CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

In addition to historical information, this report contains statements relating to future events or our future results. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended (the "Exchange Act") and are subject to the Safe Harbor provisions created by the statute. Generally words such as "may", "will", "should", "could", "anticipate", "expect", "intend", "estimate", "plan", "continue", and "believe" or the negative of or other variation on these and other similar expressions identify forward-looking statements. These forward-looking statements are made only as of the date of this report. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements are based on current expectations and involve risks and uncertainties and our future results could differ significantly from those expressed or implied by our forward-looking statements.

Overview

The Company presently provides behavioral health care services through two substance abuse treatment centers, two psychiatric hospitals, a residential treatment facility and eight outpatient psychiatric centers (collectively called "treatment facilities"). The Company's revenue for providing behavioral health services through these facilities is derived from contracts with managed care companies, Medicare, Medicaid, state agencies, railroads, gaming industry corporations and individual clients. The profitability of the Company is largely dependent on the level of patient census and the payor mix at these treatment facilities. Patient census is measured by the number of days a client remains overnight at an inpatient facility or the number of visits or encounters with clients at outpatient clinics. Payor mix is determined by the source of payment to be received for each client being provided billable services. The Company's administrative expenses do not vary greatly as a percentage of total revenue but the percentage tends to decrease slightly as revenue increases. The Company's research division, Pivotal Research Centers, Inc., contracts with major manufacturers of pharmaceuticals to assist in the study of the effects of certain pharmaceuticals in the treatment of specific illnesses through its clinics in Utah and Arizona. The Company has signed a definitive agreement to sell all the assets of its research division, which provides for the completion of the sale in the next few months. Since the sale is expected to be complete in the near future, the assets and liabilities of the research division are reported as held for sale on the accompanying balance sheet and the results of operations are shown as discontinued operations on the statement of operations. (See the Company's current report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2009 for additional information regarding the sale of Pivotal).

The healthcare industry is subject to extensive federal, state and local regulation governing, among other things, licensure and certification, conduct of operations, audit and retroactive adjustment of prior government billings and reimbursement. In addition, there are on-going debates and initiatives regarding the restructuring of the health care system in its entirety. The extent of any regulatory changes and their impact on the Company's business is unknown. The previous administration put forth proposals to mandate equality in the benefits available to those individuals suffering from mental illness (The Parity Act). This Act is now law and the target date for full implementation is January 1, 2010. This legislation will improve access to the Company's programs but its total effect on behavioral health providers has not yet been assessed. Managed care has had a profound impact on the Company's operations, in the form of shorter lengths of stay, extensive certification of benefits requirements and, in some cases, reduced payment for services. The current economic conditions continue to challenge the Company's profitability through increased uninsured patients in our fee for service business and increased utilization in our capitated business.

Critical Accounting Policies

The preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America, requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an on-going basis, we evaluate our estimates and assumptions, including but not limited to those related to revenue recognition, accounts receivable reserves, income tax valuation allowances, and the impairment of goodwill and other intangible assets. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Revenue recognition and accounts receivable:

Patient care revenues and accounts receivable are recorded at established billing rates or at the amount realizable under agreements with third-party payors, including Medicaid and Medicare. Revenues under third-party payor agreements are subject to examination and contractual adjustment, and amounts realizable may change due to periodic changes in the regulatory environment. Provisions for estimated third party payor settlements are provided in the period the related services are rendered. Differences between the amounts provided and subsequent settlements are recorded in operations in the year of settlement. Amounts due as a result of cost report settlements is recorded and listed separately on the consolidated balance sheets as "Cost report settlement receivables". The provision for contractual allowances is deducted directly from revenue and the net revenue amount is recorded as accounts receivable. The allowance for doubtful accounts does not include the contractual allowances.

The Company currently has two "at-risk" contracts. The contracts call for the Company to provide for all of the inpatient and outpatient behavioral health needs of the insurance carrier's enrollees in Nevada for a fixed monthly fee per member per month. Revenues are recorded monthly based on this formula and the expenses related to providing the services under these contracts are recorded as incurred. The Company provides most of the care directly and, through utilization review, monitors closely, and pre-approves all inpatient and outpatient services not provided directly. The contracts are considered "at-risk" because the payments to third-party providers for services rendered could equal or exceed the total amount of the revenue recorded.

All revenues reported by the Company are shown net of estimated contractual adjustment and charity care provided. When payment is made, if the contractual adjustment is found to have been understated or overstated, appropriate adjustments are made in the period the payment is received in accordance with the AICPA "Audit and Accounting Guide for Health Care Organizations." Net Contractual adjustments recorded in the six months ended December 31, 2008 for revenue booked in prior years resulted in a decrease in net revenue of approximately $56,700. Net contractual adjustments recorded in fiscal 2008 for revenue booked in prior years resulted in an increase in net revenue for the year of approximately $48,500.

During the fiscal year ended June 30, 2008, a Medicare cost report settlement of $360,588 was received. No cost report settlements were received or recorded during the three or six months ended December 31, 2008.

Our accounts receivable systems are capable of providing an aging based on responsible party or payor. This information is critical in estimating our required allowance for bad debts. Below is revenue by payor for the three months and six months ended December 31, 2008 and 2007 and the fiscal year ended June 30, 2008 and accounts receivable aging information as of December 31, 2008 and June 30, 2008, for our treatment services segment.

                                                            Net Revenue by Payor (in thousands)
                                 For the Three Month                                  For the Six Months                    For the Fiscal Year Ended June
                                 Ended December 31,                                   Ended December 31,                                  30,
                            2008                     2007                       2008                      2007                           2008

                      $             %           $             %           $             %           $             %             $                    %
Private Pay          $     513           5     $     473         5       $   1,051           5     $     943           5       $      1,893                5
Commercial               6,819          67         6,808        67          13,961          68        13,561          67             27,229               66
Medicare *                 275           3           458         4             581           3           831           4              1,263                3
Medicaid             $   2,499          25     $   2,408        24       $   5,072          24     $   4,968          24       $     10,471               26

Net Revenue          $  10,106                 $  10,147                 $  20,665                 $  20,303                   $     40,856

* Includes Medicare settlement revenue as noted above

    Accounts Receivable Aging (Net of allowance for bad debts- in thousands)

As of December 31, 2008

                            Over       Over      Over      Over      Over      Over      Over
Payor         Current        30         60        90        120       150       270       360       Total

Private Pay   $    121     $   135     $ 147     $ 122     $  86     $ 179     $  72     $ 194     $ 1,056
Commercial       2,053       1,141       400       174        99       225        16        84       4,192
Medicare            82          --        --        --        --        --        --        --          82
Medicaid           932         175        42        26        10        10        --        --       1,195
  Total       $  3,188     $ 1,451     $ 589     $ 322     $ 195     $ 414     $  88     $ 278     $ 6,525

As of June 30, 2008

                            Over       Over      Over      Over      Over      Over      Over
Payor         Current        30         60        90        120       150       270       360       Total

Private Pay   $    544     $    72     $  45     $  58     $  56     $ 235     $ 107     $ 263     $ 1,380
Commercial       1,382         985       746       194       228       183        10        60       3,788
Medicare            38          --        --         1        --        --        --        --          39
Medicaid         1,140          98         5        --        --        25        --        --       1,268
  Total       $  3,104     $ 1,155     $ 796     $ 253     $ 284     $ 443     $ 117     $ 323     $ 6,475

The Company's days sales outstanding ("DSO") are significantly different for each type of service and each facility based on the payors for each service. Overall, the DSO for the combined operations of the Company were 59 days at December 31, 2008 and 68 days at June 30, 2008. The table below shows the DSO by segment for the same periods.

                    Period                  Treatment   Contract
                      End                   Services    Services

                         12/31/2008            54          55
                               06/30/2008      59          43

Contract services DSO's fluctuate dramatically by the delay in payment of a few days for any of our large contracts. A delay in payment from our major contract occurred when a payment due on December 31, 2008 was not received until January 16, 2009.

Pharmaceutical study revenue is recognized only after a pharmaceutical study contract has been awarded and the patient has been selected and accepted based on study criteria and billable units of service are provided. Where a contract requires completion of the study by the patient, no revenue is recognized until the patient completes the study program. All revenues and receivables from our research division are derived from pharmaceutical companies with no related bad debt allowance. These amounts are shown in "Discontinued operations" and "Assets held for sale" on the accompanying financial statements as the sale of the research operations is expected to close in the near future.

Contract support service revenue is a result of fixed fee contracts to provide telephone support. Revenue for these services is recognized ratably over the service period. Revenues and receivables from our contract services division are based on a prorated monthly allocation of the total contract amount and usually paid within 30 days of the end of the month.

Allowance for doubtful accounts:

The provision for bad debts is calculated based on a percentage of each aged accounts receivable category beginning at 0-5% on current accounts and increasing incrementally for each additional 30 days the account remains outstanding until the account is over 360 days outstanding, at which time the provision is 80-100% of the outstanding balance. These percentages vary by facility based on each facility's experience in and expectations for collecting older receivables. The Company compares this required reserve amount to the current "Allowance for doubtful accounts" to determine the required bad debt expense for the period. This method of determining the required "Allowance for doubtful accounts" has historically resulted in an allowance for doubtful accounts of 20% or greater of the total outstanding receivables balance.

Income Taxes:

The Company follows the liability method of accounting for income taxes, as set forth in SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 prescribes an asset and liability approach, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of the assets and liabilities. The Company's policy is to record a valuation allowance against deferred tax assets unless it is more likely than not that such assets will be realized in future periods. The Company recorded a tax benefit of $506,053 for the six months ended December 31, 2008 based on the losses incurred in continuing operations. The company also recorded a tax benefit based on the losses in discontinued operations for the same six-month period.

On July 1, 2007 the Company adopted Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement 109". In accordance with FIN 48, we may establish reserves for tax uncertainties that reflect the use of the comprehensive model for the recognition and measurement of uncertain tax positions. Tax authorities periodically challenge certain transactions and deductions reported on our income tax returns. We do not expect the outcome of these examinations, either individually or in the aggregate, to have a material adverse effect on our financial position, results of operations, or cash flows.

Valuation of Goodwill and Other Intangible Assets

Goodwill and other intangible assets are initially created as a result of business combinations or acquisitions. The Company makes significant estimates and assumptions, which are derived from information obtained from the management of the acquired businesses and the Company's business plans for the acquired businesses in determining the value ascribed to the assets acquired. Critical estimates and assumptions used in the initial valuation of goodwill and other intangible assets include, but are not limited to: (i) future expected cash flows from services to be provided, (ii) customer contracts and relationships, and (iii) the acquired market position. These estimates and assumptions may be incomplete or inaccurate because unanticipated events and circumstances may occur. If estimates and assumptions used to initially value goodwill and intangible assets prove to be inaccurate, ongoing reviews of the carrying values of such goodwill and intangible assets may indicate impairment which will require the Company to record an impairment charge in the period in which the Company identifies the impairment.

In the fiscal year ended June 30, 2008, the Company recorded an impairment loss on the intangible assets of the Company's research segment of $1,771,000 based on the annual review and valuation of intangible assets. The Company determined the impairment during the routine annual review of intangible assets of the Company. The impairment represents the difference between the Company's carrying value of goodwill and its fair value at June 30, 2008. The fair value was determined using a combination of approaches including a trading multiple, an acquisition multiple and the income approach. The Company recorded an additional $1,500,000 impairment loss on these intangible assets in the current quarter.

Results of Operations

The following table illustrates our consolidated results of operations for the three months and six months ended December 31, 2008 and 2007 (in thousands):

For the Three Month For the Six Months Ended December 31, Ended December 31,

                      2008           2007     2008      2007


                                              (in thousands)
 Statements of
Operations Data:    Amount         %         Amount         %         Amount         %         Amount         %

Revenue            $ 11,020       100.0     $ 11,273       100.0     $ 22,712       100.0     $ 22,556       100.0
Cost and
Expenses:
Patient care
expenses              5,906        53.6        5,473        48.5       12,065        53.1       10,769        47.7
Contract
expenses                772         7.0          824         7.3        1,599         7.0        1,626         7.2
Administrative
expenses              4,878        44.3        3,800        33.7        9,572        42.1        7,410        32.9
Provision for
bad debts               308         2.8          342         3.0          754         3.3          765         3.4
Interest expense         96         0.9          103         0.9          178         0.8          217         1.0
Other (income)
expenses, net           (69 )      (0.6 )        (71 )      (0.6 )       (151 )      (0.7 )       (118 )      (0.5 )

Total expenses       11,891       107.9       10,470        92.9       24,017       105.7       20,669        91.6

Income (loss)
before income
taxes                  (871 )      (7.9 )        802         7.1       (1,305 )      (5.7 )      1,887         8.4

Income tax
(benefit)
provision              (467 )      (4.2 )        278         2.5         (506 )      (2.2 )        739         3.3

Income (loss)
from continuing
operations             (404 )      (3.7 )        524         4.7         (799 )      (3.5 )      1,148         5.1

Discontinued
operations           (1,312 )     (11.9 )        (43 )      (0.4 )     (1,250 )      (5.5 )        134         0.6

Net income
(loss)             $ (1,716 )     (15.6 )   $    482        4.30     $ (2,049 )      (9.0 )   $  1,282         5.7

Results of Operations

Total net revenue from operations decreased 2.2% to $11,020,316 for the three months ended December 31, 2008 from $11,272,577 for the three months ended December 31, 2007 and increased 0.7% to $22,712,221 for the six months ended December 31, 2008 from $22,555,778 for the six months ended December 31, 2007.

Net patient care revenue decreased 0.4% to $10,105,942 for the three months ended December 31, 2008 from $10,147,332 for the three months ended December 31, 2007 and increased 1.8% to $20,665,438 for the six months ended December 31, 2008 from $20,302,549 for the six months ended December 31, 2007. These minimal changes in revenue are due primarily to general economic conditions offset partially by the opening of our new operations in Las Vegas and Michigan. Census at our inpatient facilities increased 8.7% for the six months ended December 31, 2008 compared to the same six months last year. Patient care revenue did not increase proportionately with census because the increase in census was primarily related to our capitated contracts which generate a fixed amount of revenue regardless of census.

Two key indicators of profitability of inpatient facilities are patient days, or census, and payor mix. Patient days is the product of the number of patients times length of stay. Increases in the number of patient days result in higher census, which coupled with a more favorable payor mix (more patients with higher paying insurance contracts or paying privately) will usually result in higher profitability. Therefore, patient census and payor mix are monitored very closely.

Contract support services revenue provided by Wellplace decreased 18.7% to $914,374 for the three months ended December 31, 2008 compared to $1,125,245 for the three months ended December 31, 2007 and 9.2% to $2,046,783 for the six months ended December 31, 2008 from $2,253,229 for the six months ended December 31, 2007. This decrease is due to the expiration of a smoking cessation contract with a government contractor. The Company has bid to continue and expand the contract should the contractor decide to continue the program. The Company expects to increase this revenue through new contracts for EAP (Employee Assistance Programs) and Smoking Cessation programs.

Patient care expenses in our treatment centers increased 7.9% to $5,906,307 for the three months ended December 31, 2008 from $5,472,592 for the three months ended December 31, 2007 and 12.0% to $12,064,464 for the six months ended December 31, 2008 from $10,768,666 for the six months ended December 31, 2007. This increase in expenses is due to the opening of the Seven Hills Hospital in Las Vegas, pre-opening expenses of Capstone Academy and higher utilization under the capitated contracts, with the majority of the increases in direct care expenses. Payroll and service related expenses increased 14.6% to $4,695,501 for the three months ended December 31, 2008 from $4,096,092 for the three months ended December 31, 2007 and 17.2% to $9,413,970 for the six months ended December 31, 2008 from $8,034,216 for the same period a year ago. Payroll tax expenses increased 32.7% to $287,048 for the three months ended December 31, 2008 from $216,323 for the three months ended December 31, 2007 and 27.7% to $550,688 for the six months ended December 31, 2008 from $431,284 for the same period a year ago. Contract expenses related to the capitated contracts increased 16.2% to $974,346 for the three months ended December 31, 2008 from $838,389 for the three months ended December 31, 2007 and 37.2% to $2,200,271 for the six months ended December 31, 2008 from $1,603,301 for the same period a year ago. Food expenses increased 22.3% to $250,061 for the three months ended December 31, 2008 from $204,394 for the three months ended December 31, 2007 and 21.1% to $499,406 for the six months ended December 31, 2008 from $412,290 for the same period a year ago. Pharmacy expenses increased 95.5% to $243,478 for the three months ended December 31, 2008 from $124,553 for the three months ended December 31, 2007 and 59.5% to $480,316 for the six months ended December 31, 2008 from $301,072 for the same period a year ago. Other patient related expenses increased 350.5% to $83,074 for the three months ended December 31, 2008 from $18,442 for the three months ended December 31, 2007 and 336.9% to $179,831 for the six months ended December 31, 2008 from $41,164 for the same period a year ago. Many of these increases are the result of the new hospital and the comparisons period over period are expected to reflect similar increases.

Contract support services expenses related to Wellplace decreased 6.3% to $771,505 for the three months ended December 31, 2008 from $823,571 for the three months ended December 31, 2007 and 1.7% to $1,599,284 for the six months ended December 31, 2008 from $1,626,219 for the six months ended December 31, 2007. This decrease is primarily the result of the expiration of the previously mentioned smoking cessation contract, which eliminated staff and administrative expenses including software maintenance to support the contract.

Administrative expenses increased 28.4% to $4,877,391 for the quarter ended December 31, 2008 from $3,799,897 for the quarter ended December 31, 2007 and 29.2% to $9,572,364 for the six months ended December 31, 2008 from $7,409,833 for the six months ended December 31, 2007. For both the three months and the six months ended December 31, 2008, these changes are a result of the increased administrative payroll and employee benefits related to the opening of the Seven Hills Hospital and the ramp up of Capstone Academy. Administrative payroll increased 15.0% and 14.2% for the quarter and six months ended December 31, 2008, respectively. Rent expense increased over 100% for the quarter and six months ended December 31, 2008, as compared to the same periods last year, due to the additional rent expense for Seven Hills Hospital and Capstone Academy Utilities also increased over 70.0% for the quarter and six months ended December 31, 2008, as compared to the same period last year, which was also related to the opening of Seven Hills Hospital and set up of Capstone Academy. All other general facilities expenses such as maintenance, telephone and insurance expense also increased with the start up of these locations. Consultant fees increased over 100% as we engaged outside firms to assist with the accreditation process at Seven Hills Hospital. Fees and licenses increased 41.8% and 24.5% for the three months and six months ended December 31, 2008, as compared to the same period last year, as a result of our accreditation processes in all our facilities.

Provision for doubtful accounts decreased 9.9% to $308,329 for the three months ended December 31, 2008 from $342,342 for the three months ended December 31, 2007 and decreased 1.4% to $754,143 for the six months ended December 31, 2008 from $764,568 for the six months ended December 31, 2007. The Company's policy is to maintain reserves based on the age of its receivables. This decrease in the provision for doubtful accounts is largely attributable to the change in age of the receivables and the utilization of the allowance of $601,688 against accounts receivable during the six months ended December 31, 2008.

Interest income decreased 15.8% to $44,206 for the three months ended December 31, 2008 from $52,504 for the three months ended December 31, 2007 and increased 12.3% to $95,475 for the six months ended December 31, 2008 from $85,039 for the six months ended December 31, 2007. These changes are a result of changes in our short-term investment accounts.

Other income / expense increased 34.7% to $24,888 for the three months ended . . .