The long-term healthcare industry is a highly fragmented industry, comprised of approximately 16,000 skilled nursing facilities with approximately 1.8 million licensed beds as of June 2005, according to AHCA. As of June 30, 2005, the five largest public long-term healthcare companies controlled less than 10% of these skilled nursing facilities. The underlying trends within the long-term healthcare industry are positive and are characterized by an increasing demand for long-term healthcare services coupled with an industry-wide reduction in the supply of long-term healthcare beds.

The demand for long-term healthcare services will continue to grow due to an aging population and increased life expectancies. The Centers for Medicare and Medicaid Services or, CMS predicts that nursing home expenditures, which include traditional skilled nursing care and specialty medical services, will grow from approximately $103.7 billion in 2002 to approximately $174.0 billion in 2012. A major contributor to this growth is the rapidly aging United States population. According to the United States Census Bureau, the number of Americans aged 85 or older is expected to more than double from approximately 4.3 million in 2000 to approximately 9.6 million in 2030.

The Company provides innovative services and facilities to care for Alzheimer’s patients in early, middle and advanced stages of the disease. Trained staffs provide specialized care and programming for persons with Alzheimer’s or related disorders in the Company’s facilities and in dedicated units within many of its skilled nursing centers.

The Company has a number of assisted living facilities, as well as units within it skilled nursing centers, dedicated to providing personal care services and assistance with general activities, including facilities which care for persons with Alzheimer’s or related disorders. The Company uses a comprehensive resident assessment to help determine the appropriate package of services desired or required by each resident. A majority of the Company’s assisted living facilities are located on campuses with its skilled nursing facilities.

All of the Company’s independent living facilities are located on its campuses, which allow residents of the independent living facilities to avail themselves of those services provided in the Company’s skilled nursing or assisted living facilities. As of June 30, 2005, the Company operated five independent living facilities.

The Company currently provides rehabilitation therapy services to approximately 250 facilities in 12 states, including some of its own facilities, through the Company’s rehabilitation therapy division. Rehabilitation therapy services consist of delivering physical, occupational and speech therapy services primarily in the skilled nursing setting. Included in other are the following ancillary services: institutional pharmacy, mobile diagnostic imaging, hospice, and other corporate items.

As of June 30, 2005 the Company’s institutional pharmacy operations, operated through its CoastalMed Pharmacy division, provided institutional pharmacy services to 20 third-party and 16 Tandem facilities in Florida. Mobile diagnostic imaging services consist of providing portable X-ray and cardiac monitoring services to long term care facilities, utilizing teleradiology technology. The Company is currently the largest provider of mobile diagnostic imaging services in Michigan and is in the process of entering into Ohio and Pennsylvania markets.

Rehabilitation therapy revenue increased $22.9 million to $25.0 million for the six months ended June 30, 2005 from $2.1 million for the six months ended June 30, 2004.

Operating expenses increased $37.3 million, or 34.1%, to $146.7 million for the six months ended June 30, 2005 from $109.4 million for the six months ended June 30, 2004, compared to the increase in total revenue of 31.7%.

General and administrative expenses and provision for bad debts increased $8.7 million, or 15.8%, to $63.9 million for the six months ended June 30, 2005 from $55.2 million for the six months ended June 30, 2004.