concluded
Tenwick: "As we set out to accomplish our goals for the remainder of 2010, our
overriding mission will continue to be on maintaining the best quality of care
and services for our residents, and sustaining our position as the provider of
choice in the areas we serve."
About
AdCare Health Systems
AdCare
Health Systems, Inc. (NYSE AMEX: ADK) develops, owns and manages assisted living
facilities, nursing homes and retirement communities and provides home
healthcare services. Prior to becoming a publicly traded company in November of
2006, AdCare operated as a private company for 18 years. AdCare's 900 employees
provide high-quality care, management services and other services for patients
and residents
5
residing
in 19 facilities, seven of which are assisted living facilities, 11 skilled
nursing centers and one independent senior living community. 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. For more information about AdCare, visit
www.adcarehealth.com.
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, which can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "plans" or similar expressions. Statements in this announcement that
are forward-looking include, but are not limited to statements made by Mr.
Tenwick that recent contracts to acquire one assisted living facility and two
nursing facilities are expected to close in the second and third quarter,
respectively, and are expected to expand the company's bottom line while adding
more than 65 to 80% to the company's top line. 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
also identified in the public filings made by the company with the Securities
and Exchange Commission and include the company's ability to secure lines of
credit and/or an acquisition credit facility, find suitable acquisition
properties at favorable terms, changes in the health care industry because of
political and economic influences, changes in regulations governing the
industry, changes in reimbursement levels including those under the Medicare and
Medicaid programs and changes in the competitive marketplace. There can be no
assurance that such factors or other factors will not affect the accuracy of
such forward-looking statements.
Use
of Non-GAAP Financial Information
EBITDA
is a measure of operating performance that is not calculated in accordance with
U.S. generally accepted accounting principles ("GAAP"). EBITDA should not be
considered in isolation or as a substitute for net income, income from
operations or cash flows provided by or used in operations, as determined in
accordance with GAAP. EBITDA is a key measure of AdCare Health Systems'
operating performance used by management to focus on operating performance and
management without mixing in items of income and expense that relate to the
financing and capitalization of the business. The company defines EBITDA as net
income (loss) before interest income, interest expense, income tax expense and
depreciation and amortization.
The
company believes EBITDA is useful to investors in evaluating their performance,
results of operations and financial position for the following reasons:
•
It's
helpful in identifying trends in the company's day-to-day performance because
the items excluded have little or no significance to the company's day-to-day
operations;
•
It
provides an assessment of controllable expenses and affords management the
ability to make decisions which are expected to facilitate meeting current
financial goals as well as achieve optimal financial performance; and
•
It's
an indication to determine if adjustments to current spending decisions are
needed.
AdCare
believes that the use of EBITDA provides a meaningful and consistent comparison
of their underlying business between periods by eliminating certain items
required by GAAP which have little or no significance in the day-to-day
operations.
6
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Reconciliation of Net Income to EBITDA
(Unaudited)
Mar
31,
Mar
31,
2010
2009
Net Income
$414,205
$103,932
Interest income
(5,725)
(1,308)
Interest expense,
others
292,551
294,142
Interest expense, related
parties
394
718
Income tax expense
10,642
10,642
Depreciation and
amortization
242,564
225,308
EBITDA
$954,631
$633,434
7
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
December 31,
2010
2009
ASSETS
(Unaudited)
Current Assets:
Cash
$
      3,579,299
$
   4,481,100
Accounts receivable:
Long-term care resident receivables, net
1,775,764
1,838,560
Management, consulting and development receivables,
net
155,301
124,761
Advances and receivables from affiliates
16,407
16,407
Prepaid expenses and other
555,322
541,958
Total current assets
6,082,093
7,002,786
Restricted cash
1,232,897
1,430,674
Property and equipment, net
17,598,315
16,445,028
Licenses
1,189,307
1,189,307
Goodwill
2,679,482
2,679,482
Other assets
1,775,685
1,357,160
Total assets
$
    30,557,779
$
 30,104,437
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Current portion of notes payable and other
debt
$
        695,620
$
      698,504
Current portion of notes payable to
stockholder
28,270
9,432
Accounts payable
650,551
1,039,422
Accrued expenses
2,677,076
2,597,151
Total current liabilities
4,051,517
4,344,509
Notes payable and other debt, net of current
portion
16,569,333
16,701,028
Notes payable to stockholder, net of current
portion
-
24,444
Other liabilities
1,222,435
746,074
Deferred tax liability
223,216
212,574
Total liabilities
22,066,501
22,028,629
Stockholders' equity:
Preferred stock, no par value; 500,000 shares
authorized;
no shares issued or outstanding
-
-
Common stock and additional paid-in capital, no par
value;
14,500,000 shares authorized; 5,400,007 and
5,360,007 shares issued and outstanding
17,884,402
17,571,801
Accumulated deficit
(9,395,748)
(9,805,249)
Total stockholders' equity
8,488,654
7,766,552
Noncontrolling interest in subsidiaries
2,624
309,256
Total equity
8,491,278
8,075,808
Total liabilities and stockholders' equity
$
    30,557,779
$
 30,104,437
8
ADCARE HEALTH
SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
2010
2009
Revenues:
Patient care revenues
$  5,866,787
$
    5,916,835
Management, consulting and development fee
revenue
507,731
468,054
Total revenue
6,374,518
6,384,889
Expenses:
Payroll and related payroll costs
4,060,964
3,737,729
Other operating expenses
2,184,876
2,017,926
Depreciation and amortization
242,564
225,308
Total expenses
6,488,404
5,980,963
(Loss) Income from Operations
(113,886)
403,926
Other Income (Expense):
Interest income
5,725
1,308
Interest expense, others
(292,551)
(294,142)
Interest expense, related parties
(394)
(718)
Other expense
(36)
4,200
(287,256)
(289,352)
Gain on Acquisition
825,989
-
Income Before Income Taxes
424,847
114,574
Income Tax Expense
(10,642)
(10,642)
Net Income
414,205
103,932
Net Income Attributable to Noncontrolling
Interests
(4,704)
(8,118)
Net Income Attributable to AdCare Health
Systems
$
   409,501
$
        95,814
Net  Income Per Share, Basic:
$
         0.08
$
            0.03
Net  Income Per Share, Diluted:
$
         0.05
$
            0.03
Weighted Average Common Shares Outstanding,
Basic
5,400,007
3,786,129
Diluted
7,805,910
3,815,820
Company
Contacts
David
A. Tenwick, Chairman
AdCare
Health Systems, Inc.
Tel
(740) 549-0400
Email:
info@adcarehealth.com
Investor
Relations
Scott
Liolios or Ron Both
Liolios
Group, Inc.
Tel
(949) 574-3860
Email:
info@liolios.com
9