% Interest     Number of
           Acquisition                    Date          Acquired       Clinics
           Michigan Acquisition         January 1           100 %          1
           Mid-Atlantic Acquisition      June 11             65 %          9
           San Antonio Acquisition     November 18           65 %          4

The results of operations of the 2008 acquisitions have been included in the Company's consolidated financial statements since their respective dates acquired. There were no acquisitions during the three months ended March 31, 2009.
At March 31, 2009, we operated 365 clinics in 42 states. During the three months ended March 31, 2009, we opened six new clinics and closed one. The average age of our clinics at March 31, 2009 was 6.4 years.
In addition to our owned clinics, we also manage physical therapy facilities for third parties, primarily physicians, with 11 third-party facilities under management as of March 31, 2009.
In December 2007, the FASB issued SFAS 160. SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest (formerly referred to as "minority interests") in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest as equity in the consolidated financial statements and separate from the parent entity's equity. The amount of net income attributable to a noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent entity's ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent entity retains its controlling financial interest. In addition, SFAS 160 requires that a parent entity recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent entity and its noncontrolling interest. We adopted SFAS 160 effective January 1, 2009.
In accordance with SFAS 160, we will no longer record an intangible asset when the purchase price of a non controlling interest exceeds the book value at the time of purchase. Any excess or shortfall will be recognized as an adjustment to additional-paid-in-capital. During the quarter ended March 31, 2009, there was no excess or shortfall recognized. Additionally, operating losses will be allocated to noncontrolling interests even when such allocation creates a deficit balance for the nonconrolling interest partner. For the quarter ended March 31, 2009, the net operating losses allocated to noncontrolling interest had the effect of increasing net income attributable to our common shareholders by $40,000, net of tax, and reducing the net income attributable to noncontrolling interest by $66,000.

Selected Operating and Financial Data
The following table presents selected operating and financial data that we
believe are key indicators of our operating performance.

                                                      For the Three Months Ended
                                                               March 31,
                                                         2009               2008
  Number of clinics, at the end of period                      365              351
  Working days                                                  63               64
  Average visits per day per clinic                           20.3             20.3
  Total patient visits                                     462,958          454,482

  Net patient revenue per visit                     $       100.80       $    97.25
  Statement of operations per visit:
  Net revenues                                      $       104.05       $    99.57
  Salaries and related costs                                 54.87            53.03
  Rent, clinic supplies, contract labor and other            22.06            21.09
  Provision for doubtful accounts                             1.53             1.65
  Closure costs                                                  -             0.04

  Contribution from clinics                                  25.59            23.76
  Corporate office costs                                     11.64            11.14

  Operating income                                  $        13.95       $    12.62

RESULTS OF OPERATIONS
Three Months Ended March 31, 2009 Compared to the Three Months Ended March 31, 2008
• Net revenues increased to $48.2 million for the three months ended March 31, 2009 ("2009 First Quarter") from $45.3 million for the three months ended March 31, 2008 ("2008 First Quarter") due to a 1.9% increase in patient visits from 455,000 to 463,000 and a $3.55 increase from $97.25 to $100.80 in net patient revenue per visit. The 2009 First Quarter included 63 days while the 2008 First Quarter included 64 days. The 2009 figures include the results of the Mid-Atlantic Acquisition, RMG and San Antonio Acquisition for the entire 2009 First Quarter . These acquisitions were consummated in June 2008, October 2008 and November 2008, respectively.

• Net income attributable to our common shareholders for the 2009 First Quarter was $2.8 million versus $2.4 million for the same period last year. Net income was $0.23 per diluted share for the 2009 First Quarter as compared to $0.20 per diluted share for the 2008 First Quarter. Total diluted shares were 12.0 million for the 2009 First Quarter and 11.9 million for the 2008 First Quarter.

Net Patient Revenues
• Net patient revenues increased to $46.7 million for the 2009 First Quarter from $44.2 million for the 2008 First Quarter, an increase of $2.5 million, or 5.6%, due to a 1.9% increase in patient visits to 463,000 and an increase of $3.55 in net patient revenues per visit to $100.80 from $97.25.

• Total patient visits increased 8,500, or 1.9%, to 463,000 for the 2009 First Quarter from 455,000 for the 2008 First Quarter. The growth in visits was attributable to an increase of 39,000 visits in clinics opened or acquired between April 1, 2008 and March 31, 2009 ("New Clinics") offset by a decrease of 30,500 for clinics opened or acquired prior to April 1, 2008 ("Mature Clinics").

• The $2.5 million net patient revenues increase for the 2009 First Quarter included $3.7 million from New Clinics offset by a decrease of $1.2 million from Mature Clinics.

Net patient revenues are based on established billing rates less allowances and discounts for patients covered by contractual programs and workers' compensation. Net patient revenues are after contractual and other adjustments relating to patient discounts from certain payors. Payments received under these programs are based on predetermined rates and are generally less than the established billing rates of the clinics.

Management Contract and Other Revenues
Management contract and other revenues increased by $451,000 from $1,054,000 to $1,505,000 due to inclusion of revenues from RMG. Clinic Operating Costs
Clinic operating costs as a percentage of net revenues were 75.4% for the 2009 First Quarter and 76.1% for the 2008 First Quarter. Clinic Operating Costs - Salaries and Related Costs Salaries and related costs increased to $25.4 million for the 2009 First Quarter from $24.1 million for the 2008 First Quarter, an increase of $1.3 million, or 5.4%. The $1.3 million increase included costs of $2.0 million incurred at the New Clinics offset by a $0.7 million reduction in costs at the Mature Clinics. Salaries and related costs as a percentage of net revenues were 52.7% for the 2009 First Quarter and 53.3% for the 2008 First Quarter.
Clinic Operating Costs - Rent, Clinic Supplies, Contract Labor and Other Rent, clinic supplies, contract labor and other increased to $10.2 million for the 2009 First Quarter from $9.6 million for the 2008 First Quarter, an increase of $0.6 million, or 6.5%. The $0.6 million increase included $1.0 million incurred at the New Clinics offset by a $0.4 million reduction at the Mature Clinics. Rent, clinic supplies, contract labor and other as a percentage of net revenues was 21.2% for both the 2009 First Quarter and the 2008 First Quarter. Clinic Operating Costs - Provision for Doubtful Accounts The provision for doubtful accounts was $0.7 million for both the 2009 First Quarter and the 2008 First Quarter. The provision for doubtful accounts as a percentage of net patient revenues was 1.5% for the 2009 First Quarter and 1.7% for the 2008 First Quarter. Our allowance for bad debts as a percentage of total patient accounts receivable was 7.8% at March 31, 2009, as compared to 8.1% at December 31, 2008. Our days sales outstanding decreased to 48 days at March 31, 2009 compared to 57 days and 51 days at March 31, 2008 and December 31, 2008, respectively.
Corporate Office Costs
Corporate office costs, consisting primarily of salaries and benefits of corporate office personnel, rent, insurance costs, depreciation and amortization, travel, legal, professional, and recruiting fees, were $5.4 million, or 11.2% of net revenues, for the 2009 First Quarter and $5.1 million, or 11.2% of net revenues for the 2008 First Quarter. Interest expense
Interest expense decreased to $88,000 for the 2009 First Quarter from $149,000 for the 2008 First Quarter primarily due to a decrease in the average rate on the borrowings under our revolving credit facility. At March 31, 2009, $12.6 million was outstanding under our revolving credit facility. See "Liquidity and Capital Resources" below for a discussion of the terms of our revolving credit facility contained in the Credit Agreement. Provision for Income Taxes
The provision for income taxes increased to $1.8 million for the 2009 First Quarter from $1.6 million for the 2008 First Quarter. During the 2009 First Quarter, the Company accrued state and federal income taxes at an effective tax rate (provision for taxes divided by the difference between income from operations and net income attributable to noncontrolling interest) of 39.2% versus 39.5% for the 2008 First Quarter. Noncontrolling interests
Net income attributable to noncontrolling interests was $1.8 million for the 2009 First Quarter and $1.7 million for the 2008 First Quarter. Net income attributable to noncontrolling interests as a percentage of operating income before corporate office costs remained at 15.5% for the 2009 and 2008 First Quarters.

LIQUIDITY AND CAPITAL RESOURCES
We believe that our business is generating sufficient cash flow from operating activities to allow us to meet our short-term and long-term cash requirements, other than those with respect to future acquisitions. At March 31, 2009, we had $11.1 million in cash and cash equivalents compared to $10.1 million at December 31, 2008, an increase of 9.6%. Although the start-up costs associated with opening new clinics and our planned capital expenditures are significant, we believe that our cash and cash equivalents and availability under our revolving credit facility are sufficient to fund the working capital needs of our operating subsidiaries, corporate costs, purchases of our common stock, clinic closure costs accrued, future clinic development and investments through at least March 2010. Significant acquisitions would likely require financing under our existing revolving credit facility. Included in cash and cash equivalents at March 31, 2009 was $3.9 million deposited in a money market fund. As of the date of this report, there are no cash and cash equivalents in a money market fund.
The increase in cash and cash equivalents of $1.0 million from December 31, 2008 to March 31, 2009 was due primarily to $6.4 million provided by operations and $1.2 million net proceeds from our revolving credit facility. Major uses of cash included: purchase of fixed assets ($1.6 million), distributions to noncontrolling interest partners ($2.4 million) and purchases of our common stock ($2.6 million).
Effective August 27, 2007, we entered into the Credit Agreement with a commitment for a $30.0 million revolving credit facility which was increased to $50.0 million effective June 4, 2008. Effective March 18, 2009, we amended the Credit Agreement to permit the Company to purchase up to $15,000,000 in its common stock subject to compliance with certain covenants as detailed in the amendment including the requirement that after giving effect to any stock purchase, our consolidated leverage ratio (as defined in the Credit Agreement) be less than 1.0 to 1.0 and that any stock repurchased be retired within seven days of purchase. In addition, the Credit Agreement was amended to adjust the pricing grid which is based on our consolidated leverage ratio with the applicable spread over LIBOR ranging from 1.5% to 2.5%. The Credit Agreement has a four year term maturing August 31, 2011, is unsecured and includes standard financial covenants. Proceeds from the Credit Agreement may be used to finance acquisitions, working capital, purchase our common stock, capital expenditures and for other corporate purposes. There were fees under the Credit Agreement including a closing fee of .25% and an unused commitment fee ranging from .1% to .35% depending on our consolidated leverage ratio and the amount of funds outstanding under the agreement. On March 31, 2009, the outstanding balance on the revolving credit facility was $12.6 million leaving $37.4 million in availability and we were in compliance with all of the covenants thereunder. Historically, we have generated sufficient cash from operations to fund our development activities and to cover operational needs. We generally develop new clinics rather than acquire them, which requires less capital. We plan to continue developing new clinics and making additional acquisitions in selected markets. We have from time to time purchased the noncontrollinginterests in our Clinic Partnerships. We may purchase additional noncontrolling interests in the future. Generally, any acquisition or purchase of noncontrolling interests is expected to be accomplished using a combination of cash and financing. Any large acquisition would likely require financing.
We make reasonable and appropriate efforts to collect accounts receivable, including applicable deductible and co-payment amounts, in a consistent manner for all payor types. Claims are submitted to payors daily, weekly or monthly in accordance with our policy or payor's requirements. When possible, we submit our claims electronically. The collection process is time consuming and typically involves the submission of claims to multiple payors whose payment of claims may be dependent upon the payment of another payor. Claims under litigation and vehicular incidents can take a year or longer to collect. Medicare and other payor claims relating to new clinics awaiting Medicare Rehab Agency status approval initially may not be submitted for six months or more. When all reasonable internal collection efforts have been exhausted, accounts are written off prior to sending them to outside collection firms. With managed care, commercial health plans and self-pay payor type receivables, the write-off generally occurs after the account receivable has been outstanding for 120 days. In connection with the San Antonio Acquisition in 2008, we incurred a note payable in the amount of $400,400 payable in equal annual installments totaling $200,200 beginning November 18, 2009 plus any accrued and unpaid interest. Interest accrues at a fixed rate of 4.00% per annum. The final principal payment and any accrued and unpaid interest then outstanding is due and payable on November 18, 2010. In addition, we assumed leases with remaining terms ranging from nine months to three years for the operating facilities.
In connection with the RMG Acquisition in 2008, we incurred a note payable in the amount of $157,100 payable in equal annual installments totaling $78,550 beginning October 8, 2009, plus any accrued and unpaid interest. Interest accrues at a fixed rate of 5.00% per annum. The final principal payment and any accrued and unpaid interest then outstanding is due and payable on October 8, 2010. The purchase agreement also provides for possible contingent consideration of up to

$3,781,000 based on the achievement of a designated level of operating results within a three-year period following the acquisition.
In connection with the Mid-Atlantic Acquisition in 2008, we incurred notes payable in the aggregate totaling $950,625 payable in equal annual installments totaling $475,312 beginning June 11, 2009, plus any accrued and unpaid interest. Interest accrues at a fixed rate of 5.00% per annum. The final principal payment and any accrued and unpaid interest then outstanding is due and payable on June 11, 2010. The purchase agreement also provides for possible contingent consideration of up to $1,500,000 based on the achievement of a designated level of operating results within a three-year period following the acquisition. In addition, we assumed leases with remaining terms ranging from one month to five years for the operating facilities.
In connection with the acquisition of STAR in 2007, we incurred notes payable in the aggregate totaling $1,000,000 payable in equal annual installments totaling $333,333, with the first payment due September 6, 2008, plus any accrued and unpaid interest. Interest accrues at a fixed rate of 8.25% per annum. The remaining principal and any accrued and unpaid interest then outstanding is due and payable on September 6, 2010. In addition, we assumed leases with remaining terms ranging from two months to six years for the operating facilities. In conjunction with the acquisition of an eight-clinic practice in Arizona in November 2006, we entered into a note payable in the amount of $877,500 payable in equal quarterly principal installments of $73,125, beginning March 1, 2007, plus any accrued and unpaid interest. Interest accrues at a fixed rate of 7.5% per annum. The remaining principal and any accrued and unpaid interest then outstanding is due and payable on the third anniversary of the note, November 17, 2009. The purchase agreement also provides for possible contingent consideration of up to $1,500,000 based on the achievement of a designated level of operating results within a three-year period following the acquisition. In addition, we assumed leases with remaining terms ranging from one to five years for six of the eight operating facilities. With respect to the two remaining leased facilities, one is being leased on a month-to-month basis and the other was renewed for three years effective February 1, 2007. In December 2007, we paid $557,000 additional consideration related to this acquisition upon achievement of the predefined operating results for the first year, and such amount was added to goodwill.
Except for RMG, in conjunction with the above mentioned acquisitions, in the event that a noncontrolling interest partner's employment ceases at any time after three years from the acquisition date, we have agreed to repurchase that individual's interest at a predetermined multiple of earnings before interest and taxes.
In September 2001 through December 31, 2008, the Board authorized us to purchase, in the open market or in privately negotiated transactions, up to 2,250,000 shares of our common stock; however, the terms of the Company's bank credit agreement has prohibited such purchases since August 2007. As of December 31, 2008, there were approximately 50,000 shares remaining that could be purchased under these programs. In March 2009, the Board authorized the repurchase of up to 10% or approximately 1,200,000 shares of our common stock. In connection with the March 2009 Authorization, we amended our bank credit agreement to permit the share repurchases. We intend to retire shares purchased under the March 2009 Authorization. Since there is no expiration date for these share repurchase programs, additional shares may be purchased from time to time in the open market or private transactions depending on price, availability and our cash position. During the three months ended March 31, 2009, we purchased 257,598 shares for an aggregate price of $2.6 million.
FACTORS AFFECTING FUTURE RESULTS
Clinic Development
As of March 31, 2009, we had 365 clinics in operation. During 2009, we expect to incur initial operating losses from new clinics opened in late 2008 and during 2009. Generally, we experience losses during the initial period of a new clinic's operation. Operating margins for newly opened clinics tend to be lower than for more seasoned clinics because of start-up costs and lower patient visits and revenues. Generally, patient visits and revenues gradually increase in the first year of operation, as patients and referral sources become aware of the new clinic. Revenues typically continue to increase during the two to three years following the first anniversary of a clinic opening.

Current Economic Conditions
The current financial crisis and deteriorating economic conditions may have material adverse impacts on our business and financial condition that we currently cannot predict. As widely reported, economic conditions in the United States and globally have been deteriorating. Financial markets in the United States, Europe and Asia have been experiencing a period of unprecedented turmoil and upheaval characterized by extreme volatility and declines in security prices, severely diminished liquidity and credit availability, inability to access capital markets, the bankruptcy, failure, collapse or sale of various financial institutions and an unprecedented level of intervention from the United States federal government and other governments. Unemployment has risen while business and consumer confidence have declined and there are fears of a prolonged recession. Although we cannot predict the impact on us of the deteriorating economic conditions, they could materially adversely affect our business and financial condition.
For example:
• patients visits may decline due to higher levels of unemployment or reduced discretionary spending;
• the tightening of credit or lack of credit availability to our customers could adversely affect our ability to collect our trade receivables; or
• our ability to access the capital markets may be restricted at a time when we would like, or need, to raise capital for our business, including for acquisitions.
FORWARD LOOKING STATEMENTS
We make statements in this report that are considered to be forward-looking statements within the meaning under Section 21E of the Securities Exchange Act of 1934. These statements contain forward-looking information relating to the financial condition, results of operations, plans, objectives, future performance and business of our Company. These statements (often using words such as "believes", "expects", "intends", "plans", "appear", "should" and similar words) involve risks and uncertainties that could cause actual results to differ materially from those we project. Included among such statements are those relating to opening new clinics, availability of personnel and the reimbursement environment. The forward-looking statements are based on our current views and assumptions and actual results could differ materially from those anticipated in such forward-looking statements as a result of certain risks, uncertainties, and factors, which include, but are not limited to:
• revenue and earnings expectations;

• general deteriorating economic conditions in the U.S and globally;

• general economic, business, and regulatory conditions including federal and state regulations;

• availability and cost of qualified physical and occupational therapists;

• personnel productivity;

• changes in Medicare guidelines and reimbursement or failure of our clinics to maintain their Medicare certification status;

• competitive and/or economic conditions in our markets which may require us to close certain clinics and thereby incur closure costs and losses including the possible write-down or write-off of goodwill;

• changes in reimbursement rates or payment methods from third party payors including governmental agencies and deductibles and co-pays owed by patients;

• maintaining adequate internal controls;

• availability, terms, and use of capital;

• acquisitions and the successful integration of the operations of the acquired businesses; and

• weather and other seasonal factors.

Many factors are beyond our control.
Given these uncertainties, you should not place undue reliance on our forward-looking statements. Please see our other periodic reports filed with the Securities and Exchange Commission (the "SEC") for more information on these factors. Our forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as required by law, we are under no obligation to update any forward-looking statement, regardless of the reason the statement is no longer accurate.