UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              --------------------


                               AMENDMENT NO.1 TO
                                    FORM 10-Q


  (Mark One)

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2005

                                       OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

             For the transition period from __________ to _________

                         Commission File Number: 0-23511

                              --------------------

                      Integrated Healthcare Holdings, Inc.
        (Exact name of small business issuer as specified in its charter)

                  Nevada                                     87-0412182
     (State or other jurisdiction of                     (I.R.S. Employer
      incorporation or organization)                    Identification No.)

           1301 N. Tustin Ave.                                92705
          Santa Ana, California                             (Zip Code)
 (Address of principal executive offices)

                                 (714) 953-3503
              (Registrant's telephone number, including area code)

                 695 Town Center Drive, Suite 260, Costa Mesa,
                                California 92626
              (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|

<PAGE>


                                Explanatory Note

      On  March  28,  2006,  the  Company's  Audit   Committee,   acting  on  a
recommendation from the Company's  management and following accounting questions
reviewed  with  the  Securities  and  Exchange  Commission  determined  that the
Company's unaudited condensed  consolidated  quarterly financial  statements for
the periods ended March 31, 2005, June 30, 2005, and September 30, 2005,  should
be restated to revise the accounting and related  disclosures for the expense of
warrants issued on January 27, 2005. In addition, the Company's Audit Committee,
acting on  recommendation  from the Company's  management has concluded that the
quarterly  provision for income taxes for the periods ended March 31, 2005, June
30,  2005 and  September  30, 2005 should be restated to correct an error in the
calculation of the taxable gain on the sale of assets to PCHI. The  restatements
impact each of the three months and the  respective  year to date periods  ended
March 31, 2005,  June 30, 2005, and September 30, 2005  presented  herein and is
further discussed in Note 12 to the unaudited condensed  consolidated  financial
statements included herein.

      This amendment to the Company's  Quarterly  Report on Form 10-Q/A is being
filed for the purpose of amending and  restating  Items 1, 2 and 4 of Part I and
Item 6 of Part  II of the  Form  10-Q  originally  filed  solely  to the  extent
necessary (i) to reflect the  restatement of the Company's  unaudited  condensed
consolidated  financial  statements  as of and for the  periods  ended March 31,
2005,  June 30,  2005,  and  September  30, 2005 as  described in Note 12 to the
unaudited condensed consolidated financial statements and (ii) to make revisions
to "Management's  Discussion and Analysis of Financial  Condition and Results of
Operations" as warranted by the  restatement,  (iii) to make revisions to Item 4
of Part I to reflect our evaluation of controls and procedures as of the date of
filing  this  amended  Quarterly  Report on Form  10-Q/A,  (iv) to  include  the
certifications  required by the Sarbanes-Oxley Act of 2002 and (v) to update the
exhibits.  This  amended  Quarterly  Report on Form 10-Q/A is as of the date the
Quarterly  Report  on  Form  10-Q  was  originally  filed  except  for  material
subsequent  events more fully  described in Note 13 to the  unaudited  condensed
consolidated  financial  statements  and  supplemental  information  provided to
enhance managements discussion of critical accounting estimates.


<PAGE>

                      Integrated Healthcare Holdings, Inc.
                                    Form 10-Q

                                Table of Contents
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                                                                                               Page Number
<S>                                                                                                                <C>
PART I        FINANCIAL INFORMATION

Item 1.       Financial Statements:

              Unaudited Condensed Consolidated Balance Sheet as of June 30, 2005 and December 31, 2004              2

              Unaudited Condensed Consolidated Statement of Operations for the three and six months ended June      3
              30, 2005 and June 30, 2004

              Unaudited Condensed Consolidated Statement of Stockholders' Equity as of June 30, 2005 and            4
              December 31, 2004

              Unaudited Condensed Consolidated Statement of Cash Flows for the three and six months ended June      5
              30, 2005 and June 30, 2004

              Condensed Notes to Unaudited Condensed Consolidated Financial Statements                              6

Item 2.       Management's Discussion and Analysis of Financial Condition and Results of Operations                24

Item 3.       Quantitative and Qualitative Disclosures About Market Risk                                           31

Item 4.       Controls and Procedures                                                                              31

PART II       OTHER INFORMATION

Item 1.       Legal Proceedings                                                                                    31

Item 3.       Defaults Upon Senior Securities                                                                      32

Item 6.       Exhibits                                                                                             32

SIGNATURES                                                                                                         33
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

    The accompanying condensed notes are an integral part of these unaudited
                  condensed consolidated financial statements

<PAGE>


                      INTEGRATED HEALTHCARE HOLDINGS, INC.
                 Unaudited Condensed Consolidated Balance Sheet



                                     ASSETS
<TABLE>
<CAPTION>
                                                                    June 30,      December 31,
                                                                      2005            2004
                                                                  ------------------------------
                                                                  (Unaudited)
                                                                   (Restated)
<S>                                                               <C>              <C>
Current assets:
       Cash and cash equivalents                                  $   7,396,828    $      69,454
       Accounts receivable, net of allowance for doubtful
         accounts of $14,445,000 at June 30, 2005                    40,441,658               --
       Inventories of supplies, at cost                               5,856,321               --
       Prepaid expenses and other assets                              6,866,733           63,489
                                                                  ------------------------------
                                                                     60,561,540          132,943

Property and equipment, net                                          58,689,233           57,423
Investment in hospital asset purchase                                        --       11,142,145
Deferred loan fees, net of accumulated amortization of $268,238       1,625,790               --

                                                                  ------------------------------
       Total assets                                               $ 120,876,563    $  11,332,511
                                                                  ==============================

                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities
       Notes payable                                              $  84,604,113    $  11,264,013
       Accounts payable                                              11,631,374          156,142
       Accrued compensation and benefits                             12,999,220          800,313
       Income taxes payable                                             810,000               --
       Other current liabilities                                      6,654,573               --
                                                                  ------------------------------
         Total current liabilities                                  116,699,280       12,220,468

Capital lease obligations, net of current of $204,141                 3,384,256               --
Commitments and contingencies                                                --               --
Minority interest in variable interest entity                         4,795,578               --

Stockholders' deficiency:
       Common stock, $0.001 par value; 250,000,000 shares
         authorized; 124,559,000 and 20,780,000 shares
         issued and outstanding, respectively                           124,559           20,780
       Common stock warrants; 74,700,000 outstanding                 17,215,000               --
       Additional paid in capital                                    12,040,487        1,189,621
       Accumulated deficit                                          (33,382,597)      (2,098,358)
                                                                  ------------------------------
         Total stockholders' deficiency                              (4,002,551)        (887,957)
                                                                  ------------------------------
Total liabilities and stockholders' deficiency                    $ 120,876,563    $  11,332,511
                                                                  ==============================
</TABLE>


    The accompanying condensed notes are an integral part of these unaudited
                  condensed consolidated financial statements

                                       2
<PAGE>


                      INTEGRATED HEALTHCARE HOLDINGS, INC.
            Unaudited Condensed Consolidated Statement of Operations



<TABLE>
<CAPTION>
                                                            Three Months Ended                Six Months Ended
                                                      ------------------------------    ------------------------------
                                                      June 30, 2005    June 30, 2004    June 30, 2005    June 30, 2004
                                                      -------------    -------------    -------------    -------------
                                                       (Unaudited)      (Unaudited)      (Unaudited)      (Unaudited)
                                                        (Restated)                        (Restated)
<S>                                                   <C>              <C>              <C>              <C>
Net operating revenues                                $  83,190,537    $          --    $ 104,937,566    $          --

Operating expenses:
      Salaries and benefits                              48,439,345          306,317       60,889,949          603,146
      Supplies                                           11,521,967               --       14,555,782               --
      Provision for doubtful accounts                    11,331,354               --       14,472,760               --
      Other operating expenses                           17,283,135          108,763       21,183,354          288,887
      Depreciation and amortization                         902,845           15,528        1,165,057           30,707
      Common stock warrant expense                               --               --       17,215,000               --
                                                      -------------    -------------    -------------    -------------
                                                         89,478,646          430,608      129,481,902          922,740

Operating loss                                           (6,288,109)        (430,608)     (24,544,336)        (922,740)
      Interest expense                                    4,069,029               --        4,734,325               --
                                                      -------------    -------------    -------------    -------------

Loss including minority interest and
      before provision for income taxes                 (10,357,138)        (430,608)     (29,278,661)        (922,740)

      Provision for income taxes                          1,266,000               --        2,210,000               --
      Minority interest in variable interest entity        (195,517)              --         (204,422)              --
                                                      -------------    -------------    -------------    -------------

Net loss                                              $ (11,427,621)   $    (430,608)   $ (31,284,239)   $    (922,740)
                                                      =============    =============    =============    =============

Per Share Data:
      Basic and fully diluted
          Loss per common share                              ($0.09)          ($0.02)          ($0.29)          ($0.05)

      Weighted average shares outstanding               124,539,000       19,590,000      106,518,528       19,510,778
</TABLE>


    The accompanying condensed notes are an integral part of these unaudited
                  condensed consolidated financial statements

                                       3
<PAGE>


                      INTEGRATED HEALTHCARE HOLDINGS, INC.
     Unaudited Condensed Consolidated Statement of Shareholders' Deficiency



<TABLE>
<CAPTION>
                              Common Stock          Common Stock Warrants    Additional
                       -------------------------   -----------------------    Paid-in     Accumulated
                          Shares       Amount        Shares      Amount       Capital       Deficit         Total
                       -----------  ------------   ----------  -----------  -----------   ------------   ------------
                                                                (Restated)                 (Restated)     (Restated)
<S>                    <C>          <C>            <C>         <C>          <C>           <C>            <C>
Balance, December 31,
  2003                  19,380,000  $     19,380           --  $        --  $   551,021   $   (217,781)  $    352,620

Issuance of debt for
 the acquisition of
 MMG, Inc.                      --            --           --           --           --        (40,386)       (40,386)

Issuance of common
 stock for cash at
 $0.25 per share           200,000           200           --           --       49,800             --         50,000

Issuance of common
 stock for cash at
 $0.50 per share         1,200,000         1,200           --           --      588,800             --        590,000

Net loss                        --            --           --           --           --     (1,840,191)    (1,840,191)

                       -----------  ------------   ----------  -----------  -----------   ------------   ------------
Balance, December 31,
 2004                   20,780,000  $     20,780           --  $        --  $ 1,189,621   $ (2,098,358)  $   (887,957)
                       ===========  ============   ==========  ===========  ===========   ============   ============

Issuance of common
 stock for cash at
 $0.50 per share         1,179,000         1,179           --           --      598,322             --        599,501

Issuance of common
 stock for cash to
 OCPIN                 102,600,000       102,600           --           --    9,997,400             --     10,100,000

Issuance of common
 stock options                  --            --           --           --      255,144             --        255,144

Issuance of common
 stock warrants                 --            --   74,700,000   17,215,000           --             --     17,215,000

Net loss                        --            --           --           --           --    (31,284,239)   (31,284,239)

                       -----------  ------------   ----------  -----------  -----------   ------------   ------------
Balance, June 30, 2005 124,559,000  $    124,559   74,700,000  $17,215,000  $12,040,487   $(33,382,597)  $ (4,002,551)
                       ===========  ============   ==========  ===========  ===========   ============   ============
</TABLE>


    The accompanying condensed notes are an integral part of these unaudited
                  condensed consolidated financial statements

                                       4
<PAGE>


                      INTEGRATED HEALTHCARE HOLDINGS, INC.
            Unaudited Condensed Consolidated Statement of Cash Flows



<TABLE>
<CAPTION>
                                                                       Six Months Ended    Six Months Ended
                                                                         June 30, 2005      Junes 30, 2004
                                                                         ------------       ------------
                                                                         (Unaudited)        (Unaudited)
                                                                          (Restated)
<S>                                                                      <C>                <C>
Cash flows from operating activities:
Net loss                                                                 $(31,284,239)      $   (922,740)
Adjustments to reconcile net loss to cash used in operating activities:
      Depreciation and amortization expense                                 1,194,450             30,707
      Common stock warrant and option expense                              17,470,144                 --
      Minority interest in variable interest entity                          (204,422)                --
      Increase in prepaid expense and other assets                         (4,490,087)                --
      Increase in  net accounts receivable                                (40,441,658)                --
      Increase (decrease) in accounts payable                              11,475,232             (5,601)
      Increase in accrued compensation and benefits                        12,320,927            438,080
      Increase in income taxes payable                                        810,000                 --
      Increase in other accrued liabilities                                 6,450,432                 --
      Decrease in inventories of supplies                                     162,674                 --
                                                                         ------------       ------------
        Net cash used in operating activities                             (26,536,547)          (459,554)
                                                                         ------------       ------------
Cash flows from investing activities:
      Acquisition of hospital assets, net of lease obligations            (63,171,676)                --
      Purchase of property and equipment                                           --            (19,260)
      Acquisition of MMG, Inc., net of cash acquired                               --              8,534
                                                                         ------------       ------------
        Net cash used in investing activities                             (63,171,676)           (10,726)
Cash flows from financing activities:
      Issuance of secured promissory notes, net of costs                   48,067,000                 --
      Proceeds from lines of credit                                        34,604,113                 --
      Proceeds from issuance of stock                                      10,699,501            250,000
      Proceeds from the sale of partnership interests in variable
       interest entity used for the Acqusition                              5,000,000                 --
      Repayment of secured notes                                           (1,335,017)          (100,000)
      Advances from shareholders                                                   --             73,285
                                                                         ------------       ------------
        Net cash provided by financing activities                          97,035,597            223,285
                                                                         ------------       ------------
Net increase (decrease) in cash                                             7,327,374           (246,995)
                                                                         ------------       ------------
Cash and cash equivalents, beginning of period                                 69,454            265,000
                                                                         ------------       ------------
Cash and cash equivalents, end of period                                 $  7,396,828       $     18,005
                                                                         ============       ============

Supplemmental disclosure of noncash transactions:
    Issuance of promissory notes for Acquisition                         $ 53,000,000       $     60,000
    Consolidation of variable interest entity                            $ 54,758,312       $         --
    Expense of common stock warrants and options                         $ 17,470,144       $         --
    Rescinded secured promissory note for the
       return of initial deposit on hospital assets                      $ 10,000,000       $         --
  Interest paid                                                          $  2,511,411       $         --
  Income taxes paid                                                      $  1,400,000       $         --
</TABLE>


                                       5
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         Condensed Notes to Unaudited Consolidated Financial Statements
                                  June 30, 2005

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Acquisition - On March 8, 2005, the Company completed its acquisition (the
"Acquisition") of four Orange County,  California  hospitals and associated real
estate,  including:  (i) 282-bed  Western  Medical  Center--Santa  Ana, CA; (ii)
188-bed Western Medical  Center--Anaheim,  CA; (iii) 178-bed Coastal Communities
Hospital in Santa Ana, CA; and (iv) 114-bed Chapman Medical Center in Orange, CA
(collectively, the "Hospitals") from Tenet Healthcare Corporation ("Tenet"). The
Hospitals were assigned to four  wholly-owned  subsidiaries  of the Company (the
"Subsidiaries")  formed for the purpose of completing the Hospital  Acquisition.
The  Company  also  acquired  the  following  real  estate,  leases  and  assets
associated with the Hospitals:  (i) a fee interest in the Western Medical Center
at 1001  North  Tustin  Avenue,  Santa  Ana,  CA 92705,  a fee  interest  in the
administration  building  at 1301 North  Tustin  Avenue,  Santa  Ana,  CA 92705,
certain  rights to acquire  condominium  suites  located in the  medical  office
building at 999 North Tustin  Avenue,  Santa Ana, CA, and the business  known as
the West Coast Breast Cancer Center;  (ii) a fee interest in the Western Medical
Center at 1025 South Anaheim Blvd.,  Anaheim,  CA 92805; (iii) a fee interest in
the Coastal  Communities  Hospital at 2701 South Bristol  Street,  Santa Ana, CA
92704,  and a fee interest in the medical office  building at 1901 North College
Avenue,  Santa Ana, CA; (iv) a lease for the Chapman Medical Center at 2601 East
Chapman  Avenue,  Orange,  CA 92869,  and a fee  interest in the medical  office
building  at 2617  East  Chapman  Avenue,  Orange,  CA;  and (v) the  furniture,
fixtures and contract rights associated with the Hospitals.

      The results of operations of the acquired assets from the acquisition date
(March 8, 2005) have been  included in the Company's  consolidated  statement of
operations  for the three and six months ended June 30,  2005.As a result of the
Acquisition,  the Company has commenced  its planned  principal  operations  and
accordingly is no longer considered a development stage enterprise.

      As  discussed  further  in  Note  7,  concurrent  with  the  close  of the
Acquisition,  the  Company  entered  into a  sale-leaseback  transaction  with a
Pacific Coast Holdings Investment, LLC ("PCHI"), a then wholly owned subsidiary,
involving all the real property acquired in the Acquisition,  except for the fee
interest in the medical office  building at 2617 East Chapman  Avenue.  PCHI was
then  immediately  sold to certain major equity holders in the Company.  In this
transaction the Company received consideration of $5 million in cash plus PCHI's
guarantee  of $50  million in debt  issued by the  Company  in the  Acquisition.
Because, among other reasons, the Company remains primarily liable under the $50
million debt, this  transaction does not qualify for  sale-leaseback  accounting
and the $50 million in debt has not been removed from the Company's consolidated
balance  sheet at June 30,  2005.  However,  because PCHI now holds title to the
real  property,  the  Company's  interest in the real estate was  converted to a
lease interest  pursuant to the lease entered into between PCHI, as lessor,  and
the Company, as lessee as part of the sale-leaseback transaction.  Additionally,
as  further  discussed  under  Consolidation   below,   Company  management  has
determined  that  generally  accepted  accounting  principles  require  that the
financial  statements  of PCHI must be  included in the  consolidated  financial
statements of the Company under generally accepted accounting principles.

      Consolidation - The consolidated financial statements include the accounts
of Integrated  Healthcare  Holdings,  Inc. ("the  Company") and its wholly owned
subsidiaries,  Mogel  Management  Group,  Inc.  ("MMG")  and its  four  hospital
subsidiaries   located  in  Orange   County,   California   (collectively,   the
"Hospitals"):

            Western Medical Center - Anaheim       Anaheim, CA       188 beds
            Western Medical Center - Santa Ana     Santa Ana, CA     282 beds
            Coastal Communities Hospital           Santa Ana, CA     178 beds
            Chapman Medical Center                 Orange, CA        114 beds

                                       6
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         Condensed Notes to Unaudited Consolidated Financial Statements
                                  June 30, 2005

      Additionally,  generally  accepted  accounting  principles  require that a
company  consolidate the financial  statements of any entity that cannot finance
its activities without additional  subordinated financial support, and for which
one company  provides  the  majority of that  support  through  means other than
ownership.  As discussed  further in Note 9, the Company has determined  that it
provides to the entity that  purchased the  Hospitals'  real estate,  PCHI,  the
majority of its  financial  support  through  various  sources  including  lease
payments,   remaining   primarily   liable  under  the  $50  million  debt,  and
cross-collateralization  of the Company's non real property assets to secure the
$50  million  debt.   Accordingly,   the  accompanying   consolidated  financial
statements  include the  accounts of PCHI from the date of the real estate sale,
March 8, 2005.

      All  significant   intercompany   accounts  and  transactions   have  been
eliminated in combination.


      Company  Operations - The Company,  through the  Hospitals,  operates in a
single  industry  segment,  the  operation  of  general  hospitals  and  related
healthcare facilities.  The accompanying financial statements have been prepared
on a going concern  basis,  which  contemplates  the  realization  of assets and
settlement  of  obligations  in the  normal  course  of  business.  The  Company
generated  losses from  continuing  operations of  $11,427,621  and  $31,284,239
(inclusive of a warrant issuance  expense of $17,215,000  incurred in connection
with the Acquisition during the three months and six months ended June 30, 2005,
respectively and has negative working capital of $(56,137,740) at June 30, 2005.
In addition,  on or around May 9, 2005, the Company received a notice of default
from Medical Provider Financial  Corporation II ("Medical  Provider"),  which is
the lender under the $50 million  acquisition  loan and under a working  capital
line of credit that has an  outstanding  balance of $13.2 million as of June 30,
2005. The default has caused the acquisition  loan to be classified as a current
liability as of June 30, 2005. These factors, among others,  indicate a need for
the  Company to take  action to resolve  its  financing  issues and  operate its
business on a profitable basis.


      Management is working to  restructure  the debt with Medical  Provider and
believes that the Company's existing cash flow from operations and the Company's
ability to raise  additional  capital will be sufficient to meet its  continuing
obligations  for the  foreseeable  future.  The  Company and PCHI have agreed to
permit  the  Company  and PCHI to use the  assets of PCHI and the  Hospitals  as
collateral for the purposes of joint financing of Company's  business  operation
and PCHI's acquisition of real properties for an initial period of time.

      Condensed  Consolidated  Financial Statements - The accompanying financial
statements  have been prepared by the Company  without audit.  In the opinion of
management,  all adjustments  (which include only normal recurring  adjustments)
necessary  to present  fairly its  consolidated  financial  position at June 30,
2005,  and its  consolidated  results of operations for the three months and six
months ended June 30, 2005 and 2004,  respectively  and the statement of changes
in cash flows for the six months ended June 30, 2005 and 2004 have been made.

      Certain  information  and  footnote   disclosures   normally  included  in
financial  statements  prepared in accordance with generally accepted accounting
principles in the United States of America have been condensed or omitted. It is
suggested that these condensed financial  statements be read in conjunction with
the financial  statements and notes thereto  included in the Company's  December
31, 2004 audited consolidated  financial  statements.  The results of operations
for the periods ended June 30, 2005 and 2004 are not  necessarily  indicative of
the operating results for the full year.

      Organization - Integrated  Healthcare Holdings,  Inc., ("the Company") was
organized under the laws of the State of Utah on July 31, 1984 under the name of
Aquachlor  Marketing.  The Company never engaged in business  activities and was
suspended for failure to file annual reports and tax returns.  In December 1988,
all required  reports and tax returns were filed and the Company was  reinstated
by the State of Utah. In December 1988, the Company merged with Aquachlor, Inc.,
a Nevada  corporation  incorporated on December 20, 1988. The Nevada corporation
became the surviving  entity and changed its name to Deltavision,  Inc. In March
1997,  the Company  received a  Certificate  of Revival from the State of Nevada
using the name First  Deltavision,  Inc. In March 2004, the Company  changed its
name to Integrated Healthcare Holdings, Inc.

                                       7
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         Condensed Notes to Unaudited Consolidated Financial Statements
                                  June 30, 2005

      Use of Estimates - The  accounting  and reporting  policies of the Company
conform to  accounting  principles  generally  accepted  in the United  State of
American  and  prevailing  practices  for  investor-owned  entities  within  the
healthcare industry.  The preparation of financial statements in conformity with
accounting  principles  generally  accepted  in the  United  States of  American
requires  management to make estimates and  assumptions  that affect the amounts
reported  in  the  financial  statements  and  accompanying  notes.   Management
regularly  evaluates the  accounting  policies and  estimates  that are used. In
general,  management  bases  the  estimates  on  historical  experience  and  on
assumptions that it believes to be reasonable given the particular circumstances
in which the Hospitals operate.  Although  management  believes that adjustments
considered  necessary for fair presentation  have been included,  actual results
may vary from those estimates.

      Net Patient Service Revenue - Net patient service revenue is recognized in
the period in which  services are performed and is recorded based on established
billing  rates  (gross   charges)  less  estimated   discounts  for  contractual
allowances, principally for patients covered by Medicare, Medicaid, managed care
and other health plans.

      Gross charges are retail charges. They are not the same as actual pricing,
and they  generally  do not  reflect  what a  hospital  is  ultimately  paid and
therefore  are  not  displayed  in  the  condensed  consolidated  statements  of
operations.  Hospitals  are  typically  paid  amounts that are  negotiated  with
insurance  companies  or are set by the  government.  Gross  charges are used to
calculate Medicare outlier payments and to determine certain elements of payment
under managed care  contracts  (such as stop-loss  payments).  Because  Medicare
requires  that  a  hospital's  gross  charges  be  the  same  for  all  patients
(regardless of payer category), gross charges are also what hospitals charge all
other patients prior to the application of discounts and allowances.

      Percentages  of net  patient  service  revenue,  by  payer  type,  for the
Hospitals for the six months ended June 30, 2005 were as follows:

                                                         Six months ended
                                                          June 30, 2005
          Medicare                                             22%
          Medicaid                                             16%
          Managed care                                         42%
          Indemnity, self-pay and other                        20%

      Revenues  under the  traditional  fee-for-service  Medicare  and  Medicaid
programs are based  primarily on  prospective  payment  systems.  Discounts  for
retrospectively  cost-based revenues and certain other payments, which are based
on the hospitals' cost reports, are estimated based on relationships of costs to
charges  subject to  regulatory  adjustments.  For the six months ended June 30,
2005  retrospective  revenues were $3.0  million.  Cost report  settlements  for
retrospectively  cost-based  revenues  under these  programs  will be subject to
audit and administrative and judicial review, which can take several years until
final settlement of such matters are determined and completely resolved. Because
the laws, regulations,  instructions and rule interpretations governing Medicare
and Medicaid  reimbursement  are complex and change  frequently,  the  estimates
recorded by the Hospitals could change by material amounts.

                                       8
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         Condensed Notes to Unaudited Consolidated Financial Statements
                                  June 30, 2005

      Outlier  payments,  which  were  established  by  Congress  as part of the
diagnosis-related  groups  (DRG)  prospective  payment  system,  are  additional
payments  made to hospitals for treating  Medicare  patients who are costlier to
treat than the average patient in the same DRG. To qualify as a cost outlier,  a
hospital's billed (or gross) charges,  adjusted to cost, must exceed the payment
rate for the DRG by a fixed  threshold  established  annually by the Centers for
Medicare and  Medicaid  Services of the United  State  Department  of Health and
Human Services (CMS). The Medicare fiscal intermediary  calculates the cost of a
claim by  multiplying  the billed charges by the  cost-to-charge  ratio from the
hospital's  most recent filed cost report.  If the computed cost exceeds the sum
of the DRG payment plus the fixed  threshold,  the hospital  receives 80% of the
difference as an outlier payment.  Medicare has reserved the option of adjusting
outlier  payments,  through the cost report,  to the  hospital's  actual cost-to
charge ratio. Upon receipt of the current payment cost-to-charge ratios from the
fiscal  intermediary,  any variance  between current  payments and the estimated
final outlier settlement will be reported.

      Under  Sections  1886(d) and 1886(g) of the Social  Security Act, CMS must
project  aggregate  annual outlier  payments to all  prospective  payment system
hospitals to be not less than 5% or more than 6% of total DRG payments  (Outlier
Percentage).  The Outlier  Percentage is  determined  by dividing  total outlier
payments by the sum of DRG and outlier payments.  CMS annually adjusts the fixed
threshold to bring expected outlier payments within the mandated limit. A change
to the fixed threshold affects total outlier payments by changing (1) the number
of cases that qualify for outlier payments,  and (2) the dollar amount hospitals
receive for those cases that still  qualify.  The most recent change to the cost
outlier  threshold that became  effective on October 1, 2004 was a decrease from
$31,000 to $25,800,  which CMS projects will result in an Outlier  Percentage of
5.1%.

      Revenues  under  managed care plans are based  primarily on payment  terms
involving   predetermined  rates  per  diagnosis,   per-diem  rates,  discounted
fee-for-service  rates  and/or other  similar  contractual  arrangements.  These
revenues are also subject to review and possible audit by the payers. The payers
are billed for patient  services on an individual  patient basis.  An individual
patient's  bill is subject to  adjustment on a  patient-by-patient  basis in the
ordinary   course  of  business  by  the  payers   following  their  review  and
adjudication of each particular  bill. The Hospitals  estimate the discounts for
contractual allowances utilizing billing data on an individual patient basis. At
the end of the month, the Hospitals estimate expected  reimbursement for patient
of managed care plans based on the applicable  contract  terms.  These estimates
are  continuously  reviewed  for  accuracy  by taking into  consideration  known
contract  terms  as well as  payment  history.  Although  the  Hospitals  do not
separately  accumulate  and disclose the aggregate  amount of adjustments to the
estimated  reimbursements  for  every  patient  bill,  management  believes  the
estimation  and review  process  allows for timely  identification  of instances
where such estimates need to be revised.  Management does not believe there were
any  adjustments to estimates of individual  patient bills that were material to
its net patient service revenue.

      Management  is not aware of any material  claims,  disputes,  or unsettled
matters with any payers that would affect revenues that have not been adequately
provided for in the accompanying combined financial statements.

      The Hospitals provide charity care to patients whose income level is below
200% of the Federal Poverty Level with only a co-payment charged to the patient.
The  Hospitals'  policy is to not pursue  collection  of amounts  determined  to
qualify  as charity  care;  and  accordingly,  the  Hospitals  do not report the
amounts  in net  patient  service  revenue  or in  the  provision  for  doubtful
accounts.  Patients  whose  income level is between 200% and 300% of the Federal
Poverty  Level may also be  considered  under a  catastrophic  provision  of the
charity  care policy.  Patients  without  insurance  who do not meet the Federal
Poverty  Level  guidelines  are offered  assistance in applying for Medicaid and
other  programs they may be eligible for, such as state  disability,  Victims of
Crime,  or county  indigent  programs.  Patient  advocates  from the  Hospitals'
Medical  Eligibility Program (MEP) screen patients in the hospital and determine
potential  linkage to  financial  assistance  programs.  They also  expedite the
process of applying for these government  programs.  The amount of gross charges
foregone under the charity  policy,  including  indigent care accounts,  for the
three  months and six months ended June 30, 2005 were  approximately  $3,638,933
and $4,646,811 respectively.

                                       9
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         Condensed Notes to Unaudited Consolidated Financial Statements
                                  June 30, 2005

      Receivables  from patients who are  potentially  eligible for Medicaid are
classified  as Medicaid  pending,  under the MEP, with  appropriate  contractual
allowances  recorded.  If  the  patient  does  not  quality  for  Medicaid,  the
receivables  are  reclassified  to charity  care and  written  off,  or they are
reclassified to self-pay and adjusted to their net realizable  value through the
provision of doubtful accounts.  Reclassifications  of Medicaid pending accounts
to self-pay do not typically have a material impact on the results of operations
as the estimated  Medicaid  contractual  allowances  initially  recorded are not
materially different than the estimated provision for doubtful accounts recorded
when the accounts are reclassified.  All accounts classified as pending Medicaid
are fully reserved when they reach 180 days old.

      Provision  for  Doubtful  Accounts  - The  Company  provide  for  accounts
receivable  that could  become  uncollectible  by  establishing  an allowance to
reduce the carrying value of such  receivables to their estimated net realizable
value.  The  Hospitals  estimate  this  allowance  based  on the  aging of their
accounts receivable,  historical  collections  experience for each type of payer
and other  relevant  factors.  There are  various  factors  that can  impact the
collection trends, such as changes in the economy,  which in turn have an impact
on  unemployment  rates and the number of uninsured and  underinsured  patients,
volume of patients  through the emergency  department,  the increased  burden of
co-payments to be made by patients with insurance and business practices related
to collection efforts.  These factors continuously change and can have an impact
on collection trends and the estimation process.

      The Company's  policy is to attempt to collect  amounts due from patients,
including  co-payments and deductibles due from patients with insurance,  at the
time of service while complying with all federal and state laws and regulations,
including,  but not limited to, the  Emergency  Medical  Treatment and Labor Act
(EMTALA). Generally, as required by EMTALA, patients may not be denied emergency
treatment due to inability to pay. Therefore, until the legally required medical
screening  examination is complete and  stabilization  of the patient has begun,
services are performed prior to the verification of the patient's insurance,  if
any. In non-emergency  circumstances or for elective procedures and services, it
is the Hospitals'  policy,  when  appropriate,  to verify  insurance  prior to a
patient being treated.

      During the three months and six months  ended June 30,  2005,  the Company
recorded  provisions  for  doubtful  accounts  of  $11,331,354  and  $14,472,760
respectively.

      Cash and Cash  Equivalents - The Company  considers all highly liquid debt
investments  purchased  with a  maturity  of  three  months  or  less to be cash
equivalents.

      Property and Equipment - Property and  equipment are stated at cost,  less
accumulated  depreciation and any impairment  write-downs related to assets held
and used.  Additions and  improvements to property and equipment are capitalized
at cost.  Expenditures  for  maintenance  and  repairs are charged to expense as
incurred.  Capital  leases are  recorded at the  beginning  of the lease term as
assets and  liabilities.  The value  recorded is the lower of either the present
value of the minimum lease payments or the fair value of the asset. Such assets,
including improvements,  are amortized over the shorter of either the lease term
or their estimated useful life.

                                       10
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         Condensed Notes to Unaudited Consolidated Financial Statements
                                  June 30, 2005

      The Company uses the  straight-line  method of depreciation for buildings,
building  improvements,  and  equipment  over their  estimated  useful  lives as
follows:

                  Buildings and improvements         4 to 25 years
                  Equipment                          3 to 15 years

      The  Company  evaluates  its  long-lived  assets for  possible  impairment
whenever  circumstances  indicate  that the  carrying  amount of the  asset,  or
related  group of assets,  may not be  recoverable  from  estimated  future cash
flows. However,  there is an evaluation performed at least annually.  Fair value
estimates are derived from independent appraisals,  established market values of
comparable  assets or internal  calculations of estimated future net cash flows.
The estimates of future net cash flows are based on assumptions  and projections
believed by management to be reasonable and supportable.  These assumptions take
into account patient volumes,  changes in payer mix, revenue, and expense growth
rates and changes in legislation and other payer payment  patterns.  The Company
believes  there has been no impairment in the carrying value of its property and
equipment at June 30, 2005.

      Medical Claims  Incurred but not Reported - The Company is contracted with
CalOptima, which is a county sponsored entity that operates similar to a HMO, to
provide health care services to indigent patients at a fixed amount per enrolled
member per month. The Company receives  payments from CalOptima based on a fixed
fee and the number of enrolled members to the Company's specific hospitals.  The
Company  recognizes  these  capitation  fees as revenues on a monthly  basis for
providing  comprehensive  health care services for the period.  The Company does
not have contractual obligations with HMO's.

      In certain  circumstances,  members will receive health care services from
hospitals  not  owned  by the  Company.  In these  cases,  the  Company  records
estimates of patient member claims incurred but not reported (IBNR) for services
provided by other health care institutions. The claims incurred but not reported
are estimated using  historical  claims  patterns,  current  enrollment  trends,
hospital pre-authorizations,  member utilization patterns,  timeliness of claims
submissions,  and other  factors.  There can be no  assurance  that the ultimate
liability  will not exceed our  estimates.  Adjustments  to the  estimated  IBNR
reserves  are  recorded in our results of  operations  in the periods  when such
amounts are determined.

      Per guidance under SFAS NO. 5, the Company  accures for IBNR reserves when
it is probable that  expected  future  health care costs and  maintenance  costs
under an existing  contract  have been incurred and the amount can be reasonably
estimable.  The  Company  records  these IBNR  claim  reserves  against  its net
operating  revenues.  During the six months  ended June 30,  2005,  the  Company
recorded net revenues from CalOptima of approximately $1.5 million,  net of IBNR
reserves of $2.1  million.  The Company's  direct cost of providing  services to
patient members in IHHI facilities is recorded as an operating expense.

      Stock-Based Compensation - Statement of Financial Accounting Standards No.
123, Accounting for Stock Based Compensation,  encourages, but does not require,
companies to record  compensation  cost for  stock-based  employee  compensation
plans  at fair  value.  The  Company  has  chosen  to  account  for  stock-based
compensation  using the intrinsic value method  prescribed in previously  issued
standards. Accordingly,  compensation cost for stock options issued to employees
is  measured as the excess,  if any, of the fair market  value of the  Company's
stock at the date of grant over the amount an  employee  must pay to acquire the
stock.  Compensation  is charged to expense  over the  shorter of the service or
vesting period.  Stock options issued to non-employees  are recorded at the fair
value  of the  services  received  or the  fair  value  of the  options  issued,
whichever is more reliably  measurable,  and charged to expense over the service
period.  During  the three and six  months  ended  June 30,  2005,  the  Company
recognized  $255,144 of other  operating  expense  from the  granting of 500,000
stock  options  to its public  relations  consultant.  Fair  Value of  Financial
Instruments - The Company considers all liquid interest-earning investments with
a  maturity  of  three  months  or  less  at the  date  of  purchase  to be cash
equivalents.  Short-term  investments  generally mature between three months and
six months from the  purchase  date.  All cash and  short-term  investments  are
classified  as available  for sale and are recorded at market using the specific
identification  method;  unrealized  gains and  losses  are  reflected  in other
comprehensive  income.  Cost approximates market for all classifications of cash
and short-term investments.

      Net Loss per Common Share - Net loss per share is calculated in accordance
with Statement of Financial  Accounting  Standards No. 128,  Earnings Per Share.
Basic net loss per share is based  upon the  weighted  average  number of common
shares  outstanding.  Diluted net loss per share is based on the assumption that
options and  warrants are included in the  calculation  of diluted  earnings per
share, except when their effect would be anti-dilutive.  Dilution is computed by
applying the treasury stock method. Under this method,  options and warrants are
assumed  to be  exercised  at the  beginning  of the  period  (or at the time of
issuance,  if later),  and as if funds  obtained  thereby  were used to purchase
common stock at the average market price during the period.

                                       11
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         Condensed Notes to Unaudited Consolidated Financial Statements
                                  June 30, 2005

      Impairment of Long-Lived Assets - The Company continually  monitors events
or changes in  circumstances  that could  indicate  that the carrying  amount of
long-lived assets to be held and used,  including  intangible assets, may not be
recoverable.  The  determination  of  recoverability  is based on an estimate of
undiscounted  future  cash  flows  resulting  from the use of the  asset and its
eventual  disposition.  When impairment is indicated for a long-lived asset, the
amount of  impairment  loss is the  excess of net book  value  over fair  value.
Long-lived assets to be disposed of are reported at the lower of carrying amount
or fair  value  less  costs  to sell.  As of June  30,  2005,  the  Company  has
determined that no impairment of its long-lived assets exists.

      Goodwill  and  Intangible  Assets  -  On  July  20,  2001,  the  Financial
Accounting  Standards  Board (FASB)  issued  Statement  of Financial  Accounting
Standards  ("SFAS")  141,  Business  Combinations,  and SFAS 142,  Goodwill  and
Intangible  Assets.  Under these new standards,  all acquisitions  subsequent to
June 30, 2001 must be accounted for using the purchase method of accounting. The
cost of  intangible  assets with  indefinite  lives and  goodwill  are no longer
amortized,  but are  subject  to an annual  impairment  test based upon its fair
value.

      Goodwill  and   intangible   assets   principally   result  from  business
acquisitions.  The Company  accounts for business  acquisitions by assigning the
purchase  price to  tangible  and  intangible  assets  and  liabilities.  Assets
acquired and liabilities  assumed are recorded at their fair values;  the excess
of the purchase price over the net assets  acquired is recorded as goodwill.  As
of June 30, 2005 no goodwill had been recorded on acquisitions.

      Segment  Reporting - The Company  operates  in one line of  business,  the
provision of health care services through the operation of general hospitals and
related health care facilities.  Our general hospitals  generated  substantially
all of our net operating revenues during the six months ended June 30, 2005.

      Recently Enacted Accounting Standards - On October 13, 2004, the Financial
Accounting  Standards Board issued Statement 123R,  Share-Based  Payment,  which
requires  all  companies  to  measure  compensation  cost  for  all  share-based
payments,  including  employee  stock options,  at fair value.  The statement is
effective for the Company as of the fiscal year commencing  January 1, 2006. The
statement  generally  requires that such  transactions  be accounted for using a
fair-value-based   method  and  recognized  as  expenses  in  the   consolidated
statements  of  operations.  This  standard  also  requires  that  the  modified
prospective  transition  method be used,  under which the Company will recognize
compensation  cost for (1) the fair value of new  awards  granted,  modified  or
settled after the effective date of the SFAS 123R; and (2) a portion of the fair
value of each option and stock grant made to employees or directors prior to the
implementation  date that represents the unvested  portion of these  share-based
awards as of such date. The measurement of compensation cost for awards that are
not fully vested as of the effective date of the SFAS 123R would be based on the
same estimate  that the Company used to  previously  value its grants under SFAS
123.

      As a result of SFAS 123R, the Company will be required to expense the fair
value of its  stock  option  grants  rather  than  disclose  the  impact  on its
consolidated  statement of  operations  within the  Company's  footnotes,  as is
current practice.  Additionally, if it chooses to do so, SFAS 123(R) permits the
Company  to  adopt  the new  share-based  award  accounting  by  retrospectively
restating  results  for all periods  presented  to  facilitate  period-to-period
comparison.

      In January 2003, the Financial  Accounting  Standards Board issued FIN 46,
"Consolidation of Variable Interest  Entities," which requires  consolidation of
certain entities in which equity investors do not have the  characteristics of a
controlling  financial interest or do not have sufficient equity at risk for the
entity to finance  its  activities  without  additional  subordinated  financial
support  from other  parties.  Paragraph  1 of ARB 51 states  that  consolidated
financial  statements are usually  necessary for a fair presentation when one of
the companies in the group  directly or indirectly  has a controlling  financial
interest in the other  companies.  Paragraph 2 states that "the usual  condition
for  a  controlling  financial  interest  is  ownership  of  a  majority  voting
interest..." However, application of the majority voting interest requirement in
ARB  51 to  certain  types  of  entities  may  not  identify  the  party  with a
controlling financial interest because the controlling financial interest may be
achieved through arrangements that do not involve voting interests.  Application
of Interpretation 46 or Interpretation 46(R) is required in financial statements
of  public  entities  that have  interests  in  variable  interest  entities  or
potential  variable interest  entities  commonly referred to as  special-purpose
entities for periods  ending after  December 15, 2003.  See Note 7 regarding the
Company's implementation of FIN 46 (R).

                                       12
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         Condensed Notes to Unaudited Consolidated Financial Statements
                                  June 30, 2005

NOTE 2 - ACQUISITION

      The  purchase  price,  after  all  purchase  price  adjustments,   of  the
Acquisition  amounted  to  $66,246,821.  The fair value of the  tangible  assets
acquired and liabilities assumed consisted of the following:

         Property and equipment                             $ 59,493,353
         Inventories of supplies                               6,018,995
         Prepaid expenses and other current assets             2,460,874
         Deferred loan fees                                    1,933,000
         Capital lease obligations                            (3,659,401)
                                                            ------------
                                                            $ 66,246,821
                                                            ============

      The Company financed the asset purchase and related  financing costs (Note
6) by obtaining a $50 million  acquisition debt, drawing $3 million on a working
capital  line of  credit,  the sale of the  Company's  common  stock  for  $10.1
Million,  and $5 million in proceeds  from the sale of the real  property of the
acquired Hospitals.

      The Company recorded its initial deposit of $10 million on the Acquisition
and direct acquisition costs of $1,142,145,  consisting primarily of legal fees,
as an Investment in hospital  asset  purchase in the  accompanying  consolidated
balance sheet as of December 31, 2004.

      The following unaudited  supplemental pro forma information represents the
Company's  consolidated results of operations as if the Acquisition had occurred
on January 1, 2004 and after  giving  effect to  certain  adjustments  including
interest expense,  depreciation  expense,  and related tax effects. In addition,
the following  unaudited pro forma information  includes the nonrecurring  items
related to the  issuance of  74,700,000  common stock  warrants  (Note 5), which
resulted in an expense of $17,250,000 that the Company recorded during the three
months ended March 31, 2005 and restructuring  charges of $3,147,000 incurred by
Tenet during the three months ended March 31, 2005.  Such pro forma  information
does not purport to be  indicative  of  operating  results  that would have been
reported  had the  Acquisition  occurred on January 1, 2004 or future  operating
results.


<TABLE>
<CAPTION>
                                                                    Pro Forma (Unaudited)
                                        --------------------------------------------------------------------------
                                                 Three Months Ended                      Six Months Ended
                                        --------------------------------------------------------------------------
                                         June 30, 2005       June 30, 2004       June 30, 2005       June 30, 2004
                                        --------------------------------------------------------------------------
<S>                                     <C>                 <C>                 <C>                 <C>
Net operating revenues                  $   83,190,537      $   78,581,594      $  160,203,857      $  165,327,579

Net loss                                $  (11,427,621)     $   (9,136,708)     $  (42,212,849)     $  (32,853,926)

Loss per common share
  (basic and fully diluted)             $        (0.09)     $        (0.08)     $        (0.34)     $        (0.27)

Weighted average shares outstanding        124,539,000         122,190,000         124,308,528         122,110,778
                                        ==============      ==============      ==============      ==============
</TABLE>


                                       13
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         Condensed Notes to Unaudited Consolidated Financial Statements
                                  June 30, 2005

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of June 30, 2005:

Buildings and improvements                                      $   32,844,916
Land                                                                15,264,266
Equipment                                                            7,915,164
Leasehold                                                            3,659,401
                                                                --------------
                                                                    59,683,747

Less accumulated depreciation                                         (994,514)
                                                                --------------
 Property and equipment, net                                    $   58,689,233
                                                                ==============

      The  Hospitals  are affected by State of  California  Senate Bill 1953 (SB
1953),  which requires certain seismic safety building  standards for acute care
hospital  facilities.   The  Hospitals  are  currently  reviewing  the  SB  1953
compliance  requirements and developing multiple plans of action to achieve such
compliance,  the estimated time frame for complying with such requirements,  and
the cost of performing necessary  remediation of certain of the properties.  The
Hospitals  cannot  currently  estimate with reasonable  accuracy the remediation
costs  that  will  need to be  incurred  in  order  to make  the  facilities  SB
1953-compliant, but such remediation costs could be significant.

NOTE 4 - COMMON STOCK

      Stock  Purchase  Agreement  with OC-PIN - On January 28, 2005, the Company
entered into a Stock Purchase  Agreement (the "Stock Purchase  Agreement")  with
Orange County Physicians  Investment Network, LLC ("OC-PIN"),  a company founded
by Dr.  Anil V.  Shah and  owned by a number  of  physicians  practicing  at the
acquired hospitals,  pursuant to which OC-PIN committed to invest $30,000,000 in
the Company for an  aggregate  of  108,000,000  shares of the  Company's  common
stock. In addition, a prior Purchase Option Agreement,  dated November 16, 2004,
between the Company and Dr. Anil V. Shah, was terminated.  During the six months
ended June 30, 2005,  the Company  issued a total of  102,600,000  shares of its
common  stock in  consideration  of $10.1  million  from OC-PIN  under the Stock
Purchase  Agreement.  The Company used the proceeds from this stock sale as part
of the consideration paid to Tenet for the acquisition of the Hospitals.

                                       14
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         Condensed Notes to Unaudited Consolidated Financial Statements
                                  June 30, 2005

      Under the Stock Purchase Agreement, no later than six calendar days before
the  closing of  Acquisition,  OC-PIN was to deliver to the  Company  additional
financing totaling $20,000,000. Upon receipt of the $20,000,000, the Company was
to issue an  additional  5.4 million  shares of its common stock to OC-PIN.  The
Company extended OC-PIN's additional financing commitment to June 16, 2005, when
the Company entered into the following new agreements:

      o     First Amendment to the Stock Purchase Agreement, dated as of June 1,
            2005 (the "First Amendment"); and

      o     Escrow  Agreement,  dated as of June 1,  2005,  by and  among  IHHI,
            OC-PIN and City National Bank (the "Escrow Amendment").

The following  material  terms,  which were contained in the First Amendment and
the Escrow Agreement, are currently in process:

      o     OC-PIN's  total stock purchase  commitment  under the Stock Purchase
            Agreement was reduced from $30 million to $25 million.

      o     A total of  57,250,000  shares of Company  common  stock  previously
            issued to OC-PIN were placed in an escrow account with City National
            Bank in July 2005.  OC-PIN will have until September 1, 2005 to make
            aggregate  payments of up to  approximately  $15,000,000  in monthly
            installments  into the escrow account.  Such portion of the escrowed
            shares  which are  fully  paid will be  returned  to OC-PIN  and the
            balance  will be  transferred  back to the  Company.  If  there is a
            shortfall,  the Company will use its reasonable best efforts to sell
            equity to new  investors to cover the  shortfall.  See the financial
            impact of the shares placed into escrow at Note 10 - loss per share;

      o     OC-PIN will reimburse the Company for certain of its additional debt
            financing costs incurred since March 8, 2005;

      o     The Company will work to complete a new borrowing  transaction  with
            Capital Source Finance LLC; and

      o     Upon receipt of at least  $5,000,000  of new capital under the First
            Amendment,  the Company will call a shareholders meeting to re-elect
            directors.  The  nominees  for the Board will consist of two current
            directors,   two  members  of  OC-PIN,  two  independent   directors
            unaffiliated with IHHI or OC-PIN, and Anil V. Shah, M.D.

NOTE 5 - COMMON STOCK WARRANTS

      The  Company  entered  into a  Rescission,  Restructuring  and  Assignment
Agreement  with Dr.  Chaudhuri  and  William  Thomas on  January  27,  2005 (the
"Restructuring Agreement").  Previously, the Company had obtained financing from
Dr.  Chaudhuri  and  Mr.  Thomas  and had  issued  to  them a  $500,000  secured
convertible promissory note that was convertible into approximately 88.8% of the
Company's  issued and outstanding  common stock on a fully-diluted  basis, a $10
million secured  promissory  note, and a Real Estate  Purchase Option  agreement
originally dated September 28, 2004 to purchase 100% of substantially all of the
real property in the Acquisition for $5 million (the "Real Estate Option"),  all
of which together with related accrued interest payable pursuant to the terms of
the notes were rescinded and cancelled. Pursuant to the Restructuring Agreement,
the Company released its initial deposit of $10 million plus accrued interest on
the Tenet Hospital Acquisition back to Dr. Chaudhuri and issued  non-convertible
secured  promissory  notes  totaling  $1,264,014  and warrants to purchase up to
74,700,000  shares of the Company's Common Stock (but not to exceed 24.9% of the
Company's Fully-Diluted capital stock) (the "Warrants") to Dr. Chaudhuri and Mr.
Thomas. In addition,  the Company amended the Real Estate Option to provide that
Dr. Chaudhuri's option shall be to purchase 49% of substantially all of the real
property in the  Acquisition  for  $2,450,000.  Concurrent with the close of the
Acquisition,  IHHI  repaid  the  non-convertible  secured  promissory  notes  of
$1,264,014 to Dr. Chaudhuri and Mr. Thomas.

                                       15
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         Condensed Notes to Unaudited Consolidated Financial Statements
                                  June 30, 2005

      The Warrants are exercisable  beginning January 27, 2007 and expire in 3.5
years from the date of the issuance. The exercise price for the first 43 million
shares  purchased under the Warrants is $0.003125 per share, and the exercise or
purchase  price for the  remaining  31.7  million  shares is $0.078 per share if
exercised  between  January  27,  2007 and July 26,  2007,  $0.11  per  share if
exercised between July 27, 2007 and January 26, 2008, and $0.15 thereafter.

      Based  upon a  valuation  obtained  by the  Company  from  an  independent
valuation firm, the Company has recognized an expense of $17,215,000  related to
the issuance of the common stock warrants.  The Company  computed the expense of
the  warrants  based on the fair value of the  warrants at the date of grant and
the estimated  maximum number of shares  exercisable of 43,254,715.

      The fair value of the Warrants was determined  based on the  Black-Scholes
option pricing model with the following assumptions:


            Risk-free interest rate                     3.2%
            Expected volatility                        33.6%
            Dividend yield                               --
            Expected life (years)                       3.5
            Fair value of Warrants (fully diluted)   $0.398

      Due to the Company  emerging  from the  development  stage  during the six
months ended June 30, 2005,  the Company  computed the  volatility  of its stock
based on an average of comparable public companies that own hospitals.  Based on
the market for the Company's stock not being  reasonably  efficient,  the market
not expecting the significant  warrant grant, and the Company not commensurately
benefiting  from an exercise of the  warrant,  the Company  determined  that the
dilutive effect of the warrant should be reflected in estimating its fair value.
The Company  calculated the dilutive  effect by dividing the  non-dilutive  fair
value by 1.249,  based on the  maximum  number of shares to be issued  under the
warrant of 24.9% of total outstanding shares.


NOTE 6 - DEBT

The current  portion of the Company's debt consists of the following notes as of
June 30, 2005:

Secured acquisition note payable                                     $50,000,000
Secured line of credit note payable                                   13,200,000
Advances from accounts receivable
  purchase agreement                                                  21,404,113

                                                                     -----------
                                                                     $84,604,113
                                                                     ===========

      Acquisition  Loan  and  Line of  Credit - In  connection  with  the  Tenet
Hospital  Acquisition,  the Company obtained borrowings to complete the Hospital
Acquisition  from  affiliates of Medical  Capital  Corporation  of Anaheim,  CA.
Effective March 3, 2005, the Company and its Subsidiaries  collectively  entered
into a Credit Agreement (the "Credit Agreement") with Medical Provider Financial
Corporation  II  ("the  Lender"),  whereby  the  Company  has  obtained  initial
financing  in the form of a loan with  interest  at the rate of 14% per annum in
the  amount  of  $80,000,000  of  which  $30,000,000  will  be in the  form of a
non-revolving  Line of Credit (the "Line of Credit") and $50,000,000  will be in
the form of a real  estate  loan (the  "Acquisition  Loan")  (collectively,  the
"Obligations").  The Company used the proceeds from the $50 million  Acquisition
Loan and $3 million  from the Line of Credit to complete  the  Acquisition  (See
Notes 1 and 3). The Line of Credit is to be used for the  purpose  of  providing
(a) working capital  financing for the Company and its  Subsidiaries,  (b) funds
for other general corporate  purposes of the Company and its  Subsidiaries,  and
(c) other permitted purposes.

                                       16
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         Condensed Notes to Unaudited Consolidated Financial Statements
                                  June 30, 2005

      Interest  payments are due on the Obligations on the first business day of
each calendar month to occur while any Obligation is outstanding at the interest
rate of 14% per annum.  The Obligations  mature at the first to occur of (i) the
Commitment  Termination Date for the Line of Credit Loan, (ii) March 2, 2007, or
(iii) the occurrence or existence of a continuing  Event of Default under any of
the  Obligations.  The  Commitment  Termination  Date means the  earliest of (a)
thirty  calendar  days prior to March 2, 2007;  (b) the date of  termination  of
Lender's  obligations  to make Advances  under the Line of Credit Note or permit
existing  Obligations to remain outstanding  pursuant to Section 8.2(b), (c) the
date  of  prepayment  in  full  by  the  Company  and  its  Subsidiaries  of the
Obligations and the permanent reduction of all Commitments to zero dollars;  (d)
March 2, 2007. Per the Credit Agreement, all future capital contributions to the
Company by OC-PIN shall be used by the Company as mandatory  prepayments  of the
Line of Credit.

      The  Acquisition  Loan  and  Line  of  Credit  are  secured  by a lien  on
substantially all of the assets of the Company and its  Subsidiaries,  including
without  limitation,  a pledge of the capital stock by the Company in its wholly
owned  subsidiary  Hospitals.  In addition,  (i) PCHI (see Note 1) has agreed to
guaranty the payment and  performance  of the  Obligations,  (ii) West Coast and
Ganesha  (see Note 7) have each agreed to pledge their  membership  interests in
PCHI as security  for  repayment of the  Obligations,  (iii) the members of West
Coast have agreed to pledge their  membership  interests in PCHI as security for
repayment  of the  Obligations,  and (iv)  OC-PIN  (see  Note 5) has  agreed  to
guaranty the payment and performance of all the Obligations.

      Credit  Agreement Fees -  Concurrently  with the execution and delivery of
the Credit Agreement and as a condition to the funding of the Acquisition  Loan,
Company and its  Subsidiaries  agreed to pay to the Lender an origination fee in
an amount equal to 2% of the Credit Line  Commitment or $600,000,  and 2% of the
Acquisition  Loan  or  $1,000,000,   to  be  payable  out  of  Company  and  its
Subsidiaries own funds, which fee shall be deemed earned in full upon receipt by
Lender.  Upon the  completion of the  Acquisition  on March 8, 2005, the Company
paid the Lender a total of $1,600,000 in origination  fees and paid the Lender's
legal fees of  approximately  $333,000.  The Company is amortizing  the deferred
loan fees of $1,933,000  over the two year term of the  Obligations.  During the
six months ended June 30, 2005, the Company recognized  $307,210 of amortization
expense and has  unamortized  deferred  loan fees of  $1,625,790  as of June 30,
2005.

      Accounts  Receivable  Purchase  Agreement - In March 2005,  the  Hospitals
entered  into an  Accounts  Purchase  Agreement  that  allows  the sale of their
accounts  receivable to Medical  Provider  Financial  Corp., an affiliate of the
Lender,  as they become billable to third parties.  The Company will continue to
provide  billing and  collection  services and the proceeds  collected  from the
accounts receivable are applied to reduce amounts advanced under this agreement.
As of June 30, 2005,  advances made under this agreement were $21,404,113.  This
agreement has a term of two years.

                                       17
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         Condensed Notes to Unaudited Consolidated Financial Statements
                                  June 30, 2005

      Default Notice - On or about May 9, 2005, the Company received a notice of
default from the Lender. In addition, each of OC-PIN, PCHI, Ganesha Realty, LLC,
and West Coast  Holdings,  LLC, which are parties to the Credit  Agreement,  has
received  a notice of  default  under the  Credit  Agreement.  The  Company  has
recorded the acquisition  note of $50 million and outstanding  draws on the line
of  credit  of  $13.2  million  as  current   liabilities  in  the  accompanying
consolidated financial statements.

      The  notice of  default  asserts  that (i) the  Company  failed to provide
satisfactory evidence that the Company has received capital contributions of not
less than $15,000,000,  as required under the Credit Agreement, (ii) the Company
failed to prepay  $5,000,000 by the Mandatory  Prepay Date as required under the
Credit  Agreement,  and (iii) a Material  Adverse  Effect has occurred under the
Credit  Agreement for reasons  relating  primarily to OC-PIN's  failure to fully
fund its obligations  under its Stock Purchase  Agreement with the Company dated
January 28, 2005.

      Forbearance  Agreement - In connection  with the Company's First Amendment
(see Note 4), the Company  entered  into an  Agreement  to Forbear as of June 1,
2005 by and among the Company,  OC-PIN, West Coast Holdings,  LLC and the Lender
(the "Forbearance  Agreement").  Without another default,  the Lender agrees for
100 days to  forbear  from (i)  recording  Notices  of  Default,  (ii)  filing a
judicial  foreclosure  lawsuit  against  the  Company,  OC-PIN  and  West  Coast
Holdings,  LLC, and (iii) filing lawsuits  against the Company,  OC-PIN and West
Coast  Holdings,  LLC. The  interest  rate on the notes will be increased to the
Default Rate of 19%, as defined in the Credit Agreement, and all Obligations (as
defined in the Credit Agreement),  will be forthwith due and payable, as long as
the events of default remain  uncured.  The Company's Line of Credit facility is
suspended to additional  advances.  During the  forbearance  period of 100 days,
OC-PIN and other  investors  will invest not less than $15 million in new equity
capital in the Company.

NOTE 7 - VARIABLE INTEREST ENTITY

      Concurrent  with  the  close  on the  acquisition  of the  Hospitals,  Dr.
Chaudhuri  and Dr.  Shah  exercised  their  option to  purchase  all of the real
property of the Hospitals  pursuant to an Option  agreement  dated September 28,
2004, as amended and restated on November 16, 2004 ("LLC Option Agreement"). The
option was exercised by the option  holders  purchasing  from the Company all of
the equity  interests  in PCHI,  which  holds  title to the real  property.  The
Company  received $5 million and PCHI guaranteed the Company's  acquisition debt
of $50 million.

      The Company  remains  primarily  liable under the $50 million  acquisition
note    notwithstanding    its   guarantee   by   PCHI,   and   this   note   is
cross-collateralized by substantially all of the Company's assets and all of the
real property of the Hospitals.  All of the Company's  operating  activities are
directly  affected  by the real  property  that was  sold to PCHI.  Given  these
factors, it appears that the Company has indirectly  guaranteed the indebtedness
of PCHI. The Company is standing ready to perform on the acquisition debt should
PCHI not be able to perform and has  undertaken a contingent  obligation to make
future payments if those triggering events or conditions occur.

      In connection  with the sale of all of the real property of the Hospitals,
the Company  entered  into a triple net lease with PCHI to  leaseback  this real
property  for an initial term of 25 years.  Per the triple net lease,  PCHI will
receive  rent that covers the cost of the  underlying  debt,  plus a  guaranteed
spread up to 2.5%. Additionally, the Company has a right to renew the leases for
periods up to an additional 25 years.

      PCHI is a related party entity that is affiliated with the Company through
common ownership and control.  It is owned 51% by West Coast Holdings,  LLC (Dr.
Shah and investors) and 49% by Ganesha  Realty,  LLC (Dr.  Chaudhuri and William
Thomas).  Generally  accepted  accounting  principles  require  that  a  company
consolidate  the  financial  statements  of any entity that  cannot  finance its
activities without additional  subordinated financial support, and for which one
company  provides  the  majority  of  that  support  through  means  other  than
ownership.  Effective March 8, 2005, the Company determined that it provided the
majority of financial  support to PCHI through various  sources  including lease
payments,   remaining   primarily   liable  under  the  $50  million  debt,  and
cross-collateralization  of the Company's  non-real  estate assets to secure the
$50 million debt.  Accordingly,  during the six months ended June 30, 2005,  the
Company included in its  consolidated  financial  statements,  the net assets of
PCHI, net of consolidation adjustments.

                                       18
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         Condensed Notes to Unaudited Consolidated Financial Statements
                                  June 30, 2005

      Selected  information of PCHI's balance sheet as of June 30, 2005, and its
results  of  operations  for the  period  March 8, 2005 to June 30,  2005 are as
follows:

            Total assets           $  55,362,360
            Total liabilities         50,566,782
            Member's equity            4,795,578
            Net revenues               3,353,508
            Net loss                     204,422

      Consolidation  adjustments to reflect the effects of the following matters
are included in the accompanying consolidated financial statements:

      o     The Company's  lease  interest in the hospitals has been  eliminated
            leaving PCHI's  ownership of the land and buildings  being presented
            in the accompanying consolidated financial statements. Additionally,
            a deferred gain of  $12,157,808  arising from the Company's  sale of
            the real  property of the  Hospitals to PCHI has been  eliminated to
            state the land and buildings at the Company's cost.

      o     Because the Company remains  primarily  liable under the $50 million
            debt  notwithstanding  its  guarantee  by PCHI,  generally  accepted
            accounting  principles  do not allow  the  Company  to  remove  this
            liability  from its balance  sheet.  Therefore,  it is  necessary to
            eliminate the same item from PCHI's balance sheet in consolidation.

      o     PCHI's  equity  accounts have been  classified as minority  interest
            variable  interest entity in the accompanying  consolidated  balance
            sheet.

      o     The Company's rent expense has been eliminated against PCHI's rental
            income.  Additionally,  amounts  assigned  to  buildings  are  being
            depreciated and amortized over the 25 year initial term of the lease
            with PCHI.

NOTE 8 - INCOME TAXES

      The Company  accounts for income  taxes in  accordance  with  Statement of
Financial  Accounting  Standards  No. 109  "Accounting  for Income  Taxes" which
requires the liability  approach for the effect of income  taxes.  The provision
for income taxes consists of provisions for federal and state income taxes.

      The  preparation of consolidated  financial  statements in conformity with
generally  accepted  accounting  principles  requires us to make  estimates  and
assumptions   that  affect  the  reported  amount  of  tax-related   assets  and
liabilities and income tax provisions.  The Company assesses the  recoverability
of the deferred tax assets on an ongoing  basis.  In making this  assessment the
Company is required to consider all available  positive and negative evidence to
determine whether,  based on such evidence, it is more likely than not that some
portion or all of our net  deferred  assets will be realized in future  periods.
This assessment requires significant judgment. In addition, the Company has made
significant   estimates   involving  current  and  deferred  income  taxes,  tax
attributes relating to the interpretation of various tax laws,  historical bases
of tax attributes  associated  with certain  tangible and intangible  assets and
limitations  surrounding  the  realizability  of our  deferred  tax assets.  The
Company does not  recognize  current and future tax benefits  until it is deemed
probable that certain tax positions will be sustained.

                                       19
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         Condensed Notes to Unaudited Consolidated Financial Statements
                                  June 30, 2005

      The  provision  for income taxes  consisted of the  following  for the six
months ended June 30,:


                                            2005           2004
                                         ----------     ----------
      Current income tax expense:

              U.S. Federal and State     $2,210,000     $       --

      Deferred income taxes:

              U.S. Federal and State             --             --
                                         ----------     ----------

              Total                      $2,210,000     $       --
                                         ==========     ==========


      A  reconciliation  between  the  amount of  reported  income  tax  expense
(benefit) and the amount  computed by multiplying  income (loss) from continuing
operations before income taxes by the statutory federal income tax rate is shown
below for the six months ended June 30, 2005:


Estimated tax benefit at federal and state statutory
   rates on an annualized basis                             $(8,434,000)
Common stock warrant expense                                  3,774,000
Gain on sale of real estate                                   1,292,000
Change in valuation allowance                                 6,363,000
State credits                                                  (817,000)
Other                                                            32,000
                                                            -----------
                                                            $ 2,210,000
                                                            ===========


      Deferred  income taxes  reflect the tax effects of  temporary  differences
between the carrying amount of assets and  liabilities  for financial  reporting
purposes  and the amount  used for  income tax  purposes.  The  following  table
discloses  those   significant   components  of  our  deferred  tax  assets  and
liabilities, including any valuation allowance:


                                                June 30, 2005   June 30, 2004
                                                ------------    ------------

      Current deferred tax assets:

              Allowance for doubtful accounts   $  5,911,500    $         --
              Accrued vacation                     2,429,490              --
              Other accruals                       1,886,369              --
              Net operating losses                   576,984         444,000
                                                ------------    ------------
              Deferred tax assets                 10,804,343         444,000

      Valuation allowance                        (10,804,343)       (444,000)
                                                ------------    ------------

              Net deferred tax assets           $         --    $         --
                                                ============    ============


                                       20
<PAGE>

      A valuation  allowance  of $10.8  million was recorded as of June 30, 2005
based  on an  assessment  of the  realization  of our  deferred  tax  assets  as
described  below.  We assess  the  realization  of our  deferred  tax  assets to
determine  whether an income tax valuation  allowance is required.  Based on all
available evidence,  both positive and negative, and the weight of that evidence
to the extent such  evidence can be  objectively  verified,  Company  management
determines  whether  it is more  likely  than not that all or a  portion  of the
deferred tax assets will be realized.  The main factors taken into consideration
include:

o     cumulative losses in recent years;

o     income/losses expected in future years;

o     unsettled  circumstances  that, if unfavorably  resolved,  would adversely
      affect future operations and profit levels;

o     the  availability,  or lack there,  of taxable  income in prior  carryback
      periods that would limit realization of tax benefits;

o     the  carryforward  period  associated  with the  deferred  tax  assets and
      liabilities; and

o     prudent and feasible tax-planning strategies.

      Through the second  quarter of 2005, we concluded  that it was more likely
than not that the  deferred  tax  assets  were  not  realizable.  Therefore,  we
determined  that it was  appropriate  to  record  a  valuation  allowance  after
considering and weighing all evidence in the second quarter of 2005.

      Tenet  Hospital  Acquisition  - The  Acquisition  was  an  asset  purchase
transaction  and the Company will not benefit from the net  operating  losses of
the acquired Hospitals. In connection with the Company's completion of the Tenet
Hospital  Acquisition  in March 2005, the Company sold all of the real estate of
the acquired  hospitals to its majority  shareholders.  For income tax purposes,
the sale of the real estate of the acquired  hospitals could require the Company
to report dividend and/or interest income.  If the Company is required to report
dividend and/or interest income in connection with this transaction, the Company
would be required to withhold 28% on any deemed dividend or interest income. The
Company's sale of its 100% membership interest in PCHI on March 8, 2005, to West
Coast  Holdings LLC and Ganesha Realty LLC in  consideration  of $5 million plus
the assumption of the $50 million  Acquisition Loan on the real property debt is
a taxable event to the Company.

      PCHI Tax Status - PCHI is a limited liability  corporation.  PCHI's owners
plan to make tax  elections  for it be treated as a  disregarded  entity for tax
reporting  whereby  similar to a partnership  PCHI's taxable income or loss will
flow through to its owners and be their  separate  responsibility.  Accordingly,
the accompanying  consolidated  financial  statements do not include any amounts
for the income tax expense or benefit of PCHI's income or loss.

                                       21
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         Condensed Notes to Unaudited Consolidated Financial Statements
                                  June 30, 2005

NOTE 9 - RELATED PARTY TRANSACTIONS

      PCHI - The Company  leases all of the real property of the acquired  Tenet
Hospitals from PCHI. PCHI is owned by two LLC's,  which are owned and co-managed
by Dr. Shah, Dr. Chaudhuri,  and Mr. William Thomas. Dr. Shah is the chairman of
the Company  and is also the  co-manager  an  investor  in OC-PIN,  which is the
majority  shareholder  of the  Company.  Dr.  Chaudhuri  and Mr.  Thomas are the
holders of the Warrants to purchase up to 24.9% of the  Company's  fully diluted
capital stock. The Company has consolidated the financial statements of PCHI for
the period March 8, 2005 through June 30, 2005 in accordance with FIN 46(R) (see
Note 7). During the six month period ended June 30, 2005, the Company incurred a
liability for rent expense  payable to PCHI of $3,353,508,  which was eliminated
upon consolidation at June 30, 2005.

      Management  Agreements - In December 2004,  February 2005, and March 2005,
the  Company  entered  into  seven  employment  agreements  with  its  executive
officers.  Among other terms, the three year employment  agreements in aggregate
provide for annual salaries  totaling  $2,290,000,  total stock option grants to
purchase  6,650,000  shares of the Company's  common stock at an exercise  price
equal to the mean  average  per  share  for the ten days  following  the date of
issuance  with vesting at 33% per year,  and an annual bonus to be determined by
the Board of  Directors.  As of June 30,  2005,  the  Company has not issued any
stock options pursuant to the employment agreements.

NOTE 10 - LOSS PER SHARE

The  following  data show the amounts used in  computing  loss per share for the
periods presented:


<TABLE>
<CAPTION>
                                            Three Months Ended June 30,     Six Months Ended June 30,
                                           -----------------------------   -----------------------------
                                               2005            2004            2005            2004
                                           -------------   -------------   -------------   -------------
<S>                                        <C>             <C>             <C>             <C>
Loss from continuing operations available
 to common shareholders (numerator)        $ (11,427,621)  $    (430,608)  $ (31,284,239)  $    (922,740)

Weighted average number of common
 shares used in loss per share during
 the period (denominator)                    124,539,000      19,590,000     106,518,528      19,510,778
</TABLE>


The Company's weighted average common stock equivalents  related to the Warrants
(Note 6) were  41,291,892  for the six months ended June 30, 2005.  These common
stock equivalents have been excluded from the Company's  weighted average number
of common shares  outstanding  due to their  anti-dilutive  effect for the three
months ended June 30, 2005.


      If the First  Amendment  to the Stock  Purchase  Agreement  and the Escrow
Agreement  were  entered  into as of the  date of the  original  Stock  Purchase
Agreement  dated January 28, 2005, the Company's  future loss per share would be
greater than reported and the  Company's  loss per share would have been $(0.17)
and $(0.54) for the three and six months ended June 30, 2005, respectively.


                                       22
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         Condensed Notes to Unaudited Consolidated Financial Statements
                                  June 30, 2005

NOTE 11 - COMMITMENTS AND CONTINGENCIES

      Operating  Leases -  Concurrent  with the  closing  of the Tenet  Hospital
Acquisition as of March 7, 2005, the Company  entered into a sale leaseback type
agreement with a related party entity,  PCHI (the "Related  Party  Lease").  The
Company leases all of the real estate of the acquired Hospitals  properties (the
"Hospital  Properties")  and medical office buildings and a long term acute care
facility  (collectively  the "MOB  Properties") from PCHI. The term of the Lease
for the Hospital Properties is approximately 25 years,  commencing March 8, 2005
and  terminating  on February 28, 2030. The Company has the option to extend the
term of this triple net lease for an additional term of twenty-five years.

      Additionally,  in connection  with the  acquisition of the Hospitals,  the
Company  also  assumed  the  operating  leases for the Chapman  facility,  which
include buildings,  land, and other equipment.  The Related Party Lease has been
eliminated  in  the  consolidation  of  PCHI  in the  accompanying  consolidated
financial  statements.  The  following  is a schedule  of the  Company's  future
minimum  operating  lease payments that have initial or remaining  noncancelable
lease terms in excess of one year as of December 31, 2004:

                               Unrelated Third    Related
      Year Ended December 31,     Parties       Party (PCHI)         Total
      -----------------------  ----------------------------------------------
         2005                  $  2,038,365     $ 10,642,672       12,681,037
         2006                     2,008,102       13,153,611       15,161,713
         2007                     1,660,807       13,233,219       14,894,026
         2008                     1,162,675       13,315,216       14,477,891
         2009                       844,267       13,315,216       14,159,483
      Thereafter                  8,569,793      278,706,133      287,275,926
                               ----------------------------------------------
                               $ 16,284,009     $342,366,067     $358,650,076
                               ==============================================

      Capital  Leases - The  Hospitals  have  long-term  lease  obligations  for
certain  equipment.  For  financial  reporting  purposes,  the leases  have been
classified  as  capital  leases;  accordingly,  assets  with a net book value of
approximately   $3,529,109  are  included  in  property  and  equipment  in  the
accompanying  consolidated  balance sheet. The following is a schedule of future
minimum lease  payments under  capitalized  equipment  leases  together with the
present value of the net minimum lease payments as of June 30, 2005:

      Year ending June 30,
      --------------------
         2005                                                   $  686,292
         2006                                                      686,292
         2007                                                      686,292
         2008                                                      686,292
         2009                                                      686,292
      Thereafter                                                 2,573,595
                                                                ----------
           Total minimum lease payments                         $6,005,055

      Less amount representing interest                          2,416,658
                                                                ----------

           Present value of net minimum lease payments           3,588,397

      Less current portion                                         204,141
                                                                ----------

           Long-term portion                                    $3,384,256
                                                                ==========

      Agreement for  Compensation - In connection with the close of the Hospital
Acquisition,  the Company entered into an Agreement for Compensation  Related to
the 999 Medical  Office  Building  (the  "Compensation  Agreement  with PCHI,  a
related  party (see Note 7). In the  amended  Asset Sale  Agreement  with Tenet,
certain medical office  condominium units (the "Condo Units") were excluded from
the Company's Hospital  Acquisition due to the tenants of the Condo Units having
a first right of refusal to purchase such real property.  The Company's purchase
price of the  Hospitals  from Tenet was reduced by $5  million.  Pursuant to the
amended Asset Sale  Agreement upon the expiration of the tenant's right of first
refusal, Tenet will transfer title to the Condo Units to the Company in exchange
for  consideration of $5 million,  pro rated if less than all of the Condo Units
are transferred.

      Pursuant to the Compensation Agreement, the Company shall acquire title to
the Condo Units upon  expiration of the tenant's right of first refusal and then
transfer  such title to the Condo Units to PCHI.  If some of the Condo Units are
acquired by the tenants, the Company shall provided compensation to PCHI and the
Company shall pay down its  Acquisition  Note (see Note 6) by $5 million or such
pro rata portion.  In the event of the Company's  failure to obtain title to the
Condo Units,  the Company  shall pay to PCHI a sum to be agreed upon between the
Company,  PCHI,  and the  owners  of PCHI,  but not less  than  the  product  of
$2,500,000 multiplied by a fraction,  the numerator of which shall be the number
of Condo  Units not  acquired  the  Company  and  transferred  to PCHI,  and the
denominator  equal to the total  Condo  Units of  twenty-two.  The  tenants  are
currently in ligitation  with Tenet  related to the purchase  price of the Condo
Units offered by Tenet to the tenants.

      As the financial  statements  of the related party entity,  PCHI (see Note
7),  are  included  in  the  Company's   accompanying   consolidated   financial
statements,  management has determined that any future payment to PCHI under the
Compensation Agreement would reduce the Company's gain on sale of assets to PCHI
(see  Note  7.)  Although  the gain on sale of  assets  is  eliminated  upon the
consolidation  of the  financial  statements of PCHI,  the Company's  income tax
provision related to such gain would be reduced.

      Claims and Lawsuits - The Company and the Hospitals are subject to various
legal  proceedings,  most of which relate to routine  matters  incidental to our
business.  The results of these claims cannot be  predicted,  and it is possible
that the ultimate resolution of these matters, individually or in the aggregate,
may have a material  adverse effect on the Company's  business (both in the near
and long  term),  financial  position,  results  of  operations  or cash  flows.
Although the Company defends itself  vigorously  against claims and lawsuits and
cooperate  with  investigations,  these  matters  (1) could  require  payment of
substantial damages or amounts in judgements or settlements,  which individually
or in the aggregate  could exceed  amounts,  if any, that may be recovered under
insurance   policies  where  coverage  applies  and  is  available.   (2)  cause
substantial expenses to be incurred,  (3) require significant time and attention
from  management  and (f) could cause the Company to close or sell the Hospitals
or otherwise  modify the way its business is conducted.  Reserves for claims and
lawsuits are recorded when they are probable and reasonably estimable.


NOTE 12 - RESTATEMENT OF PRIOR PERIODS

In March 2006, the Company restated its 2005 quarterly financial  statements due
to the following adjustments:

o     The Company revised its calculation of the Warrant expense incurred during
      the six months  ended June 30,  2005.  The total  adjustment  required  to
      increase the Warrant  expense to its proper balance was $780,827  pre-tax.
      The adjustment was a result of the Company recognizing the warrant expense
      as a  nonrecurring  settlement  charge during the three months ended March
      31, 2005 using a  probability  analysis to estimate the maximum  number of
      warrants exercisable at the date of issuance of 43,254,715 shares.

o     The Company  revised its provision for income taxes due to an error in the
      calculation  of the taxable gain on the sale of real property to PCHI (see
      Note 7 Variable Interest Entity.) The total adjustment  required to reduce
      the provision for income taxes was $496,000 and  $1,024,000  for the three
      and six months ended June 30, 2005, respectively.

The effects of the restatement were as follows:

<TABLE>
<CAPTION>
                                      Three Months Ended                      Six Months Ended
                            ------------------------------------    ------------------------------------
                                        June 30, 2005                           June 30, 2005
                            ------------------------------------    ------------------------------------
                              As Previously            As            As Previously             As
                                Reported            Restated           Reported             Restated
                            ----------------    ----------------    ----------------    ----------------
<S>                         <C>                 <C>                 <C>                 <C>
Net loss                    $    (11,923,621)   $    (11,427,621)   $    (31,527,412)   $    (31,284,239)

Basic and fully diluted:

Net loss per common share   $          (0.10)   $          (0.09)   $          (0.30)   $          (0.29)
</TABLE>

NOTE 13 - SUBSEQUENT EVENTS


On December 14, 2005, the Company and its subsidiaries collectively entered into
Amendment  No.  1 to  Credit  Agreement  dated  as of  December  12,  2005  (the
"Amendment"),  that amends that certain  credit  agreement  dated as of March 3,
2005 (the "March Credit  Agreement"),  with PCHI, OC-PIN,  Ganesha Realty,  LLC,
West Coast Holdings,  LLC (the "Credit Parties") and Medical Provider  Financial
Corporation  II (the  "Lender").  The Amendment (i) declares cured those certain
events of default set forth in the  notices of default  received on or about May
9, 2005,  from the Lender,  (ii)  requires the Company to pay  $5,000,000 to the
Lender for mandatory prepayment required under the March Credit Agreement, (iii)
requires  the  Company  to  obtain   $10,700,000   in  additional   new  capital
contributions  to pay in full and retire all amounts due and owing under the new
Note  evidenced by the Credit  Agreement  (as defined  below) and (iv)  includes
certain indemnities and releases in favor of the Lender.

On December 14, 2005,  the Company  also  entered into a credit  agreement  (the
"Credit Agreement"),  dated as of December 12, 2005, with the Credit Parties and
the Lender. Under the Credit Agreement, the Lender loaned a total of $10,700,000
to the Company as  evidenced  by that  certain  promissory  note in favor of the
Lender (the "New  Note")  with a total  principal  balance of  $10,700,000.  The
Company will use the proceeds to operate the  Hospital  facilities.  Interest is
payable monthly at the rate of 12% per annum and the New Note is due on December
12, 2006. The Company may not prepay the New Note in whole or in part.


The New  Note is  secured  by  substantially  all of the  Company's  assets.  In
addition,  the Company issued a common stock warrant to the Lender as collateral
under the New Note.  The warrant is  exercisable by the Lender only in the event
of that a default has occurred and is  continuing  on the New Note.  The warrant
provides  the Lender to purchase  the number of shares of the  Company's  common
stock equal in value to the amount of the New Note not repaid at maturity,  plus
accrued  interest  and lender  fees for an  aggregate  exercise  price of $1.00,
regardless of the amount of shares acquired. The Warrant is exercisable from and
after  December 12, 2005 until the  occurrence  of either a  termination  of the
Credit  Agreement  by the  Lender  or  the  Company's  payment  in  full  of all
obligations under the Credit Agreement. The Company is obligated to register the
estimated number of shares of common stock issuable upon exercise of the warrant
by filing a registration  statement under the Securities Act of 1933, as amended
(the "Securities  Act"), no later than ninety days prior to the maturity date of
the New Note. If the Company proposes to file a registration statement under the
Securities Act on or before the expiration date of the warrant, then the Company
must offer to the holder of the warrant the opportunity to include the number of
shares of common stock as the holder may request.

The Company has determined it appropriate to classify the warrant as a liability
at the date of  issuance  in  accordance  with EITF No.  00-19  "Accounting  for
Derivative  Financial  Instruments  Indexed  to, and  Potentially  Settled in, a
Company's Own Stock," FAS 133 "Accounting for Derivative Instruments and Hedging
Activities,"  and FAS 150 "Accounting  for Certain  Financial  Instruments  with
Characteristics  of both Liabilities and Equity." In addition,  the Company will
re-measure the warrants subsequent to the initial measurement date at fair value
with changes in fair value recognized in earnings.

As a result of the Company  not being able to  determine  the maximum  number of
shares that could be required to be issued under the warrants issued on December
12, 2005, the Company has also determined that share  settlement of the Warrants
issued on January 27, 2005 is not within its  control  and will  reclassify  the
Warrants as a liability as of December 12, 2005.


PCHI and  OC-PIN  have  each  agreed to  guaranty  payment  of the New Note.  In
addition,  West Coast Holdings,  LLC and Ganesha Realty, LLC have each agreed to
pledge  their  membership  interests  in PCHI as security for payment of the New
Note.

On or about  October 31,  2005,  the Company and OC-PIN  entered into the Second
Amendment to Stock Purchase Agreement (see Note 4).

      Contingency  - The  Company is a  defendant  in a claim  brought by Andrew
Weiss, a former consultant to the Company,  filed with Judicial  Arbitration and
Mediation  Service in Orange County,  California,  alleging  breach of contract,
wrongful  discharge,  failure  to pay wages,  fraud,  and other  related  claims
relating to his services to the Company in 2004 and 2005. Mr. Weiss alleges that
he was an  employee  of the  Company  and was  covered  by a  purported  written
employment  agreement  dated  March 3, 2005.  Mr.  Weiss is seeking  unspecified
damages,  including  lost  earnings  and  benefits,  loss  of  future  earnings,
penalties, punitive damages and attorneys fees and costs. The Company intends to
defend itself  vigorously  against  these claims.  Although the Company does not
believe  it is  probable  that it will  lose  this  case,  it is  possible  that
resolution  of this  case  could  result  in a loss.  Management  is not able to
estimate the amount of such loss as of September 30, 2005.

      On August 1, 2005,  Larry Anderson  resigned as a director of the Company,
and the Board of Directors  appointed the following four individuals to serve as
directors to fill current  vacancies on the Board:  Maurice J. DeWald,  Fernando
Niebla, Syed J. Naqvi and Jaime Ludmir.

                                       23
<PAGE>

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations. Forward-Looking Information

      This Quarterly Report on Form 10-Q contains forward-looking statements, as
that term is defined in the Private  Securities  Litigation  Reform Act of 1995.
These statements relate to future events or our future financial performance. In
some cases, you can identify  forward-looking  statements by terminology such as
"may",  "will",  "should",   "expects",  "plans",   "anticipates",   "believes",
"estimates",  "predicts",  "potential"  or  "continue"  or the negative of these
terms or other comparable terminology. These statements are only predictions and
involve known and unknown risks,  uncertainties and other factors, including the
risks  discussed  under the caption "Risk  Factors" in our Annual Report on Form
10-KSB filed on March 31, 2005,  that may cause our company's or our  industry's
actual results, levels of activity, performance or achievements to be materially
different from those expressed or implied by these forward-looking statements.

      Although we believe that the expectations reflected in the forward-looking
statements  are  reasonable,  we  cannot  guarantee  future  results,  levels of
activity,  performance or achievements.  Except as may be required by applicable
law, we do not intend to update any of the forward-looking statements to conform
these statements to actual results.

      As used in this  report,  the terms  "we",  "us",  "our",  "the  Company",
"Integrated  Healthcare Holdings" or "IHHI" mean Integrated Healthcare Holdings,
Inc., a Nevada corporation, unless otherwise indicated.

Overview

      Prior to March 8, 2005, we were primarily a development stage company with
no material  operations and no revenues from operations.  On September 29, 2004,
the Company  entered into a definitive  agreement to acquire four hospitals from
subsidiaries  of Tenet  Healthcare  Corporation  ("Tenet"),  and  completed  the
transaction  on March 8, 2005.  Effective  March 8, 2005,  we acquired and began
operating the following four hospital  facilities in Orange  County,  California
(referred to in this report as our "Hospitals"):

      o     282-bed Western Medical Center in Santa Ana;

      o     188-bed Western Medical Center in Anaheim;

      o     178-bed Coastal Communities Hospital in Santa Ana; and

      o     114-bed Chapman Medical Center in Orange.

      Our  results of  operations  discussed  in this  report  reflect  Hospital
operations  for the full  quarter  ended  June  30,  2005 and the 24 days of the
quarter ended March 31, 2005.

      We entered into agreements with third-party payers,  including  government
programs  and  managed  care  health  plans,  under  which  rates are based upon
established  charges,  the cost of providing  services,  predetermined rates per
diagnosis,  fixed per diem rates or discounts from established  charges.  During
the 24 days ended March 31, 2005,  substantially all of Tenet's  negotiated rate
agreements  were assigned to our Hospitals.  Our own Medicare  provider  numbers
were received in April 2005.  California State Medicaid Program provider numbers
were received in June 2005.

                                       24
<PAGE>


      Provision for Doubtful Accounts

      Accounts  receivable  primarily  consist of amounts  due from  third-party
payors and patients. Our ability to collect outstanding  receivables is critical
to our results of operations and cash flows. We provide for an allowance against
accounts receivable that could become uncollectible by establishing an allowance
to  reduce  the  carrying  value  of such  receivables  to their  estimated  net
realizable value. Our allowance is based on the aging of certain of our accounts
receivables by hospital,  the historical  collection  experience by hospital and
for each type of payer and other relevant  factors.  The percentages  applied in
the calculation of the allowance are consistent with those used by Tenet.

      The  primary  uncertainty  lies with  uninsured  patient  receivables  and
deductibles,  co-payments or other amounts due from individual  patients,  which
collectively  represent the largest  component of bad debts.  Our practice is to
write-down  self-pay  accounts  receivable,  including  accounts  related to the
co-payments and deductibles due from patients with insurance, to their estimated
net realizable  value at the time of billing.  We attempt to collect amounts due
from patients,  including  co-payments  and  deductibles  due from patients with
insurance,  at the time of service  while  complying  with all federal and state
laws and  regulations,  including,  but not  limited to, the  Emergency  Medical
Treatment and Labor Act ("EMTALA").  Generally,  as required by EMTALA, patients
may not be denied emergency treatment due to inability to pay. Therefore,  until
the legally required medical screening examination is complete and stabilization
of the patient has begun,  services are performed  prior to the  verification of
the patient's insurance, if any. In non-emergency  circumstances or for elective
procedures and services, it is our policy, when appropriate, to verify insurance
prior to a patient being treated.

      Generally,   uncollected  balances  are  expected  to  be  assigned  to  a
collection  agency between 90 to 120 days past due, once patient  responsibility
has been identified.  As we did not acquire Tenet's  accounts  receivable in our
Acquisition  on March 8, 2005,  our  accounts  have been current up to the third
quarter.  Accordingly,  in September 2005 we engaged a collection agency and bad
debt  assignments  commenced.  When accounts are assigned for collections by the
Hospitals,  the  accounts  are  completely  written  off through  provision  for
doubtful  accounts.  Any  recoveries  from  collection  agencies  thereafter are
credited to the provision as received.

      The  process  of  determining  the  allowance   requires  us  to  estimate
uncollectible  patient  accounts  that are highly  uncertain and requires a high
degree of judgment.  It is impacted by changes in regional economic  conditions,
business  office   operations,   payor  mix  and  trends  in  federal  or  state
governmental healthcare coverage. Due to our limited historical information as a
result of our Acquisition  occurring on March 8, 2005, the following  represents
our significant  categories of gross patient accounts  receivable as of December
31, 2005 (in thousands and unaudited):

      Governmental                                 $  16,809
      Insured Patient Accounts, net of discounts      33,222
      Uninsured and Self Pay Accounts                 16,927
                                                   ---------
                                                   $  66,958

      Also as of December 31, 2005, $20 million in accounts had been written off
and assigned for  collection.  Of the combined  uninsured  and self pay balances
(both active  accounts and bad debt  write-offs)  4.4% had been  collected as of
December  31, 2005.  The  uninsured  accounts  category  represented  78% of the
allowance  for  uncollectible  accounts and net of this portion of the allowance
represented  an estimated  receivable  of $1.4 million.  Uninsured  accounts are
reserved at 93.2% of the balance for all aging  categories.  Based on collection
experience  through  December 31, 2005, we expect to collect 65% or $0.9 million
of this prior to assignment.  The remainder  represents the expected recovery by
the outside  collection agency after the active balances are assigned.  Until we
obtain additional historical experience, this recovery is not assured.

      Approximately  $17  million  of our  accounts  at  December  31,  2005 are
governmental accounts reserved at 100% for potential denials after 180 days.

      Insured  patient  accounts  represent  22% of the  allowance  for doubtful
accounts as of December 31, 2005  calculated  on a scale based on the age of the
accounts  from  date of  service  starting  at 3.3%  for  current  accounts  and
progressing to 63% for accounts over 180 days. Our commercial  insured  accounts
of $22 million have an  allowance  of $4 million as of December  31,  2005.  The
average age of these  accounts from date of service to collection is 52 days. In
management's  opinion this is reasonable as long as the accounts  continue to be
current.

A significant  increase in our provision for doubtful  accounts (as a percentage
of revenues)  would have a significant  increase to our operating  losses.  This
would adversely affect our results of operations, financial condition, liquidity
and future access to capital.


      Common Stock Warrants

      As indicated in the notes to the financial statements, the Company entered
into a Rescission, Restructuring and Assignment Agreement with Dr. Chaudhuri and
William Thomas on January 27, 2005 (the "Restructuring Agreement").  Pursuant to
the  Restructuring  Agreement,  the Company  released its initial deposit of $10
million  plus accrued  interest on the Tenet  Hospital  Acquisition  back to Dr.
Chaudhuri  and  issued   non-convertible   secured   promissory  notes  totaling
$1,264,014  and warrants to purchase up to  74,700,000  shares of the  Company's
Common  Stock.  The warrants  were limited not to exceed 24.9% of the  Company's
Fully-Diluted capital stock.

The Company  recognized an expense of $17.2  million  related to the issuance of
the Warrants during the three months ended March 31, 2005. The Company  computed
the expense of the Warrants  based on the fair value of the Warrants at the date
of grant and the estimated  maximum number of shares  exercisable of 43,254,715.
The Company  computed the fair value of the Warrants based on the  Black-Scholes
option pricing model with the following assumptions:


            Risk-free interest rate                     3.2%
            Expected volatility                        33.6%
            Dividend yield                               --
            Expected life (years)                       3.5
            Fair value of Warrants (fully diluted)   $0.398


      Due to fact that the Company emerged from the development stage during the
three months ended March 31, 2005,  the Company  computed the  volatility of its
stock based on an average of the following  comparable public companies that own
hospitals:

         Amsurg Inc (AMSG)
         Community Health Systems (CYH)
         Healhcare Company (HCA)
         Health Management Associates Inc. (HMA)
         Lifepoint (LPNT)
         Tenet Healthcare Corp. (THC)
         Triad Hospitals Corp. (TRI)
         Universal (UHS)

Although management believes this is most reasonable and accurate methodology to
determine the Company's  volatility,  the circumstances  affecting volatility of
the  comparable  companies  selected  may not be an  accurate  predictor  of the
Company's volatility.

                                       25
<PAGE>

      Due to fact that the Company emerged from the development stage during the
six months ended June 30, 2005, the Company computed the volatility of its stock
based on an average of comparable public companies that own hospitals.

      Variable Interest Entity

      Concurrent  with the close of the Company's  acquisition of the Hospitals,
Dr.  Chaudhuri  and Dr.  Anil Shah  exercised  their  options  to  purchase  the
Company's  interest in a limited  liability  company  holding the real  property
underlying the Hospitals  pursuant to an option  agreement  dated  September 28,
2004, as amended and restated on November 16, 2004 (the "LLC Option Agreement").
The option  holders  purchased all of the  Company's  interests in Pacific Coast
Holdings Investment LLC ("PCHI"), which acquired title to the real property. The
Company  received $5 million and PCHI guaranteed the Company's  acquisition debt
of $50 million.

      The Company  remains  primarily  liable under the $50 million  acquisition
note    notwithstanding    its   guarantee   by   PCHI,   and   this   note   is
cross-collateralized by substantially all of the Company's assets and all of the
real property of the Hospitals.  All of the Company's  operating  activities are
directly  affected  by the real  property  that was  sold to PCHI.  Given  these
factors, it appears that the Company has indirectly  guaranteed the indebtedness
of PCHI. The Company is standing ready to perform on the acquisition debt should
PCHI not be able to perform and has  undertaken a contingent  obligation to make
future payments if those triggering events or conditions occur.

      In connection  with the sale of all of the real property of the Hospitals,
the Company  entered  into a triple net lease with PCHI to  leaseback  this real
property  for an initial term of 25 years.  Per the triple net lease,  PCHI will
receive  rent that covers the cost of the  underlying  debt,  plus a  guaranteed
spread up to 2.5%. Additionally, the Company has a right to renew the leases for
periods up to an additional 25 years.

      PCHI is a related party entity that is affiliated with the Company through
common ownership and control.  It is owned 51% by West Coast Holdings,  LLC (Dr.
Shah and investors) and 49% by Ganesha  Realty,  LLC (Dr.  Chaudhuri and William
Thomas).  Generally  accepted  accounting  principles  require  that  a  company
consolidate  the  financial  statements  of any entity that  cannot  finance its
activities without additional  subordinated financial support, and for which one
company  provides  the  majority  of  that  support  through  means  other  than
ownership.  Effective March 8, 2005, the Company determined that it provided the
majority of financial  support to PCHI through various  sources  including lease
payments,   remaining   primarily   liable  under  the  $50  million  debt,  and
cross-collateralization  of the Company's  non-real  estate assets to secure the
$50 million  debt.  Accordingly,  during the three and six months ended June 30,
2005, the Company included in its  consolidated  financial  statements,  the net
assets of PCHI, net of consolidation adjustments.

                                       26
<PAGE>

Results of Operations

      The following  table  summarizes our results of operations from continuing
operations  for the three months  ended June 30, 2005 and 2004.  The 2004 period
reflects our results prior to ownership of the  Hospitals,  which began in March
2005.


                                                       Three Months Ended
                                                  -------------   -------------
                                                  June 30, 2005    June 30, 2004
                                                  -------------   -------------
                                                   (Unaudited)     (Unaudited)
                                                    (Restated)
                                                  -------------   -------------
Net operating revenues                            $  83,190,537   $          --
Operating expenses:

       Salaries and benefits                         48,439,345         306,317

       Supplies                                      11,521,967              --

       Provision for doubtful accounts               11,331,354              --

       Other operating expenses                      17,283,135         108,763

       Depreciation and amortization                    902,845          15,528
                                                  -------------   -------------

                                                     89,478,646         430,608

Operating loss                                       (6,288,109)       (430,608)

       Interest expense                               4,069,029              --
                                                  -------------   -------------
Loss including minority interest and

       before provision for income taxes            (10,357,138)       (430,608)

       Provision for income taxes                     1,266,000              --
       Minority interest in variable interest
       entity                                          (195,517)             --
                                                  -------------   -------------
Net loss                                          $ (11,427,621)  $    (430,608)
                                                  =============   =============
Per Share Data:
       Basic and fully diluted
          Loss per common share                   ($       0.09)  ($       0.02)

       Weighted average shares outstanding          124,539,000      19,590,000

      Three and Six Months Ended June 30, 2005 and 2004

      Losses from continuing operations, before interest, taxes and common stock
warrant  expense,  increased to $6.3 million for the three months ended June 30,
2005 from $0.4 million for the three  months ended June 30, 2004.  Substantially
all of the losses  from  continuing  operations  during the three and six months
ended June 30, 2005 reflects the  operational  losses from our Hospitals,  which
were acquired on March 8, 2005.


      For the three  months  ended March 31, 2005 and the six months  ended June
30, 2005, we recognized an expense of $17.2 million  relating to the issuance of
common stock Warrants to Dr.  Chaudhuri and Mr. Thomas.  We computed the expense
of the Warrants based on their fair value at the date of grant and the estimated
maximum number of shares exercisable of 43,254,715.

                                       27
<PAGE>


      The income tax  provision was $1.3 million for the three months ended June
30, 2005 and $2.2 million for the six months ended June 30, 2005,  and consisted
primarily of a taxable gain on the sale of the real property of the Hospitals to
PCHI, the  non-deductible  Warrant expense and allowances for doubtful accounts,
offset with losses from operations. As of June 30, 2005, we had net deferred tax
assets of approximately  $10.8 million for which a full valuation  allowance has
been provided.


      Managed care contracting

      The  prior  owners  the  hospitals  adopted  a  state  wide  managed  care
contracting strategy that was designed to improve consolidated results with less
regard for the individual  facilities financial needs. Those contracts have been
substantially  all  assigned  to IHHI  preserving  the  existing  revenue  base.
Management  is committed  to  negotiating  terms more  closely  aligned with the
services provided and the financial  resources required to achieve that level of
service.  Although management  believes that substantial  opportunity exists for
improving contracted reimbursement,  there can be no assurance that this will be
achieved  and  failure to do so could have a material  adverse  impact on future
performance.

      Salaries and benefits

      We have experienced and expect to continue to experience  significant wage
and benefit pressures created by the nursing shortages throughout the region. In
addition, approximately 24% of our employees were represented by labor unions as
of June 30, 2005. If union activity increases at our hospitals, our salaries and
benefits  expense may increase  more rapidly  than our net  operating  revenues.
Labor costs remain a significant  cost pressure  facing us as well as the health
care  industry  in general.  The nursing  shortage  continues  and remains  more
serious  in  key  specialties.  This  has  increased  labor  costs  for  nursing
personnel. In addition,  state-mandated nurse-staffing ratios in California have
not only increased our labor costs,  but may also adversely affect net operating
revenues  due to  volume  limitations  if the  required  number  of  nurses  are
unavailable.   In  March  2005,   increases   to   California's   state-mandated
nurse-staffing  ratios went into effect as provided by the original statute. The
vast majority of hospitals in California,  including our  hospitals,  are not at
all times meeting these ratios. We have, however, gradually improved our monthly
compliance  and expect  that our  compliance  levels  will  continue  to improve
throughout our hospitals in 2005.



                                       28
<PAGE>

      During the three months and six months  ended June 30,  2005,  we recorded
provisions   for  doubtful   accounts  of  $11.3  million  and  $14.5   million,
respectively.

      The breakdown of our billed hospital  receivables (which is a component of
total receivables) at June 30, 2005 is summarized in the table below.

                                                   June 30, 2005
                                                   -------------
           Insured receivables
                                                       78.3%
           Uninsured receivables
                                                       21.7%
                                                   -------------
           Total                                      100.0%
                                                   =============

      Our allowance for doubtful  accounts and the  approximate  percentages  of
allowance  for  doubtful  accounts to accounts  receivable  at June 30, 2005 are
summarized as follows (dollars in thousands):

                                                      June 30, 2005
Allowance for doubtful accounts                          $14,445
Percentage of accounts receivables                         26.2%

      Our reported  accounts  receivable  as of June 30, 2005 were all under 115
days  outstanding,  due to the fact that our acquisition of Hospital assets from
Tenet  on  March  8,  2005  did not  include  patient  accounts.  Net days in AR
outstanding as of June 30, 2005 were 44.2 days.

Liquidity and Capital Resources


      Cash used by  operating  activities  was $26.5  million  in the six months
ended June 30, 2005. Net accounts receivable  increased to $40.4 million after a
full quarter of hospital operations. Accounts payable increased by $11.5 million
and payroll related accruals increased by $12.3 million. Estimated taxes payable
increased by $0.8 million.  Other current liabilities  increased by $6.5 million
and consist primarily of accrued interest,  workers' compensation insurance, and
other miscellaneous accruals.


      Cash used in investing activities of $63.2 million in the six months ended
June 30, 2005 was used to complete the Hospital acquisition on March 8, 2005.

      Cash  provided by financing  activities  was $97 million in the six months
ended June 30,  2005.  At June 30,  2005,  our  indebtedness  consisted of a $50
million term loan for the purchase of our Hospitals,  a $13.2 million drawn-down
from a $30 million line of credit.  We received $5 million in net proceeds  from
the sale of the real  property of the Hospitals to PCHI, a related party entity.
In  addition,  in March  2005,  our  Hospitals  entered  into a 2-year  Accounts
Purchase Agreement to sell Accounts  Receivable to a lending institution as they
become billable to third parties.  We continue to provide billing and collection
services  and the  proceeds  collected  thereby  are  applied to reduce  amounts
advanced  under  this  agreement.  As of June 30,  2005 $21.4  million  had been
advanced under this agreement.

      On or about May 9, 2005, the Company received a notice of default from its
lender, Medical Provider Financial Corporation II ("Medical Provider").  Medical
Provider is the lender for the secured acquisition note of $50 million,  and the
Company's  secured  line of credit  note of up to $30  million.  The Company has
recorded the acquisition  note of $50 million and outstanding  draws on the line
of  credit  of  $13.2  million  as  current   liabilities  in  the  accompanying
consolidated  financial  statements.  The notice of default asserts that (i) the
Company  failed to provide  satisfactory  evidence that the Company has received
capital contributions of not less than $15,000,000, as required under the Credit
Agreement,  (ii) the Company failed to prepay $5,000,000 by the Mandatory Prepay
Date as required under the Credit Agreement, and (iii) a Material Adverse Effect
has  occurred  under the Credit  Agreement  for reasons  relating  primarily  to
OC-PIN's  failure  to fully  fund  its  obligations  under  its  Stock  Purchase
Agreement with the Company dated January 28, 2005.

                                       29
<PAGE>

      As of June 1, 2005, the Company  entered into an Agreement to Forbear with
Medical Provider.  Without another default, Medical Provider agrees for 100 days
to  forbear  from (i)  recording  Notices  of  Default,  (ii)  filing a judicial
foreclosure  lawsuit against the Company,  OC-PIN and West Coast Holdings,  LLC,
and (iii) filing lawsuits  against the Company,  OC-PIN and West Coast Holdings,
LLC.  The interest  rate on the notes will be increased  from 14% to the Default
Rate of 19%, as defined in the Credit Agreement, and all Obligations (as defined
in the Credit  Agreement),  will be forthwith  due and  payable,  as long as the
events of default  remain  uncured.  The  Company's  Line of Credit  facility is
suspended to additional  advances.  During the  forbearance  period of 100 days,
OC-PIN and other  investors  will invest not less than $15 million in new equity
capital in the Company.

      In June 2005, in  connection  with the First  Amendment to Stock  Purchase
Agreement,  dated as of June 1, 2005,  by and among the Company,  OC-PIN,  PCHI,
West Coast  Holdings,  LLC, and Ganesha Realty LLC, OC-PIN placed into an escrow
account  57,250,000 shares of the Company's common stock. As of the date of this
Report,  an aggregate of $12.5 million in cash has been  deposited in the escrow
account.

Recent Accounting Pronouncements

      On October 13,  2004,  the  Financial  Accounting  Standards  Board issued
Statement  123R,  Share-Based  Payment,  which requires all companies to measure
compensation  cost  for  all  share-based  payments,  including  employee  stock
options,  at fair value. The statement is effective for all public companies for
interim or annual  periods  after June 15, 2005.  The statement  eliminates  the
ability to account for share-based  compensation  transactions using APB No. 25,
and  generally  requires  that  such  transactions  be  accounted  for  using  a
fair-value-based   method  and  recognized  as  expenses  in  our   consolidated
statements  of  operations.   The  standard  also  requires  that  the  modified
prospective  transition  method be used, which would  necessitate the Company to
recognize  compensation cost for the fair value of new awards granted,  modified
or  settled  after  the  effective  date of the  SFAS  123R.  In  addition,  the
measurement of compensation  cost for awards that are not fully vested as of the
effective  date of the SFAS 123R  would be based on the same  estimate  that the
Company used to previously value its grants under SFAS 123.

      As a result of SFAS 123R, the Company will be required to expense the fair
value of any stock  option  grants that it may make in the  future,  rather than
disclose  the impact on its  consolidated  statement  of  operations  within the
Company's footnotes.

      In January 2003, the Financial  Accounting  Standards Board issued FIN 46,
"Consolidation of Variable Interest  Entities," which requires  consolidation of
certain entities in which equity investors do not have the  characteristics of a
controlling  financial interest or do not have sufficient equity at risk for the
entity to finance  its  activities  without  additional  subordinated  financial
support  from other  parties.  Paragraph  1 of ARB 51 states  that  consolidated
financial  statements are usually  necessary for a fair presentation when one of
the companies in the group  directly or indirectly  has a controlling  financial
interest in the other  companies.  Paragraph 2 states that "the usual  condition
for  a  controlling  financial  interest  is  ownership  of  a  majority  voting
interest..." However, application of the majority voting interest requirement in
ARB  51 to  certain  types  of  entities  may  not  identify  the  party  with a
controlling financial interest because the controlling financial interest may be
achieved through arrangements that do not involve voting interests.  Application
of Interpretation 46 or Interpretation 46(R) is required in financial statements
of  public  entities  that have  interests  in  variable  interest  entities  or
potential  variable interest  entities  commonly referred to as  special-purpose
entities for periods  ending after  December 15, 2003. See Note to the financial
statements  regarding  the  Company's  implementation  of FIN 46  (R).

                                       30
<PAGE>

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

      At June  30,  2005,  we did not  have  any  investment  in or  outstanding
liabilities  under  market  rate  sensitive  instruments.  We do not enter  into
hedging or derivative  instrument  arrangements.  We have no  off-balance  sheet
arrangements.

Item 4. Controls and Procedures.


      The Company maintains disclosure controls and procedures that are designed
to ensure that  information  required to be disclosed in the Company's  periodic
reports is recorded, processed,  summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and  communicated  to the Company's  management,  including its Chief  Executive
Officer and Chief Financial Officer,  as appropriate,  to allow timely decisions
regarding  required  disclosure  based closely on the  definition of "disclosure
controls and procedures" in Rule 15d-15(e).  The Company's  disclosure  controls
and  procedures  are  designed to provide a  reasonable  level of  assurance  of
reaching the Company's desired disclosure control  objectives.  In designing and
evaluating the disclosure  controls and procedures,  management  recognized that
any controls and  procedures,  no matter how well  designed  and  operated,  can
provide only reasonable  assurance of achieving the desired  control  objectives
and management  necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.

      We  conducted  an   evaluation   under  the   supervision   and  with  the
participation of our management, including our Chief Executive Officer and Chief
Financial  Officer,  of the  effectiveness  of the design and  operation  of our
disclosure  controls and  procedures  as of December 31, 2005.  During  previous
quarters  we  conducted  evaluations  of the  effectiveness  of  our  disclosure
controls and procedures as of March 31, June 30 and September 30, 2005 and found
them to be effective as of such dates. However, we have subsequently conducted a
re-evaluation of the effectiveness of our disclosure  controls and procedures as
of March 31, June 30 and September 30, 2005,  and  identified  certain  material
weaknesses, discussed further below.

      With the  participation of the Company's Chief Executive Officer and Chief
Financial  Officer,  management  conducted an evaluation of the effectiveness of
our system of internal control over financial reporting as of December 31, 2005,
based on the framework in Internal Control-Integrated Framework published by the
Committee of Sponsoring Organizations of the Treadway Commission.

      Based on these evaluations and re-evaluations,  management determined that
the Company's system of disclosure  controls and procedures was not effective as
of March 31, June 30,  September 30 and December  31,  2005,  and the  Company's
systems of internal  control over  financial  reporting  was not effective as of
December 31, 2005,  due to the presence of certain  material  weaknesses.  These
weaknesses  contributed to the need for restatements of our financial statements
for the  quarterly  periods  ending March 31, June 30 and  September 30, 2005 as
follows.

      1. As  described  in the  notes  to the  accompanying  restated  financial
      statements,  the  Company  revised  its  calculation  of  Warrant  expense
      incurred  during the three months ended March 31, 2005 after review of its
      accounting  treatment  following receipt of comments from the Staff of the
      Securities  and  Exchange  Commission.  The total  adjustment  required to
      increase the Warrant  expense to its proper  balance was $780,827  pre-tax
      for such  period.  This  adjustment  was  necessary  because  the  Company
      recognized the Warrant expense as a nonrecurring  settlement charge during
      the three  months  ended  March 31, 2005 using a  probability  analysis to
      estimate  the  maximum  number  of  warrants  exercisable  at the  date of
      issuance of 43,254,715 shares.

      2. As  described  in the  notes  to the  accompanying  restated  financial
      statements,  the Company  revised its provision for income taxes due to an
      error in the  calculation of the taxable gain on the sale of real property
      to PCHI (see  Note 7  Variable  Interest  Entity).  The  total  adjustment
      required to reduce the  provision  for income  taxes was  $528,000 for the
      three  months  ended March 31,  2005,  $496,000 for the three months ended
      June 30, 2005,  $799,000 for the three months ended September 30, 2005 and
      $1,823,000 for the nine months ended September 30, 2005.

      Management has identified,  as a material  weakness  contributing to these
restatements,  that the  Company's  research and analysis of complex  accounting
issues was inadequate.  Although the type of complex transactions giving rise to
the restatements are expected to occur very  infrequently,  management  believes
that its process of analyzing and accounting for complex financial  transactions
requires  improvement.  In addition  to  inadequate  expertise,  due to business
exigencies  there  was  a  lack  of  complete   accounting   analysis  of  these
transactions until after they were completed, which contributed to an incomplete
accounting  analysis.  Under the  direction of the Audit  Committee,  management
intends in the future to engage experts with  sufficient  expertise to advise on
accounting and financial reporting of complex financial transactions,  and to do
so prior to or concurrently with the Company's commitment to these transactions.


PART II - OTHER INFORMATION

Item 1. Legal Proceedings

      From time to time, we are a party to claims and legal proceedings  arising
in the ordinary  course of our  business.  With the  exception of a  potentially
adverse outcome in the litigation described in the next paragraph,  after taking
into consideration information furnished by our counsel as to the current status
of these claims and proceedings,  we do not believe that the aggregate potential
liability  resulting from such proceedings  would have a material adverse effect
on our financial condition or results of operation.

      On or about May 27, 2005, the Company,  along with other  defendants,  was
served with a petition  to compel  arbitration  with  Judicial  Arbitration  and
Mediation  Service (JAMS) by Andrew Weiss,  a former  consultant to the Company.
Mr.  Weiss is  claiming,  among  other  things,  that he was an  employee of the
Company  and  was   wrongfully   terminated,   and  is  requesting   unspecified
compensatory,  statutory  and  punitive  damages  relating to his  claimed  lost
earnings and benefits, stock options, and other special and general damages. The
Company is vigorously  contesting  this matter.  The Company has filed a stay in
the  arbitration  proceedings and is requesting to move the claim to Los Angeles
County Superior  Court.  This matter is in an early stage and it is not possible
to assess the likely outcome of this litigation or the amount of damages that we
would be required to pay if this litigation is decided adverse to the Company.

                                       31
<PAGE>

Item 3. Defaults Upon Senior Securities.

      On or about May 9, 2005,  the  Company  received a notice of default  from
Medical Provider Financial Corporation II ("Medical Provider"). Medical Provider
is the lender to the Company under a $50 million acquisition loan, and a working
capital  non-revolving  line of credit of up to $30  million,  each of which has
been issued pursuant to a Credit Agreement,  dated as of March 3, 2005, to which
the Company and Medical Provider are parties (the "Credit Agreement").

      In addition,  each of Orange County  Physicians  Investment  Network,  LLC
("OC-PIN"),  Pacific Coast Holdings  Investment,  LLC, Ganesha Realty,  LLC, and
West  Coast  Holdings,  LLC,  which are  parties to the  Credit  Agreement,  has
received a notice of default under the Credit Agreement.

      The  notice of  default  asserts  that (i) the  Company  failed to provide
satisfactory evidence that the Company has received capital contributions of not
less than  $15,000,000,  as required by Section 2.1(s) of the Credit  Agreement,
(ii) the Company  failed to prepay  $5,000,000 by the  Mandatory  Prepay Date as
required under Section 1.2(b)(ii) of the Credit Agreement,  and (iii) a Material
Adverse  Effect has occurred  under the Credit  Agreement  for reasons  relating
primarily  to  OC-PIN's  failure to fully fund its  obligations  under its Stock
Purchase Agreement with the Company dated January 28, 2005 (as discussed further
below in Item 8.01).

         Medical Provider has indicated that, as a consequence of the alleged
events of default and for so long as such events are continuing, the interest
rates applicable to the outstanding loans under the Credit Agreement will be
increased to the Default Rate (as defined in the Credit Agreement), the line of
credit facility is suspended as to additional advances (with any additional
advances made at its discretion at the Default Rate), and all Obligations (as
defined in the Credit Agreement), will be forthwith due and payable. The total
principal and interest due and payable under the loans made under the Credit
Agreement currently amount to approximately $64.2 million, which does not
include possible additional amounts claimed by Medical Provider for unpaid
interest at the Default Rate, attorneys' fees and costs, costs of collection,
trustee's fees and costs, and other fees, charges and expenses paid or incurred
by Medical Provider.

Item 6.  Exhibits.

Exhibit
Number            Description
------            -----------

10.1              First Amendment to Stock Purchase Agreement,  dated as of June
                  1, 2005, by and among the Registrant, Orange County Physicians
                  Investment  Network,  LLC, Pacific Coast Holdings  Investment,
                  LLC,  West  Coast  Holdings,   LLC,  and  Ganesha  Realty  LLC
                  (incorporated  herein by  reference  from  Exhibit 99.1 to the
                  Registrant's  Current  Report  on  Form  8-K  filed  with  the
                  Commission on June 22, 2005).*

10.2              Escrow  Agreement,  dated as of June 1, 2005, by and among the
                  Registrant,  Orange County Physicians  Investment Network, LLC
                  and City National Bank (incorporated  herein by reference from
                  Exhibit 99.2 to the  Registrant's  Current  Report on Form 8-K
                  filed with the Commission on June 22, 2005).*

                                       32
<PAGE>

10.3              Agreement to Forbear,  dated as of June 1, 2005,  by and among
                  the  Registrant,  certain of its  subsidiaries,  Orange County
                  Physicians Investment Network, LLC, West Coast Holdings,  LLC,
                  and Medical  Provider  Financial  Corporation II (incorporated
                  herein by  reference  from  Exhibit  99.3 to the  Registrant's
                  Current  Report on Form 8-K filed with the  Commission on June
                  22, 2005).*

10.4              Letter  agreement,  dated  June 6, 2005,  amending  employment
                  agreements of Messrs. Anderson, Mogel and Ligon.*

31.1              Certification  of Chief Executive  Officer Pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.

31.2              Certification  of Chief Financial  Officer Pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.

32.1              Certification  of Chief Executive  Officer Pursuant to Section
                  906 of the Sarbanes-Oxley Act of 2002.

32.2              Certification  of Chief Financial  Officer Pursuant to Section
                  906 of the Sarbanes-Oxley Act of 2002.

*     Previously filed.

<PAGE>

                                    SIGNATURE

      In accordance  with the  requirements  of the  Securities  Exchange Act of
1934,  the  registrant  caused  this  report to be  signed on its  behalf by the
undersigned, thereunto duly authorized.

                                       INTEGRATED HEALTHCARE HOLDINGS, INC.


Dated:  April 6, 2006                  By: /s/ Steven R. Blake
                                           -------------------------------------
                                           Steven R. Blake
                                           Chief Financial Officer
                                           (Principal Financial Officer)


                                       33