COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2011

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

NOTE 4. COMMITMENTS AND CONTINGENCIES

Legal Matters

The skilled nursing business involves a significant risk of liability due to the age and health of the Company’s patients and residents and the services the Company provides. The Company and others in the industry are subject to an increasing number of claims and lawsuits, including professional liability claims, which may allege that services have resulted in personal injury, elder abuse, wrongful death or other related claims. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards.

In addition to the potential lawsuits and claims described above, the Company is also subject to potential lawsuits under the Federal False Claims Act and comparable state laws alleging submission of fraudulent claims for services to any healthcare program (such as Medicare) or payer. A violation may provide the basis for exclusion from federally funded healthcare programs. As of September 30, 2011, the Company does not have any material loss contingencies recorded based on management’s evaluation of the probability of loss from known claims.

Special Termination Benefits

At June 30, 2011, the Company accrued certain salary retirement and continuation costs of $622,000 related to separation agreements with the Company’s former Chief Executive Officer and Chief Financial Officer. The benefits include wage continuation and fringe benefits which are to be paid out to these former employees over a 24-month period beginning June 30, 2011.  The remaining accrued balance as of September 30, 2011 is $508,122.