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 March 31, 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 Identification No.)
     incorporation or organization)



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




                                 (714) 434-9191
              (Registrant's telephone number, including area code)

             695 Town Center Drive, Suite 260, Costa Mesa, CA 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 |X| No |_|
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
                                    FORM 10-Q

                                TABLE OF CONTENTS

                                                                           Page
                                                                          Number

PART I   FINANCIAL INFORMATION

Item 1.  Financial Statements:

         Unaudited Consolidated Balance Sheet as of March 31, 2005 and
         December 31, 2004                                                  2

         Unaudited Consolidated Statement of Operations for the three
         months ended March 31, 2005 and March 31, 2004                     3

         Unaudited Consolidated Statement of Stockholders' Equity as of
         March 31, 2005 and December 31, 2004                               4

         Unaudited Consolidated Statement of Cash Flows for the three
         months ended March 31, 2005 and March 31, 2004                     5

         Condensed Notes to Unaudited Consolidated Financial Statements     6

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations                                             25

Item 3.  Quantitative and Qualitative Disclosures About Market Risk        32

Item 4.  Controls and Procedures                                           32

PART II  OTHER INFORMATION

Item 1.  Legal Proceedings                                                 33

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds       34

Item 3.  Defaults Upon Senior Securities                                   36

Item 4.  Submission of Matters to a Vote of Security Holders

Item 5.  Other Information

Item 6.  Exhibits                                                          42

SIGNATURES                                                                 45
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.


                                       1
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
                      UNAUDITED CONSOLIDATED BALANCE SHEET

                                     ASSETS


<TABLE>
<CAPTION>
                                                                             MARCH 31,     DECEMBER 31,
                                                                               2005            2004
                                                                           ----------------------------
<S>                                                                        <C>             <C>
Current assets:                                                             (Unaudited)
       Cash and cash equivalents                                           $  6,414,122    $     69,454
       Accounts receivable, net of allowance for doubtful
         accounts of $3,141,406 at March 31, 2005                            16,968,328              --
       Inventories of supplies, at cost                                       5,947,127              --
       Prepaid expenses and other assets                                      3,854,474          18,519
                                                                           ----------------------------
                                                                             33,184,051          87,973

Property and equipment, net                                                  59,321,425          57,423
Investment in hospital asset purchase                                                --      11,142,145
Deferred loan fees, net of accumulated amortization of $62,355                1,870,645              --
Intangible asset, net of accumulated amortization of $70,668 and $57,819         32,122          44,970
                                                                           ----------------------------
       Total assets                                                        $ 94,408,243    $ 11,332,511
                                                                           ============================
                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
       Secured line of credit note                                         $ 13,200,000    $         --
       Secured acquisition note                                              50,000,000      11,264,013
       Income taxes payable                                                   1,472,000              --
       Accounts payable                                                       5,145,396         156,142
       Accrued compensation and benefits                                      1,063,677         800,313
       Accrued contract labor costs                                           6,810,000              --
       Other current liabilities                                              1,643,292              --
                                                                           ----------------------------
         Total current liabilities                                           79,334,365      12,220,468

Capital lease obligations, net of current of $204,141                         3,440,858              --
Commitments and contingencies                                                        --              --
Minority interest in variable interest entity                                 4,991,095              --

Stockholders' equity (deficit):
       Common stock, $0.001 par value; 250,000,000 shares
         authorized; 124,539,000 and 20,780,000 shares
         issued and outstanding, respectively                                   124,539          20,780
       Common stock warrants; 74,700,000 outstanding                         17,215,000              --
       Additional paid in capital                                            11,785,363       1,189,621
       Accumulated deficit                                                  (22,482,977)     (2,098,358)
                                                                           ----------------------------
         Total stockholders' equity (deficit)                                 6,641,925        (887,957)
                                                                           ----------------------------
Total liabilities and stockholders' equity (deficit)                       $ 94,408,243    $ 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 CONSOLIDATED STATEMENT OF OPERATIONS


<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED
                                                     -------------------------------
                                                     MARCH 31, 2005   MARCH 31, 2004
                                                     --------------   --------------
                                                       (Unaudited)      (Unaudited)
<S>                                                   <C>             <C>
Net operating revenues                                $ 21,747,029    $         --

Operating expenses:
      Salaries and benefits                             12,450,604         296,829
      Supplies                                           3,033,815              --
      Provision for doubtful accounts                    3,141,406              --
      Other operating expenses                           3,900,220         180,124
      Depreciation and amortization                        262,212          15,179
      Common stock warrant expense                      17,215,000              --
                                                      ------------    ------------
                                                        40,003,257         492,132

Operating loss                                         (18,256,228)       (492,132)
      Interest expense                                     665,296              --
                                                      ------------    ------------

Loss including minority interest and
      before provision for income taxes                (18,921,524)       (492,132)

      Provision for income taxes                         1,472,000              --
      Minority interest in variable interest entity         (8,905)             --
                                                      ------------    ------------

Net loss                                              $(20,384,619)   $   (492,132)
                                                      ============    ============
Per Share Data:
      Basic and fully diluted
          Loss per common share                       $      (0.23)   $      (0.03)

      Weighted average shares outstanding               88,493,611      19,582,667
</TABLE>



                                       3
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
            UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                      Common Stock          Common Stock Warrants      Additional
                               -------------------------   ------------------------     Paid-in     Accumulated
                                  Shares         Amount      Shares       Amount        Capital       Deficit         Total
                               -----------   -----------   ----------   -----------   -----------   ------------  ------------
<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        1,159,000         1,159           --            --       598,342             --       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
  warrants                              --            --   74,700,000    17,215,000            --             --    17,215,000

Net loss                                --            --           --            --            --    (20,384,619)  (20,384,619)

                               -----------   -----------   ----------   -----------   -----------   ------------  ------------
Balance, March 31, 2005        124,539,000   $   124,539   74,700,000   $17,215,000   $11,785,363   $(22,482,977) $  6,641,925
                               ===========   ===========   ==========   ===========   ===========   ============  ============
</TABLE>



                                       4
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
                 UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                               Three           Three
                                                                            Months Ended    Months Ended
                                                                           March 31, 2005  March 31, 2004
                                                                           --------------  --------------
<S>                                                                         <C>            <C>
Cash flows from operating activities:
Net loss                                                                    $(20,384,619)  $   (492,132)
Adjustments to reconcile net loss to cash used in operating activities:
      Depreciation and amortization expense                                      291,706         15,179
      Common stock warrant expense                                            17,215,000             --
      Minority interest in variable internet entity                               (8,905)            --
      Increase in prepaid expense and other assets                            (1,484,253)            --
      Increase in  net accounts receivable                                   (16,968,328)        (8,827)
      Increase in income taxes payable                                         1,472,000             --
      Increase in accounts payable                                             4,989,254        209,908
      Increase in accrued compensation and benefits                              385,384             --
      Increase in accrued contract labor costs                                 6,810,000             --
      Increase in other accrued liabilities                                    1,439,151             --
      Decrease in inventories of supplies                                         71,868             --
                                                                            ------------   ------------
        Net cash used in operating activities                                 (6,171,742)      (275,872)
                                                                            ------------   ------------
Cash flows from investing activities:
      Acquisition of hospital assets, net                                    (63,171,676)            --
      Purchase of property and equipment                                              --        (14,877)
      Acquisition of MMG, Inc., net of cash acquired                                  --          8,534
                                                                            ------------   ------------
        Net cash used in investing activities                                (63,171,676)        (6,343)
Cash flows from financing activities:
      Issuance of secured promissory notes, net of costs                      48,067,000        (71,715)
      Proceeds from line of credit                                            13,200,000             --
      Proceeds from issuance of stock                                         10,699,501        200,000
      Proceeds from variable interest entity                                   5,000,000             --
      Repayment of secured notes                                              (1,278,415)            --
                                                                            ------------   ------------
        Net cash provided by financing activities                             75,688,086        128,285
                                                                            ------------   ------------
Net increase (decrease) in cash                                                6,344,668       (153,930)
                                                                            ------------   ------------
Cash and cash equivalents, beginning of period                                    69,454        265,000
                                                                            ------------   ------------
Cash and cash equivalents, end of period                                    $  6,414,122   $    111,070
                                                                            ============   ============

Supplemmental disclosure of noncash transactions:
    Issuance of promissory notes for Acquisition                            $ 53,000,000   $         --
    Consolidation of variable interest entity                               $ 54,758,312   $         --
    Expense of common stock warrants                                        $ 17,215,000   $         --
    Rescinded secured promissory note for the
       return of initial deposit on hospital assets                         $ 10,000,000   $         --
  Interest paid                                                             $  1,629,000   $         --
  Income taxes paid                                                         $         --   $         --

</TABLE>

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


                                       5
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 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 lease for 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  months  ended  March  31,  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.  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
guaranty of the Company's acquisition note of $50 million.  Because, among other
reasons,  the  Company  remains  primarily  liable  under the $50  million  debt
notwithstanding  its  guaranty by PCHI,  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 March 31, 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
                                 March 31, 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 the majority of
its  financial   support  through  various  sources  including  lease  payments,
cross-collateralization  of the Company's assets to secure the transferred debt,
and the use of the Company's  equity  financing.  Accordingly,  the accompanying
consolidated  financial  statements include the accounts of this entity from the
date of the real estate sale.

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


      Company  Operations  - The Company  through  the  Hospitals  is  primarily
engaged in 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  $20,384,619  (inclusive  of  a  warrant  expense  of
$17,215,000 incurred in connection with the Acquisition) during the three months
ended March 31, 2005 and has negative  working  capital of  $46,150,314 at March
31, 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
March 31, 2005. The default has caused the acquisition  loan to be classified as
a current liability as of March 31, 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 has requested and PCHI has
agreed to permit the Company to use the  Hospitals'  real property as collateral
for the  purposes of joint  financing  of Company's  business  operation  for an
initial period of time.

      Condensed  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 March 31, 2005, and its
consolidated  results of  operations  and cash flows for the three  months ended
March 31, 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 March 31, 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
                                 March 31, 2005


      Use of Estimates - The accounting and reporting  policies of the Hospitals
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 three months ended March 31, 2005 were as follows:

                                                       Three months ended
                                                         March 31, 2005

          Medicare                                             22%
          Medicaid                                             14%
          Managed care                                         43%
          Indemnity, self-pay and other                        21%

      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 three months ended March 31,
2005 retrospective revenues were approximately $600,000. 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.

      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.



                                       8
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2005


      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 ended March 31, 2005 were approximately $3,639,000.



                                       9
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 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  Hospitals  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 Hospitals'  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  ended March 31,  2005,  the  Hospitals  recorded
provisions for doubtful accounts of $3,141,406.

      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.

      The Company use 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


                                       10
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2005


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 March 31, 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 three months ended March 31, 2005,  the Company
recorded net revenues  from  CalOptima of  approximately  $300,000,  net of IBNR
reserves of $238,000. 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.

      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.

      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 March  31,  2005,  the  Company  has
determined that no impairment of its long-lived assets exists.


                                       11
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2005


      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.


      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 three months ended March 31, 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.  The Company has not yet made a determination  as to whether it will
adopt SFAS 123(R)  retrospectively  and is  currently  assessing  the  potential
impact of the new  standard  on its  consolidated  financial  statements  and is
evaluating alternative equity compensation arrangements.

      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 8 regarding the
Company's implementation of FIN 46(R).


                                       12
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 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  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  $10,100,000,  and $5 million in proceeds
from the sale of the real property of the acquired Hospitals.


      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.

                                                    Pro Forma (Unaudited)
                                             ----------------------------------
                                                     Three Months Ended
                                             ----------------------------------
                                             March 31, 2005       March 31, 2004
                                             ----------------------------------

Net operating revenues                       $   77,013,320      $   86,745,985

Net loss                                     $  (31,313,000)     $  (23,717,000)

Loss per common share
  (basic and fully diluted)                  $        (0.25)     $        (0.19)

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


      As of December 31, 2004, the Company  recorded its initial  deposit of $10
million  on the Tenet  Hospital  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.

NOTE 3 - PROPERTY AND EQUIPMENT

      Property and equipment consist of the following as of March 31, 2005:

        Land                                    $28,839,098
        Buildings and improvements               19,270,104
        Equipment                                 7,808,774
        Leasehold                                 3,659,401
                                                -----------
                                                 59,577,377

        Less accumulated depreciation              (255,952)

                                                -----------
          Property and equipment, net           $59,321,425
                                                ===========

      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.


                                       13
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2005


NOTE 4 - COMMON STOCK

      2005 Stock Transactions

      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 three  months  ended March 31,  2005,  the Company  issued 96.1
million 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  Hospital
acquisition.

      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 $20 million financing  commitment to March
31,  2005,  but as of May 22,  2005,  OC-PIN has not made any  additional  stock
purchases.  See "Note 12 - Subsequent  Events" for  information  concerning  the
current status of this matter.

      During the three months ended March 31, 2005, the Company issued 1,179,000
shares of its common stock at $0.50 per share for cash proceeds of $589,500.

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.


      The warrants  are  exercisable  beginning  January 27, 2007 and expire 3.5
years from the date of  issuance.  The  exercise  price for the first 43 million
shares  purchasable  under the Warrants is $0.003125 per share, and the exercise
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.


                                       14
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2005



      Based  upon a  valuation  obtained  by the  Company  from  an  independent
valuation firm, the Company recognized an expense of $17,215,000  related to the
issuance of the 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  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)                        2
        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 comparable public companies that own hospitals.

NOTE 6 - DEBT

      The current  portion of the Company's debt consists of the following notes
as of March 31, 2005:

                Secured line of credit note     $  13,200,000

                Second aquisition note             50,000,000
                                                -------------

                                                $  63,200,000
                                                =============

      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 is in the form of a non-revolving
Line of Credit (the "Line of Credit") and  $50,000,000  is 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 2). 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.


                                       15
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 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  subsidiaries.  In addition,  (i) PCHI (see Note 7) 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 4) 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 over the two year term of the  Obligations.  During  the three  months
ended March 31, 2005, the Company recognized $62,355 of amortization expense and
has unamortized deferred loan fees of $1,870,645 as of March 31, 2005.

      Former  Secured  Promissory  Note - In t an effort to obtain  financing to
permit thehe Acquisition to occur, the Company entered into a Secured Promissory
Note with Dr.  Chaudhuri,  effective  September  29, 2004.  The Company used the
proceeds  of $10  million  as its good  faith  deposit  in  connection  with the
Acquisition.  The terms of the Secured Note included interest at 7.25% per annum
payable on the first business day of each calendar quarter  beginning January 2,
2005. In connection with the Restructuring and Payment  Agreements  discussed in
Note 5, the $10 million initial deposit and accrued interest was returned to Dr.
Chaudhuri  during  the  three  months  ended  March 31,  2005 and Dr.  Chaudhuri
rescinded  and  cancelled  the $10  million  secured  promissory  note  with the
Company.

      Former Secured Convertible Promissory Note - The Company also entered into
a Secured  Convertible  Note Purchase  Agreement,  dated  September 29, 2004 and
amended November 16, 2004, with Dr.  Chaudhuri.  The original face amount of the
Secured  Convertible  Note was  $500,000  and Dr.  Chaudhuri  was to assist  the
Company with the payment of necessary transactional costs incurred in connection
with the Acquisition, including fees necessary to secure financing in connection
with the Acquisition,  which  transaction  costs and fees could not otherwise be
paid by the Company. In connection with the Restructuring Agreement noted above,
the Company  entered into the following new  promissory  notes dated January 31,
2005, which replaced the Secured Convertible Promissory Note dated September 29,
2004 and amended November 16, 2004:


                                       16
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2005


      o     Secured  Promissory  Note in the amount of  $963,186  payable to Dr.
            Chaudhuri
      o     Unsecured  Promissory  Note in the amount of $60,031  payable to Dr.
            Chaudhuri
      o     Secured Promissory Note in the amount of $240,797 payable to William
            E. Thomas

      Concurrent  with the  completion of the  Acquisition,  in March 2005,  the
Company repaid these three promissory notes plus accrued interest.

      Accounts  Receivable  Purchase  Agreement - In March 2005,  the subsidiary
hospitals  of the Company  entered  into an Accounts  Purchase  Agreement  [that
allows or requires?  the sale of] their accounts  receivable to Medical Provider
Financial  Corp 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 March  31,  2005,  there  were no  advances  made  under  this
agreement. This agreement has a term of two years.

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 guranteed the Company's acquisition debt of
$50 million.

      The Company  remains  primarily  liable under the $50 million  acquisition
note    notwithstanding   its   assumption   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.  In  substance,  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 - see Note 4) and 49% by Ganesha Realty,  LLC (Dr.  Chaudhuri
and  William  Thomas - see Note 5).  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 months ended March 31, 2005,
the Company included in its consolidated financial statements, the net assets of
PCHI, net of consolidation adjustments.

      Selected information of PCHI's balance sheet as of March 31, 2005, and its
results  of  operations  for the period  March 8, 2005 to March 31,  2005 are as
follows:


                                       17
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2005


      Total assets            $  56,063,376
      Total liabilites        $  51,072,281
      Member's equity         $   4,991,095
      Net revenues            $     617,564
      Net loss                $      (8,905)

      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
            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  assumption 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 in
            variable  interest entity in the accompanying  consolidated  balance
            sheet.


      o     The  Company's  rent expense to the extent of debt  servicing on the
            underlying  debt has been  eliminated  against PCHI's rental income.
            Amounts  payable by the Company to PCHI as rent  expense that are in
            excess of debt servicing on the underlying debt are accounted for as
            an element of minority  interest in variable interest entity expense
            in  the   accompanying   consolidated   statement   of   operations.
            Additionally,  amounts  assigned to buildings  under lease from PCHI
            are being depreciated and amortized over the 25 year initial term of
            the lease.


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.  A valuation
allowance  has been used to offset the  recognition  of any  deferred tax assets
related to net operating  loss  carryforwards  due to the  uncertainty of future
realization.

      The Company's  provision for income taxes is composed of the following for
the three months ended March 31:

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

                U.S. Federal and State          $  1,472,000    $         --

        Deferred income taxes:

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

                Total                           $  1,472,000    $         --
                                                ============    ============


                                       18
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2005


      The  provision  for  income  taxes  differs  from the  federal  and  state
statutory tax expense as follows for the three months ended March 31, 2005:

        Estimated tax benefit at federal and state statutory
         rates on an annualized basis                          $ (2,759,000)
        Common stock warrant expense                              1,636,000
        Gain on sale of assets                                    1,151,000
        Change in valuation allowance                             1,435,000
        Other                                                         9,000

                                                                -----------
                                                                $ 1,472,000
                                                                ===========

      Deferred income tax assets and  liabilities  consist of the tax effects of
temporary differences related to the following at March 31:

                                                       2005            2004
                                                  ------------    ------------
        Current deferred tax assets:
                Allowance for doubtful accounts   $  5,263,440    $         --
                Accured vacation                       770,011              --
                Other accruals                         484,048              --
                Net operating losses                        --         252,000
                                                  ------------    ------------
                Deferred tax assets                  6,517,499         252,000

        Valuation allowance                         (6,517,499)       (252,000)
                                                  ------------    ------------

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

      A valuation allowance of $6.5 million was recorded in the first quarter of
2005 based on an assessment  of the  realization  of the Company's  deferred tax
assets.  The Company  assesses  the  realization  of its  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.


                                       19
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2005


      As of March 31, 2005, Company management concluded that it was more likely
than not that the deferred  tax assets were not  realizable.  Therefore,  it was
appropriate to record a 100% valuation  allowance after considering and weighing
all evidence in the first quarter of 2005. The Company established the valuation
allowance as a result of assessing  the  realization  of the deferred tax assets
based on the above facts.


      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 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.

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  March 31, 2005 in  accordance  with FIN 46(R).
See Note 8.

      Due to/from  Shareholders  and Officers -As of the quarter ended March 31,
2003, the Company had advanced $60,000 to the officers and majority shareholders
of the  Company.  The amounts  due to/from  shareholders  and  officers  bore no
interest and were subsequently forgiven during the year ended 12/31/04.

      Management  Compensation - Effective  January 1, 2004, the Company entered
into  employment  agreements  with each of its  three  executive  officers.  The
employment  agreements  provide among other terms, each officer a base salary of
$250,000 per year, a bonus of $50,000 per year,  and an employment  term of five
years.  During the year ended  December 31,  2004,  the Company  incurred  total
compensation expense of $1,205,640 related to these three employment  agreements
and the Company  had accrued  compensation  of  $913,388 at December  31,  2004.
During  the  year  ended  December  31,  2003,  the  Company  did  not  pay  any
compensation to its officers and directors.


                                       20
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2005


      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.

NOTE 10 - LOSS PER SHARE

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


                                                    Three Months Ended March 31,
                                                    ----------------------------
                                                        2005              2004
                                                    ----------------------------
        Loss from continuing operations available
         to common shareholders (numerator)         $(20,384,619)  $   (492,132)

        Weighted average number of common
         shares used in loss per share during
         the period (denominator)                     88,493,611     19,582,667

      The Company's  weighted  average common stock  equivalents  related to the
Warrants  (Note 5) were  30,539,541  for the three  months ended March 31, 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 March 31, 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 $(0.42)
for the three months ended March 31, 2005.


NOTE 11 - COMMITMENTS AND CONTINGENCIES

      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   $3,659,401  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 March 31, 2005:


                                       21
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2005


        Year ending March 31:

        2005                                    $   686,292
        2006                                        686,292
        2007                                        686,292
        2008                                        686,292
        2009                                        686,292
     Thereafter                                   2,730,766
                                                -----------
                Total minimum lease payments    $ 6,162,226

        Less amount representing interest         2,517,227
                                                -----------

                Present value of net minimum
                 lease payments                   3,644,999

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

                Long-term portion               $ 3,440,858
                                                ===========

      Concurrent  with the closing of the  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
shall be for approximately 25 years,  commencing March 8, 2005 and terminates 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.  The Related Party Lease
is  required  to be  capitalized  in  accordance  with  Statement  of  Financial
Accounting  Standard No. 13 ("SFAS 13").  This related  party  capital lease has
been eliminated upon consolidation with PCHI.

      Operating  Leases - 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 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
                                ================================================


                                       22
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2005


      The Company's related party lease  transactions  related to the Triple Net
Hospital  and Medical  Office  Building  Lease are  eliminated  with PCHI in the
accompanying consolidated financial statements.

      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 (4) 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 - SUBSEQUENT EVENTS

      Default Notice - 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,  which was assumed by PCHI and the Company's secured line of credit
note of up to $30  million,  each of  which  was  issued  pursuant  to a  Credit
Agreement dated as of March 3, 2005. 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  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.

      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 of 19%, the line of credit  facility is suspended
as to additional  advances (with any additional  advances made at its discretion
at the  Default  Rate of 19%),  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  $63,937,333 as of the date of the default letter,  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 Provide.

      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.

      First  Amendment to stock  Purchase  Agreement - As of May 18,  2005,  the
Company  entered into the First  Amendment to Stock  Purchase  Agreement,  which
amends the Stock  Purchase  Agreement  dated  January  28,  2005,  with  OC-PIN.
Concurrent with the execution of this amendment,  the Company and OC-PIN entered
into an Escrow  Agreement as of May 17, 2005  ("Escrow").  Significant  terms of
this Stock Purchase Agreement Amendment include:

      o     OC-PIN shall submit  57,250,000 shares of the Company's common stock
            to Escrow (the "Escrowed Shares").  Following this deposit of shares
            into  Escrow,  the Company  will not  interfere  or challenge in any
            manner,  OC-PIN's  or  Hari  Lal's  ownership  of  an  aggregate  of
            45,350,000 shares of the Company's common stock.
      o     The Company may sell or cancel the Escrowed Shares. OC-PIN will have
            the right of first  refusal to purchase the  Escrowed  Shares if the
            Company  decides to sell the Escrowed  Shares  within 12 months from
            the date of the amendment, May 18, 2005.
      o     OC-PIN agrees to purchase up to 5.4 million additional shares of the
            Company's  common  stock for  payments  totaling  $15  million  plus
            financing  costs.  On or before June 17,  2005,  OC-PIN shall make a
            payment of $5 million,  less $190,981,  to the Company. On or before
            July 18, 2005, OC-PIN shall deliver $5 million to the Company. On or
            before  August 17, 2005,  the OC-PIN shall deliver $5 million to the
            Company. OC-PIN also agrees to pay the Company's direct and indirect
            financing  costs incurred as a result of OC-PIN's  failure to timely
            fund the balance of the Stock Purchase  Agreement  dated January 28,
            2005.
      o     During the 45 days subsequent to May 18, 2005, the Company will work
            in good faith with Capital  Source Finance LLC to refinance the debt
            with Medical Providers.
      o     If within 45 days from May 18, 2005, the Company is able to complete
            its  refinancing  with Capital  Source Finance LLC, the Company will
            reduce the third  payment  due from  OC-PIN  from $5 million to $2.5
            million.
      o     Upon the Company's receipt of $5 million from OC-PIN pursuant to the
            Stock  Purchase  Agreement  dated January 28, 2005 and the Company's
            purchase  of certain  real  property  referred to as the 999 Medical
            Office  Building,  the Company shall  transfer such real property to
            PCHI for no further compensation.
      o     The employment  agreements for the Company's CEO, CFO, and President
            shall be amended to provide for 3 year severance  payments,  payable
            in a lump sum at employees  request,  if any of them are  terminated
            without cause or if they resign for good cause.  The severance shall
            be three  years  compensation  from the date of this  amendment  and
            shall be  reduced by one month for each  month  employed,  not to be
            reduced less than one year.

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 and the
Company  issued a common stock warrant to the Lender.  The warrant  provides the
Lender to purchase that 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.  The  warrant is  exercisable  only if any event of
default  has  occurred  and is  continuing  on the  New  Note.  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 warrant is exercisable
for an aggregate payment of $1.00,  regardless of the amount of shares acquired.
The Company is obligated to register  the 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.

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.



                                       23
<PAGE>

                      INTEGRATED HEALTHCARE HOLDINGS, INC.
         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2005









































                                       24
<PAGE>

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

      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., 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 the transaction
closed in March 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 primarily  reflect the
last 24 days of the  quarter  ended  March 31,  2005  during  which we owned the
Hospitals, and so are not indicative of an entire quarter of operations.

      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.  California  State Medicaid Program provider numbers are
outstanding, but we believe that these will be received shortly.


                                       25
<PAGE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES


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,  our historical  collection  experience by hospital and
for each type of payer and other relevant factors.

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 assigned to a collection agency between 90
to 120 days past due,  once patient  responsibility  has been  identified.  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.
This is only one  example of  reasonably  possible  sensitivity  scenarios.  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.

A significant  increase in our provision for doubtful  accounts (as a percentage
of revenues) would increase our 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 shares.

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

                      Integrated Healthcare Holdings, Inc.

            Risk-free interest rate                    3.2%
            Expected volatility                       33.6%
            Dividend yield                              --
            Expected life (years)                        2
            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.

      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.


                                       26
<PAGE>

      The Company  remains  primarily  liable under the $50 million  acquisition
note notwithstanding its guaranty 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 months ended March 31, 2005, the
Company included in its  consolidated  financial  statements,  the net assets of
PCHI, net of consolidation adjustments.

RESULTS OF OPERATIONS

      The following  table  summarizes our results of operations from continuing
operations  for the three  months  ended March 31,  2005 and 2004.  For the 2005
period, these results reflect only 24 days of operations from the Hospitals.


                                       27
<PAGE>


<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED
                                                        --------------------------------
                                                        MARCH 31, 2005    MARCH 31, 2004
                                                        --------------    --------------
                                                          (Unaudited)       (Unaudited)

<S>                                                      <C>              <C>
Net operating revenues                                   $ 21,747,029     $         --

Operating expenses:
        Salaries and benefits                              12,450,604          296,829
        Supplies                                            3,033,815               --
        Provision for doubtful accounts                     3,141,406               --
        Other operating expenses                            3,900,220          180,124
        Depreciation and amortization                         262,212           15,179
        Common stock warrant expense                       17,215,000               --
                                                         ------------     ------------
                                                           40,003,257          492,132

Operating loss:                                           (18,256,228)        (492,132)
        Interest expense                                      665,296               --
                                                         ------------     ------------

Loss including minority interest and
        before provision for income taxes                 (18,921,524)        (492,132)

        Provision for income taxes                          1,472,000
        Minority interest in variable interest entity          (8,905)              --
                                                         -----------------------------

Net loss                                                 $(20,384,619)    $   (492,132)
                                                         ============     ============

Per Share Data:
        Basic and fully diluted
               Loss per common share                     $      (0.23)    $      (0.03)

        Weighted average shares outstanding                88,493,611       19,582,667

</TABLE>


      THREE MONTHS ENDED MARCH 31, 2005 AND 2004

      Losses from continuing operations, before interest, taxes and common stock
warrant expense,  increased to $1.0 million for the three months ended March 31,
2005 from $492,000 for the three months ended March 31, 2004.  Substantially all
of the 2005 loss reflects the operational losses from 24 days of operations from
the newly acquired hospitals.


      For the three  months ended March 31, 2005,  we  recognized  an expense of
$17.2 million  relating to the issuance of 74,700,000  common stock  warrants to
Chaudhuri  and 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 as of the grant date of 43,254,715 shares.



                                       28
<PAGE>

      Income tax provision was $1.5 million for the three months ended March 31,
2005,  which was  primarily  the result of the deferred gain on sale of property
(see  financial  statement  notes),  which we  believe  may be a  taxable  gain,
offsetting the remaining loss from operations.

      PROVISION FOR DOUBTFUL ACCOUNTS

      The breakdown of our billed hospital  receivables (which is a component of
total receivables) at March 31, 2005 is summarized in the table below.  Included
in insured  receivables  are  accounts  that are pending  provider  numbers from
Medicaid. These receivables totaled approximately 38.9% of our billable hospital
receivables at March 31, 2005.

                                                    MARCH 31, 2005
                                                    --------------
                Insured receivables                      84.4%
                Uninsured receivables                    15.6%
                                                    --------------
                Total                                   100.0%
                                                    ==============


                                       29
<PAGE>

      Our allowance for doubtful  accounts and the  approximate  percentages  of
allowance  for doubtful  accounts to accounts  receivable  at March 31, 2005 are
summarized as follows (dollars in thousands):

                                                       MARCH 31, 2005
                                                       --------------
         Allowance for doubtful accounts                   $ 3,141
         Percentage of accounts receivables                   15.6%

      Our reported  accounts  receivable  as of March 31, 2005 were all under 30
days  outstanding,  due to the fact that our acquisition of Hospital assets from
Tenet in March 2005 did not include patient accounts.

LIQUIDITY AND CAPITAL RESOURCES

      Cash used by  operating  activities  was $6.2  million in the three months
ended March 31, 2005. Net accounts receivable increased to $17.0 million from 24
days of hospital operation.  Prepaid expenses and other assets increased to $1.5
million.  Accounts  payable  increased  to  $5.0  million  and  payroll  related
accruals,  including  contract  labor,  increased to $7.2 million.  Income taxes
payable of $1.5 million were accrued.

      Cash used in investing  activities  was $63.2  million in the three months
ended March 31, 2005 to acquire the hospitals from Tenet.

      Cash  provided  by  financing  activities  was $75.7  million in the three
months ended March 31, 2005.

      At March 31, 2005,  our  indebtedness  consisted of a $50 million,  2-year
term loan for the purchase of hospitals  and a $13.2 million  drawn-down  from a
$30 million line of credit (also 2-year  term),  both of which bear  interest at
14%.  Payments are interest  only for the 2-year term. We received $5 million in
net proceeds from PCHI, a related party entity,  in connection  with the sale of
the real property of The Hospitals.  In addition,  in March 2005, our subsidiary
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
will  continue  to provide  billing and  collection  services  and the  proceeds
collected  thereby are applied to reduce amounts  advanced under this agreement.
As of  March  31,  2005  there  were  no  advances  made  to  purchase  Accounts
Receivable.

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.


                                       30
<PAGE>

      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 7 regarding the
Company's implementation of FIN 46 (R).

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

      At  March  31,  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.



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<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

      The Company and its subsidiaries are involved in various legal proceedings
most of which relate to routine  matters  incidental to the Company's  business.
The  Company  does not believe  that the outcome of these  matters are likely to
have a material adverse effect on the Company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

      During the quarter ended March 31, 2005, the Company issued (i) to Kali P.
Chaudhuri,  M.D.  and William E.  Thomas  warrants to acquire up to 24.9% of the
common stock of the Company  exercisable  for a period of 18 months  beginning 2
years after issuance of the warrants, a general pre-emptive right to participate
in future sales of equity  securities by the Company up to 24.9% and a tag-along
right  relating  to future  issuances  of stock to Dr.  Shah or OC-PIN;  (ii) to
Orange County  Physicians  Investment  Network,  LLC 96,100,000 shares of common
stock; and (iii) to Hari S. Lal 6,500,000 shares of common stock.

      The aforementioned  common stock,  warrants and rights were issued without
registration  under the  Securities  Act in reliance upon the exemption from the
registration  requirements of the Securities Act of 1933, as amended,  set forth
in Section 4(2) of the Securities Act, and Regulation D promulgated thereunder.

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
("OCPIN"), 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  OCPIN'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


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<PAGE>

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 $63,937,333,  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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      None.

ITEM 5. OTHER INFORMATION.

      In January 2005 the Company  entered into a Stock Purchase  Agreement (the
"SPA") with Orange County Physicians  Investment Network, LLC ("OCPIN") pursuant
to which OCPIN  agreed to invest  $30,000,000  in the  Company in  exchange  for
108,000,000  shares of common stock of the Company.  OCPIN has, to date,  funded
only  $10,100,000  of this  obligation  under the SPA. The Company has, to date,
issued 102,600,000 shares of common stock to OCPIN or others on its behalf.

      The Company has been  negotiating  with OCPIN to reach an agreement  under
which OCPIN's remaining obligations under the SPA will be paid; however, to date
no such  agreement has been reached.  In the event that no settlement is reached
with OCPIN,  the Company  anticipates  that it will initiate  litigation  and/or
arbitration  against  OCPIN to seek  recovery  of all amounts due to the Company
under the SPA, return of shares,  and other remedies.  In addition,  the Company
may pursue actions  available under Nevada and other  applicable law,  including
but not limited to possible sale at public auction  and/or  forfeiture of shares
already issued to OCPIN.

ITEM 6. EXHIBITS.

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

2.1         First Amendment to Asset Sale Agreement,  dated January 28, 2005, by
            and  among  the  Registrant  and  certain   subsidiaries   of  Tenet
            Healthcare  Corporation   (incorporated  herein  by  reference  from
            Exhibit 99.4 to the  Registrant's  Current  Report on Form 8-K filed
            with the Commission on February 2, 2005).*

2.2         Second Amendment to Asset Sale Agreement, effective as of January 1,
            2005, by and among the Registrant and certain  subsidiaries of Tenet
            Healthcare  Corporation   (incorporated  herein  by  reference  from
            Exhibit 99.1 to the  Registrant's  Current  Report on Form 8-K filed
            with the Commission on March 14, 2005).*

2.3         Third  Amendment to Asset Sale  Agreement,  effective as of March 8,
            2005, by and among the Registrant and certain  subsidiaries of Tenet
            Healthcare  Corporation   (incorporated  herein  by  reference  from
            Exhibit 99.2 to the  Registrant's  Current  Report on Form 8-K filed
            with the Commission on March 14, 2005).*

2.4         Letter  Agreement,  dated  January  28,  2005,  by and  between  the
            Registrant and certain subsidiaries of Tenet Healthcare  Corporation
            (incorporated   herein  by  reference   from  Exhibit  99.3  to  the
            Registrant's Current Report on Form 8-K filed with the Commission on
            February 2, 2005).*


                                       33
<PAGE>

10.1        Rescission,  Restructuring and Assignment  Agreement,  dated January
            27, 2005,  by and among the  Registrant,  Kali P.  Chaudhuri,  M.D.,
            William E. Thomas,  Anil V. Shah, M.D., and Orange County Physicians
            Investment  Network,  LLC  (incorporated  herein by  reference  from
            Exhibit 99.1 to the  Registrant's  Current  Report on Form 8-K filed
            with the Commission on February 2, 2005).*

10.2        Stock Purchase Agreement, dated January 28, 2005, by and between the
            Registrant  and Orange County  Physicians  Investment  Network,  LLC
            (incorporated   herein  by  reference   from  Exhibit  99.2  to  the
            Registrant's Current Report on Form 8-K filed with the Commission on
            February 2, 2005).*

10.3        Guaranty  Agreement,  dated as of March 3,  2005,  by Orange  County
            Physicians  Investment  Network,  LLC in favor of  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 March 14, 2005).*

10.4        Guaranty  Agreement,  dated as of March 3, 2005,  by  Pacific  Coast
            Holdings  Investments,  LLC in favor of Medical  Provider  Financial
            Corporation II  (incorporated  herein by reference from Exhibit 99.4
            to the  Registrant's  Current  Report  on Form  8-K  filed  with the
            Commission on March 14, 2005).*

10.5        Subordination Agreement, dated as of March 3, 2005, by and among the
            Registrant and its subsidiaries, Pacific Coast Holdings Investments,
            LLC, and Medical  Provider  Financial  Corporation II  (incorporated
            herein by reference  from Exhibit 99.5 to the  Registrant's  Current
            Report on Form 8-K filed with the Commission on March 14, 2005).*

10.6        Credit  Agreement,  dated as of  March 3,  2005,  by and  among  the
            Registrant and its subsidiaries, Pacific Coast Holdings Investments,
            LLC and its members,  and Medical Provider Financial  Corporation II
            (incorporated   herein  by  reference   from  Exhibit  99.6  to  the
            Registrant's Current Report on Form 8-K filed with the Commission on
            March 14, 2005).*

10.7        Form  of $50  million  acquisition  note by the  Registrant  and its
            subsidiaries  (incorporated herein by reference from Exhibit 99.7 to
            the  Registrant's   Current  Report  on  Form  8-K  filed  with  the
            Commission on March 14, 2005).*

10.8        Form of $30 million  line of credit note by the  Registrant  and its
            subsidiaries  (incorporated herein by reference from Exhibit 99.8 to
            the  Registrant's   Current  Report  on  Form  8-K  filed  with  the
            Commission on March 14, 2005).*

10.9        Triple Net Hospital and Medical Office Building Lease dated March 7,
            2005,  as amended by  Amendment  No. 1 To Triple  Net  Hospital  and
            Medical Office Building Lease (incorporated herein by reference from
            Exhibit 99.9 to the  Registrant's  Current  Report on Form 8-K filed
            with the Commission on March 14, 2005).*

10.10       Employment  Agreement  with Bruce  Mogel,  dated  February  25, 2005
            (incorporated   herein  by  reference  from  Exhibit  10.16  to  the
            Registrant's  Annual Report on Form 10-KSB filed with the Commission
            on March 31, 2005).*

10.11       Employment Agreement with Larry B. Anderson, dated February 25, 2005
            (incorporated   herein  by  reference  from  Exhibit  10.17  to  the
            Registrant's  Annual Report on Form 10-KSB filed with the Commission
            on March 31, 2005).*

10.12       Employment  Agreement  with James T. Ligon,  dated February 25, 2005
            (incorporated   herein  by  reference  from  Exhibit  10.18  to  the
            Registrant's  Annual Report on Form 10-KSB filed with the Commission
            on March 31, 2005).*


                                       34
<PAGE>


10.13       Employment  Agreement  with Milan  Mehta,  dated  February  25, 2005
            (incorporated   herein  by  reference  from  Exhibit  10.19  to  the
            Registrant's  Annual Report on Form 10-KSB filed with the Commission
            on March 31, 2005).*

10.14       Employment  Agreement  with Hari S. Lal,  dated  February  25,  2004
            (incorporated   herein  by  reference  from  Exhibit  10.20  to  the
            Registrant's  Annual Report on Form 10-KSB filed with the Commission
            on March 31, 2005).*

10.15       Employment  Agreement  with Daniel J.  Brothman,  dated December 31,
            2004  (incorporated  herein by reference  from Exhibit  10.21 to the
            Registrant's  Annual Report on Form 10-KSB filed with the Commission
            on March 31, 2005).*

10.16       Employment   Agreement  with  Steve  Blake,  dated  March  21,  2005
            (incorporated   herein  by  reference  from  Exhibit  10.22  to  the
            Registrant's  Annual Report on Form 10-KSB filed with the Commission
            on March 31, 2005).*


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.


                                       35
<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)



                                       36