AdCare Health Systems, Inc. Reports Financial Results for 2008

SPRINGFIELD, Ohio, March 31 /PRNewswire-FirstCall/ -- AdCare Health Systems, Inc. (NYSE AMEX: ADK), an Ohio based long term care, home care and management company today reported financial results for its year ending December 31, 2008.

Revenues for the year ended December 31, 2008 were $24,793,294 as compared to $23,667,756 in 2007, an increase of $1,125,538 or 4.8%. The improvement was primarily due to increased rental charges at the Company's assisted living and skilled nursing facilities, maintaining occupancy levels and the acquisition of the New Lincoln Lodge, a long term care facility located in Columbus, Ohio which also resulted in a gain of approximately $414,000.

The loss from continuing operations for the year ended December 31, 2008 was $1,076,178 as compared to the loss from continuing operations of $627,552 for 2007, which resulted in an increase in the loss of $448,626. However, a majority of the loss in 2008 is attributable to non-cash charges for warrant and option expenses of $791,835. Approximately $210,000 was expensed as unamortized financing costs associated with the HUD refinancing of four long term care properties and $170,007 was accounted for as a deferred tax expense in connection with the Assured Home Health acquisition in 2005. Also, the Company accrued $162,000 in payroll expenses related to the retirement of the COO in September of last year. We anticipate that in 2009, non-cash charges should be significantly lower than in 2008.

The net loss for the year ended December 31, 2008 was $1,076,178 as compared to a loss of $218,928 for 2007. However, the 2007 loss was reduced by recognizing a gain of $619,605 on the sale of assets in discontinued operations. Basic and diluted net loss per share for 2008 was $0.28 as compared to a basic and diluted net loss per share of $0.05 for 2007. AdCare's net cash flow from operations for 2008 was $439,442, compared with a net cash use of $107,337 in 2007.

David A. Tenwick, Chairman of AdCare, stated, "AdCare's loss for 2008 was greatly affected by non-cash charges, unamortized financing and deferred tax expenses. The Company also took significant steps to position itself for a positive year in 2009. Despite the tightening credit market and deterioration of the economy in general, we were able to successfully refinance three of our assisted living facilities and one of our nursing homes with long term, non-recourse HUD financings, completing the expansion and rehabilitation of our 50-bed nursing home located in Greenfield, Ohio, acquiring the remaining ownership interests in our 30-unit assisted living facility located in Van Wert, Ohio and the acquisition of the New Lincoln Lodge. We believe this demonstrates that AdCare's balance sheet is stronger than many of our larger competitors." Mr. Tenwick further stated, "The home health division changed and implemented its business strategy in 2008 to concentrate its operations in programs with stronger profit margins while reducing participation in home health programs that generate little marginal profit."

About AdCare Health Systems, Inc.

AdCare Health Systems, Inc. (NYSE Alternext US: 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.

www.adcarehealth.com

              ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
                       CONSOLIDATED BALANCE SHEETS

                                                           December 31,
                            ASSETS                      2008         2007

    Current Assets:
    Cash and cash equivalents                      $1,266,315     $926,625
    Certificate of deposit, restricted                      -      209,637
    Accounts receivable:
       Long-term care resident receivables, net     2,008,847    2,115,364
       Management, consulting and development
        receivables, net                              258,811      259,778
       Advances and receivables from affiliates        17,635       27,558
    Prepaid expenses and other                        478,534      453,219
             Total current assets                   4,030,142    3,992,181

    Restricted cash                                 1,155,596      973,975
    Property and equipment, net                    16,772,660   14,425,868
    Note receivable, net                                    -      221,413
    License, net                                    1,189,307    1,189,307
    Goodwill                                        2,679,482    2,638,193
    Other assets                                    1,012,340    1,050,506
             Total Assets                         $26,839,527  $24,491,443

             LIABILITIES AND STOCKHOLDERS' EQUITY
    Current Liabilities:
       Current portion of notes payable and other
        debt                                         $713,323     $773,279
       Current portion of note payable to
        stockholder                                     9,432        9,026
       Accounts payable                             1,009,002    1,416,313
       Accrued expenses                             2,838,407    2,060,222
       Forward purchase contract                            -      900,000
             Total current liabilities              4,570,164    5,158,840

    Notes payable and other debt, net of current
     portion                                       16,974,788   12,813,338
    Note payable to stockholder, net of current
     portion                                           34,626      810,084
    Other liabilities                                 299,314      559,509
    Income tax payable                                170,007            -
    Minority Interest in Equity of Consolidated
     Entities                                         269,193      255,070
          Total Liabilities                        22,318,092   19,296,841
    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; 14,500,000 shares
        authorized; 3,786,129 shares issued and
        outstanding                                14,766,967   14,063,956
       Accumulated deficit                        (10,245,532) (9,169,354)
          Total stockholders' equity                4,521,435    4,894,602
          Total liabilities and stockholders'
           equity                                 $26,839,527  $24,491,443
              See notes to consolidated financial statements
              ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF OPERATIONS
                                                           Year Ended
                                                           December 31,
                                                        2008          2007
     Revenues:
       Patient care revenues                       $23,008,754   $21,928,808
       Management, consulting and development fee
        revenue                                      1,784,540     1,738,948
          Total revenue                             24,793,294    23,667,756

     Expenses:
       Payroll and related payroll costs            15,649,862    14,762,090
       Other operating expenses                      8,248,157     7,746,505
       Depreciation and amortization                   882,900       847,440
          Total expenses                            24,780,919    23,356,035

     Income from Operations                             12,375       311,721
     Other Income (Expense):
       Interest income                                  23,287        59,300
       Interest expense, others                     (1,265,622)     (978,731)
       Interest expense, related parties               (36,446)      (66,432)
       Minority interest in earnings of
        consolidated entities                          (57,919)      (94,811)
       Other income (expense)                            4,200       (37,014)
          Total other (expenses)                    (1,332,500)   (1,117,688)

     Gain on Acquisition                               413,954             -

     Loss from continuing operations before
      income taxes                                    (906,171)     (805,967)

     Income Tax Benefit (Expense)                     (170,007)      178,415

     Loss from Continuing Operations                (1,076,178)     (627,552)
     Discontinued Operations:
       Income from discontinued operations
        (including gain on disposal of $619,605
        in 2007)                                             -       587,039
       Provision for income taxes                            -      (178,415)
     Income on discontinued operations                       -       408,624
     Net loss                                      $(1,076,178)    $(218,928)

     Net (Loss) Income Per Share, Basic and Diluted:
       Continuing operations                            $(0.28)       $(0.16)
       Discontinued operations                               -          0.11
                                                        $(0.28)       $(0.05)

     Weighted Average Common Shares Outstanding:
       Basic                                         3,786,129     3,786,129
       Diluted                                       3,786,129     3,786,129
              See notes to consolidated financial statements
                   ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                    Year Ended December 31,
                                                      2008            2007
     Cash flows from operating activities:
       Net Loss                                  $(1,076,178)      $(218,928)
       Add back:  income from discontinued
        operations                                         -        (587,039)
       Net loss from continuing operations       $(1,076,178)      $(805,967)

        Adjustments to reconcile net loss from
         continuing operations to net cash
         provided by (used in) operating
         activities:
           Depreciation and amortization             882,900         847,440
           Warrants issued for services              150,831          58,149
           Stock option compensation expense         641,004          27,326
           Minority interest                          57,919          94,811
           Note receivable forgiveness exchanged
            for rent                                   9,000          36,000
           Gain on acquisition                      (413,952)              -
           Changes in certain assets and
            liabilities:
             Accounts receivable                     111,805        (162,737)
             Prepaid expenses and other              (90,851)       (171,461)
             Other assets                            (24,982)        (50,737)
             Accounts payable and accrued expenses   300,635        (350,232)
             Income tax liability                    170,007               -
             Other liabilities                      (278,696)         67,991
       Net cash provided by (used in) operating
        activities of continuing operations          439,442        (409,417)
       Net cash provided by operating activities
        of discontinued operations                         -         302,080
       Net cash provided by (used in) operating
        activities                                   439,442        (107,337)

     Cash flow from investing activities:
         Increase (decrease) in restricted cash       47,829         (59,034)
         Forward purchase contract buyout           (941,289)              -
         Distribution to minority shareholders       (50,000)              -
         Purchase of minority interest investment       (448)        (11,382)
         Purchase of property plant and equipment   (477,092)     (1,042,402)
       Net cash used in investing activities of
        Continuing operations                     (1,421,000)     (1,112,818)
       Net cash provided by investing activities
        of discontinued operations:
         Proceeds from sale of assets, net of
          associated costs                             2,500         591,329
       Net cash used in investing activities      (1,418,500)       (521,489)

                   See notes to consolidated financial statements


                   ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES.
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (Continued)

                                                    Year Ended December 31,
                                                      2008             2007
     Cash flows from financing activities:
         Proceeds from notes payable              6,469,171           91,197
         Prepaid loan financing costs                     -         (172,857)
         Cash received upon exercise of warrants          -           20,000
         Prepaid Financing Costs                    159,130                -
         Repayment of note payable to stockholder  (760,000)          (9,234)
         Repayment on notes payable              (4,549,553)        (497,335)
       Net cash provided by (used in) financing
        activities of continuing operations       1,318,748         (568,229)
       Net cash used in financing activities of
        Discontinued operations:
         Repayment on notes payable of
          discontinued operations                         -          (12,734)
       Net cash provided (used in) by financing
        activities                               1, 318,748         (580,963)

     Net  Increase (Decrease) in Cash               339,690       (1,209,789)

     Cash, Beginning                                926,625        2,136,414

     Cash, Ending                                $1,266,315         $926,625

     Supplemental Disclosure of Cash Flow Information:
       Cash paid during the year for:
         Interest                                $1,012,813       $1,044,755

     Supplemental Disclosure of Non-Cash Activities:
       Rent in exchange of note receivable
        repayment                                   $9,000          $36,000
       Payoff of existing mortgage at closing of
        Discontinued operations                          -         $609,839
       Acquisition of assets in exchange for
        note forgiveness                        $2,740,584                -
       Purchase of business assets in exchange
        for debt                                  $266,300         $337,361

                   See notes to consolidated financial statements

SOURCE AdCare Health Systems, Inc.



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