NOTE 3.      LIQUIDITY AND PROFITABILITY

The Company had a net loss of approximately $2,413,000 for the three months ended March 31, 2012, and had negative working capital of approximately $8,119,000 at March 31, 2012.  The Company’s ability to achieve sustained profitable operations is dependent on continued growth in revenue and controlling costs.

Management’s plans for increasing liquidity and profitability in future years encompass the following:

·            refinancing debt where possible to obtain more favorable terms;

·            increasing facility occupancy and improving the occupancy mix by increasing Medicare patients;

·            acquiring additional long term care facilities with existing cash flowing operations to expand our operations; and

·            adding additional management contracts.

Management believes that the foregoing actions, if taken by the Company, should provide the opportunity for the Company to improve liquidity and achieve profitability; however, there is no assurance that such actions will occur.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.