<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-K

For annual and transition reports pursuant to sections 13 or 15 (d) of the
Securities Exchange Act of 1934.

(Mark One)

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

             For the fiscal year ended               December 31, 1999
                                                     -----------------
                                      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   000-22771

                       CENTENNIAL HEALTHCARE CORPORATION
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

                  GEORGIA                                      58-1839701
--------------------------------------------------------------------------------
        (State or other jurisdiction                        (I.R.S. Employer
      of incorporation or organization)                     identification No.)

            400 Perimeter Center Terrace, Suite 650, Atlanta, Georgia  30346
--------------------------------------------------------------------------------
              (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code            770-698-9040
                                                              ------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:  None
----------------------------------------------------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.01 per share
----------------------------------------------------------

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, and (2) has been subject to such filing
requirements for the past 90 days.    Yes    X      No
                                          -------     -------

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definite proxy or information statements
incorporated by reference in Part III of this Form 10-K or any  amendment to
<PAGE>

this Form 10-K.   (X)

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 31, 2000 was approximately $61.9 million. As of March 31,
2000, the registrant had 11,923,618 shares of Common Stock outstanding.
<PAGE>

                      DOCUMENTS INCORPORATED BY REFERENCE

                                     None
<PAGE>

                               TABLE OF CONTENTS



                                    Part I
                                                                       Page
                                                                       ----

Item 1.  Business....................................................    5
Item 2.  Properties..................................................   21
Item 3.  Legal Proceedings...........................................   21

                                    Part II

Item 5.  Market for Registrant's Common Stock and Related
         Stockholder Matters.........................................   23
Item 6.  Selected Consolidated Financial Data........................   24
Item 7.  Management's Discussion and Analysis of Financial
         Conditions and Results of Operations........................   27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..   34
Item 8.  Financial Statements and Supplementary Data.................   34
Item 9.  Changes in and Disagreements With Accountants on
         Accounting and Financial Disclosures........................   34

                                   Part III

Item 10. Directors and Executive Officers of the Registrant..........   35
Item 11. Executive Compensation......................................   37
Item 12. Security Ownership of Certain Beneficial Owners
         and Management..............................................   43
Item 13. Certain Relationships and Related Transactions..............   45

                                    Part IV

Item 14. Exhibits, Financial Statement Schedules and
         Reports on Form 8-K.........................................   46

Signatures...........................................................   48

<PAGE>

Item 1.  BUSINESS.

  Certain statements in this Form 10-K under the captions "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and in certain documents incorporated by reference herein constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "1933 Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended (the "1934 Act").  Those statements include
statements regarding the intent, belief or current expectations of Centennial
HealthCare Corporation and members of its management team.  Management cautions
that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking statements.
Important factors currently known to management that could cause actual results
to differ materially from those in forward-looking statements are set forth in
the Safe Harbor Compliance Statement included as Exhibit 99.1 to this Form 10-K,
and are hereby incorporated herein by reference.  Centennial HealthCare
Corporation undertakes no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events or changes to future operating results over time.

  Centennial HealthCare Corporation ("Centennial" or the "Company") provides a
broad range of long-term healthcare services to meet the medical needs of
elderly and post-acute patients. The Company provides these services through
geographically concentrated networks located in metropolitan and secondary
markets throughout the United States. The Company was organized in 1989 as a
Georgia corporation and conducts business through its operating subsidiaries. At
December 31, 1999, Centennial operated 100 owned, leased and managed skilled
nursing facilities with 10,663  licensed available beds in 21 states and the
District of Columbia, with its largest concentration of facilities in North
Carolina, Indiana and Michigan. The Company provides basic and specialty
healthcare services. Basic services include skilled nursing and support,
housekeeping, laundry, dietary, recreational and social services. Specialty
services include comprehensive rehabilitation therapy, respiratory therapy,
infusion therapy, wound care, home health care and other subacute and specialty
services. As components of its specialty  services, at December 31, 1999,
Centennial provided rehabilitation therapy services on a contract basis to
third-party owned and Company-operated skilled nursing facilities in 21 states
and the District of Columbia pursuant to 130 contracts and provided home health
care services through home healthcare offices located primarily in North
Carolina. References to  the Company or Centennial also include the Company's
subsidiaries unless  the context indicates otherwise.
<PAGE>

COMPANY GROWTH

  As part of its growth strategy, the Company has regularly reviewed possible
acquisitions within the long-term care continuum. Effective December 31, 1995,
the Company completed an important strategic acquisition by merging with
Transitional Health Services, Inc. ("THS") which operated 36 skilled nursing
facilities with 3,776 licensed available beds in Arkansas, North Carolina,
Indiana, Kentucky and Michigan and a contract rehabilitation therapy business
(the "THS Merger"). Since the THS Merger, through December 31, 1999, the Company
continued to expand its operations through the acquisition of a company
providing home health care services, the acquisition of a contract
rehabilitation therapy company providing therapy services to affiliated and
third-party skilled nursing facilities, the lease of 17 skilled nursing
facilities, and the lease of two rural acute-care hospitals which are located in
markets where the Company operates skilled nursing centers. Additionally, the
Company added a net 11 management agreements for skilled nursing facilities
totaling 1,668 licensed available beds, and the management of a rural acute care
hospital located in Florida.

     On February 25, 2000, Centennial entered into a merger agreement with
Hilltopper Holding Corp. ("Holding"), a wholly-owned subsidiary of Warburg,
Pincus Equity Partners, L.P. ("WPEP"), and Holding's wholly-owned subsidiary,
Hilltopper Acquisition  Corp. ("Acquisition").  Pursuant to the merger
agreement, Acquisition commenced an all cash tender offer for all of the
outstanding shares of Centennial's common stock (the "Common Stock") on March
17, 2000.  On April 14, 2000, Acquisition extended the tender offer until May 1,
2000 to allow Centennial to obtain certain required consents and approvals to
the transaction.

     The merger agreement provides that, after the consummation of the tender
offer, Acquisition will merge with and into Centennial with Centennial surviving
and becoming a wholly-owned subsidiary of Holding.  The transaction will result
in Centennial becoming a privately held company and no longer subject to the
disclosure requirements of the Securities Exchange Act of 1934, as amended
("Exchange Act").  On March 17, 2000, Centennial, Holding, Acquisition and
members of Centennial's senior management filed a Schedule TO with the
Securities and Exchange Commission that describes the proposed transaction in
detail and the reasons for the transaction and provides other information about
the transaction.  Five significant shareholders of Centennial, seven general
partners of the general partner of one of these shareholders and four members of
Centennial's senior management are contributing all or some portion of their
shares of Common Stock for shares of Holding preferred stock and will continue
to have an equity interest in Centennial after the transaction.  In addition,
the members of senior management will enter into employment agreements with the
surviving corporation and receive stock options to acquire Holding common stock.


1999 ACQUISITIONS, DISPOSITIONS AND LEASE TRANSACTIONS

  On January 1, 1999, the Company acquired a leasehold interest in six skilled
nursing facilities with 795 beds located in Massachusetts and one, 68-bed
skilled nursing facility located in Mississippi. The latter facility also has 22
licensed acute care hospital beds.

Also on January 1, 1999, the Company acquired a leasehold interest in a 130-bed
nursing facility located in Mississippi.  This facility was previously managed
by the Company.

In June 1999, the Company terminated its lease agreement on a 81-bed skilled
nursing facility in Kansas.

In December 1999, the Company transferred three skilled nursing facilities with
243 beds located in Florida and Michigan and terminated its lease on a 117 bed
skilled nursing facility located in North Carolina. The Company retained
management on these facilities. (See Item 13)


1998 ACQUISITIONS AND LEASE TRANSACTIONS

  In August 1998, the Company began leasing four skilled nursing facilities
totaling 349 licensed available beds, located in Mississippi, North Carolina,
Arkansas and Wisconsin.  One of these facilities was previously managed by the
Company.   In October 1998, the Company began leasing six skilled nursing
facilities totaling 608 licensed available beds, located in Florida, Arkansas,
Kansas and Wisconsin.

In November 1998, the Company began leasing four skilled nursing facilities
totaling 675 licensed available beds, located in Florida and Missouri.

1997 ACQUISITIONS AND LEASE TRANSACTIONS

  Effective May 1, 1997, the Company acquired by merger Total Care Consolidated,
Inc., a provider of home health care services in North Carolina, where the
Company operated 11 facilities as of December 31, 1999, as well as South
Carolina and Louisiana.

  In August 1997, the Company acquired substantially all of the business and
assets of Complex Care, Inc., a provider of physical, occupational, and speech
therapy services through rehabilitation contracts with third-party long-term
care facilities in Connecticut and Rhode Island.  Combined with the Company's
existing contract rehabilitation therapy business, at December 31, 1999 the
Company provided rehabilitation services pursuant to 130 contracts in 22 states
and the District of Columbia, to Company-operated and third-party-owned
facilities.
<PAGE>

  In March 1997, the Company assumed the management of a 29-bed rural, acute-
care hospital in northern Florida where the Company currently operates a nursing
home facility and another rural hospital. Following the receipt of necessary
consents and approvals, the management of this facility was converted into a
lease of the facility retroactive to the date of the original management
agreement.

  In December 1997, the Company acquired a 58-bed long-term care facility in
Florida that had been managed by the Company since 1991.

  As a result of the acquisitions referenced above, Centennial has increased its
range of services in markets in which the Company already has a strong operating
presence.

MANAGEMENT AGREEMENTS


  The Company's growth strategy has also included the management of long-term
care facilities for third-party owners. Most management agreements provide for a
management fee equal to 6% of the facility's gross revenues with terms ranging
from 5 to 20 years, including renewal options. Additionally, the Company
generally has a right of first refusal or option to purchase its managed
facilities. This strategy has allowed the Company to evaluate the operations of
potential acquisition candidate facilities prior to acquisition. During 1999,
the Company added two and terminated seven skilled nursing facility management
contracts with 188 and 917 licensed available beds, respectively. During 1998,
the Company added nine skilled nursing facility management contracts, totaling
1,157 licensed available beds. During 1997, the Company added eight skilled
nursing facility management contracts, totaling 783 licensed available beds.

THE LONG-TERM CARE INDUSTRY

  The long-term care industry provides a broad range of services to postacute
patients and patients with medically complex and special needs who do not
require treatment in an acute care hospital setting. Long-term care facilities
offer basic services, which include skilled nursing and support, housekeeping,
laundry, dietary, recreational and social services. In addition, long-term care
facilities may provide a broad range of specialty services such as comprehensive
rehabilitation therapy (including physical, occupational and speech therapy),
respiratory therapy, ventilator care, infusion therapy, wound care, home health
care, tracheostomy care, pharmaceutical services, Alzheimer's care and other
specialty services. Long-term care facilities are increasingly becoming an
integral part of community-based, vertically-integrated, extended care delivery
systems that are capable of providing a full range of traditional basic and
specialty services.

  In recent years, long-term care services have experienced significant growth.
According to industry sources, revenues in the long-term care industry have
increased from approximately $18 billion in 1980 to approximately $80 billion in
1995. However, in 1999, changes in the Medicare program to a prospective payment
system caused a severe financial impact on long-term care providers.
Implementation of this new prospective payment system resulted in spending
reductions under the Medicare program of approximately $16 billion.
<PAGE>

INDUSTRY CONSOLIDATION

  The long-term care industry is undergoing consolidation as providers seek to
build market share and compete more effectively. Current ownership of long-term
care facilities is highly fragmented, with approximately 70% of all facilities
owned by independent providers or companies operating less than 20 facilities.
The increased burdens of various cost-containment measures, increasing acuity of
long-term care patients and increasing complexity of government regulation pose
significant challenges to long-term care providers. In addition, there is a
limited supply of long-term care facilities due to the following factors: (i)
state Certificate of Need ("CON") legislation, which restricts the number of
facilities that can be constructed within a market; (ii) high construction
costs; (iii) limitations on government reimbursement for the full cost of
construction; and (iv) extensive start-up expenses. As a result of these
factors, providers that have a strong reputation within the community for
providing high quality service have become attractive acquisition targets for
providers seeking to reach critical mass.


<PAGE>

PATIENT SERVICES

  The Company provides basic and specialty health care services as described
below.

BASIC SERVICES

  Basic services are those traditionally provided to elderly patients in long-
term care facilities, including skilled nursing and support, housekeeping,
laundry, dietary, recreational and social services. The Company provides 24-hour
skilled nursing care by registered nurses, licensed practical nurses and

<PAGE>

certified nursing aides in all of its facilities. Each facility is managed by a
licensed administrator who is responsible for the day-to-day operation of the
facility. Although treatment of patients is the responsibility of their own
attending physicians, who are not employed by the Company, each facility engages
a physician medical director who monitors the delivery of care. In addition,
each facility offers a number of individualized therapeutic activities designed
to enhance the quality of life of its patients. These activities include
entertainment events, musical productions, trips, arts and crafts, volunteer and
other programs that encourage social interaction among patients as well as
community involvement.

SPECIALTY SERVICES

  Specialty services are those provided to patients with medically complex
needs, who generally require more complex treatment and a higher level of
skilled nursing care. These services typically generate higher revenues per
patient day than basic services as a result of the higher costs associated with
treating a higher-acuity patient. Set forth below are descriptions of some of
the specialty services offered by the Company.

  REHABILITATION THERAPY.  The Company provides a broad range of rehabilitation
therapy services to its facilities and other third-party providers. These
services include physical, occupational and speech therapy in the long-term care
facility setting. As of December 31, 1999 the Company had contracted to provide
rehabilitation therapy services to patients in 130 facilities, 61 of which are
owned or leased by the Company.

  SUBACUTE CARE. Within certain of its long-term care facilities, the Company
provides subacute care services that are dedicated to the care of medically
complex residents who do not require the services of an acute care hospital.
Subacute services provided or arranged by the Company's facilities include, but
are not limited to, ventilator care, respiratory care, traumatic injury
recuperation, post-cardiac rehabilitation, IV therapy, wound care, post- stroke
care, hospice care, post-surgical orthopedic rehabilitation and peritoneal
dialysis services.

  HOME HEALTH CARE.  At December 31, 1999, Centennial operated home health care
offices in North Carolina, South Carolina and Louisiana, affording the
recipients of such care an alternative to a hospital or long-term care facility
setting. Such services delivered into the home setting include skilled nursing,
physical, occupational and speech therapy and subacute care. In addition,
personal care services are available from home health care aides who assist
patients with their activities of daily living. Centennial provides home health
care primarily in markets where it has long-term care facilities.

OPERATIONS

  The Company's facilities are organized into operating regions and the
Company's organizational structure and operations support staff provide its
facilities with the resources needed to operate effectively in these regions.
Each region has nurse consultants with responsibility for providing guidance on
patient care issues, conducting quality assurance audits, training in clinical
software and assuring compliance with applicable state and federal regulations.
The Company provides additional operational support through a corporate team of
professionals in financial accounting, reimbursement, managed care pricing,
quality assurance, human resources, regulatory compliance, marketing, health
systems development and other areas.

For all of its facilities, the Company actively manages personnel costs, which
represent the largest expense incurred in the operation of a long-term care
facility. The Company emphasizes attracting and retaining quality personnel,
including administrators and skilled nursing staff, through a number of programs
which include on-going training and education classes, employee recognition
programs, and competitive wages and benefits. In addition, the Company has an

<PAGE>

incentive program for administrators and other key personnel based on the
achievement of certain Company goals related to quality of care and financial
performance.

ACQUISITIONS

  The Company has maintained an acquisition program in order to increase its
penetration of existing regions and to capitalize on the consolidation trends in
the long-term care industry. During 1999, the Company's limited access to
capital placed significant restrictions on its ability to pursue acquisitions.
The Company evaluates potential acquisitions on the basis of existing
profitability, long-term profit potential, specialty services opportunities,
facility location, payor mix and patient census. Specifically, the Company
targets facilities that have the capacity to be leading providers of higher-
acuity services in their respective markets and that represent opportunities for
the Company to realize additional operating leverage through regional economies
of scale and provide more profitable specialty services. In addition, the
Company enters management agreements with certain facilities that generally

<PAGE>

include a right of first refusal to acquire these facilities. In many cases
managed facilities have presented acquisition opportunities. As of December 31,
1999, the Company leased or owned 16 facilities that it previously managed.


FACILITIES

  At December 31, 1999, Centennial operated owned, leased and managed skilled
nursing facilities with 10,663 licensed available beds in 21 states and the
District of Columbia. Of this number, Centennial owned 6 facilities with 654
beds, leased 64 facilities with 7,008 licensed available beds and managed 30
facilities with 3,001 licensed available beds. At December 31, 1999, the
Company's facilities had an average of 104 beds and an average occupancy rate of
86.1%.

  The following table lists the Company's owned, leased and managed facilities
by location, including the number of licensed available beds and the occupancy
rate as of December 31, 1999:

<TABLE>
<CAPTION>


                                                               Facilities
                                            Number of   --------------------------             Occupancy
State                                         Beds      Owned    Leased    Managed    Total      % (1)
-----                                       ---------   -----    ------    -------    -----    ---------
<S>                                         <C>         <C>      <C>       <C>        <C>      <C>
Arkansas                                        337                   4          -        4      64.1%
District of Columbia                            296                   1          -        1      96.5%
Florida                                         598                   3          4        7      89.0%
Georgia                                         157                   1          -        1      94.0%
Idaho                                           165                   2          -        2      77.9%
Indiana                                       1,150                  12          -       12      85.1%
Kansas                                          365                   2          2        4      84.1%
Kentucky                                        356         1         2          -        3      89.9%
Louisiana                                       376         1         3          -        4      83.1%
Massachusetts                                   795                   6          -        6      93.9%
Michigan                                      1,270         1         7          5       13      89.6%
Missouri                                        440                   2          -        2      81.8%
Mississippi                                     696                   7          -        7      96.2%
Montana                                          99                   1          -        1      93.5%
North Carolina                                2,355         2         8         13       23      81.8%
Nebraska                                        158         1         -          -        1      80.2%
New Mexico                                      119         -         -          1        1      93.6%
Tennessee                                       119         -         -          1        1      97.9%
Texas                                           107                   1          -        1      92.9%
Virginia                                        174         -         -          2        2      95.8%
Washington                                      104         -         -          1        1      59.1%
Wisconsin                                       427                   2          1        3      78.2%
                                             ------     -----        --         --      ---
Totals                                       10,663         6        64         30      100      86.1%
                                             ======     =====        ==         ==      ===
</TABLE>

(1)  Occupancy is computed by dividing actual patient day census by actual
     patient days available in licensed available operating beds and does not
     include facilities in the start-up phase during 1999, which include two
     managed facilities located in Indiana, Jennings Healthcare and Owen Valley
     Healthcare.

  LEASED FACILITIES. At December 31, 1999, the Company leased 64 skilled nursing
facilities pursuant to long-term leases with various lessors. The Company's
<PAGE>

lease arrangements are "triple net" leases, requiring the Company, at its own
expense, to maintain the premises and pay taxes, utilities and insurance. In
most cases, the leases are subordinate to certain security interests in the
facilities granted by the lessors to third-party lenders. Centennial has a right
of first refusal or options to purchase most of the leased facilities.

  These leases generally have initial terms of ten to 20 years with options to
extend, and lease rates with annual increases tied to fixed schedules, the
Consumer Price Index, or changes in the interest rates.

  In 1999, the Company terminated leases at a 117 bed skilled nursing facility
in North Carolina and a 81 bed skilled nursing facility in Kansas. The Company
continued to manage the North Carolina facility.

MANAGED FACILITIES

  At December 31, 1999, the Company operated 30 facilities under long-term
management contracts with third parties. Revenues from management contracts
accounted for approximately 2.6% of the Company's total revenues for the fiscal
year ended December 31, 1999. Pursuant to these management contracts, the
Company performs day-to-day management functions and provides certain corporate
services, including group contract purchasing, employee training and
development, quality assurance audits, human resource management, assistance in
obtaining third-party reimbursement, financial and accounting functions, policy
development, system design and development, and marketing support. The Company's
information system monitors certain key data for each managed facility, such as
payroll, admissions and discharges, cash collections, net patient service
revenues, staff trend analysis, and measurement of operational data on a per
patient day basis. These management agreements typically have initial terms
ranging from five to 20 years and that can be terminated only for cause. Each
such management agreement provides for monthly fees generally at six percent of
gross revenues. Certain of the agreements provide for the subordination of the
management fees to the payment of the owner's debt service. The Company has a
right of first refusal to acquire certain of these managed facilities.

  During 1999, the Company terminated management agreements on six facilities
that it managed for third parties. These six facilities were leased by these
third parties and the leases were terminated.

  CONTRACT REHABILITATION SERVICES. At December 31, 1999, Centennial provided
contract rehabilitation services under 130 contracts in facilities in 22 states
and the District of Columbia. Sixty one of the agreements are with the Company's
owned or leased facilities. Most of these agreements have initial terms of five
years with automatic renewal provisions for five successive additional terms of
five years each, unless terminated earlier upon 90 days prior notice, and are
subject to termination without cause upon 60 days prior written notice. Pursuant
to these agreements, the Company provides comprehensive rehabilitation services,
including physical, occupational and speech therapy. In addition, the Company
provides administrative services including policy formulation, licensure
compliance, training, staffing, quality control, financial report preparation
and patient census preparation. The Company bills for these services at rates
set forth in the therapy services agreement. The rate may be in the form of (1)
per diem rates based upon a specified percentage of the therapy component of the
RUG rate, (2) a per minute charge, (3) a percent of HCFA established fee
schedules, or (4) other negotiated fee structure.

COMPETITION

  The Company expects that it will face increasing levels of competition with
respect to its operations and the services it provides. The Company competes for
patients with other long-term care facilities and, to a lesser extent, with
acute care hospitals, physician practice groups, home health care providers,
community-based service programs, retirement communities and assisted living
<PAGE>

centers. In addition, competition may grow from new market entrants, including
companies focusing primarily on specific components of the Company's various
services. Certain competing companies have greater financial and other resources
and may be more established in their respective communities than the Company.
Competition for subacute care patients is increasing by virtue of market entry
of other health care providers, such as acute care hospitals, rehabilitation
hospitals and other specialty service providers. The competitive factors that
distinguish subacute providers include the degree of acuity for which care can
be provided. The Company believes that its subacute care facilities are
characterized by a high level of acuity in patient care provided. Other
important competitive factors include the reputation of the facility in the
community, the services offered, the availability of qualified nurses, local
physicians, hospital support, rehabilitation therapists and other personnel, the
appearance of the facility and the cost of services.

SOURCE OF REVENUES AND PAYOR MIX

  The Company derives its revenues primarily from various state Medicaid
programs for indigent patients, the Medicare program for certain elderly and
disabled patients, private pay sources, rehabilitation therapy services offered
to third-party long-term care facilities and management fees. The Company
employs reimbursement specialists and retains outside reimbursement consultants
to monitor reimbursement rules, policies and related developments in order to
comply with reporting requirements and to assist the Company in receiving
reimbursements.

  The following table sets forth the percentage of total revenues by payor
source for the Company for the periods indicated:

<TABLE>
<CAPTION>

                                                                             Years Ended
                                                                             December 31,
                                                                -------------------------------------
Percentage of Total Revenues                                     1999    1998    1997    1996    1995
                                                                -----   -----   -----   -----   -----
<S>                                                             <C>     <C>     <C>     <C>     <C>
   Medicare...................................................   21.2%   23.9%   23.8%   25.4%   18.2%
   Private pay, management fees and other (1).................   35.2%   42.7%   39.6%   31.8%   23.7%
                                                                -----   -----   -----   -----   -----
                                                                 56.4%   66.6%   63.4%   57.2%   41.9%
   Medicaid...................................................   43.6%   33.4%   36.6%   42.8%   58.1%
                                                                -----   -----   -----   -----   -----
   Total......................................................  100.0%  100.0%  100.0%  100.0%  100.0%
                                                                =====   =====   =====   =====   =====

</TABLE>
____________

(1) Private pay includes payments from third parties pursuant to contract
rehabilitation therapy services.



  MEDICARE (PRIOR TO JANUARY 1, 1999). The Medicare program consists of two
parts. Part A covers inpatient hospital services and certain services furnished
by other institutional providers, such as skilled nursing and long-term acute
care facilities. Part B covers the services of doctors, suppliers of medical
items, various types of outpatient services including physical, speech and
occupational therapy, pharmaceuticals and medical supplies, certain intensive
rehabilitation and psychiatric services and ancillary services of the type
provided by long-term care or acute care facilities. Medicare does not provide
reimbursement for community-based, intermediate-care nursing facilities.
<PAGE>

  Under the Medicare Part A program, the Company is reimbursed for its direct
costs plus an allocation of indirect costs up to a facility specific limit (the
"routine cost limit"). As the Company has expanded its post-acute care and other
specialty services, the costs of care for these patients have exceeded the
reimbursement routine cost limits. Under current regulations, new long-term care
facilities are, in certain limited circumstances, able to apply for a three-year
exemption from routine cost limits. Unless and until such exemptions are
granted, these facilities can recover excess costs only through routine cost
limit exception requests. There can be no assurance that the Company will be
able to recover such excess costs under any pending or future requests. Payment
for Medicare Part B services depends on the nature of the services provided.
Some services are reimbursed at cost, much like Part A services. Other services,
particularly parenteral and enteral nutrition therapy, are reimbursed on a fee
schedule.

MEDICARE (SUBSEQUENT TO JANUARY 1, 1999).

Under provisions of the Balanced Budget Act of 1997, reimbursement under
Medicare Part A and B were transformed through the implementation of a
Prospective Payment System ("PPS"). The Medicare PPS is based upon standardized
payments for 45 separate classifications of patients.   Patients are classified
based upon acuity and specialty service needs as documented on the Minimum Data
Set ("MDS"). Periodic reassessment of patients is required on a set schedule to
determine whether the patient is in the correct Resource Utilization Group
("RUG")category as well as when a Medicare resident's condition changes.  A
facility receives payment under Medicare based upon each patient's RUG category.
As a result, accurate classification of each patient into his or her appropriate
RUG category is crucial to the facility receiving the appropriate payment for
services provided to that patient.

The PPS rates, which reimburse for routine service, ancillary and capital costs,
are established through a blend of (i) a facility-specific payment rate derived
from each facility's 1995 cost report, adjusted by an inflation factor and (ii)
a federal per diem rate derived from all hospital-based and free-standing
(skilled nursing facility) 1995 cost reports, adjusted to remove geographic,
wage-related, inflationary and case mix differences between facilities.  Based
upon resource utilization weights established by HCFA, each of the 45 categories
is adjusted to reflect the average anticipated cost associated with the
resources utilized.

The Medicare prospective payment system began for cost reporting periods
starting on or after July 1, 1998. For the majority of the Company's facilities,
the Initial Year of the four-year phase in period began January 1, 1999. For
facilities acquired by the Company in fiscal 1998, the Initial Year for the PPS
system began from the date of acquisition through December 31, 1998.  Year Two
of the PPS system was fiscal 1999 for these nursing centers. The Initial Year
blended rates were based 75% on the facility-specific rate and 25% on the
federal per diem rate. The Year Two prospective rates are based 50% on the
facility-specific rate and 50% on the federal per diem rate. The Year Three
blended rates are based 25% on the facility-specific rate and 75% on the federal
per diem rate. The Year Four prospective rate is 100% of the standardized
federal per diem rates. Overall, the rates received by the Company at its
facilities under PPS are less than rates previously received by the Company
under the "cost based" reimbursement system, and the per diem rates paid for a
patient in a particular RUG category may not necessarily cover the cost of care
for that patient.

MEDICARE (SUBSEQUENT TO JANUARY 1, 2000).

The Balanced Budget Relief Act of 1999 ("BBRA") revised certain provisions of
the Medicare PPS to provide relief to SNFs.  Effective with cost reporting
periods beginning on or after December 31, 1999, SNFs may elect an immediate
transition to PPS Year Four, 100% federal per diem rates.  This election
positively impacts SNFs with 1995 base year costs that are below the average
federal per diem rates.  Centennial elected this immediate transition at 21
Managed and 36 Owned or Leased facilities.
<PAGE>

In addition to the full federal transition, the BBRA provides for additional
funding for certain nontherapy ancillary services.  Effective April 1, 2000, 15
of the 45 Resource Utilization Groups (RUG) federal rates will be temporarily
increased by 20% to account for the high costs of these nontherapy ancillaries.
HCFA has continued to study this issue and is expected to issue revisions to the
regulations and RUG model to permanently address the nontherapy ancillaries.
These regulations are anticipated to be issued in the second quarter of 2000
with an effective date of October 1, 2000.

The BBRA also addressed concerns that the inflation factors utilized to roll
1995 costs forward to current rate periods were lower than the actual cost
increases over the same time period.  As a result, all 45 federal RUG rates will
receive an additional 4% rate increase, above anticipated inflation,
effective October 1, 2000.

  PRIVATE PAY, MANAGEMENT FEES AND OTHER. Private pay and other revenues include
payments from individuals who pay directly for services without governmental
assistance and payments from commercial insurers, HMOs, PPOs, insurance
organizations, workers' compensation programs, hospice programs and other
similar payment sources. The Company's rates for private pay patients are higher
than rates for patients eligible for assistance under state Medicaid programs.
These private pay rates are established on a facility-specific basis in
accordance with market factors, including rates charged by other providers in
the local market.

  MEDICAID.  Medicaid includes the various state-administered reimbursement
programs for indigent patients created by federal law. Although reimbursement
rates vary from state to state, the federal government retains the right to
approve or disapprove individual state plans. Providers must accept
reimbursement from Medicaid as payment in full for the services rendered,
because the provider may not bill the patient for more than the amount of the
Medicaid payment received. Criteria for Medicaid eligibility varies from state
to state, subject to guidelines from the federal government for determining
whether a person qualifies as medically indigent and subject to changes in state
and federal regulations.

  Many of the residents at the Company's facilities who initially have services
paid by Medicare, private pay or insurance sources are later covered by Medicaid
as their benefits and financial resources are depleted to a level of financial
net worth and income which makes them eligible for Medicaid.

  With the exception of two facilities, all of the facilities operated by the
Company participate in state Medicaid programs. Basic long-term care services
are provided to Medicaid patients, including nursing, dietary, housekeeping and
laundry, restorative health care services, room and board and medications.
Medicaid does not cover the cost of private rooms, private-duty nurses and other
costs, or amounts in excess of the Medicaid reimbursement rates. The Balanced
Budget Act of 1997 requires states to use a public notice and comment process in
determining rates for hospital services, nursing facility services and services
of intermediate care facilities and services for the mentally retarded (but not
for home and community care). Under this process, states will be required to
publish in proposed and final form the rates, rate methodologies, and
justifications for the rates of hospitals, nursing facilities, and intermediate
care facilities and for the services for the mentally retarded. Likewise, states
must furnish interested parties with a reasonable opportunity to comment on the
proposed rates, rate methodologies, and justifications. States also must take
into account during the hospital rate-setting process the situation of hospitals
which serve a disproportionate number of low-income patients with special needs.
Furthermore, payments must be sufficient to enlist enough providers so that
services under the state's Medicaid plan are available to recipients at least to
the extent that those services are available to the general population.
Reimbursement rates generally are determined by the state from "cost reports"
filed annually by each facility, on both a prospective and retrospective basis.
There can be no assurance, however, that payments under Medicaid programs will
be sufficient
<PAGE>

to cover the costs allocable to patients eligible for reimbursement pursuant to
such programs.

  Cost reports are subject to routine audits by government regulatory bodies on
an annual or periodic basis and several of the Company's facilities are
currently involved in the audit process. In the event of a determination by such
a regulatory body that the amount of reimbursement exceeded allowable
reimbursement levels, the Company may be required to repay any excess amount.
Although the Company believes it has adequately provided for any repayment
obligations, there can be no assurance that such provisions will be adequate.

  CONTRACT REHABILITATION SERVICES. In general, the Company classifies payments
for rehabilitation therapy services received directly from third-party long-term
care facilities as private pay. Revenues from rehabilitation therapy services
provided to Company-operated facilities are included in the Medicare, Medicaid
and private pay sources of revenues of the Company. The Company's charges to
non-affiliates, though not directly regulated, are effectively limited by
regulatory reimbursement policies imposed on the long-term care facilities that
receive these services, as well as competitive market factors.

  HOME HEALTH SERVICES. The BBA mandated a change in the payment methodology for
Medicare Home Health services.  Currently, Medicare covered Home Health Services
are reimbursed on an Interim Payment System ("IPS").  For cost reporting periods
beginning on or after October 1, 1997, the Act requires home health agencies to
be reimbursed the lesser of (1) actual costs, (2) per visit limits, reduced to
105% of the national median, or (3) a new blended agency-specific per
beneficiary annual limit applied to the agency's unduplicated census count of
Medicare patients, and based on 98% of 1994 costs, trended forward and phased in
over four years, (similar to long-term care provisions).

Effective on October 1, 2000 the IPS is expected to be replaced with a
prospective system based upon a per case assessment classification payment.
Payment will be made for a fixed coverage period of 60 days and be based upon
patient assessment data ("OASIS").  The OASIS data will classify patients into
one (1) of eighty (80) acuity based patient classifications based upon resources
needed ("HHRG").  Each HHRG classification has a related case rate that will be
paid to cover all home health services provided during a beneficiary's coverage
period.

Payment rates under the new prospective system will be set using federal rates.
The federal rates will be established using costs for all home health agencies
from cost reports ending in federal fiscal year 1997.  These federal rates will
be adjusted  by inflation and labor indices to reflect differences in local wage
costs. Currently, the federal government has not provided sufficient regulations
and guidelines to allow for a reasonable analysis of the effect of this new
prospective reimbursement system.

For the year ended December 31, 1999 Centennial derived 7.1% of its revenues
from home health care.


  MEDICARE AND MEDICAID. The Medicare and Medicaid programs are subject to
various statutory and regulatory changes which may adversely affect the
Company's business. There can be no assurance that payments for services and
supplies under governmental reimbursement programs will remain comparable to
present levels.

  Various state Medicaid programs periodically experience budgetary shortfalls
which may result in Medicaid payment delays to the Company. In addition, the
failure, even inadvertent, of the Company to comply with applicable
reimbursement regulations could adversely affect the Company's business.
Although there can be no assurance that future adjustments will not have a
material adverse effect on the Company, the Company believes that it has
properly applied the various payment formulas and that it is not likely that
audit adjustments would have a material adverse effect on the Company. In 1990
and 1993, Congress passed legislation ("OBRA" and "OBRA 93") revising Medicare
<PAGE>

nursing standards and reimbursement and methods for nursing homes. Although the
Company believes that it is in substantial compliance with the current
requirements of OBRA and OBRA 93, it is unable to predict how future
interpretation and enforcement of regulations promulgated under OBRA and OBRA 93
by the state and federal governments could affect the Company in the future.

  Effective July 1, 1995, the Health Care Financing Administration ("HCFA")
promulgated new survey, certification and enforcement rules governing long-term
care facilities participating in the Medicare and Medicaid programs, which
impose significant new requirements on long-term care facilities. The breadth of
the new rules creates uncertainty over the manner in which the rules will be
implemented, the ability of any long-term care facility to comply with them and
the effect of the new rules on the Company.

  Under the rules, unannounced standard surveys of facilities must be conducted
at least once every 15 months with a statewide average of 12 months. In addition
to the standard survey, survey agencies have the authority to conduct surveys as
frequently as necessary to determine whether facilities comply with
participation requirements, to determine whether facilities have corrected past
deficiencies and to monitor care if a change occurs in the ownership or
management of a facility. Furthermore, the state survey agency must review all
complaint allegations and conduct a standard or an abbreviated survey to
investigate such complaints if a review of the complaint shows that a deficiency
in one or more of the Federal requirements may have occurred and that only a
survey will determine whether a deficiency or deficiencies exist. If a facility
has been found to furnish substandard care, it is subject to an extended survey.
The extended survey is intended to identify the policies and procedures that
caused a facility to deliver substandard care.

  HCFA's rules substantially revise provisions regarding the enforcement of
compliance requirements and remedies for long-term care facilities with
deficiencies. At a minimum, the following remedies are available: termination of
provider agreement; temporary management; denial of payment for new admissions;
civil money penalties; closure of the facility in emergencies or transfer of
patients or both; and on-site state monitoring. States may also adopt optional
remedies. The rules divide remedies into three categories. Category I remedies
include directed plans of correction, state monitoring and directed in-service
training. Category 2 remedies include denial of payments for new admissions,
denial of payments for all individuals (imposed only by HCFA) and civil money
penalties of $50 to $3,000 per day. Category 3 remedies include temporary
management, immediate termination or civil money penalties of $3,050 to $10,000
per day. The rules define situations in which one or more of the penalties must
be imposed. The rules also allow for the immediate imposition of remedies,
including civil monetary penalties, without opportunities to correct
deficiencies if a facility has been cited for a deficiency at or about a level
"G" in more than one survey in less than a twelve month period.

  FEE SPLITTING AND REFERRALS.  The Company is also subject to federal and state
laws that govern financial and other arrangements between providers. Federal
laws, as well as the laws of certain states, prohibit payments or fee splitting
arrangements between providers that are designed to induce or encourage the
referral of patients to, or the recommendation of, a particular provider for
medical products and services. These laws include the federal "anti-kickback
law" which prohibits, among other things, the offer, payment, solicitation or
receipt of any form of remuneration in return for the referral of Medicare and
Medicaid patients.

  Effective January 1, 1995, OBRA 93 prohibits any physician with a financial
relationship (defined as a direct or indirect ownership or investment interest
or compensation arrangement) with an entity from making a referral for
"designated health services" to that entity and prohibits that entity from
billing for such services. "Designated health services" do not include skilled
nursing services but do include many services which long-term care facilities
<PAGE>

provide to their patients, including, but not limited to, infusion therapy and
enteral and parenteral nutrition. Various exceptions to the application of this
law exist, including one, which protects the payment of fair market compensation
for the provision of personal services, so long as various requirements are met.
Violations of these provisions may result in civil or criminal penalties for
individuals or entities and/or exclusion from participation in the Medicaid and
Medicare programs. Various state laws contain analogous provisions, exceptions
and penalties. Violation of these state laws could lead to loss of licensure,
significant fines and other penalties. The Company believes that in the past it
has been, and in the future it will be, able to arrange its business
relationships so as to comply with these provisions. Failure to comply with such
laws could subject the Company to civil fines, possible exclusion from
government reimbursement programs and, in certain cases, criminal prosecution.

GOVERNMENT REGULATION

  The federal government and all states in which the Company operates regulate
various aspects of the Company's business. In addition to the regulation of
rates by governmental payor sources, the development and operation of long-term
care facilities and the provision of long-term care services are subject to
federal, state and local licensure and certification laws which regulate with
respect to a facility, among other matters, the number of beds, the services
provided, the distribution of pharmaceuticals, equipment, staffing requirements,
patients' rights, operating policies and procedures, fire prevention measures,
environmental matters and compliance with building and safety codes. Home health
care providers are also subject to extensive government regulations. The trend
over the past several years has been to increase regulatory pressure at both the
state and federal level. There can be no assurance that federal, state or local
governmental regulations will not change or be subjected to new interpretations
that impose additional restrictions which might adversely affect the Company's
business.

  Licensing, certification and other applicable standards vary from jurisdiction
to jurisdiction and are revised periodically. State agencies survey or inspect
all long-term care facilities on a regular basis to determine whether such
facilities are in compliance with the requirements for participation in
government-sponsored third-party payor programs. In some cases or upon repeat
violations, the reviewing agency has the authority to take various adverse
actions against a facility, including the imposition of fines, temporary
suspension of admission of new patients to the facility, suspension or
decertification from participation in the state Medicaid or the Medicare
program, offset of amounts due against future billings to the Medicare or
Medicaid programs, denial of payments under Medicaid for new admissions,
reduction of payments, restrictions on the ability to acquire new facilities
and, in extreme circumstances, revocation of a facility's license or closure of
a facility. The compliance history of a prior provider may be used by state or
federal regulators in determining possible action against a successor provider.

  The Company believes that its facilities are in substantial compliance with
all statutes, regulations, standards and requirements applicable to its
business, including applicable Medicaid and Medicare regulatory requirements. In
the ordinary course of its business, however, the Company from time to time
receives notices of deficiencies for failure to comply with various regulatory
requirements. In most cases, the Company and the reviewing agency will agree
upon corrective measures to be taken to bring the facility into compliance.
There can be no assurance that future agency inspections will not have a
material adverse effect on the Company.

  CERTIFICATES OF NEED.  A majority of the states in which the Company operates
have adopted CON or similar laws which generally require that a state agency
determine that a need exists prior to the construction of new facilities, the
addition or reduction of licensed beds or services, the implementation of other
changes, the incurrence of certain capital expenditures, the approval of certain
acquisitions and changes in ownership or, in certain states, the closure of a
<PAGE>

facility. State CON approval is generally issued for a specific project or
number of beds, specifies a maximum expenditure, is sometimes subject to an
inflation adjustment, and requires implementation of the proposal within a
specified period of time. Failure to obtain the necessary state approval can
result in the inability of the facility to provide the service, operate the
facility or complete the acquisition, addition or other change and can also
result in adverse reimbursement action or the imposition of sanctions or other
adverse action on the facility's license.

  ENVIRONMENTAL AND OTHER.  The Company is subject to a wide variety of federal,
state and local environmental and occupational health and safety laws and
regulations. Among the types of regulatory requirements faced by providers are:
air and water quality control requirements, waste management requirements,
specific regulatory requirements applicable to asbestos, polychlorinated
biphenyls and radioactive substances, requirements for providing notice to
employees and members of the public about hazardous materials and wastes and
certain other requirements.

  In its role as owner and/or operator of properties or facilities, the Company
may be subject to liability for investigating and remedying any hazardous
substances that have come to be located on the property, including such
substances that may have migrated off of, or emitted, discharged, leaked,
escaped or been transported from, the property. The Company's operations may
involve the handling, use, storage, transportation, disposal and/or discharge of
hazardous, infectious, toxic, radioactive, flammable and other hazardous
materials, wastes, pollutants or contaminants. Such activities may harm
individuals, property or the environment; may interrupt operations and/or
increase their costs; may result in legal liability, damages, injunctions or
fines; may result in investigations, administrative proceedings, penalties or
other governmental agency actions; and may not be covered by insurance. The cost
of any required remediation or removal of hazardous or toxic substances could be
substantial and the liability of an owner or operator for any property is
generally not limited under applicable laws and could exceed the property's
value. Although the Company is not aware of any material liability under any
environmental or occupational health and safety laws, there can be no assurance
that the Company will not encounter such liabilities in the future, which could
have a material adverse effect on the Company.

PERSONNEL

  As of December 31, 1999, the Company employed, directly or indirectly,
approximately 11,206 persons, including approximately 8,404 full-time and 2,802
part-time employees. As of December 31, 1999, collective bargaining agreements
were in effect related to 14 facilities covering approximately 1,083 employees
and negotiations were in progress with bargaining units at 1 additional
facility. The Company believes that it has a satisfactory relationship with
these employees and strives to maintain this relationship by offering
competitive benefit packages, training programs and opportunities for
advancement.

INSURANCE

  The Company maintains property, liability, and professional liability
insurance policies in amounts and with such coverage and deductibles that are
deemed appropriate by management, based upon historical claims, industry
standards and the nature and risks of its business. The Company also requires
that physicians practicing at its facilities carry medical professional
liability insurance to cover their respective individual professional
liabilities. The Company directly and indirectly maintains a guaranteed cost
insurance program for workers' compensation. This program covers employees as
required by state law. In certain states, the Company participates in state
approved programs. Contractors who provide services to the Company must
demonstrate adequate insurance prior to commencing work. There can be no
assurance that any claims against the Company will not be successful, or, if
successful, will not exceed the limits of available coverage or reserves, or
that

<PAGE>

such coverage will continue to be available at acceptable rates.

ITEM 2.  PROPERTIES

OFFICE LEASES

  As of December 31, 1999, Centennial's corporate headquarters occupy
approximately 41,700 square feet of office space in a commercial building
located in Atlanta, Georgia, under a lease agreement which terminates on
September 30, 2001 and allows one five-year renewal option. The Company believes
that such office space is adequate for its current requirements.

THS leases approximately 18,000 square feet of office space in Louisville,
Kentucky, which was THS's corporate headquarters prior to the THS Merger. The
lease term expires January 31, 2002. The Company has entered into subleases for
the entire space for the remaining term of the primary lease.

ITEM 3.  LEGAL PROCEEDINGS

  On February 28, 2000, a complaint was filed in the Superior Court of Fulton
County by Crandon Capital Partners, as a purported class action, against
Centennial and each of its directors. The complaint, styled Crandon Capitol
Partners v. Eaton, et al, seeks compensatory damages and injunctive relief
arising from the merger agreement among Centennial, Holding and Acquisition. The
complaint alleges the individual defendants breached their fiduciary duties in
connection with the merger by, among other things, failing to conduct an auction
or other suitable market check, failing to consider other strategic alternatives
and accpting insufficient consideration. Centennial believes that the claims are
without merit and will defend vigorously.

  On March 26, 1999, the Company received an investigatory subpoena from the
Department of Health and Human Services, Office of the Inspector General,
requesting records in connection with an investigation of possible or otherwise
improper claims for payment under Title XVIII (Medicare) of the Social Security
Act. The request relates to records for the period January 1, 1994 to the
present concerning certain of the Company's internal policies. The Company is
providing all requested records and is cooperating fully with the investigation.
There can be no certainty at this time that this matter will be resolved and
resolution of this matter could have a material adverse effect on the business
and operations of the Company.

  On December 3, 1999, a Missouri facility that the Company has leased and
operated since October 31, 1999, received a subpoena from the United States
Attorney's Office for the Western District of Missouri.  The subpoena sought
records for five individuals who resided in the Missouri facility during the
period January 1, 1998 through the date of the subpoena, and billing and
staffing records related to these residents and the facility.  The facility has
provided the requested records and the Company is cooperating with the
government's review.

  As of December 31, 1999, the Company did not have any other pending legal
proceedings that separately, or in the aggregate, if adversely determined, would
have a material adverse effect on the Company. The Company is, and may be, from
time to time, party to litigation or administrative proceedings which arise in
the normal course of business.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 None.
<PAGE>

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

   (a) The Company's Common Stock is traded on The Nasdaq Stock Market's
National Market System under the symbol "CTEN." The high and low bids for the
Company's Common Stock as reported on The Nasdaq Stock Market during each
quarter for the two most recent years and for the year to date 2000 are as
follows:
<TABLE>
<CAPTION>

   2000                         High        Low
   ----                         ----        ---
<S>                            <C>        <C>
 First quarter...............  5.2812      4
 Second quarter (to April 10)  5.325       4.5938

   1999                         High       Low
   ----                         ----       ---
<S>                            <C>       <C>
 First quarter...............  15.563     8.000
 Second quarter..............  10.000     1.000
 Third quarter...............   5.531     2.625
 Fourth quarter..............   3.563     2.218

   1998                         High       Low
   ----                         ----       ---
<S>                            <C>       <C>
 First quarter...............  25.125     19.625
 Second quarter..............  25.000     16.4375
 Third quarter...............  20.375      7.500
 Fourth quarter..............  15.50       7.375
</TABLE>

At April 10, 2000, the last reported sale price of the Common Stock was $5.25
per share and there were approximately 64 record holders of Common Stock.

   The Company has not declared any cash dividends on its Common Stock. The
Company expects that future earnings, if any, will be retained for the growth

<PAGE>

and development of the Company's business and, accordingly, the Company does not
anticipate that any dividends will be declared or paid on the Common Stock for
the foreseeable future. The declaration, payment and amount of future dividends,
if any, will depend upon the future earnings, results of operations, financial
position and capital requirements of the Company, among other factors, and are
limited by the Company's Credit Agreement with CoreStates Bank, N.A. and
NationsBank, N.A. as agents for the lenders named therein.

Recent Sales of Unregistered Securities.
---------------------------------------

   None


ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

The following selected financial data has been derived from the Company's
Consolidated Financial Statements. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the notes thereto
included elsewhere herein. The selected consolidated financial data set forth
below for the Company as of December 31, 1999 and 1998 and for each of the three
years in the period ended December 31, 1999, is derived from the audited
financial statements included elsewhere herein. The selected consolidated
financial data set forth below for the year ended December 31, 1996 and 1995 has
been derived from financial statements not included elsewhere herein.
<PAGE>

<TABLE>
<CAPTION>

                                                          1999            1998          1997 (1)        1996 (1)        1995
                                                        --------        --------      ----------       ----------      -------
                                                                        (in thousands, except per share data)
<S>                                                     <C>             <C>          <C>             <C>             <C>
Statement of Operations Data:
  Net patient service revenues.....................     $368,655        $342,203       $296,321         $227,387        $71,862
  Management fee and other revenues................        9,874          15,442          7,952            5,661          3,364
                                                        --------        --------       --------         --------        -------
       Total revenues..............................      378,529         357,645        304,273          233,048         75,226
  Facility operating expenses......................      322,051         275,489        234,259          183,324         58,566
  Lease expense....................................       33,309          22,946         21,740           18,777          7,701
  Corporate administrative costs...................       26,445          21,515         16,055           11,400          5,027
  Depreciation and amortization....................       12,588           9,292          6,760            5,012            738
  Loss on closure of nursing facility..............            -           4,010              -                -              -
  Provision for asset revaluation..................       14,530          12,152              -                -              -

  Terminated merger transaction costs..............       (2,583)          3,619              -                -              -
                                                        --------        --------        --------         --------       --------
  Operating income (loss) before net interest
     expense and equity in income of unconsolidated
     partnerships..................................      (27,811)          8,622         25,459           14,535          3,194
   Interest expense, net...........................      (10,571)         (7,154)        (8,022)          (9,373)          (177)
   Equity in income (loss) of
       unconsolidated partnerships.................            -               -              -             (108)           449
                                                        --------        --------        -------          -------        -------
    Income (loss) before income taxes, minority
       interest, extraordinary item and cumulative
       effect of change in accounting method.......      (38,382)          1,468         17,437            5,054          3,466
    Provision (benefit) for income taxes...........      (13,165)          1,504          6,800            2,092          1,389
                                                        --------        --------        -------          -------        -------
    Income (loss) before minority interest,
       extraordinary item and cumulative
       effect of change in accounting method             (25,217)            (36)        10,637            2,962          2,077
    Minority interest in net income of
       subsidiary, net of taxes....................         (226)           (279)          (252)            (183)          (201)
                                                        --------        --------        -------          -------        -------
    Income (loss) before extraordinary item
       and cumulative effect of change in
       accounting method...........................      (25,443)           (315)        10,385            2,779          1,876
    Extraordinary item - loss on extinguishment
       of debt, net of taxes.......................            -                -          (537)               -              -
    Cumulative effect of change in accounting
       method, net of taxes........................         (427)               -             -                -              -
                                                        --------          -------        -------         -------        -------
    Net income (loss)..............................     $(25,870)       $    (315)     $   9,848        $  2,779        $ 1,876
                                                        --------          -------        -------         -------        -------
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
<S>                                                      <C>              <C>         <C>            <C>             <C>
Per common share information (diluted):
    Income (loss) before extraordinary item and
       cumulative effect of change in accounting
       method....................................          (2.13)           (0.03)       0.54            0.12           0.72
    Extraordinary item - loss on extinguishment
       of debt, net of taxes.....................                                       (0.06)
    Cumulative effect of change in accounting
       method, net of taxes......................          (0.04)               -           -               -              -
                                                        --------        ----------    --------        --------        -------
    Net income (loss) ...........................          (2.17)            (0.03)       0.48            0.12           0.72
                                                        ========        ==========    ========        ========        =======
    Weighted average number of common
       and common stock equivalents
       outstanding (diluted).....................         11,923            12,078       8,462           4,782          2,601
                                                        ========        ==========    ========        ========        =======


                                                                                    As of December 31,
                                                        ---------------------------------------------------------------------------
                                                           1999            1998          1997            1996             1995
                                                           ----            ----          ----            ----             ----
                                                                           (in thousands, except per share data)
Balance Sheet Data:
    Working capital..............................        $ 25,698        $ 57,125      $ 33,097         $  8,702        $  3,984
    Total assets.................................         264,345         285,332       243,649          193,448         155,018
    Long-term debt and subordinated debt,
       less current maturities...................         108,076         112,849        78,913          107,795          83,559
    Preferred stock (2)..........................              -               -             -            21,305          19,455
    Net shareholders' equity.....................          87,813         113,683       113,104           11,952          10,869

------------------------------------------------------------------
</TABLE>
    (1) Net income (loss) per common share for the fiscal years ended December
        31, 1997 and 1996 excludes dividends and accretion on preferred stock of
        $5.9 million and $2.2 million, respectively.

    (2) Carried at estimated redemption value with accretion of dividends
        charged against shareholders' equity.
<PAGE>

Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITIONS AND RESULTS OF OPERATIONS

  The following discussion should be read in conjunction with the accompanying
Consolidated Statements of Operations for the year ended December 31, 1999.

GENERAL

Centennial provides a broad range of long-term healthcare services to meet the
medical needs of elderly and post-acute patients. The Company provides these
services through geographically concentrated networks located in metropolitan
and secondary markets throughout the United States. The Company was organized in
1989 as a Georgia corporation and conducts business through its operating
subsidiaries. The Company currently operates 100 owned, leased and managed
skilled nursing facilities with approximately 10,663 licensed available beds in
21 states and the District of Columbia. The Company provides basic and specialty
healthcare services. Basic services include skilled nursing and support,
housekeeping, laundry, dietary, recreational and social services. Specialty
services include comprehensive rehabilitation therapy, respiratory therapy,
ventilator care, infusion therapy, wound care, home health care and other
subacute and specialty services. As components of its specialty services, at
December 31, 1999, Centennial provided rehabilitation therapy services on a
contract basis to third-party owned and Company-operated skilled nursing
facilities in 22 states pursuant to 130 internal and external contracts and
provided home health care services through licensed home health offices
primarily in North Carolina .

In January, 1999, the Company acquired a leasehold interest in six skilled
nursing facilities, totaling 795 licensed available beds located in
Massachusetts. Also in January, 1999, the Company acquired interests in two
facilities that were previously managed by the Company: Hunter Woods Nursing and
Rehabilitation Center, a 130-bed facility located in North Carolina, and Choctaw
County Medical Center, a facility with 68 nursing home beds and 22 hospital
beds, located in Mississippi. Collectively, the transactions are hereafter
referred to as the "1999 Leases".

In June 1999, the Company terminated its lease on and management of a 81-bed
skilled nursing facility in Kansas. In December, 1999, the Company transferred
three skilled nursing facilities, one in Florida and two in Michigan, and
terminated its lease of a fourth facility in North Carolina (See Item 13). The
Company retained management of these four facilities.

In August 1998, the Company began leasing four skilled nursing facilities
totaling 349 licensed available beds, located in Mississippi, North Carolina,
Arkansas and Wisconsin.  One of these facilities was previously managed by the
Company.  In October 1998, the Company began leasing six skilled nursing
facilities totaling 608 licensed available beds, located in Florida, Arkansas,
Kansas, and Wisconsin.  In November 1998, the Company began leasing four skilled
nursing facilities totaling 675 licensed available beds, located in Florida and
Missouri. Together, these transactions are hereafter referred to as the "1998
Leases".

In January 1998, the Company entered into management agreements for six skilled
nursing facilities, with a total of 836 licensed available beds, located in
North Carolina.  These agreements were terminated in September 1999. In
February, 1998, the Company entered into a management agreement for a 59-bed
rural hospital in northern Florida. In April 1998, the Company entered into
management agreements for two skilled nursing facilities, with a total of 174
licensed available beds, located in Virginia.

In October 1998, the Company discontinued its operations of Wellington Nursing
and Rehabilitation Center, ("Wellington"), a 140-bed facility located in North
Carolina, through a sublease to a third party operator. In November, 1998, the
Company closed THS of South Bend, ("South Bend"), a 191-bed skilled nursing
facility located in Indiana, which is currently held for sale. In December,
1998,
<PAGE>

the Company terminated its lease of Maple Heights of Hiawatha ("Hiawatha"), an
81-bed facility located in Kansas.

In December 1997, Centennial acquired a 58-bed skilled nursing facility in St.
Petersburg, Florida (the "Florida Facility"), which had previously been managed
by the Company since June 1991.  The Florida Facility was formerly owned by an
affiliate of the president of the Company.

In August 1997, Centennial acquired substantially all of the business and assets
of Complex Care, Inc. ("CCI"), a provider of physical, occupational and speech
therapy services, through 45 contracts with long-term care facilities.

In May 1997, the Company acquired by merger Total Care Consolidated, Inc.
("Total Care"), a provider of home health services, with 25 home health offices.

In March 1997, the Company acquired a leasehold interest in a 29-bed rural
hospital located in Florida. In June 1997, the Company acquired a leasehold
interest in a second rural hospital with 36 beds also located in Florida. The
above hospital leases together are hereafter referred to as the "Hospitals."

During the second quarter of 1999, the Company continued its evaluation of the
effects of the Medicare Prospective Payment System ("PPS") on the profitability
of its nursing centers and ancillary businesses.  Based on operational results
through six months under PPS, the Company noted that profitability at certain of
its nursing centers, as well as Paragon, were significantly less than amounts
projected in 1998.  Accordingly, the Company recorded write-downs of property
and equipment and intangible assets (primarily goodwill) at several of its
nursing centers totaling approximately $1.2 million and $2.8 million,
respectively, during 1999. In addition, the Company wrote off approximately $2.7
million of goodwill associated with Paragon.

In connection with the Company's facility management agreements for several
facilities, the Company has made certain advances for working capital needs. The
majority of these centers are start-up or development projects and require
additional funding for personnel and other operating costs prior to
stabilization. The advances are to be repaid from available cash flow and other
funds provided by the owners. It is the Company's policy to periodically review
the collectibility of its advances based upon several factors, including the
projected cash flow of the respective facility, the value of any collateral held
by the Company, the owner's financial position and the underlying asset value of
the nursing center. During the first six months of 1999, operating cash flow at
several of the Company's managed facilities, primarily in North Carolina,
declined due to deterioration in census and payor mix. In June 1999, the Company
determined that the operational declines noted during 1999 were unlikely to
dissipate in the near term and, as a result, the ability of the respective
nursing facilities to fully repay cash advanced by the Company was impaired.
Accordingly, during the second quarter of 1999, the Company increased its
reserve for managed facility advances by $7.8 million. The charge represents the
carrying value of advances made to the respective centers considered impaired.
The Company provides management support for certain facilities that may, in the
future, require additional cash flow advances for operational needs. There can
be no assurances as to the future financial stability of these nursing
facilities or their respective owners. Due to the changing nature of the long-
term care industry, management can make no assurances as to the timing of
ultimate collection of these advances or the ultimate amount to be collected. As
of December 31, 1999, the carrying value of advances has been adequately stated
in the financial statements.

RESULTS OF OPERATIONS

Years Ended December 31, 1999 and 1998

NET PATIENT SERVICE REVENUES. Net patient service revenues increased from $342.2
million in 1998 to $368.6 million in 1999, an increase of $26.4 million or 7.7%,
resulting from both acquisitions and same store growth. Total revenues
associated with the 1998 and 1999 Leases amounted to $104.2 during the year
ended December 31, 1999 compared to $13.3 million during the prior period, an
increase of $91 million. Revenues from Wellington, South Bend and Hiawatha
decreased from $9.1 million in 1998 to $135,000 in 1999, a decrease of $9
million. During 1999, the Company recorded charges to revenue totaling


<PAGE>

approximately $11.2 million associated with reserves on its prior year cost
report settlement receivables and trade accounts receivable for its skilled
nursing facilities. Same store nursing facility revenue decreased approximately
$10.8 million in 1999 when compared to 1998 due primarily to the decrease in
Medicare revenues associated with the advent of PPS that went into effect for
the majority of the Company's owned and leased nursing facilities on January 1,
1999. Payor mix at the Company's nursing facilities remained consistent during
1999 as compared to 1998. Occupancy decreased slightly during 1999, falling from
89.6% for the year ended December 31, 1998 to 88% for 1999. Revenues from the
Paragon, the Company's subsidiary providing rehabilitation services, decreased
by approximately $30 million during 1999 as compared to 1998 due primarily to
the loss of 35 therapy contracts subsequent to December 31, 1998 and a general
decrease in average revenue per contract. The decrease in revenue per contract
is associated primarily with the pass through effect of Medicare PPS rate
decreases affecting Paragon's nursing center customers. Revenues from Total Care
increased $2.7 million during 1999 as compared to the prior period due to an
increase in home health visits during 1999 and increases in Medicare
reimbursement rates that went into effect January 1, 1999. Revenues from the
Company's two leased rural hospitals decreased from $11.6 million in 1998 to
$4.2 million in 1999, a decrease of $7.4 million, attributable primarily to
reserves recorded in 1999 on hospital trade accounts receivable.


MANAGEMENT FEES AND OTHER REVENUES.  Management fees and other revenues
decreased from $15.4 million in 1998 to $9.8 million in 1999, a decrease of $5.6
million, or 36.1% which was primarily attributable to the Company's termination
of eight facility management agreements during 1998 and 1999 and the
performance of additional fee-generating services to existing managed facilities
during 1998.


FACILITY OPERATING EXPENSES.  Facility operating expenses increased from $275.5
million in 1998 to $322.1 million  in 1999, an increase of $46.6 million or
16.9%, resulting from both acquisitions and same store growth.  Operating
expenses for the 1998 and 1999 Facility Leases totaled approximated $86
million in 1999 as compared to $11.2 million during 1998, an increase of $74.8
million. Wellington, South Bend and Hiawatha operating expenses declined from
$10.4 million in 1998 to $905,000 in 1999, a $9.5 million decrease.  During
1999, the Company recorded nonrecurring charges to operating expenses totaling
$12.1 million associated with increases in the allowance for bad debt and
various accrued liabilities. Same store nursing facility operating expenses
declined approximately $11.1 million during 1999 as compared to the prior
period, primarily resulting from decreases in therapy and other ancillary costs
associated with the renegotiation of the Company's ancillary contracts under the
PPS methodology. These gains were offset in part by additional costs associated
with continued PPS training during the third quarter of 1999 at the Company's
nursing facilities. Operating expenses from Paragon decreased $22.4 million in
1999 as compared to the prior period, due to cost-cutting measures put in place
by management in response to the decrease in revenue associated with PPS.
Expenses from Total Care increased by approximately $1.9 million associated with
an increase in home health visits over 1998.

LEASE EXPENSE. Lease expense increased from $22.9 million in 1998 to $33.3
million in 1999, an increase of $10.4 million, or 45.2%, due primarily to the
1998 and 1999 Facility Leases as well as increases in rent associated with
expansion of the Company headquarters office space in 1999.

CORPORATE ADMINISTRATIVE COSTS. Corporate administrative costs increased from
$21.5 million in 1998 to $26.4 million in 1999, an increase of $4.9 million, or
22.9%, which was primarily attributable to additional overhead to accommodate
the 1998 and 1999 Facility Leases as well as training and transition costs
related to the implementation of PPS.

DEPRECIATION AND AMORTIZATION.  Depreciation and amortization increased from
$9.3 million in 1998 to $12.6 million in 1999, an increase of $3.3 million, or
35.4%. This increase is primarily attributable to additional depreciation
expense incurred as a result of fixed asset purchases and amortization of
management contract and acquisition costs.
<PAGE>

PROVISION FOR ASSET REVALUATION. During the third quarter of 1998, the Company
recorded write-downs of certain long-lived assets at its nursing facilities and
at Total Care of $11.0 million and $1.2 million, respectively.  During the
second quarter of 1999, the Company recorded a provision for asset revaluation
of approximately $14.5 million.  This charge was comprised of a $7.8 million
reserve for advances and notes receivable from managed facilities and a write-
down of fixed assets and intangible assets of $6.7 million  related to certain
of the Company's nursing facilities and Paragon.

INTEREST EXPENSE. Interest expense increased from $9.2 million in 1998 to $12.1
million in 1999, an increase of approximately $2.9 million or 31.5%, which was
primarily attributable to an increase in the Company's average borrowing rate
under its Senior Credit Facility during 1999.

PROVISION FOR INCOME TAXES. Prior to nonrecurring losses in 1998 and 1999 of
$21.7 million and $44.5 million, respectively, the Company's effective tax rate
increased from 39% in 1998 to 41.5% in 1999, an increase in the rate of 2.5%,
due to an increase in the Company's average state tax rate due to the Company's
expansion into several new states resulting from the 1998 and 1999 Facility
Leases and proportional increase in the effect of nondeductible expenses.


Years Ended December 31, 1998 and 1997

NET PATIENT SERVICE REVENUES.  Net patient service revenues increased from
$296.3 million in 1997 to $342.2 million in 1998, an increase of $45.9 million
or 15.5%, resulting from both acquisitions and same store growth. Total revenues
associated with the New Facility Leases approximated $13.3 million in 1998.
Revenues for the Florida Facility approximated $3.3 million during 1998, and
revenues from the Hospitals added approximately $3.1 million to revenues during
the year ended December 31, 1998.  Revenues associated with the acquisition of
TC and the acquisition of the CCI contracts added approximately $9.0 million and
$10.7 million, respectively, to revenues during 1998.  Same store revenues from
home health services for the period from acquisition (May 1997), through
December 31, 1997 and the corresponding period in 1998, decreased approximately
$3.2 million compared to the prior year due to a decline in home health visits
and Medicare rate decreases implemented in 1998.  Revenues from PTS, the
Company's subsidiary providing intravenous therapy and other services, increased
approximately $4.2 million during 1998 over the prior year due to increased
volume from existing contracts and the expansion of services provided to both
the Company's managed nursing facilities and other third parties. Revenues from
existing facilities increased approximately $6.2 million in 1998 when compared
to 1997, due primarily to an increase in the quality revenue mix of the
facilities due to increasing admissions of higher acuity patients and from an
increase in the delivery of specialty services.  Revenues at the Company's
subsidiary providing therapy services increased approximately $1.3 million in
1998 due primarily to growth in existing contract revenues.  This growth was
primarily the result of favorable salary equivalency rate changes in certain
states in which the Company operates as well as improvements in productivity of
the CCI contracts following a short downturn in volume subsequent to the 1997
acquisition.
<PAGE>

MANAGEMENT FEES AND OTHER REVENUES.  Management fees and other revenues
increased from $8.0 million in 1997 to $15.4 million in 1998, an increase of
$7.4 million, or 94.2%, which was primarily attributable to the Company's
addition of facility management agreements during 1998 and the performance of
additional fee-generating services to existing managed facilities.

FACILITY OPERATING EXPENSES.  Facility operating expenses increased from $234.3
million in 1997 to $275.5 million in 1998, an increase of $41.2 million or
17.6%, resulting from both acquisitions and same store growth.  Operating
expenses for the New Facility Leases approximated $11.2 million during 1998.
Operating expenses from the Florida Facility approximately $2.5 million during
1998, and operating expenses for the Hospitals added approximately $2.7 million
to operating expenses during 1998 compared to the prior year. The acquisition of
TC and the acquisition of the CCI therapy contracts added approximately $8.3
million and $8.0 million, respectively, to operating expenses during 1998.  Same
store operating expenses from home health services for the period from
acquisition (May 1997), through December 31, 1997 and the corresponding period
in 1998, decreased approximately $2.2 million during 1998 when compared to the
prior year, due to a decline in home health visits in 1998 and cost reductions
in the Company's delivery of care.  Operating expenses at PTS increased $3.7
million over 1997 due to increased volume from existing contracts and the
expansion of services provided to the Company's managed facilities and other
third parties.  The remaining increase of approximately $7.3 million in 1998
when compared to 1997 was due primarily to increases in operating expenses at
existing facilities.  This increase was due primarily to providing care for
higher acuity patients as well as costs associated with training nursing and
support staff on the Company's PPS systems and procedures.

LEASE EXPENSE. Lease expense increased from $21.7 million in 1997 to $22.9
million in 1998, an increase of $1.2 million, or 5.5%, due primarily to the New
Facility Leases.

CORPORATE ADMINISTRATIVE COSTS.  Corporate administrative costs increased from
$16.1 million in 1997 to $21.5 million in 1998, an increase of $5.4 million, or
34.0%, which was primarily attributable to additional overhead to accommodate
the expansion in therapy services contracts, including the acquisition of the
CCI contracts, the addition of long-term care facility management agreements,
the acquisition of TC, the Hospitals and the New Facility Leases.

DEPRECIATION AND AMORTIZATION.  Depreciation and amortization increased $6.8
million in 1997 to $9.3 million in 1998, an increase of $2.5 million, or 37.5%,
which was primarily attributable to acquisitions and additional depreciation
expense incurred as a result of fixed asset purchases during 1997 and 1998.

TERMINATED MERGER COSTS. During the fourth quarter of 1998, the Company recorded
approximately $3.6 million of expenses associated with the dissolution of the
Proposed Merger.

LOSS ON CLOSURE OF NURSING FACILITY. During the third quarter of 1998, the
Company recorded an estimated loss of $4.0 million associated with the closure
of THS of Southbend and the relocation of the facility's residents.

PROVISION FOR ASSET REVALUATION. During the third quarter of 1998, the Company
recorded write-downs of certain long-lived assets at its nursing facilities and
at TCC of $11.0 million and $1.2 million, respectively.

INTEREST INCOME.  Interest income increased $1.4 million from approximately
$636,000 in 1997, to $2.1 million in 1998.  The increase related to interest
revenue recorded on working capital advances to managed nursing facilities.

INTEREST EXPENSE. Interest expense increased from $8.7 million in 1997 to $9.2
million in 1998, an increase of approximately $507,000 or 5.9%, which was
primarily attributable to the increase in debt of approximately $37.7 million
during 1998 related to borrowings for working capital, net of the reduction of
debt by approximately $60.4 million in the third and fourth quarters of 1997 as
a result of the initial public offering.
<PAGE>

PROVISION FOR INCOME TAXES.  The Company's effective tax rate increased from 39%
in 1997 to 47% in 1998, an increase in the rate of 8%, due to an increase in
permanent tax differences associated with the write off of nondeductible
goodwill.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal source of cash during 1999 was cash flow from operations
and borrowings under its Senior Credit Facility with First Union National Bank
and NationsBank N.A., as agents and lenders and other lenders named therein (the
"Senior Credit Facility"). Cash was used by the Company for capital improvements
at several existing facilities, advances under management contracts with certain
third parties, principal payments on long-term debt, acquisitions of skilled
nursing facilities and payment of loan costs. The Company anticipates utilizing
cash from operations and borrowings under its Senior Credit Facility to meet its
liquidity requirements in 2000.

During the year ended December 31, 1999, the Company generated $15.9 million in
cash flow from operating activities. This was comprised of operating cash before
noncash charges and changes in assets and liabilities of approximately $8.7
million combined with positive cash flows associated with a decrease in accounts
receivable of $5.9 million, a decrease in prepaid expenses of $600,000 and an
increase in accounts payable of $300,000. Included in operating cash flow before
noncash charges and changes to assets and liabilities are reserves and other
charges to revenue of approximately $19.4 million for the Company's nursing
facilities and hospitals associated with increased reserves on prior year cost
report settlements and trade receivables. The decrease in accounts receivable of
$5.9 million is associated with interim payments on prior year cost reports and
exception requests.

The Company used approximately $26.8 million in cash for investing activities.
Notes and other receivables from certain third-party owners increased by
approximately $10.7 million during the year ended December 31, 1999 associated
with cash advances for working capital needs at certain of the Company's managed
nursing centers. The Company continued to invest in its leased and owned
facilities through capital expenditures of approximately $8.1 million or
approximately $1,000 per bed for the period ended December 31, 1999. These
expenditures included the expansion of existing facilities and the selected
rehabilitation of certain facilities. During 1999, the Company paid
approximately $3.8 million in acquisition costs associated with the purchase of
the leasehold interests and accounts receivable for the Flatley Facilities. Also
during the period, the Company paid $4.1 million for loan fees associated with
the refinancing of the Senior Credit Facility.

During 1999, the Company utilized approximately $7.6 million in cash flow from
financing activities. This included $9.1 million in proceeds from the transfer
of certain nursing facilities to Five Star Healthcare LLC under a profit-sharing
arrangement entered into in December 1999. The Company also had net borrowings
of approximately $1 million during 1999 under its Senior Credit Facility and
repayments on its long-term debt of approximately $3.1 million, inclusive of
repayment of $2 million in seller notes associated with the Total Care
acquisition.

During the year ended December 31, 1998, the Company used $4.8 million in cash
for operating activities. This was comprised of cash flow before noncash charges
and changes in assets and liabilities of approximately $23.5 million combined
with a $28.3 million increase in working capital. The working capital change is
primarily the result of an increase in accounts receivable of $24.4 million
attributable to increases in Medicare settlements and routine cost limit
exception requests for the 1998 cost reporting year and a buildup in trade
receivables associated with 1998 nursing facility acquisitions. The Company used
$30.3 million in cash for investing activities in 1998 comprised of capital
expenditures of $8 million, advances of $12.4 million to certain of its managed
facilities for working capital needs and acquisitions of $7.3 million. The
Company financed its operating and investing activities through net borrowings
under its Senior Credit Facility of $37.7 million and paid $1.4 million in
principal reductions on its long-term debt.

During the year ended December 31, 1997, the Company used $9 million in cash
for operating activities. This was comprised of cash flow before noncash
charges and changes in assets and liabilities of approximately $22.7 million
combined with a $31.8 million increase in working capital. The working capital
change is primarily the result of an increase in accounts receivable of $29.1
million attributable to increases in Medicare settlements and routing cost limit
exception requests for the 1997 cost reporting year and a buildup in trade
receivables associated with the acquisition of Total Care and Complex Care
during May 1997 and August 1997, respectively. The Company used $30 million in
cash for investing activities in 1997 comprised of capital expenditures of $7.5
million, advances of $8.2 million to certain of its managed facilities for
working capital needs and acquisitions of $17.3 million. During 1997, the
Company generated $37 from its financing activities including net borrowings
under its Senior Credit Facility of $28.7 million, proceeds from issuance of
preferred stock of $10 million, net proceeds from issuance of common stock
through its initial public offering of $66.7 million and paid $60.7 million in
principal reductions on its long-term and subordinated debt.

<PAGE>

As of December 31, 1999, the Company had $74.9 million outstanding under its
Senior Credit Facility, net of issued standby letters of credit of approximately
$6.7 million, and $8.4 million available on this facility.  Effective May 28,
1999, the Company amended its Senior Credit Facility to transfer $5.7 million of
availability from the lease portion of its commitment to the revolver. Also
included in the amendment are reductions in availability under the Senior Credit
Facility of approximately $5.7 million, $6 million, $12 million and $12
million during each of the years ended December 31, 1999, 2000, 2001 and 2002,
respectively. In addition, the Company is required to fund escrow deposits under
the revolver portion of the Senior Credit Facility totaling $6 million, $10
million and $10 million during the years ended December 31, 2000, 2001 and
2002, respectively.

The debt covenants as amended become more restrictive after the first quarter
2001. Management believes it will remain in compliance with its debt covenants
through December 2000.

In January 1999, the Company obtained a $5 million Line of Credit from Bank of
America, N.A. ("Bank of America"), which bears interest at Bank of America's
prime rate or 3% over LIBOR for selected portions and matured on December 31,
1999. This obligation was repaid with $2 million in January 2000 and $3
million in March 2000.

Depending on the outcome, a settlement of the currently pending investigatory
subpoena from the Department of Health and Human Services, Office of Inspector
General, could result in a substantial liability for the Company.  Neither the
amount nor timing of any potential liability can, at this time, be estimated
with any reasonable certainty.  It is, however, possible that resolution of this
investigation could have a material adverse effect on the Company's cash flow,
results of operations and consolidated financial position.

The Company's ability to generate positive cash flow from operations depends on
a number of internal and external factors affecting the long-term care industry,
including the timing of payments under governmental and third party payor
programs, many of which are beyond the Company's control. In the opinion of
management, the Company anticipates meeting its long-term debt repayment
obligations, escrow funding, normal operating cash requirements and projected
capital expenditures through borrowings under the Senior Credit Facility and
cash generated from the operation of the Company's business.


<PAGE>

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS No.
133"), "Accounting for Derivative Instruments and Hedging Activities," was
issued and then superseded by SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133". These statements require that all derivatives be recognized
in the statement of financial position as either assets or liabilities and
measured at fair value. In addition, all hedging relationships must be
designated, reassessed and documented pursuant to the provisions of SFAS Nos.
133 and 137. SFAS Nos. 133 and 137 are effective for fiscal years beginning
after June 15, 2000. The effect on the financial statements upon adoption of
SFAS Nos. 133 and 137 has not been determined.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
          MARKET RISK

Interest Rate Risk

The Company's cash and cash equivalents consist of highly liquid investments
with a maturity of less than three months.  As a result of the short-term nature
of the Company's cash instruments, a hypothetical 10% change in interest rates
would have no impact on the Company's future earnings and cash flows related to
these instruments.  A hypothetical 10% change in interest rates would also have
an immaterial impact on the fair values of these instruments.  Approximately
$20.5 million of the Company's notes receivable bear interest at variable rates.
Because these rates are variable, a hypothetical 10% change in interest rates
would result in a related increase or decrease in interest income of $170,000.
A hypothetical 10% change in interest rates would have an immaterial impact
related to the fair value of these instruments.  As of December 31, 1999, $44.9
million of the Company's long-term debt bears interest at variable rates.
Because these rates are variable, a hypothetical 10% change in interest rates
would result in a related increase or decrease in interest expense of
approximately $427,000. A hypothetical 10% change in interest rates would have
an immaterial impact related to the fair value of these instruments.  The
remaining $70.4 million of long-term debt bears interest at fixed rates.
Because these rates are fixed, a hypothetical 10% change in interest rates would
have no impact on interest expense or the fair value of these instruments.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  The Company's Consolidated Financial Statements, together with the reports
begin on page F-1.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURES

  PricewaterhouseCoopers LLP ("PWC") audited the accounts of the Company and its
subsidiaries for fiscal year 1998.  On July 13, 1999, the Company informed PWC
that it would no longer be engaged as the principal accountant to audit the
Company's financial statements for the fiscal year ending December 31, 1999 and
terminated the relationship.  On July 13, 1999, the Company engaged Arthur
Andersen LLP ("Arthur Andersen") as its new independent accountants, effective
July 13, 1999.

   PWC's reports on the financial statements for fiscal years 1997 and 1998 did
not contain any adverse opinions or disclaimers of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with its audits for the fiscal year ended December 31, 1998 and
during the subsequent interim period, there were no disagreements with PWC,
except as described below, on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure. There were no
disagreements with PWC during its audits for the years ended December 31, 1998
and 1997, and during the interim period subsequent to 1998, except as described
below. During the process of PWC's audit of the December 31, 1998 fiscal year,
PWC and the Company had a disagreement regarding the level of reserves required
for certain amounts which the Company disputed with its fiscal intermediary. The
Company disputed the fiscal intermediary's conclusions and filed an
administrative appeal to these conclusions. PWC held the position that the
Company should record a $2.5 million reserve against the approximately $4
million in dispute. The Company believed that no additional reserve was
required. This matter resulted in several prolonged discussions between PWC and
senior management of the Company, with the Company ultimately recording a
reserve for $2 million. During 1998 and 1997, PWC advised the Company that it
believed that significant deficiencies existed in the design and operation of
the Company's internal control structure that could adversely affect the
Company's ability to record, process, summarize and report financial information
on an accurate and timely basis.

   At the Company's request, PWC furnished a letter addressed to the Securities
and Exchange Commission stating it agreed with the statements made by the
Company in response to Item 304 of Regulation S-K under the Exchange Act in the
Company's Form 8-K dated July 13, 1999.

   The decision to change accountants was recommended by the Company's
management and approved by the Company's board of directors. During fiscal year
1998 and through July 13, 1999, the Company had not consulted with Arthur

<PAGE>

Andersen concerning its financial statements, including the following items: an
audit of the Company's financial statements as the principal accountant, an
audit of a significant subsidiary as an independent accountant, the application
of accounting principles to a specified transaction or the type of audit opinion
that might be rendered on the Company's financial statements or any matter which
concerned a disagreement or "reportable event" with the previous accountants.
The Company did, however, consult with Arthur Andersen in May 1999 and June 1999
concerning acting as the Company's independent auditors.


                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Directors of the Company
------------------------

   J. Stephen Eaton (age 49) is Chairman of the Board of the Company and has
served as its President and Chief Executive Officer since founding the Company
in 1989.  From 1982 to 1988, Mr. Eaton served in various executive positions
(including Vice President) at Consolidated Resources Corporation of America and
its successors ("CRCA").  When the Company acquired CRCA in 1990, CRCA served as
the general partner of private and public limited partnerships that owned in
excess of 31 long-term care and assisted living facilities.  Mr. Eaton also
serves as a director of Saint Joseph's Mercy Care Corporation, a non-profit
corporation based in Atlanta, Georgia which provides mobile health services to
the homeless and other underserved populations, and of Saint Joseph's Health
System, a major tertiary care hospital and health system in Atlanta, Georgia.
Mr. Eaton's term as a Director runs until the Annual Meeting of the Shareholders
of the Company in 2001.

   Alan C. Dahl (age 39) has served as Executive Vice President, Chief Financial
Officer, Treasurer and Director of the Company since January 1996.  From
February 1991 to December 1995, he served as Senior Vice President of the
Company.  Mr. Dahl has been involved in health care finance for the past 14
years.  Mr. Dahl was previously senior vice president of Southmark Public
Syndications, Inc., a subsidiary of Southmark Corporation.  Mr. Dahl, a
certified public accountant, also worked in the tax department at Arthur Young &
Company.  Mr. Dahl's term as a Director runs until the Annual Meeting of the
Shareholders of the Company in 2000.

   Andrew M. Paul (age 44) has served as a Director of the Company since January
1996.  Mr. Paul serves as a general partner of the sole general partner of
Welsh, Carson, Anderson & Stowe, VI, L.P. ("WCAS VI"), a private equity
investment fund.  Prior to joining WCAS VI in 1984, Mr. Paul was an associate in
Hambrecht & Quist's venture capital group.  From 1978 to 1981, he was a systems
engineer and later a marketing representative for International Business
Machines Corporation.  Mr. Paul serves as a director of Accredo Health, Inc., a
provider of specialized contract pharmacy and related services to patients with
chronic diseases.  Mr. Paul's term as a Director runs until the Annual Meeting
of the Shareholders of the Company in 2001.

   James B. Hoover (age 45) has served as a Director of the Company since
January 1996.  Mr. Hoover has served as a general partner of the sole general
partner of WCAS VI since 1992.   From 1984 to 1992, Mr. Hoover served as a
general partner of Robertson, Stephens & Co. ("RS&Co."), an investment banking
firm specializing in the financing of emerging growth companies, with particular
emphasis in the health care industry.  Prior to joining RS&Co., Mr. Hoover was
vice president of the Investment Management Group of Citibank, N.A., from 1977
to 1984.  Mr. Hoover serves as a director of Housecall Medical Resources, Inc.
and U.S. Physical Therapy, public traded companies, as well as five private
companies.  Additionally, Mr. Hoover is a member of the Special Projects
Committee of Memorial Sloan-Kettering Cancer Center which raises funds and
evaluates funding proposals from physicians interested in pursuing cancer
research projects.  Mr. Hoover's term as a Director runs until the Annual
Meeting of the Shareholders in 2002.

   Bertil D. Nordin (age 65) has served as a Director of the Company since March
1997.  Mr. Nordin is currently an investor and advisor.  From 1990 to 1994, Mr.
Nordin served as chairman of the board of Digital Communications Associates,

<PAGE>

Inc. ("DCA"), a telecommunications company.  Mr. Nordin was also president and
chief executive officer of DCA from 1981 to 1990.  Mr. Nordin serves as a
director for TechForce Corporation, a public company, and the Atlanta Symphony
Orchestra.  Mr. Nordin's term as a Director runs until the Annual Meeting of the
Shareholders in 2002.

   Charles D. Nash (age 56) has served as a Director of the Company since
October 1998.  Mr. Nash has served as Managing Director of Nash Equity Capital,
Inc., a capital markets and strategic corporate advisor company, since 1997.
From 1991 to 1997, Mr. Nash was Managing Director and Corporate Finance
Executive for Interstate/Johnson Lane, an investment banking company where his
focus was on initial public offerings, mergers and acquisitions, and other
public and private debt and equity transactions.  Mr. Nash's term as a Director
runs until the Annual Meeting of the Shareholders in 2002.

   Bob L. Wood (age 55) has served as a Director of the Company since January
2000. Mr. Wood serviced as president and chief executive officer of Nations
Healthcare, Inc., a home-health company, from 1995 to 1999. From 1993 to 1995,
Mr. Wood was an independent healthcare consultant working with troubled
healthcare companies in all aspects of operational and financial management. Mr.
Wood's term as a Director runs until the annual meeting of the shareholders in
2000.

With the exception of Messrs. Eaton and Dahl, none of the directors are, or have
been, employed by any parent, subsidiary or other affiliate of the Company.
There are no family relationships between any directors or executive officers.

Meetings and Committees

     During 1999, the Board met six times (including regularly scheduled and
special meetings).  All of the directors attended at least 75% of all meetings
of the Board and the committees on which they served in 1999.

     Audit Committee.  The Board has established an Audit Committee that
consists of Messrs. Nash and Nordin.  Mr. Nordin is chairman and Mr. Eaton is an
ex-officio, non-voting member of the Audit Committee.  The Audit Committee is
responsible for (a) recommending to the Board the firm to be employed as
independent auditors of the Company, and (b) meeting with the Company's
independent auditors at least annually to review (i) the scope of audit and non-
audit assignments and related fees, (ii) accounting principles used by the
company in financial reporting, and (iii) the adequacy of the Company's internal
control procedures.  During 1999, the Audit Committee held two meetings.

     Compensation Committee.  The Board has established a Compensation Committee
that consists of Messrs. Eaton and Paul and, until his resignation from the
Board in September 1999, Mr. Robert Ortenzio.  Mr. Paul is chairman of the
Compensation Committee.  The Compensation Committee is responsible for (a)
reviewing, approving, recommending and reporting to the Chief Executive Officer
and the Board matters regarding the compensation of the Company's executive
officers and other key employees and compensation levels or plans affecting the
compensation of the Company's other employees and (b) administering the
Company's 1994 Stock Option Plan, 1996 Executive Stock Plan, 1996 Employee Stock
Option Plan and 1997 Stock Plan (collectively, the "Stock Plans").  During 1999,
the Compensation Committee acted by unanimous written consent in lieu of a
meeting on one occasion and did not grant any stock options.

     Nominations for directors are made by the Board.  The Bylaws require an
advance notice procedure for the nomination, other than by or at the direction
of the Board or a committee thereof, of candidates for election as directors
(the "Nomination Procedure").  Notice to the Company from a shareholder who
proposes to nominate a person at a meeting for election as a director generally
must be given not less than 120 nor more than 150 days prior to the anniversary
of the date that notice of the annual meeting of shareholders was given in the
preceding year and must contain: (i) the name and record address of the
shareholder who intends to make the nomination; (ii) the name, age and residence
address of the nominee; (iii) the principal occupation or employment of the
nominee; (iv) the class, series and number of shares held of record,
beneficially and by proxy, by the shareholder and the nominee as of the record
date of such meeting (if such record date is publicly available) and as of the
date of such notice; and (v) such other information relating to the nominee
proposed by such shareholder as is required to be included if the Company is
then subject to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), including the written consent of each nominee to
be named in the proxy statement and to serve as a director of the Company if so
elected.  The presiding officer of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the Nomination Procedure.
Although the advance notice provisions do not give the Board any power to
approve or disapprove shareholder nominations by the Company, they may have the
effect of precluding a contest for the election of directors if the procedures
established by the Bylaws are not followed and the effect of discouraging or
deterring a third party from conducting a solicitation of proxies to elect its
own slate of directors, without regard to whether consideration of such nominees
might be harmful or beneficial to the Company and its shareholders.

Compensation of Directors
-------------------------

     All members of the Board are reimbursed for their reasonable out-of-pocket
expenses incurred in connection with attendance at Board and committee meetings.
Non-Employee Directors (as defined pursuant to Rule 16b-3 under the Exchange
Act) receive $8,000 annually (paid in four quarterly installments) and $1,000
for each meeting of the Board or any committee of the Board (except for
telephonic meetings and committee meetings held on the same day as a Board
meeting) for their services as Non-Employee Directors. Pursuant to the Company's
1997 Stock Plan, Mr. Nash, Mr. Paul and Mr. Hoover each received an automatic
grant of 2,069 options to purchase the Company's Common Stock in 1999. During
1999, the 1997 Stock Plan was amended and directors are now eligible for grants
of non-qualified stock options at the discretion of the Compensation Committee,
instead of receiving automatic grants of options.


Executive Officers of the Company
---------------------------------

EXECUTIVE OFFICERS OF THE REGISTRANT.

     The Company's executive officers and key employees are as follows:


OFFICERS                   Age                  Position
--------                   --- ----------------------------------------------

J. Stephen Eaton           49  Chairman of the Board, President and Chief
                               Executive

Kent C. Fosha, Sr.         58  Executive Vice President of Operations

Alan C. Dahl               39  Executive Vice President, Chief Financial
                               Officer, Treasurer and Director

Lawrence W. Lepley, Jr.    55  President of Paragon Rehabilitation, Inc.

KEY EMPLOYEES
-------------

Wayne H. Mayo              56  Senior Vice President of Operations -
                               Eastern Division

Clay F. Crosson            42  Senior Vice President of Operations -
                               Western Division


   Kent C. Fosha, Sr. has served as Executive Vice President of Operations
   ------------------
since January 1996 and also serves as President of Centennial HealthCare
Management Corporation. He joined the Company in 1990 and served as the
Company's senior vice president of operations until January 1996. Mr. Fosha has
over 25 years experience in all aspects of nursing home management, including
the supervision of multistate operations for National Heritage, Inc. and
Beverly Enterprises. Mr. Fosha, a licensed nursing home administrator, has
served as president of the Georgia Healthcare Association and has served on
several long-term care related committees.


   Lawrence W. Lepley, Jr., has served as President of Paragon Rehabilitation
   ------------------------
Inc., a subsidiary of the Company ("Paragon"), since its inception in 1989. Mr.
Lepley has 34 years of experience in the health care industry, having previously
served as vice president of development and general counsel for a corporation
specializing in head injury rehabilitation. Mr. Lepley has also served as vice
president, corporate attorney and lobbyist for the Tennessee Hospital
Association. Mr. Lepley began his health care career as a pharmacist in both
hospital and retail settings, and he maintains licenses in pharmacy and law in
the state of Tennessee.

   Wayne H. Mayo has served as Eastern Division Senior Vice President of
   -------------
the Company since January 1997. Prior to becoming the Eastern Division Vice
President, Mr. Mayo served as Regional Vice President from 1991 to 1996, and he
was responsible for the Company's Eastern region of facilities. Mr. Mayo was
previously regional vice president of operations for Vantage Healthcare
Corporation and also served as regional vice president of operations for Medco
Centers, Inc. for seven years. Mr. Mayo has 26 years of experience and is a
member of the American College of Health Care Administrators.

   Clay F. Crosson has served as Western Division Senior Vice President of
   ---------------
the Company since February 1997. Prior to joining the Company in 1997, Mr.
Crosson  as vice president of operations and a member of the board of directors
for CareMore, Inc. for five years. Previous to that, Mr. Crosson served 11 years
at National HealthCorp, L.P. in various capacities.  Mr. Crosson has a master
of business administration degree and 20 years of experience in long-term care,
subacute care, home health care, managed care and assisted living. Mr. Crosson
is a Fellow of the American College of Health Care Administrators, and holds
certifications in SubAcute Administration and Nursing Home Administration. He
presently serves as National Chairman of ACHCA and is a board member of
Georgia's Nursing Home Administrators Licensure Board.

Information concerning Messrs. Eaton and Dahl is included above under "Directors
of the Company."

Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------

   Section 16(a) of the Exchange Act requires executive officers and directors
of the Company and persons who own more than ten percent of the Company's common
stock to file with the Securities and Exchange Commission certain reports, and
to furnish copies thereof to the Company, with respect to each such person's
beneficial ownership of the Company's equity securities.  Based solely upon a
review of the copies of such reports furnished to the Company and certain
representations of such persons, the Company believes that all filings were
timely.

<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION.

                             EXECUTIVE COMPENSATION


Summary Compensation Table

   The following table sets forth certain information concerning the
compensation paid to the Company's Chief Executive Officer and each of the Named
Executive Officers whose salary and bonus compensation for the year ended
December 31, 1999 exceeded $100,000.

<TABLE>
<CAPTION>

                                 Annual Compensation                                      Long-Term Compensation
       ----------------------------------------------------------------------             ----------------------
                                                                                       Securities
       Name and                                                         Annual         Underlying      All Other
  Principal Position      Year      Salary($)(1)     Bonus($)(2)    Compensation($)    Options(#)    Compensation($)
 --------------------   --------   --------------   -------------   ---------------   ------------   ---------------
<S>                      <C>        <C>              <C>             <C>               <C>            <C>
J. Stephen Eaton          1999        $367,500              -           13,998(3)             -                -
  President and Chief     1998         350,000         120,000          11,846(3)             -                -
  Executive Officer       1997         309,000              -            6,931(3)         34,485               -

Kent C. Fosha, Sr.        1999         228,979              -            6,818(3)             -                -
  Executive Vice          1998         211,985          72,000           5,309(3)         50,000               -
  President               1997         180,250              -            3,059(3)         17,242               -

Alan C. Dahl              1999         233,015              -            7,496(4)             -                -
  Executive Vice          1998         211,985          75,000           7,903(4)         50,000               -
  President and Chief     1997         180,250              -           10,118(4)         17,242               -
  Financial Officer

Lawrence W. Lepley, Jr.   1999         199,800          53,400           8,181(4)             -                -
  President of Paragon    1998         182,685          69,000           7,202(4)         50,000               -
  Rehabilitation, Inc.    1997         158,295         116,000           9,392(4)          4,028               -

</TABLE>
__________________________

(1)  Represents annual salary, including compensation deferred by the Named
     Executive Officers pursuant to the Company's 401(k) Plan.
(2)  Represents annual bonuses earned by the Named Executive Officers for the
     period indicated.
(3)  Includes insurance for Messrs. Eaton, Fosha and Dahl which provides for
     reimbursement for health and dental costs in excess of the amount payable
     under the Company's group health and dental plan.
(4)  Includes $677, $1,202 and $1,211 as matching 401(k) contribution and an
     automobile allowance of $8,715, $6,000 and $6,970 for 1997, 1998 and 1999
     respectively.
<PAGE>

Options Grants in Last Fiscal Year
----------------------------------

No stock options or appreciation rights were granted to the Chief Executive
Officer and each of the named Executive Officers for the year ended December 31,
1999.

Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value
-------------------------------------------------------------------------------

   The following table sets forth certain information concerning option holdings
for the fiscal year ended December 31, 1999 with respect to the Chief Executive
Officer and each of the Named Executive Officers of the Company. No options or
stock appreciation rights were exercised during such year and no stock
appreciation rights were outstanding at the end of such year.
<PAGE>

<TABLE>
<CAPTION>
                              Securities Underlying                    Value of
                                    Number of                         Unexercised
                                   Unexercised                       In-the-Money
                                     Options                            Options
                                  at FY-End (#)                     at FY-End ($)(1)
                                  -------------                     ----------------
Name                       Exercisable   Unexercisable         Exercisable   Unexercisable
----                       -----------   -------------         -----------   -------------
<S>                         <C>           <C>                   <C>           <C>
J. Stephen Eaton             149,433               -                   -               -

Kent C. Fosha, Sr.           117,083               -                   -               -

Alan C. Dahl                 105,488               -                   -               -

Lawrence W. Lepley, Jr.       60,344               -                   -               -
</TABLE>
_____________________________

(1)  Based on a closing price of $3.00 per share of Common Stock on December 31,
     1999.


Employment Contracts, Termination of Employment and Change-in-Control
---------------------------------------------------------------------
Arrangements
------------

     On December 31, 1995, the Company entered into employment agreements with
Messrs. Eaton, Dahl and Fosha (the "Employment Agreements").  The Employment
Agreements provide for a base salary, an annual bonus, and an amount for fees
incurred for legal, accounting or other professional advice.  The base initial
salaries for Messrs., Eaton, Dahl and Fosha total $300,000, $175,000 and
$175,000 respectively.  These base salaries are reviewed at least once annually
on May 1 by the Compensation Committee of the Board of Directors to determine
whatever increase may be merited, with the minimum annual increase equal to the
increase in the Consumer Price Index as published by the U.S. Department of
Labor, Bureau of Labor Statistics, for the period since the last annual review
("Consumer Price Index").  In addition, each of these employees is eligible to
participate in the 1996 Executive Stock Plan, management incentive programs,
retirement, welfare and other benefit plans or programs of the Company,
including, at the Company's sole expense, health, dental and hospitalization
insurance coverage.  Unless earlier terminated as provided therein, the
Employment Agreements continue until December 31, 1998 (or 1999 for Mr. Eaton),
and extend automatically each day for an additional day so that the remaining
term continues to be two years for Mr. Eaton and one year for Messrs. Dahl and
Fosha.

     The Company can terminate such agreements upon the death or disability of
an employee or for cause as defined therein.  Each employee may terminate his
employment for any reason within a 90-day period beginning on the 30th day after
a Change in Control of the Company (as defined below) or within a 90-day period
beginning on the one-year anniversary of a Change in Control.  If the Company
terminates an Employment Agreement, or if an employee terminates his employment
for Good Reason (as defined below) upon a Change in Control, then the Company
must pay the employee (or, in the case of death, the employee's estate) for 12
consecutive months thereafter (24 months in the case of Mr. Eaton) the greater
of one-twelfth of his salary at the rate in effect on his termination date or at
the highest rate in effect at any time during the 90-day period prior to a
Change in Control, as well as all amounts of his base salary that are deferred
under the Company's qualified and non-qualified employee benefit plans or any
other agreement or arrangement.  In addition, the restrictions on the employee's
outstanding incentive awards, including stock options, would lapse and such
incentive awards would immediately vest.  Under each of the Employment
Agreements, the employee agrees to maintain the confidentiality of the Company's
trade secrets and agrees, for a period of one year following termination, not to
compete with or solicit employees or customers of the Company.  For the purposes
of the Employment Agreements, Good Reason includes an occurrence after a Change
<PAGE>

in Control such as an adverse change in the employee's status, title, position
or responsibilities; reduction in base salary or other compensation or benefits;
or a material breach of the terms of the Employment Agreements. A Change in
Control includes an acquisition of the Company's voting securities of 40% or
more; a merger, consolidation or reorganization involving the Company unless at
least two-thirds of the combined voting power of the corporation resulting from
the merger, consolidation or reorganization is owned in substantially the same
proportion as before such merger, consolidation or reorganization and the person
serving as directors before such merger, consolidation or reorganization
constitute at least two-thirds of the directors of the surviving corporation; a
complete liquidation or dissolution of the Company; or an agreement for the sale
or disposition of all or substantially all of the Company's assets.

     Effective January 1, 1998, Paragon Rehabilitation, Inc., a subsidiary of
the Company ("Paragon"), entered into an Amended and Restated Employment
Agreement with Lawrence W. Lepley, Jr., who serves as president of Paragon (the
"Lepley Agreement").  The Lepley Agreement provides for an annual base salary of
$184,000 reviewable annually on January 1 and subject to annual increases (as
described above with respect to the Employment Agreements) and annual bonus.
The Lepley Agreement allows participation in the Company's stock option plans
and provides health, dental and short and long-term disability insurance and an
automobile allowance.  The initial term ends on December 31, 2000, but beginning
on the second anniversary of the effective date extends automatically each day
for an additional day so that the remaining term continues to be two years.

     Paragon may terminate the Lepley Agreement upon the death or disability of
Mr. Lepley or for cause as defined therein, or after the vote of a majority of
the Company's board of directors in favor of termination.  Mr. Lepley may
terminate his employment for Good Reason (as defined below) within a 90-day
period beginning on the 30th day after a Change in Control of the Company (as
defined above) or within a 90-day period beginning on the one-year anniversary
of a Change in Control of the Company.  If Paragon terminates the Lepley
Agreement for reasons other than for cause, or if Mr. Lepley terminates his
employment for Good Reason, then Paragon must pay Mr. Lepley (or, in the case of
death, his estate) for 12 consecutive months thereafter one-twelfth of his
salary at the rate in effect on his termination date.  If the Lepley Agreement
is terminated due to death or disability, or by Mr. Lepley for Good Reason, then
the restrictions on any outstanding incentive awards, including stock options,
would lapse and such incentive awards would immediately vest.  Mr. Lepley agrees
to maintain the confidentiality of Paragon's trade secrets and agrees, for a
period of one year following termination, not to compete with or solicit
employees or customers of Paragon.  For the purposes of the Lepley Agreement,
Good Reason includes an occurrence after a Change in Control such as an adverse
change in the employee's status, title, position or responsibilities' reduction
in base salary or other compensation or benefits; or a material breach of the
terms of the Lepley Agreement.

     After the consummation of the tender offer by Acquisition, the Company or
Paragon intend to enter into new employment agreements with Messrs. Eaton, Dahl,
Fosha and Lepley that provide for an annual base salary, an annual target bonus
of 25% of base salary, severance payments following termination without "Cause"
or with "Good Reason" (as such terms are defined in the new agreements) and, in
the case of Mr. Eaton, a stock repurchase requirement.

Compensation Committee Interlocks and Insider Participation

     The members of the Compensation Committee of the board of directors are J.
Stephen Eaton, Andrew M. Paul and Robert A. Ortenzio (until his resignation in
September 1999). Mr. Paul is or has been an officer or employee of the Company
or any of its subsidiaries and Mr. Ortenzio was not an officer or employee. Mr.
Paul is a general partner of the general partner of Welsh, Carson Anderson &
Stowe VI, L.P., a significant shareholder of Centennial. Mr. Eaton is the
Chairman of the Board, President and Chief Executive Officer of the Company.

<PAGE>

     Transactions involving Mr. Eaton and his affiliates are described in Item
13 "Certain Relationships and Related Transactions"


                        REPORT ON EXECUTIVE COMPENSATION

     The Compensation Committee is responsible for ensuring that a proper system
of short and long-term compensation is in place to provide performance-oriented
incentive to management.

     The Compensation Committee administers the Company's executive compensation
program, including determination of salary and bonus compensation for the Chief
Executive Officer and the Named Executive Officers and determination of the
nature, time and amounts of options grants to such executive officers under the
Company's Stock Plans.  The Compensation Committee's report for 1999 is as
follows:

Compensation Policy

     Generally, the Company's executive compensation is designed to be
competitive with compensation offered by other companies against which the
Company competes for executive resources. The executive compensation plans are
designed to attract and retain highly qualified executives critical to the
Company's long-term success.  The Compensation Committee intends for the
executive compensation program to satisfy the following guidelines:

     . Recognize and reward high performance and extraordinary results.
     . Have a portion of total compensation bear a direct relationship to the
       Company's operating performance and achievement of short-term and long-
       term goals.
     . Provide opportunity to acquire additional direct ownership in the Company
       and provide motivation to build shareholder value by aligning executives'
       interests with shareholder interests.

     Executive compensation is composed of base salary, bonus awards and long-
term incentive compensation.

Base Salary

     In the case of Messrs. Eaton, Dahl and Fosha base salary is paid pursuant
to the Employment Agreements or the Lepley Agreement in the case of Mr. Lepley;
in the case of all other executive officers, base salary is determined and fixed
by management based on the policies of the Compensation Committee.  The
Employment Agreements require the Compensation Committee to review base salaries
of the executives who are parties thereto on May 1 (or January 1 with respect to
Mr. Lepley) of each year and provide for an annual increase as determined by the
Compensation Committee, but not less than the increase in the Consumer Price
Index.  The Compensation Committee reviews the individual contributions and
performance of each such executive officer and takes into account various
qualitative and quantitative factors in determining the increases in base
<PAGE>

salaries. In particular, the Compensation Committee considers several financial
performance measures, including business development, earnings growth and stock
price, as well as the individual's work experience, level of responsibility and
contribution to the Company's long-term success. The Compensation Committee does
not, however, apply any specific quantitative formula in making compensation
decisions with respect to base salary, annual bonus awards or long-term
incentive compensation.

Bonus Awards

     Bonus payments are awarded to the Company's executives at the discretion of
the Compensation Committee, which considers the achievement of certain
performance targets and new business development.

Long-Term Incentive Compensation

     The Company's long-term incentive compensation strategy is focused on the
grant or award of (i) options to purchase shares of Common Stock, (ii) stock
appreciation rights, (iii) reload options and (iv) restricted stock pursuant to
the Stock Plans.  Except for grants to Non-Employee Directors pursuant to the
1997 Stock Plan, the Compensation Committee determines who receives grants or
awards, the grant or award date, the number of shares subject to the grant or
award, the exercise price (based on the closing price of the Common Stock on the
date of grant or award), the vesting schedule and other matters as specified in
the Stock Plans.  The Compensation Committee believes that these grants or
awards reward executive officers for their efforts in improving long-term
performance of the Common Stock and creating value for the Company's
shareholders, thereby aligning the financial interests of such executives with
those of the Company's shareholders.


Chief Executive Officer Compensation

     Based on its assessment of the performance of the Company and Mr. Eaton's
performance during 1999, the Compensation Committee (composed of Messrs. Paul
and Ortenzio for this purpose) increase Mr. Eaton's base salary from $350,000 to
$367,000.


Section 162(m)

     Section 162(m) of the Internal Revenue Code generally disallows tax
deduction by a public company for compensation in excess of $1,000,000 paid to
the company's chief executive officer and four other most highly compensated
executive officers.  Qualifying performance-based compensation is not subject to
the deduction limit if certain requirements are met.  The Compensation intends
to attempt to structure future compensation of the Company's Chief Executive
Officer and Named Executive Officers so as to preserve the deductibility of such
compensation under Section 162(m).


                                        COMPENSATION COMMITTEE

                                        Andrew M. Paul, Chairman
                                        J. Stephen Eaton



                            STOCK PERFORMANCE GRAPH


     The following line graph compares the yearly percentage in cumulative
shareholders return on the Common Stock with (a) the performance of a broad
equity market indicator, and (b) the performance of a peer group index.  The
<PAGE>

graph compares the percentage change in the return of the Common Stock since
July 2, 1997 with the cumulative total return on the NASDAQ Index and the Peer
Group identified by the Company (which group includes Beverly Enterprises, Inc.,
Genesis Health Ventures, Inc., Integrated Health Services, Inc., Mariner Post-
Acute Network, Inc., Sun Healthcare Group Inc., Vencor, Inc., Advocat Inc.,
National Healthcare L.P. and Manor Care Inc.) over such period. The Peer Group
companies include the long-term care organizations most similar to the Company,
and most of the other publicly traded long-term care organizations. The
commencement date for this comparison is the date on which the Company's Common
Stock was first publicly traded. The stock price performance graph assumes an
investment of $100 in the company on July 2, 1997 and an investment of $100 in
the two indexes on July 2, 1997 and further assumes the reinvestment of all
dividends. The stock price performance, presented monthly for the period from
July 2, 1997 through December 31, 1999 is not necessarily indicative of future
results. Information used in this graph was obtained from Zack's Investment
Research, a source believed to be reliable, but the Company is not responsible
for errors or omissions in such information.

                                    [GRAPH]


<TABLE>
<CAPTION>

               7/2/97    1997     1998     1999
               ------  -------  -------  -------
<S>            <C>     <C>      <C>      <C>
Centennial      $100   $142.19  $ 96.87  $ 18.75

Nasdaq          $100   $109.63  $154.11  $278.75

Peer Group      $100   $100.38  $ 49.78  $ 28.04

</TABLE>



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT.

                     COMMON STOCK OWNERSHIP BY MANAGEMENT
                          AND PRINCIPAL SHAREHOLDERS

     The following table sets forth the beneficial ownership of shares of Common
Stock as of March 31, 2000 for (i) directors of the Company, (ii) the Chief
Financial Officer and each of the four most highly compensated executive
officers of the Company (collectively, the "Named Executive Officers"), (iii)
the directors and executive officers of the Company as a group and (iv) each
person who is a shareholder of the Company holding more than a five percent
interest in the Company.

<TABLE>
<CAPTION>

                                                  Number of            Percent of
                                                  Shares of           Common Stock
                                                 Common Stock         Beneficially
Name of Beneficial Owner                    Beneficially Owned (1)       Owned
------------------------                    ----------------------    ------------
<S>                                            <C>                      <C>
Welsh, Carson, Anderson & Stowe VI, L.P.         2,520,193 (2)            21.1%
WCAS Capital Partners II, L.P.                     246,896 (3)             2.1
WCAS Healthcare Partners, L.P.                      81,384 (4)              *
J. Stephen Eaton                                 1,264,804 (5)            10.6
Goldman Sachs Asset Management                   1,473,000 (6)            12.4
South Atlantic Venture Fund II,
      Limited Partnership                          798,963 (7)             6.7
Lawrence W. Lepley, Jr.                            196,569 (8)             1.6
Alan C. Dahl                                       198,280 (9)             1.6
Kent C. Fosha, Sr.                                 126,023 (10)             *
Andrew M. Paul                                      16,845 (11)             *
</TABLE>
<PAGE>

Bertil D. Nordin                                   21,983 (12)              *
James B. Hoover                                    17,602 (13)              *
Charles D. Nash                                    12,414 (14)              *
Bob L. Wood                                             0 (15)              *
All other executive officers and directors
as a group (9 persons)                          1,809,090                 15.2

______________________________________

*  Less than 1.0%

(1)  Based on an aggregate of 11,923,618 shares of Common Stock issued and
     outstanding as of March 31, 2000.  Includes shares of Common Stock that may
     be acquired upon the exercise of stock options exercisable within 60 days.
     Each person named above has sole voting and dispositive power with respect
     to all shares listed opposite such person's name, except as otherwise
     noted.
(2)  The shareholder's address is 320 Park Avenue, Suite 2500, New York, New
     York 10022-6815.
(3)  The shareholder's address is 320 Park Avenue, Suite 2500, New York, New
     York 10022-6815.
(4)  The shareholder's address is 320 Park Avenue, Suite 2500, New York, New
     York 10022-6815.
(5)  Includes 149,433 shares purchasable upon exercise of stock options that are
     currently exercisable or will be come exercisable within 60 days. The
     shareholder's address is 400 Perimeter Center Terrace, Suite 650, Atlanta,
     Georgia 30346.
(6)  Based on Schedule 13GVA of shareholder filed on February 9, 1999.  The
     shareholder's address is 85 Broad Street, New York, New York 10004.
(7)  The shareholder's address is 614 West Bay Street, Suite 200, Tampa, Florida
     33606-2704.
(8)  Includes 60,344 shares purchasable upon exercise of stock options that are
     currently exercisable or will become exercisable within 60 days, and 26,500
     shares beneficially owned by Mr. Lepley's wife, of which Mr. Lepley
     disclaims beneficial ownership. The shareholder's address is 400 Perimeter
     Center Terrace, Suite 650, Atlanta, Georgia 30346.
(9)  Includes 105,558 shares purchasable upon exercise of stock options that are
     currently exercisable or will become exercisable within 60 days. The
     shareholder's address is 400 Perimeter Center Terrace, Suite 650, Atlanta,
     Georgia 30346.
(10) Includes 117,053 shares purchasable upon exercise of stock options that are
     currently exercisable or will become exercisable within 60 days. The
     shareholder's address is 400 Perimeter Center Terrace, Suite 650, Atlanta,
     Georgia 30346.
(11) Includes 4,138 shares purchasable upon exercise of stock options that are
     currently exercisable or will become exercisable within 60 days. Excludes
     2,520,193 shares of Common Stock owned by Welsh, Carson, Anderson & Stowe
     VI, L.P. ("WCAS VI"), 246,896 shares of Common Stock owned by WCAS Capital
     Partners II, L.P. ("WCAS CP II") and 81,384 shares of Common Stock owned by
     WCAS Healthcare Partners, L.P. ("Healthcare Partners"). Mr. Paul, as a
     general partner of the respective sole general partners of each of WCAS VI,
     WCAS CP II and Healthcare Partners may be deemed to beneficially own the
     shares owned by WCAS VI, WCAS CP II and Healthcare Partners. Mr. Paul
     disclaims beneficial ownership of such shares. The shareholders address is
     320 Park Avenue, New York, New York 10022-6815.
(12) Includes options to acquire 14,483 shares that are currently exercisable or
     will become exercisable within 60 days. Does not include 206,214 shares
     held by South Atlantic Venture Fund III, Limited Partnership ("South
     Atlantic") of which Mr. Nordin is a special limited partner. Mr. Nordin
     disclaims beneficial ownership of the shares owned by South Atlantic. The
     shareholder's address is 400 Perimeter Center Terrace, Suite 650, Atlanta,
     Georgia 30346.
(13) Includes 4,138 shares purchasable upon exercise of stock options that are
     currently exercisable or will become exercisable within 60 days and shares
     held by Mr. Hoover or by the James B. Hoover IRA.  Does not include
     2,767,089 shares held by WCAS VI and WCAS CP II, of which Mr. Hoover serves
     as a general partner of the sole general partner or limited partner  of the
     sole general partner.  Mr. Hoover disclaims beneficial ownership of these
<PAGE>

     shares. The shareholder's address is Dauphin Capital Partners, 108 Forest
     Avenue, Locast Valley, New York 11560.
(14) Includes 12,414 shares purchasable upon exercise of stock options that are
     currently exercisable or will become exercisable with in 60 days.  The
     shareholders address is 400 Perimeter Center Terrace, Suite 650, Atlanta,
     Georgia 30346.
(15) Mr. Wood's address is 400 Perimeter Center Terrace, Suite 650, Atlanta,
     Georgia 30346.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

                             CERTAIN TRANSACTIONS

     Mr. Eaton owns 100% of the common stock of Centennial Employee Management
Corporation ("CEMC"). The Company leases its facility-based employees at cost
from CEMC on a pass through basis. CEMC was set up to take advantage of reduced
workers' compensation and group health insurance rates and passes on these
insurance costs savings to the Company. Mr. Eaton receives no economic benefit
from his ownership of this entity.

     Ashton Woods Rehabilitation Center ("AWRC"), which is leased by the
Company, is owned by Ashton Woods Limited Partnership. Mr. Dahl owns all of the
outstanding stock of the corporate general partner of this partnership. Mr. Dahl
receives no economic benefit from his ownership of this entity. Mr. Dahl is
Executive Vice President, Chief Financial Officer, Treasurer and director of the
Company.

     On June 22, 1999, Messrs. Eaton and Dahl acquired 100% of the capital stock
of EBT Healthcare, Inc., general partner of EBI Healthcare, Ltd.("EBT"), as well
as all limited partnership interests in EBT. The Company currently leases twelve
facilities from EBT pursuant to leases entered into prior to the acquisition of
EBT by Messrs. Eaton and Dahl.

     On December 1, 1999, the Company sold three skilled nursing facilities
owned by it to entities owned by Five Star Healthcare LLC ("Five Star"). The
Company also terminated a lease, which was then purchased by an entity owned by
Five Star. Five Star is wholly-owned by entities wholly-owned by Messrs. Eaton
and Dahl and their respective spouses. The Company continues to manage these
facilities pursuant to management agreements. Under these management agreements,
the Company has agreed to indemnify the owners against certain of the Company's
acts or omissions.

     The Company and each of the Five Star entities entered into Indemnity
Agreements whereby the Company agreed to indemnify and hold these entities
harmless from any loss or liability asserted against amounts due such entities
for services provided to Medicare or Medicaid patients on or after December 1,
1999 as a result of the pending investigation of the Company by the Department
of Health and Human Services, Office of Inspector General.

     See Item 11. Executive Compensation - Compensation Committee Interlocks and
Insider Participation.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)(1)  Financial Statements

        Listed on the Index to the Financial Statements and Schedules on page
        F-1 of this Report.

(2)     Financial Statement Schedules

        Listed on the Index to the Financial Statements and Schedules on page
        F-1 of this Report.

<PAGE>

                                 Exhibit Index


Exhibit                           Description
-------    --------------------------------------------------------------------
 3.1   --  Third Amended and Restated Articles of Incorporation of the Company
           (incorporated by reference to Exhibit 3.1 of the Company's
           Registration Statement on Form S-1, Registration No. 333-24267, as
           amended).

 3.2   --  Amended and Restated Bylaws of the Company (incorporated by reference
           to Exhibit 3.2 of the Company's Registration Statement on Form S-1
           Registration No. 333-24267, as amended).

 4.1   --  Third Amended and Restated Articles of Incorporation of the Company,
           including, without limitation Article III and Article VII
           (incorporated by reference to Exhibit 3.1 of the Company's
           Registration Statement on Form S-1, Registration No. 333-24267, as
           amended).

10.1   --  WelCare International, Inc. 1994 Employee Stock Option Plan
           (incorporated by reference to Exhibit 10.1 of the Company's
           Registration Statement on Form S-1, Registration No. 333-24267, as
           amended).

10.2   --  WelCare International, Inc. 1996 Executive Stock Plan (incorporated
           by reference to Exhibit 10.2 of the Company's Registration Statement
           on Form S-1, Registration No. 333-24267, as amended).

10.3   --  WelCare International, Inc. 1996 Employee Stock Option Plan
           (incorporated by reference to Exhibit 10.3 of the Company's
           Registration Statement on Form S-1, Registration No. 333-24267, as
           amended).

10.4   --  Centennial HealthCare Corporation 1997 Stock Plan (incorporated by
           reference to Exhibit 10.4 of the Company's Registration Statement on
           Form S-1, Registration No. 333-24267, as amended).

10.5   --  Second Amended and Restated Credit Agreement dated December 16, 1997
           by and among Centennial HealthCare Corporation and the Borrowers
           named therein, the Lenders named therein, and Core States Bank, N.A.
           and NationsBank, N.A., as lenders and agents for the lenders named
           therein

10.6   --  Amended and Restated Employment Agreement between Welcare
           International, Inc. and J. Stephen Eaton dated December 31, 1995
           (incorporated by reference to Exhibit 10.6 of the Company's
           Registration Statement on Form S-1, Registration No. 333-24267, as
           amended).

10.7   --  Amended and Restated Employment Agreement between Paragon
           Rehabilitation, Inc. and Laurence W. Lepley, Jr. dated as of January
           1, 1998 (incorporated by reference to Exhibit 10.7 of the Company's
           Annual Report on Form 10-K for the fiscal year ended December 31,
           1997).

10.8   --  Lease between Grant Park Nursing Home L.P. and WelCare Acquisition
           Corp. n/k/a Centennial Acquisition Corporation ("CAC") commencing on
           January 1, 1998 (incorporated by reference to Exhibit 10.9 of the
           Company's Registration Statement on Form S-1, Registration No. 333-
           24267, as amended).

10.9   --  Amended and Restated Lease Agreement by and between Aston Woods
           Limited Partnership and WelCare/Ashton Properties, Inc. n/k/a
           Centennial/Ashton Properties Corporation ("CAPC"), dated December
           20, 1994 (incorporated by reference to Exhibit 10.11 of the Company's
           Registration Statement on Form S-1, Registration No. 333-24267, as
           amended).

<PAGE>

10.10  --  [Amended and Restated Lease Agreement by and between EBT Healthcare
           Properties, L.P. and CHPC dated July 6, 1994 (incorporated by
           reference to Exhibit 10.12 of the Company's Registration Statement on
           Form S-1, Registration No. 333-24267, as amended)]

10.11  --  Operating Lease by and between Health Care Property Investors, Inc.
           and Cardinal of Indiana, Inc., as amended by that certain Amendment
           to Operating Lease dated November 1, 1993, as amended by that certain
           Second Amendment to Operating Lease dated April 1, 1994, as amended
           by that certain Third Amendment to Operating Lease dated March 31,
           1995, as amended by that certain Fourth Amendment to Operating Lease
           dated January 1, 1996, as assigned (incorporated by reference to
           Exhibit 10.13 of the Company's Registration Statement on Form S-1,
           Registration No. 333-24267, as amended)

10.12  --  Lease Agreement by and between Healthcare Realty Trust Incorporated
           and Cardinal Development Co., Inc. ("Cardinal"), as amended by that
           certain Amendment Number One to Lease Agreement dated November 1,
           1993, as assigned to TMP pursuant to that certain Lease Agreement,
           Consent and Release dated March 1, 1994 (incorporated by reference to
           Exhibit 10.16 of the Company's Registration Statement on Form S-1,
           Registration No. 333-24267, as amended)

10.13  --  Lease Agreement by and between House Investments - Nursing Homes
           Partners T and THP dated November 1, 1993 (incorporated by reference
           to Exhibit 10.1 of the Company's Registration Statement on Form S-1,
           Registration No. 333-24267, as amended)

10.14  --  Operating Lease by and between HCPI Charlotte, Inc. and TMP dated
           June 19, 1995 (incorporated by reference to Exhibit 10.20 of the
           Company's Registration Statement on Form S-1, Registration No. 333-
           24267, as amended).

10.15  --  Amended and Restated Management Agreement by and between Montclair
           Medical Investors, Ltd., and CHMC dated January 1, 1995 (incorporated
           by reference to Exhibit 10.28 of the Company's Registration Statement
           on Form S-1, Registration No. 333-24267, as amended)

10.16  --  Purchase Option Agreement dated as of December 1, 1999 by and between
           Centennial HealthCare Management Corporation and Cypress Investors,
           LLC, Dolphins View Investors, LLC, Hilltop Manor Investors, LLC,
           Kannapolis Investors, LLC and Mather Investors, LLC.

10.17  --  Long Term Care Facility Management Agreement dated December 1, 1999,
           by and between Hilltop Manor Investors, LLC and CHMC, regarding the
           management of Hilltop Manor Health Care Center.

10.18  --  Indemnity Agreement dated December 1, 1999, by and between Centennial
           HealthCare Corporation and Hilltop Manor Investors, LLC, regarding
           Hilltop Manor Health Care Center.

10.19  --  Indemnity Agreement dated December 1, 1999, by and between Centennial
           HealthCare Corporation and Cypress Investors, LLC, regarding Cypress
           Manor Health and Rehabilitation Center.

10.20  --  Indemnity Agreement dated December 1, 1999, by and between Centennial
           HealthCare Corporation and Dolphins View Investors, LLC, regarding
           Cypress Manor Health and Rehabilitation Center.

10.21  --  Indemnity Agreement dated December 1, 1999, by and between Centennial
           HealthCare Corporation and Mather Investors, LLC, regarding Mather
           Nursing Center.

10.22  --  Indemnity Agreement dated December 1, 1999, by and between Centennial
           HealthCare Corporation and Kannapolis Investors, LLC, regarding THS
           of Kannapolis.

21.1   --  List of Subsidiaries

27.1   --  Financial Data Schedule

99.1   --  Cautionary Statements Regarding Forward-Looking Statements

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the 1934 Act, the
Company has duly caused this Form 10-K to be signed on behalf of the
undersigned, thereunto duly authorized, on April 14, 2000.

                       CENTENNIAL HEALTHCARE CORPORATION


                /s/  J. Stephen Eaton
             By:-----------------------------------------------
                J. Stephen Eaton
                Chairman, President and Chief Executive Officer

     Pursuant to the Requirements of the 1934 Act, this Form 10-K has been
signed below by the following persons in the capacities indicated on April 14,
2000.

SIGNATURES

/s/ J. Stephen Eaton             Chairman, President and Chief    April 14, 2000
-----------------------------    Executive Officer
J. Stephen Eaton


/s/ Alan C. Dahl                 Executive Vice President, Chief  April 14, 2000
-----------------------------    Financial Officer and Director
Alan C. Dahl


/s/ Andrew M. Paul               Director                         April 14, 2000
-----------------------------
Andrew M. Paul


/s/ Bob L. Wood                  Director                         April 14, 2000
-----------------------------
Bob L. Wood


/s/ Bertil D. Nordin             Director                         April 14, 2000
-----------------------------
Bertil D. Nordin


/s/ Charles D. Nash              Director                         April 14, 2000
-----------------------------
Charles D. Nash
<PAGE>

                  INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
                                                                   Page
                                                                   -----

Report of Independent Public Accountants..........................  F-2
Report of Independent Accountants.................................  F-3
Consolidated Balance Sheets at December 31, 1999 and 1998.........  F-4
Consolidated Statements of Operations for the years
  ended December 31, 1999, 1998 and 1997..........................  F-5
Consolidated Statements of Shareholders' Equity for the years
  ended December 31, 1999, 1998 and 1997..........................  F-6
Consolidated Statements of Cash Flows for the years ended
  December 31, 1999, 1998 and 1997................................  F-7
Notes to Consolidated Financial Statements........................  F-8
Quarterly Consolidated Financial Information (Unaudited)..........  F-29
Financial Statement Schedules (a):
  Schedule II - Valuation and Qualifying Accounts for the
  years ended December 31, 1999, 1998 and 1997....................  F-30
----------
(a)  All other schedules have been omitted because the required information is
     not present or not present in material amounts.


                                      F-1

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Centennial HealthCare Corporation:

    We have audited the accompanying consolidated balance sheet of Centennial
HealthCare Corporation (a Georgia corporation) and subsidiaries as of December
31, 1999 and the related consolidated statements of operations, shareholders'
equity and cash flows for the year ended December 31, 1999. These financial
statements and schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.

    We conducted our audit in accordance with auditing standards generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Centennial HealthCare Corporation and subsidiaries as of December 31, 1999 and
the consolidated results of their operations and their cash flows for the year
ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States.

    Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole.  The schedule listed in the index of
financial statements is presented for the purpose of complying with the
Securities and Exchange  Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

                                      /s/ Arthur Andersen LLP
Atlanta, Georgia
March 31, 2000


                                      F-2

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Centennial HealthCare Corporation

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of Centennial
HealthCare Corporation and its subsidiaries (the "Company") at December 31,
1998, and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 1998, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.



                                      /s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
April 7, 1999


                                      F-3

<PAGE>

              CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                     (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                                       December 31
                                                                          -----------------------------------
                                                                               1999                   1998
                                                                          ------------           ------------
<S>                                                                       <C>                    <C>
                            ASSETS
Current assets:
 Cash and cash equivalents........................................           $  1,790               $  5,047
 Patient accounts receivable and third-party payor settlements,
  net of allowance for doubtful accounts of approximately $6,426
  and $4,963 in 1999 and 1998, respectively.......................             71,220                 99,910
 Other receivables................................................              3,420                  4,382
 Deferred income taxes............................................              6,986                  3,738
 Prepaid expenses and other current assets........................              1,491                  2,250
                                                                             --------               --------
  Total current assets............................................             84,907                115,327

 Property and equipment, net......................................             75,524                 74,813
 Notes and advances receivable, net...............................             39,915                 37,893
 Intangible assets, net of accumulated amortization of $7,184 and
  $4,240 in 1999 and 1998, respectively...........................             41,145                 42,804
 Deferred income taxes............................................             14,297                  3,496
 Other assets.....................................................              8,557                 10,999
                                                                             --------               --------
  Total assets....................................................           $264,345               $285,332
                                                                             ========               ========

             LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
 Current maturities of long-term debt.............................           $  7,263               $  3,534
 Checks issued against future deposits............................             10,815                  6,403
 Accounts payable and accrued expenses............................             16,871                 22,653
 Accrued payroll..................................................             12,225                 12,467
 Accrued lease payable............................................              3,937                  3,863
 Estimated merger dissolution costs...............................                  -                  3,248
 Other liabilities................................................              8,098                  6,034
                                                                             --------               --------
  Total current liabilities.......................................             59,209                 58,202
Long-term debt, less current maturities...........................            108,076                112,849
Other long-term liabilities.......................................              9,247                    598
                                                                             --------               --------
                                                                              176,532                171,649

Commitments and contingencies
Shareholders' equity:
 Common stock with par value of $.01; 50,000,000 shares
  authorized; 11,923 shares issued and outstanding................                119                    119
 Paid-in capital..................................................            102,015                102,015
 Retained (deficit) earnings......................................            (13,971)                11,899
                                                                             --------               --------
                                                                               88,163                114,033
Note receivable from shareholder..................................               (350)                  (350)
                                                                             --------               --------

  Net shareholders' equity........................................             87,813                113,683
                                                                             --------               --------
  Total liabilities and shareholders' equity......................           $264,345               $285,332
                                                                             ========               ========

</TABLE>


See accompanying notes to consolidated balance sheets.


                                      F-4
<PAGE>

              CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                                   For the year ended
                                                                                       December 31
                                                                 ------------------------------------------------------
                                                                       1999                1998                1997
                                                                 --------------      --------------      --------------
<S>                                                                   <C>                  <C>               <C>
Revenues:
  Net patient service revenues................................         $368,655            $342,203            $296,321
  Management fees and other revenues..........................            9,874              15,442               7,952
                                                                       --------            --------            --------
    Total revenues............................................          378,529             357,645             304,273
                                                                       --------            --------            --------
Expenses:
  Facility operating expenses:
    Salaries, wages and benefits..............................          208,455             182,801             154,841
    Other operating expenses..................................          113,596              92,688              79,418
  Lease expense...............................................           33,309              22,946              21,740
  Corporate administrative costs..............................           26,445              21,515              16,055
  Depreciation and amortization...............................           12,588               9,292               6,760
  Loss on closure of nursing facility.........................                -               4,010                   -
  Provision for asset revaluation.............................           14,530              12,152                   -
  Terminated merger transaction costs.........................           (2,583)              3,619                   -
                                                                       --------            --------            --------
    Total operating expenses..................................          406,340             349,023             278,814
                                                                       --------            --------            --------
                                                                        (27,811)              8,622              25,459
                                                                       --------            --------            --------
Other income (expense):
  Interest income.............................................            1,479               2,011                 636
  Interest expense............................................          (12,050)             (9,165)             (8,658)
                                                                       --------            --------            --------
    Total other expense.......................................          (10,571)             (7,154)             (8,022)
                                                                       --------            --------            --------
                                                                        (38,382)              1,468              17,437
Provision (benefit) for income taxes..........................          (13,165)              1,504               6,800
                                                                       --------            --------            --------
Income (loss) before minority interest, extraordinary loss
  and cumulative effect of  change in accounting method.......          (25,217)                (36)             10,637
Minority interest in net income of subsidiary,
  net of income taxes.........................................             (226)               (279)               (252)
                                                                       --------            --------            --------
Income (loss) before extraordinary loss and cumulative
  effect of change in accounting method.......................          (25,443)               (315)             10,385
Extraordinary loss on extinguishment of debt, net of
  income tax benefit..........................................                -                   -                (537)
                                                                       --------            --------            --------
Income (loss) before cumulative effect of change in
  accounting method...........................................          (25,443)               (315)              9,848
Cumulative effect of change in accounting method, net of
  income tax benefit..........................................             (427)                  -                   -
                                                                       --------            --------            --------
Net income (loss).............................................          (25,870)               (315)              9,848
Dividends and accretion on preferred stock....................                -                   -               5,873
                                                                       --------            --------            --------
Net income (loss) applicable to common stock..................         $(25,870)           $   (315)           $  3,975
                                                                       ========            ========            ========

Net income per common share data:

Basic:
  Income (loss) applicable to common stock before
    extraordinary loss and cumulative effect of change in
    accounting method.........................................         $  (2.13)           $  (0.03)           $   0.54
  Extraordinary loss on extinguishment of debt................                -                   -               (0.06)
  Cumulative effect of change in accounting method............            (0.04)                  -                   -
                                                                       --------            --------            --------
  Net income (loss) applicable to common stock................         $  (2.17)           $  (0.03)           $   0.48
                                                                       ========            ========            ========

Diluted:
  Income (loss) applicable to common stock before
    extraordinary loss and cumulative effect of change in
    accounting method.........................................         $  (2.13)           $  (0.03)           $   0.54
  Extraordinary loss on extinguishment of debt................                -                   -               (0.06)
  Cumulative effect of change in accounting method............            (0.04)                  -                   -
                                                                       --------            --------            --------
  Net income (loss) applicable to common stock and equivalents         $  (2.17)           $  (0.03)           $   0.48
                                                                       ========            ========            ========

Weighted average common shares outstanding:
  Basic.......................................................           11,923              11,906               8,289
                                                                       ========            ========            ========
  Diluted.....................................................           11,923              12,078               8,462
                                                                       ========            ========            ========
</TABLE>
See accompanying notes to consolidated financial statements.
                                      F-5
<PAGE>

              CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                      Special Voting                                         Note
                                   Common Stock        Common Stock                  Retained             Receivable
                                  ---------------    ----------------    Paid-In     Earnings   Treasury     From
                                  Shares   Amount    Shares    Amount    Capital     (Deficit)    Stock   Shareholder    Net
                                  ------   ------    ------    ------    -------     ---------  --------  -----------   ------
<S>                               <C>        <C>      <C>        <C>      <C>         <C>        <C>          <C>       <C>
Balance at December 31, 1996..    1,804     $ 20      2,942    $  -      $5,707      $8,240     $(1,487)     $(528)    $11,952
Dividends paid on Series A, B
  and E preferred stock.......        -        -          -       -           -        (462)          -          -        (462)
Dividends accrued on Series C
  preferred stock.............        -        -          -       -           -        (865)          -          -        (865)
Exercise of stock options.....        3        -          1       -          36           -           -          -          36
Accretion of preferred
   stock to estimated
   redemption value...........        -        -          -       -           -        (106)          -          -        (106)
Issuance of common
   shares.....................       64        1          -       -         777           -           -          -         778
Public offering of
   common stock...............    4,600       44          -       -      66,917           -       1,487          -      68,448
Offering costs for
   common stock...............        -        -          -       -      (1,679)          -           -          -      (1,679)
Conversion of special
   voting common stock
   due to Offering............    2,943       29     (2,943)      -         (29)          -           -          -           -
Redemption of Series E
   preferred stock............        -        -          -       -           -        (715)          -          -        (715)
Conversion of Series
   A, B, C and D preferred
   stock......................    2,532       25          -       -      30,912      (3,726)          -          -      27,211
Repurchase of Series C
   preferred stock............      (84)       -          -       -      (1,342)          -           -          -      (1,342)
Net income....................        -        -          -       -           -       9,848           -          -       9,848
                                 ------     ----     ------    ----    --------    --------     -------      -----    --------
Balance at December 31, 1997..   11,862      119          -       -     101,299      12,214           -       (528)    113,104
Exercise of stock options.....       61        -          -       -         294           -           -          -         294
Proceeds from shareholder
   note receivable............        -        -          -       -           -           -           -        528         528
Note receivable from
   shareholder................        -        -          -       -           -           -           -       (350)       (350)
Tax benefit on options
   exercised..................        -        -          -       -         422           -           -          -         422
Net loss......................        -        -          -       -           -        (315)          -          -        (315)
                                 ------     ----     ------    ----    --------    --------     -------      -----    --------
Balance at December 31, 1998..   11,923      119          -       -     102,015      11,899           -       (350)    113,683

Net loss......................        -        -          -       -           -     (25,870)          -          -     (25,870)
                                 ------     ----     ------    ----    --------    --------     -------      -----    --------
Balance at December 31, 1999..   11,923     $119          -    $  -    $102,015    $(13,971)    $     -      $(350)   $ 87,813
                                 ======     ====     ======    ====    ========    ========     =======      =====    ========

</TABLE>

    See accompanying notes to consolidated financial statements.



                                      F-6
<PAGE>

              CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                         For the year ended
                                                                             December 31
                                                         -----------------------------------------------------
                                                             1999                1998                 1997
                                                         ------------         -----------         ------------
<S>                                                      <C>                  <C>                 <C>
Operating Activities:
  Net income (loss)......................................   $ (25,870)           $  (315)           $    9,848
  Adjustments to reconcile net income (loss) to
    net cash provided by (used in) operating
    activities:
    Depreciation and amortization........................      12,588              9,292                 6,760
    Provision for asset revaluation......................      14,530             12,152                     -
    Terminated merger transaction costs..................      (2,583)             3,248                     -
    Cumulative effect of change in accounting method......        427                  -                     -
    Amortization of discount on subordinated debt........           -                  -                    62
    Extraordinary loss on extinguishment of debt.........           -                  -                   880
    Deferred income taxes................................     (13,747)            (2,830)                3,881
    Consulting expenses offset against note receivable...         125                125                    78
    Minority interest....................................         226                458                   413
    Additional contractual reserves on accounts
      receivable.........................................      19,400                  -                     -
    Provision for doubtful accounts......................       3,605              1,432                   863
    Loss on sale of equipment............................           -                  4                     -
    Change in assets and liabilities:
      Accounts receivable................................       5,934            (24,412)              (29,167)
      Prepaid expenses and other assets..................         634             (4,646)               (1,525)
      Refundable deposits................................         354               (105)                  (28)
      Accounts payable, accrued liabilities and other
        current liabilities..............................         301              2,408                  (935)
      Other..............................................         (24)            (1,568)                 (140)
                                                             --------         ----------             ---------
        Cash provided by (used in) operating activities..      15,900             (4,757)               (9,010)
                                                             --------         ----------             ---------

Investing Activities:
  Purchases of property and equipment....................      (8,187)            (8,033)               (7,567)
  Proceeds from the sale of equipment....................           -                 15                     -
  Notes and advances receivable, net of repayments.......     (10,696)           (12,449)               (8,232)
  Acquisitions, net of cash acquired.....................      (3,789)            (7,392)              (17,355)
  Other..................................................      (4,119)            (2,506)                3,127
                                                             --------         ----------             ---------
    Cash used in investing activities....................     (26,791)           (30,365)              (30,027)
                                                             --------         ----------             ---------

Financing Activities:
  Proceeds from the exercise of stock options............           -                294                    36
  Proceeds from issuance of preferred stock..............           -                  -                10,000
  Proceeds from borrowings...............................      10,930             37,700                28,750
  Public offering of common stock........................           -                  -                68,448
  Payment of stock offering costs........................           -                  -                (1,679)
  Distributions paid to minority partners................        (148)              (296)                 (494)
  Payments of dividends to preferred shareholders........           -                  -                  (462)
  Payments on amounts due to related party...............           -               (141)                 (528)
  Redemption of Series E Preferred Stock.................           -                  -                (5,000)
  Repurchase of Series C Preferred Stock.................           -                  -                (1,343)
  Principal payments on subordinated debt................           -                  -               (25,300)
  Principal payments on long-term debt...................      (3,148)            (1,399)              (35,410)
                                                             --------         ----------             ---------
  Cash provided by financing activities..................       7,634             36,158                37,018
                                                             --------         ----------             ---------

Net change in cash and cash equivalents..................      (3,257)             1,036                (2,019)

Cash and cash equivalents, beginning of year.............       5,047              4,011                 6,030
                                                             --------         ----------             ---------
Cash and cash equivalents, end of year...................    $  1,790            $ 5,047             $   4,011
                                                             ========         ==========             =========

Supplemental disclosure:
  Income taxes paid......................................    $    470            $ 4,329             $   1,289
  Interest paid..........................................    $ 11,182            $ 8,019             $   9,236
</TABLE>

    See accompanying notes to consolidated financial statements.


                                      F-7
<PAGE>

              CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies Reporting Entity

   Centennial HealthCare Corporation ("Centennial" or the "Company") (formerly
known as WelCare International, Inc.) was incorporated in February 1989 under
the laws of the State of Georgia. The Company's principal business is to provide
basic and specialty healthcare services to patients in a long-term care setting.
At December 31, 1999, subsidiaries of the Company operated 100 owned, leased and
managed long-term care facilities with approximately 10,663  beds in 21 states
and the District of Columbia. In addition, through its subsidiaries, the Company
provided comprehensive contract rehabilitation services to Company-owned and
third-party long-term care facilities pursuant to 130 contracts, as well as home
health services through licensed home health offices primarily in North
Carolina.

   In July 1997, Centennial completed an initial public offering of 4,000,000
shares of the Company's common stock (the "Offering").  In connection with the
Offering, the Company granted the underwriters an option to purchase up to
600,000 additional shares of the Company's common stock.  This option was
exercised and closed in July 1997.

Basis of Presentation

   The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries, and a majority-owned (55%) affiliated limited
partnership.

   All significant intercompany accounts have been eliminated.

Revenues

   Revenues that are reimbursed by patients at Centennial's long-term care
facilities are recorded at established billing rates. Revenues to be reimbursed
by contracts with third-party payors, primarily Medicare and Medicaid programs,
are recorded at the amount estimated to be realized under these contractual
arrangements. Revenues from the management of long-term care facilities and
acute care hospitals are recognized over the period during which the services
are rendered. Revenues from Medicare and Medicaid are generally based on
reimbursement of allowable costs of providing services to program beneficiaries.
The Company estimates amounts due from third-party payors and records the
revenue in the period services are rendered. Amounts ultimately payable by
Medicare and Medicaid are determined based on annual cost reports which are
subject to audit and retroactive adjustment by the payor. Changes in estimated
revenues due in connection with Medicare and Medicaid may be recorded by the
Company subsequent to the year of origination and prior to final settlement
based on improved estimates. Differences between estimated amounts due from the
Medicare and Medicaid programs and ultimate settlements with these programs are
recognized in the year of final settlement. Retroactive adjustments are
considered in the recognition of revenue on an estimated basis in the period the
related services are rendered, and such amounts are adjusted in future periods
as adjustments become known or as years are no longer subject to such audits,
reviews, and investigations.

   Costs reimbursed under the Medicare program are subject to regional limits.
The costs at certain of the Company's facilities have frequently exceeded these
limits and, accordingly, the Company is required to submit exception requests to
cover such excess costs. The accompanying balance sheets include amounts
estimated to be recoverable under such exception requests.


                                      F-8
<PAGE>

   Accounts receivable, net, at December 31, 1999 and 1998 includes $42.7
million and $61.9  million, respectively, of amounts due from Medicare and
Medicaid programs.

Concentrations

   A significant portion of the Company's revenues are received from Medicare,
Medicaid, private insurance and managed care payors as well as other long-term
care facilities which utilize the Company's contract therapy services. The
health care industry is experiencing the effects of the federal and state
governments trend toward cost containment, as government and other third-party
payors seek to impose lower reimbursement and utilization rates and negotiate
reduced payment schedules with providers. These cost containment measures,
combined with the increasing influence of managed care and competition for
patients, generally have resulted in reduced rates of reimbursement for services
to be provided by the Company. In recent years, several significant actions have
been taken with respect to Medicare and Medicaid reimbursement. These include
the adoption of the Medicare Prospective Payment System ("PPS") pursuant to the
Balanced Budget Act of 1997, as modified by the Medicare Balanced Budget
Refinement Act; and the repeal of the "Boren Amendment" federal payment standard
for Medicaid payments to nursing facilities. In addition to the above actions,
there have been, and the Company expects that there will continue to be, a
number of additional proposals to limit reimbursements to long-term care
facilities under the Medicare and Medicaid programs. Centennial cannot predict
whether any of these additional proposals will be adopted, or if adopted and
implemented, what effect such proposals would have on the Company.

   Approximately 65%, 57% and 60% of the Company's total revenues for the years
ended December 31, 1999, 1998 and 1997, respectively, are from the Medicare and
Medicaid programs. While the Company operates long-term care facilities in 21
states and the District of Columbia, 30 of its 70 owned or leased facilities
are located in North Carolina, Indiana and Michigan. Laws and regulations
governing the Medicare and Medicaid programs are extremely complex and subject
to interpretation.  As a result, there is at least a reasonable possibility that
recorded estimates will change by a material amount in the near term.

   The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. Centennial has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant credit
risk on cash and cash equivalents.

Facility Operating Expenses

  Facility operating expenses include direct operating costs at the facility
level. The majority of these costs consist of payroll and employee benefits
related to nursing, housekeeping and dietary services provided to patients, as
well as maintenance and administration of the facilities. Other significant
facility operating expenses include medical and pharmacy supplies, food,
utilities, and the cost of rehabilitation therapies. Also included in facility
operating expenses is the provision for doubtful accounts of approximately $3.6
million, $1.4 million and $863,000 for the years ended December 31, 1999, 1998
and 1997, respectively.

Income Taxes

  Income taxes are calculated using the liability method in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes". Deferred taxes are provided for the differences between the tax
and accounting bases of the Company's assets and liabilities. For federal income
tax purposes, the Company and its subsidiaries file a consolidated income tax
return.

Cash and Cash Equivalents

  The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.


                                      F-9
<PAGE>

Property and Equipment

  Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line method over the estimated useful
lives of five to ten years for equipment, five to 15 years for furniture and 25
to 30 years for buildings and improvements.

Intangible Assets

  Intangible assets consist primarily of costs in excess of the fair value of
identifiable net assets of acquired entities, and are amortized using the
straight-line method, primarily over a 30- to 40-year period. Amortization
expense was $5.5 million, $3.5 million and $2.3 million for the years ended
December 31, 1999, 1998 and 1997, respectively.

Assessment of Long-Lived Assets

  The Company periodically reviews the carrying values of its long-lived assets
(primarily property and equipment and intangible assets) whenever events or
circumstances provide evidence that suggest that the carrying amount of long-
lived assets may not be recoverable. If this review indicates that long-lived
assets may not be recoverable, the Company reviews the expected undiscounted
future net operating cash flows from its facilities, as well as valuations
obtained in connection with various refinancings. Any permanent impairment in
value is recognized as a charge against earnings in the statements of
operations. As of December 31, 1999, the Company does not believe there is any
indication that the amortization period of its long-lived assets needs to be
adjusted nor recognition of any one-time impairment. During the years ended
December 31, 1999 and 1998, the Company recorded write-downs associated with
impairment of certain of its long lived assets (see Note 7).

Earnings per Share

  In June 1997, the board of directors and shareholders of the Company approved
a reverse stock split of .6897 for one.  All references to shares and weighted
shares outstanding used in the calculation of net income per share and per share
amounts have been retroactively adjusted to reflect this reverse stock split.

  In 1997, the Company adopted SFAS No. 128, "Earnings per Share," (see Note
18).

Use of Estimates in Financial Statements

  The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Comprehensive Income

  The Company has adopted SFAS No. 130, "Reporting Comprehensive Income". SFAS
No. 130 established new rules for the reporting and display of comprehensive
income and its components. Comprehensive income (loss) equals net income (loss)
for the Company.

Recently Issued Accounting Pronouncements

  In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued and then superseded by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement No. 133."


                                     F-10
<PAGE>

These statements require that all derivatives be recognized in the statement of
financial position as either assets or liabilities and measured at fair value.
In addition, all hedging relationships must be designated, reassessed and
documented pursuant to the provisions of SFAS Nos. 133 and 137. SFAS Nos. 133
and 137 are effective for fiscal years beginning after June 15, 2000. The effect
on the financial statements upon adoption of SFAS Nos. 133 and 137 has not been
determined.

  Effective January 1, 1999, the Company adopted the provisions of the American
Institute of Certified Public Accountants Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-Up Activities."  SOP 98-5 provides guidance on
the financial reporting of start-up and organization costs and required such
costs to be expensed as incurred.  The total amount of deferred start-up and
organization costs reported as a cumulative effect of a change in accounting
method is approximately $427,000, net of tax benefits of $230,000.

Reclassifications

  Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year presentation.

2. Initial Public Offering

  In July 1997, Centennial completed an initial public offering of 4,000,000
shares of the Company's common stock at a price of $16.00 per share.  In
connection with the Offering, the Company granted the underwriters an option to
purchase up to 600,000 additional shares of the Company's common stock at the
Offering price of $16.00 per share.  This option was exercised and closed in
July 1997. Proceeds to Centennial from the Offering and the exercise of the
underwriters' option totaled approximately $66.8 million, net of underwriting
discounts and commissions and approximately $1.7 million in Offering expenses.

  The net proceeds of the Offering available to the Company were used to repay
two subordinated promissory notes aggregating $25.3 million, which accrued
interest at 10.8% and 11.7% per annum, to redeem the Series E Redeemable
Preferred Stock for $5.0 million, to repurchase approximately 84,000 shares of
Common Stock, which were received by the former holders of the Company's Series
C Preferred Stock, for approximately $1.3 million, and to repay approximately
$35.1 million outstanding under the Company's Senior Credit Facility with First
Union National Bank ("First Union") and NationsBank, N.A. ("NationsBank"), as
agents and lenders and the other lenders named therein (the "Senior Credit
Facility").

  After the closing of the Offering, with the net proceeds of the exercise of
the underwriters overallotment option, Centennial offered the former holders of
the Company's Series C Preferred Stock pro rata repurchase of their shares of
common stock received upon the conversion of their Series C Preferred Stock at
the Offering price of $16.00 per share. The Company made this repurchase offer
as consideration for the agreement by these former holders to the conversion of
the Series C Preferred Stock into common stock.  Holders of approximately 84,000
shares of the approximately 1.3 million shares available for pro rata repurchase
elected to have such shares repurchased by Centennial.  Centennial repurchased
the 84,000 shares of common stock for approximately $1.3 million.

  Centennial repaid the two subordinated promissory notes during the third
quarter of 1997, resulting in a loss on early extinguishment of debt of
approximately $537,000, net of income tax benefit of approximately $343,000.

  Concurrent with the closing of the Offering, the Company's Series A, B, C
and D Preferred Stock were converted into approximately 2.5 million shares of
common stock, net of the stock repurchase noted above; the Company's special
voting common stock was converted into common stock; and Centennial's Treasury
Stock was converted into common stock.


                                     F-11
<PAGE>

3. Mergers and Acquisitions

On October 22, 1998, Centennial announced that its Board of Directors had
approved the sale of the Company for $16.00 per share in cash to a new company,
("Centennial HealthCare Holdings Corporation"), formed by Welsh, Carson,
Anderson & Stowe, whose affiliates currently hold approximately 23% of the
Company's common stock.

On April 2, 1999, Centennial HealthCare Holdings Corporation notified the
Company that it was terminating the definitive merger agreement.  During 1998,
the Company expensed approximately $3.6 million in transaction costs associated
with the terminated merger. An additional $600,000 of merger costs were expensed
during 1999. In 1999, the Company settled several of these liabilities for
amounts less than were originally accrued and recorded a reduction in expense
of $3.1  million which is included in terminated merger transaction costs in the
December 1999 consolidated statement of operations.

In January, 1999, the Company acquired a leasehold interest in six skilled
nursing facilities, totaling 795 licensed available beds, located in
Massachusetts (the "Flatley Facilities"). The Company paid total consideration
of $4.2 million in cash and assumed liabilities for the leasehold interest as
well as the patient accounts receivable of the previous owner. Also in January,
1999, the Company acquired leasehold interests in two facilities that were
previously managed by the Company: Hunter Woods Nursing and Rehabilitation
Center, a 130-bed facility located in North Carolina ("Hunter Woods"), and
Choctaw County Medical Center, a facility with 68 nursing home beds and 22
hospital beds, located in Mississippi ("Choctaw"). The Company paid $3.7 million
and $1.4 million in cash and assumed liabilities for the leasehold interests in
Hunter Woods and Choctaw, respectively.  The Company recorded intangible assets
associated with its leasehold interests in the Flatley Facilities, Hunter Woods
and Choctaw totaling $6.5 million which are included in intangible assets in the
accompanying 1999 consolidated balance sheet.

In October 1998, the Company discontinued its operations of Wellington Nursing
and Rehabilitation Center ("Wellington") a 140-bed facility located in North
Carolina, through a sublease to a third-party operator. In November 1998, the
Company closed THS of South Bend, ("South Bend"), a 191-bed skilled nursing
facility located in Indiana, which is currently held for sale. In December 1998,
the Company converted its lease of Maple Heights of Hiawatha ("Hiawatha"), a 81-
bed facility located in Kansas, to a management contract until the sale of this
facility in June 1999.

In August 1998, the Company began leasing four skilled nursing facilities
totaling 349 licensed available beds, located in Mississippi, North Carolina,
Arkansas and Wisconsin.  One of these facilities was previously managed by the
Company.  In October 1998, the Company began leasing six skilled nursing
facilities totaling 608 licensed available beds located in Florida, Arkansas,
Kansas, and Wisconsin.  In November 1998, the Company began leasing four skilled
nursing facilities totaling 675 licensed available beds located in Florida and
Missouri. Together, these transactions are hereafter referred to as the "1998
Leases."

In January 1998, the Company entered into management agreements for six skilled
nursing facilities, with a total of 836 licensed available beds, located in
North Carolina.  These agreements were terminated in September 1999. In
February 1998, the Company entered into a management agreement for a 59-bed
rural hospital in northern Florida. In April 1998, the Company entered into
management agreements for two skilled nursing facilities, with a total of 174
licensed available beds, located in Virginia.

In December 1997, Centennial acquired a 58-bed skilled nursing facility in St.
Peterburg, Florida (the "Florida Facility"), which had previously been managed
by the Company since June 1991.  Total consideration of approximately $3.3
million included borrowings under the Senior Credit Facility of approximately



                                     F-12
<PAGE>

$1.1 million, and the reduction of a note receivable to the Company from the
Florida Facility of approximately $2.2 million.

In August 1997, Centennial acquired substantially all of the business and assets
of Complex Care, Inc. ("CCI"), a provider of physical, occupational and speech
therapy services through 45 contracts with long-term care facilities in
Connecticut and Rhode Island.  The Company paid total consideration of $7.0
million, utilizing borrowings under its Senior Credit Facility.  Additional
consideration of up to $500,000 may be paid by the Company under an earn-out
agreement. In 1998, certain conditions of the earn-out had been met and the
Company paid out approximately $250,000 to the previous owner of CCI.  The
remaining $250,000  of contingent consideration was written off to intangible
assets recorded in the purchase of CCI.

In May 1997, the Company acquired by merger Total Care Consolidated, Inc.
("Total Care"), a provider of home health services, with 25 home health offices
located primarily in North Carolina.  Total consideration of $8.0 million
consisted of $6.0 million in cash, which was funded under the Senior Credit
Facility, and $2.0 million in the form of a convertible promissory note which
was paid in full in June 1999.

In March 1997, the Company acquired a leasehold interest in a rural hospital
located in northern Florida.  In October 1996, the Company entered into a
management agreement and a lease agreement with the owner of a hospital and
three licensed home health care offices, located in northern Florida.  The
agreement provided that the Company would manage the hospital until all
necessary approvals and licenses were obtained, at which time the Company would
operate the hospital under a long-term lease.  The Company accounted for the
transaction as a management agreement beginning in October 1996; in June 1997,
all necessary approvals and licenses were obtained, and the Company has operated
the hospital under a long-term lease since that date. The Company's consolidated
financial statements include the hospitals from the effective date of the
transactions.

4. Operating Leases

At December 31, 1999, the Company operated 64 long-term care facilities and two
hospitals under operating leases with various expiration dates through 2012.
The Company entered into eight new lease agreements in 1999 and fourteen new
leases in 1998.

During 1999 and 1998, the Company financed fifteen skilled nursing facilities
under the lease component of its Senior Credit Facility (the "Lease Facility").
Five of the leases were for facilities that were previously leased by the
Company, and one of the leases was for a facility that was previously managed by
the Company.  These leases have three-year term and provide the Company with
an option to renew the leases after the initial lease term. Under the terms of
the Lease Facility, the Company is required to fund escrow deposits of $5.0
million on December 31, 2000 and $10.0 million on December 31, 2001 and 2002.

As of December 31, 1999, fifteen of the long-term care facility leases are with
affiliated entities, of which the Company or an affiliate of one of the
Company's officers serves as a general partner. At December 31, 1998 and 1997,
the Company leased two facilities from affiliated entities. The leases with
affiliated entities expire at various dates through 2006. Total lease expense to
the Company as a result of these affiliated leases was $5.0 million, $3.0 and
$3.2 million for the years ended December 31, 1999, 1998 and 1997, respectively.
In connection with one of the leases, the Company paid the affiliated lessor a
deposit of $2.9 million, which is refundable upon the termination of the lease.



                                     F-13
<PAGE>

In 1999, the Company determined that the carrying value of this deposit was
impaired due to declines in the performance of the leased facility and reduced
the value to $1.4 million. The Company had net payables to the affiliated
lessors of approximately $2.1 million and $1.6 million at December 31, 1999 and
1998, respectively.

Minimum future rent payments under the facility leases and related equipment and
office space are summarized as follows (in thousands):

Year                                       Amount
----                                      --------
2000                                      $ 33,947
2001                                        31,983
2002                                        21,063
2003                                        17,866
2004                                        16,836
Thereafter                                  80,451
                                          --------
                                          $202,146
                                          --------
5. Total Revenue

   The distribution of total revenue by class of payor for the years ended
December 31, 1999, 1998 and 1997 was as follows (in thousands):

                                                        Year ended December 31
                                                      --------------------------
Class of Payor                                         1999      1998     1997
--------------                                        -------  -------- --------
Private pay, management fee and other                 $133,415 $152,564 $120,371
Medicaid                                               164,853  119,559  111,380
Medicare                                                80,261   85,522   72,522
                                                      -------- -------- --------
                                                      $378,529 $357,645 $304,273
                                                      -------- -------- --------

  The above revenue amounts are net of third-party contractual allowances of
$47.1 million, $59.8 million and $54.2 million for the years ended December 31,
1999, 1998 and 1997, respectively.

  Included in other operating expenses is provision for bad debt of
approximately $3.6 million, $1.4 million and $863,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.

6. Property and Equipment

  Property and equipment consisted of the following at December 31, 1999 and
1998 (in thousands):

                                            1999        1998
                                          --------    --------
Land                                      $  4,595    $  4,595
Buildings and improvements                  69,523      69,098
Furniture and equipment                     23,320      17,312
                                          --------    --------
                                            97,438      91,005
Less accumulated depreciation              (21,914)    (16,192)
                                          --------    --------
                                          $ 75,524    $ 74,813
                                          ========    ========


                                     F-14
<PAGE>

  Depreciation expense for the years ended December 31, 1999, 1998 and 1997
totaled $7.1 million, $5.8 million and $4.5 million, respectively.

7. Provision for Asset Revaluation

Year Ended December 31, 1999:

In connection with the Company's facility management agreements for several
facilities, the Company has made certain advances for working capital needs. The
majority of these centers are start-up or development projects and require
additional funding for personnel and other operating costs prior to
stabilization.  The advances are to be repaid from available cashflow and other
funds provided by the owners.  It is the Company's policy to periodically review
the collectibility of its advances based upon several factors, including the
projected  cashflow of the respective facility, the value of any collateral held
by the Company, the owner's financial position and the underlying asset value of
the nursing center.  During the first six months of 1999, operating cashflow at
several of the Company's managed facilities, primarily in North Carolina,  have
declined due to deterioration in census and payor mix. In June, 1999, the
Company determined that the operational declines noted during 1999 were unlikely
to dissipate in the near term and, as a result, the ability of the respective
nursing facilities to fully repay cash advanced by the Company was impaired.
Accordingly, during the second quarter of 1999, the Company increased its
reserve for managed facility advances by $7.8 million.  The charge represents
the carrying value of advances made to the respective centers considered
impaired.

During the second quarter of 1999, the Company continued its evaluation of the
effects of the Medicare Prospective Payment System ("PPS") on the profitability
of its nursing centers and ancillary businesses.  Based on operational results
through six months under PPS, the Company noted that profitability at certain of
its nursing centers, as well as Paragon, were significantly less than amounts
projected in 1998.  Accordingly, the Company has recorded write-downs of
property and equipment and intangible assets (primarily goodwill) at several of
its nursing centers totaling approximately $1.2 million and $2.8 million,
respectively. In addition, the Company wrote off approximately $2.7 million of
goodwill associated with Paragon.  The total carrying value of goodwill as of
December 31,1999 associated with Paragon and the nursing facilities was
approximately $9.8 million and $19.6 million, respectively.

Year Ended December 31, 1998:

During the third quarter of 1998, the Company completed its review of the
effects of the upcoming prospective payment system ("PPS") on its operations.
Based upon the Company's projections of future revenue and expense changes
associated with the phase-in of PPS, the Company determined that profitability
at certain of its nursing centers acquired in the 1995 merger with Transitional
Health Services, Inc. would be less than expected.  In addition, the Company has
experienced continued declines in revenue at Total Care due to decreases in
Medicare reimbursement for home health services.  Accordingly, during 1998 the
Company recorded write-downs of property and equipment and goodwill at its
nursing centers of approximately $3.4 million and $7.6 million, respectively.
In addition, the Company wrote off approximately $1.2 million of goodwill
associated with Total Care.

In December 1995, as part of the Company's merger with THS, the Company assumed
operations of THS of South Bend, a 191-bed skilled nursing facility located in
South Bend, Indiana.  Prior to its acquisition by the Company, this facility had
a history of operating losses, had received negative state licensure surveys,
and was in jeopardy of losing its license.  At the time of the acquisition, the
Company recorded a $3.0 million reserve against a future loss on the disposition
of the facility, which the Company intended to complete within two years.  The
Company was unable to sell the facility, and as a result, management determined
that the best course of action was to close the facility.  The facility closed
in November 1998.



                                     F-15
<PAGE>

  During the third quarter of 1998, the Company recorded an estimated loss of
$4.0 million associated with the closure of this facility and the relocation of
its residents.  The Company continues to market the facility for sale, with
disposition expected by the second quarter of 1999.  As of December 31, 1999,
the carrying value of the facility was approximately $1.8 million.  The Company
suspended depreciation of these assets in August of 1998.

8. Sale of Certain Facilities

In December 1999, the Company transferred  three skilled nursing centers for net
cash proceeds of approximately $9.1 million to Five Star HealthCare Investors,
LLC ("Five Star"). Five Star was and is currently owned by the Company's chief
executive officer, Mr. Eaton, and its chief financial officer, Mr. Dahl, and
their respective spouses. The proceeds from the Five Star sale were utilized
principally to repay debt obligations of the Company. The Company continues to
manage these facilities pursuant to management agreements with Five Star which
provide for the Company to receive annual management fees equal to 6% of the
respective facility's gross revenues, payable in monthly installments. The
Company and Five Star also entered into a purchase option agreement which
provides the Company with the right to repurchase the facilities at any time
beginning one year from the sale date and ending on December 1, 2004 at a price
equal to Five Star's acquisition cost plus 4% per annum.  If the option is
exercised prior to December 1, 2001, the purchase price is equal to Five Star's
acquisition cost plus 8%.

Because of the repurchase option, the transaction is accounted for as a profit-
sharing arrangement.  No gain or loss was recorded on the transaction, and the
Company continues to maintain and depreciate the property and equipment of the
respective facilities on its balance sheet.  The net proceeds received from Five
Star in the transaction was recorded as a deposit and is included in other
liabilities in the December 31, 1999 consolidated balance sheet.


9. Long-Term Debt

   Long-term debt consists of the following at December 31, 1999 and 1998 (in
thousands):

                                            1999      1998
                                          --------  --------
Bank credit facilities                    $ 79,925  $ 78,950
Mortgage notes payable                      17,242    17,563
Other notes                                  1,776     2,663
                                          --------  --------
                                            98,943    99,176
Capital lease obligations                   16,396    17,207
                                          --------  --------
                                           115,339   116,383
Current maturities of long-term debt        (7,263)   (3,534)
                                          --------  --------
                                          $108,076  $112,849
                                          --------  --------

Bank Credit Facilities:

In July 1998, the Company expanded its Senior Credit Facility through a third
amendment to its existing second amended and restated credit agreement.  Through
this amendment, the Company's maximum aggregated advance limit was increased
from $125.0 million to $160.0 million, the term was extended to July 31, 2003
and a $40.0 million portion (the "Lease Facility") of the total $160.0 million
commitment was designated for use in financing certain Company lease
transactions.  The remaining $120.0 million portion (the "Revolver") of the
commitment was made available for financing existing indebtedness under the


                                     F-16

<PAGE>

previous Senior Credit Facility, acquisitions, capital expenditures, working
capital and general corporate purposes.

In October 1998, the Company increased amounts available under the Lease
Facility to $70.0 million with a corresponding decrease in commitments available
under the Revolver to $90.0 million to accommodate the Company's lease of two
facilities located in Missouri.

In December 1998, the Company expanded total commitments available through the
Lease Facility by $65.0 million to accommodate the Company's lease of six
properties located in Massachusetts.   Following the increase, the Company's
total Senior Credit Facility commitment was $225.0 million, of which $90.0
million was reserved for the Revolver and the remaining balance of $135.0
million was allocated for use through the Lease Facility.

In June 1999, the Company amended its Senior Credit Facility to transfer $5.7
million of availability under the Lease Facility to the Revolver.  The
amendment, coupled with previous 1998 amendments to the Lease Facility,
increased the Company's interest rate to 3.0% over LIBOR and calls for
amortization of principal, or reduction in availability, of $5.7 million on
December 31, 1999, $6.0  million on  December 31, 2000, and $12 million during
each of the years ending December 31, 2001 and 2002.

As of December 31, 1999, the Company had $74.9 million outstanding under its
Senior Credit Facility, net of issued standby letters of credit of approximately
$6.7 million, with remaining availability of $8.4 million.

Interest accrues at varying rates dependent upon underlying interest rates
and the Company's selection of loan amounts and periods. The Company can elect a
rate based on First Union National Bank's prime rate or LIBOR, each increased by
an applicable margin, as defined in the Senior Credit Facility, which varies
dependent upon the ratio of debt to earnings before interest, taxes,
depreciation, amortization and operating lease expense. The weighted average
interest rate on the Company's borrowings at December 31, 1999 was approximately
2.75% over LIBOR, or 9.2%. Interest is generally paid monthly on prime-based
borrowings and quarterly on LIBOR-based borrowings.

The Senior Credit Facility is collateralized by the stock of the Company's
subsidiaries. The Company is required to pay a fee on the average unused portion
of the commitment. With limited exceptions, proceeds from additional equity
issuances, sales of Company assets and other debt instruments must be used to
repay a portion of the outstanding borrowings under the Senior Credit Facility.

The Senior Credit Facility includes various negative covenants including
restrictions on additional loans and advances, guaranties, stock repurchases and
redemptions, and the payment of dividends. Terms of the Senior Credit Facility
require the Company to comply with certain financial and other covenants, the
violation of which could cause the amounts of outstanding principal, interest
and fees to be immediately due and payable. At December 31, 1999, the Company
was in compliance with all of its debt covenants.

In January 1999, the Company obtained a $5.0 million Line of Credit from Bank of
America, N.A. ("Bank of America"), which bears interest at Bank of America's
prime rate or 3.0% over Libor for selected portions and matured on December 31,
1999. This obligation was repaid $2.0 million in January 2000 and $3.0 million
in March 2000.

Mortgage Debt:

At December 31, 1999 and 1998, the Company had $17.2 million and $17.6 million,
respectively, of mortgage debt outstanding, including a current portion of
approximately $308,000  and $277,000, respectively. The mortgage debt requires
monthly payments of principal and interest of approximately $157,000. The debt



                                     F-17

<PAGE>

agreements are for five to twenty-year periods with amortization periods
covering twenty to twenty-five years. At December 31, 1999, interest rates on
the mortgages range from 7.3% to 10.50%. These debts are collateralized by real
property.

  Future maturities of mortgage debt are summarized as follows (in thousands):

2000                                 $   308
2001                                   4,902
2002                                   6,369
2003                                     157
2004                                     170
Thereafter                             5,336
                                     -------
                                     $17,242
                                     =======

Capital Leases:

  The following is a schedule of future minimum lease payments under capital
leases together with the present value of the net minimum lease payments as of
December 31, 1999 (in thousands):

                                                            Nursing
Year ending December 31                        Equipment   Facilities    Total
                                               ---------   ----------   -------
2000                                              $25        $ 2,468    $ 2,493
2001                                               25          2,468      2,493
2002                                               20          2,468      2,488
2003                                                -          2,468      2,468
2004                                                -          2,468      2,468
Thereafter                                          -         16,038     16,038
                                                  ---        -------    -------
Total minimum lease payments                       70         28,378     28,448
Less amount representing interest                  12         12,040     12,052
                                                  ---        -------    -------
Present value of minimum lease payment             58         16,338     16,396
Current portion                                    17            857        874
                                                  ---        -------    -------
Noncurrent portion                                $41        $15,481    $15,522
                                                  ===        =======    =======

  The capital lease agreements include rent escalation clauses based on
contingent factors such as increases in the consumer price index or annual
increases in a facility's revenues and have resulted in increased current and
future lease payments. The interest rate on the capital leases is based on the
Company's borrowing rate at the time a lease is executed. The average interest
rate on nursing facilities and equipment was 10.00% and 12.00%, respectively.



                                     F-18


<PAGE>

10. Equity Transactions

  The Company has stock options outstanding under the 1994 Stock Option Plan,
the 1996 Executive Stock Plan, the 1996 Employee Stock Option Plan, and the 1997
Stock Plan (collectively referred to as the "Stock Option Plans").

  The 1994 Stock Option Plan and the 1996 Executive Stock Plan provide that
options may be granted to officers, directors and key employees; options vest
based upon either years of service, or at various intervals from 1996 through
2000. The 1996 Employee Stock Option Plan provides that options may be granted
to certain employees; options vest at various intervals through 1998. The 1997
Stock Plan provides that options may be granted to officers, non-employee, non-
affiliated directors and key employees at an exercise price and vesting schedule
to be determined by the compensation committee of the board of directors at the
time of grant.  The options granted pursuant to the 1997 Stock Plan vest over
various schedules from 1998 through 2001.

  All stock options have been granted with exercise prices equal to or greater
than the estimated fair market value of the common stock on the date of grant
and are exercisable for up to ten years, as determined by the Company's board of
directors.

  Stock option transactions are summarized as follows:

<TABLE>
<CAPTION>

                                                                                Year Ended December 31
                                                       ---------------------------------------------------------------------------
                                                              1999                         1998                       1997
                                                       ----------------------       --------------------      --------------------
                                                                     Weighted                   Weighted                  Weighted
                                                                     Average                    Average                   Average
                                                                     Exercise                   Exercise                  Exercise
                                                       Shares          Price        Shares       Price        Shares        Price
                                                       ------        --------       ------      --------      ------      --------
<S>                                                    <C>           <C>            <C>         <C>           <C>         <C>
Options outstanding--beginning of period.............  895,442        $17.58        526,782      $ 13.47      355,160      $ 12.09
Granted..............................................    8,276          5.47        517,280        20.41      183,340        16.00
Exercised............................................        -             -        (86,231)      (10.61)      (4,115)       (8.74)
Forfeited............................................  (50,000)        20.63        (62,389)      (16.03)      (7,603)      (11.68)
                                                       -------                      -------                   -------
Options outstanding-end of period....................  853,718        $17.28        895,442      $ 17.58      526,782      $ 13.47
                                                       =======        ======        =======      =======      =======      =======

Weighted average fair value of options granted
   during the period.................................                 $ 5.47                     $ 12.23                   $  6.40

</TABLE>

  The fair value of each option is estimated on the grant date using the Black-
Scholes option pricing model with the following weighted average assumptions:

                                       1999    1998     1997
                                       ----    -----    -----
Expected volatility................... 66.4 %  66.4 %   41.0 %
Risk-free interest rate...............  5.85%   5.32%    6.15%
Expected term.........................    5       5        4
Dividend yield........................    0 %     0 %      0 %

  The following table summarizes information about outstanding and exercisable
stock options at December 31, 1999:



                                     F-19
<PAGE>

<TABLE>
<CAPTION>

                                   Options Outstanding        Options Exercisable
                                   ---------------------    ------------------------
                                                Weighted
                                                Average                  Weighted
                                               Remaining                 Average
                                              Contractual                Exercise
  Exercise Prices                  Shares        Life       Shares        Price
  ---------------                  -------    -----------   -------    -------------
<S>                                <C>        <C>           <C>        <C>
  $ 5.00-$10.00...................  68,956    2.5-9.5 yrs    60,680    $ 5.00-$10.00
   10.01- 15.00................... 201,580    6.0-8.5 yrs   196,302     10.01- 15.00
   15.01- 20.00................... 175,622    8.0-9.0 yrs   157,787     15.01- 20.00
   20.01- 24.00................... 407,000    8.0-8.5 yrs   259,055     20.01- 24.00

</TABLE>

  The Company applies APB Opinion No. 25 and related interpretations in
accounting for fixed stock option plans. Accordingly, no compensation cost has
been recognized for the fixed stock option plans. Had compensation cost been
based on the estimated fair value at the grant dates for awards under those
plans consistent with the method of FASB Statement No. 123, the net effect on
net income (loss) and income (loss) per share for the years ended December 31,
1999, 1998 and 1997 would have been reduced to the pro forma amounts indicated
below:

                                                1999     1998      1997
                                              --------  -------   ------
Pro forma net income (loss) (in thousands)    $(27,230) $(1,709)  $9,582
                                              --------  -------   ------
Pro forma income (loss) applicable to
 common stock:
   Basic....................................  $  (2.28) $ (0.14)  $ 0.45
                                              --------  -------   ------
   Diluted..................................  $  (2.28) $ (0.14)  $ 0.44
                                              --------  -------   ------

11. Income Taxes

  The components of the income tax provision (benefit) for the years ended
December 31, 1999, 1998 and 1997 are as follows (in thousands):

                                                   Year ended December 31
                                                 ---------------------------
                                                   1999       1998     1997
                                                 --------   -------   ------
Current
   Federal....................................   $      -   $ 3,302   $  525
   State......................................        582     1,032    2,394
                                                 --------   -------   ------
                                                      582     4,334    2,919
                                                 --------   -------   ------
Deferred
   Federal....................................    (12,541)   (2,002)   4,849
   State......................................     (1,206)     (828)    (968)
                                                 --------   -------   ------
                                                  (13,747)   (2,830)   3,881
                                                 --------   -------   ------
Total provision (benefit).....................   $(13,165)  $ 1,504   $6,800
                                                 --------   -------   ------

  Reconciliations of the differences between income taxes computed at federal
statutory tax rates and consolidated provisions (benefit) for income taxes for
the years ended December 31, 1999, 1998 and 1997 are as follows (in thousands):

                                                   Year ended December 31
                                                 ---------------------------
                                                   1999       1998     1997
                                                 --------   -------   ------
Tax at U.S statutory rate.....................   $(13,049)  $   499   $5,929
State income taxes............................     (1,919)      396      598
Goodwill amortization.........................        200       546      253
Increase in valuation reserve.................        700         -        -
Other.........................................        903        63       20
                                                 --------   -------   ------
   Provision (benefit) for more taxes.........   $(13,165)  $ 1,504   $6,800
                                                 ========   =======   ======


                                     F-20

<PAGE>

  Deferred tax assets and liabilities are comprised of the following at December
31, 1999 and 1998 (in thousands):

                                                         1999       1998
                                                       --------   -------
Current deferred income tax assets:
   Allowances for uncollectible receivables........... $ 3,852    $   326
   Liabilities not deductible for tax purpose.........   3,134      3,412
   Accrued closing costs..............................       -          -
                                                       -------    -------
     Current deferred income taxes.................... $ 6,986    $ 3,738
                                                       =======    =======

Noncurrent deferred income tax assets (liabilities):
   Temporary goodwill................................. $ 3,815    $ 1,875
   Write-up of property and equipment.................  (1,606)    (2,034)
   Net operating loss and tax credit carryforward.....   8,261      1,815
   Tax basis receivables in excess of book............   2,733          -
   Net effects of capital leases......................   1,539      1,539
   Valuation allowance................................    (700)         -
   Other..............................................     255        301
                                                       -------    -------
     Long-term deferred income taxes.................. $14,297    $ 3,496
                                                       -------    -------

  As of December 31, 1999, the Company had approximately $22.2 million of
federal net operating loss carryforwards available to offset future taxable
income through 2019. In addition, the Company had various state net operating
loss carryforwards and approximately $1.6 million of AMT credit carryforwards.

  Due to some uncertainty surrounding the realization of the future benefit of
the deferred tax assets, the Company established a valuation allowance of
$700,000 against the deferred tax assets as of December 31, 1999.

12. Management Agreements

  As of December 31, 1999, the Company provided operational management services
for 30 facilities under long-term management contracts having remaining
effective terms ranging from 5 to 17 years. The management agreements provide
for the Company to receive annual fees ranging from 6.0% to 6.5% of each
facility's gross revenues, payable on a monthly basis and may include additional
compensation based on achieving certain performance standards. The agreements
also may include provisions for additional fees for management services outside
the scope of regular operational services performed.

  The Company recorded fees totaling approximately $145,000 during the year
ended December 31, 1997 as a result of a management agreement with an affiliate;
the related facility was purchased by the Company in December 1997. Five
management agreements, (three of which were terminated during 1998 and two of
which were terminated in 1997), with fees totaling approximately $172,000 and
$898,000 during the years ended December 31, 1998, 1997, respectively, were
with affiliated limited partnerships in which certain subsidiaries of the
Company served as general partner and can be terminated by either party without
cause given sixty days notice.

  The Company also performs oversight management services for three facilities
in which it oversees the management of another management company. The Company
typically receives a fee of 1% of revenues for oversight management services.



                                     F-21

<PAGE>

  In connection with the Company's facility management agreements for several
facilities located primarily in North Carolina and Florida, the Company has made
certain advances for working capital needs.  The majority of these centers are
start-up or development projects and require additional funding for personnel
and other operating costs prior to stabilization.  The advances are to be repaid
from available cash flows from the respective facilities and from other funds
provided by the owners of the facilities and earn interest at varying rates
based on the prime lending rate.  Advances outstanding as of December 31, 1999
and 1998 were $20.5 million and $19.7 million, respectively, (net of valuation
reserves of $9.3  million and $1.3 million in 1999 and 1998, respectively) and
are included in notes and advances receivable in the accompanying consolidated
balance sheets.

  During 1996, the Company advanced approximately $10.0 million pursuant to two
promissory notes in the amounts of $5.5 million and $4.5 million to
unaffiliated owners of eight managed facilities in North Carolina.  The advances
were utilized by the owners to purchase the related facilities or facility
leasehold interest with respect to these facilities that are managed by the
Company.  The promissory notes are due on December 31, 2006 and earn interest at
the greater of a specified prime rate plus 3%, or 12%.  Both notes are
collateralized by receivables and the pledge of the stock of the respective
owners and are included in notes and advances receivable in the accompanying
balance sheets.

13. Transactions with Related Parties

  At December 31, 1999, the Company had employment agreements with four officers
which provide for salary continuation and noncompetition with the Company,
subject to certain conditions.

  The Company leased fourteen long-term care facilities from affiliated lessors.

  During the year ended December 31, 1998, the Company managed four long-term
care facilities for affiliated limited partnerships in which the Company serves
as a general partner.

  Beginning December 1, 1999, the Company managed five facilities owned by two
of the Company's executive officers.

  Centennial leases its facilities' employees from an affiliated company which
is owned by the president of the Company. The total payroll costs and
reimbursements from the Company totaled $98.1 million, $49.1 million and $37.2
million for the years ended December 31, 1999, 1998 and 1997, respectively. Such
costs are billed by the related entity at cost.

14. Commitments and Contingencies

Industry Risk

  The health care industry is subject to numerous laws and regulations. The
subjects of such laws and regulations include, but are not limited to, matters
such as licensure, accreditation, government health care program participation
requirements, reimbursement for patient services, and Medicare and Medicaid
fraud and abuse. Recently, government activity has increased with respect to
investigations and/or allegations concerning possible violations of fraud and
abuse and false claims statutes and regulations by health care providers.
Entities that are found to have violated these laws and regulations may be
excluded from participating in government health care programs, subjected to
fines or penalties or required to repay amounts received from the government for
previously billed patient services.



                                     F-22

<PAGE>

Litigation

     On February 28, 2000, a complaint was filed in the Superior Court of Fulton
County by Crandon Capital Partners, as a purported class action, against
Centennial and each of its directors.  The complaint, styled Crandon Capitol
Partners v. Eaton, et al, seeks compensatory damages and injunctive relief
arising from the merger agreement among Centennial, Holding and Acquisition.
The complaint alleges the individual defendants breached their fiduciary duties
in connection with the merger by, among other things, failing to conduct an
auction or other suitable market check, failing to consider other strategic
alternatives and accepting insufficient consideration.  Centennial believes that
the claims are without merit and will defend vigorously.

  On March 26, 1999, the Company received an investigatory subpoena from the
Department of Health and Human Services, Office of the Inspector General,
requesting records in connection with an investigation of possible or otherwise
improper claims for payment under Title XVIII (Medicare) of the Social Security
Act. The request relates to records for the period January 1, 1994 to the
present concerning certain of the Company's internal policies. The Company is
providing all requested records and is cooperating fully with the
investigation. There can be no certainty at this time that this matter will be
resolved. Resolution of this matter could have a material adverse effect on the
Company.

  On December 3, 1999, a Missouri facility that the Company has leased and
operated since October 31, 1999 received a subpoena from the United States
Attorney's Office for the Western District of Missouri. The subpoena sought
records for five individuals who resided in the Missouri facility during the
period January 1, 1998 through the date of the subpoena and billing and
staffing records related to these residents and the facility. The facility has
provided the requested records and the Company is cooperating with the
government's review.

  As of December 31, 1999, the Company did not have any other pending legal
proceedings that separately, or in the aggregate, if adversely determined, would
have a material adverse effect on the Company. The Company is, and may be, from
time to time, party to litigation or administrative proceedings which arise in
the normal course of business.

Other

  Under the provisions of the Senior Credit Facility, Centennial is required to
hedge a portion of its floating rate debt outstanding under the Senior Credit
Facility. Effective April 20, 1998, the Company entered into an interest rate
swap agreement with First Union. Through the agreement, the Company has
exchanged its floating rate interest obligations on $18.0 million in principal
at a fixed rate of 5.65% per annum for a period of five years. First Union has
the option of canceling the agreement on April 19, 2001.  The fixing of interest
rates for this period reduces in part the Company's exposure to the uncertainty
of floating interest rates.  The differential paid or received on the interest
rate swap agreement is recognized as an adjustment to interest expense.

  Effective October 1998, the Company entered into two additional interest rate
swap agreements, one with NationsBank and one with Credit Lyonnais Americas,
whereby the Company exchanged its floating rate interest obligations on a total
of $20.0 million in principal at a fixed rate of 5.57% per annum for a period of
five years. Both NationsBank and Credit Lyonnais Americas have the option of
canceling their respective agreements at the end of three years from the
effective dates.

  The Company is exposed to credit loss in the event of nonperformance by First
Union, NationsBank, and/or Credit Lyonnais Americas.  However, the Company does
not anticipate nonperformance by these parties, and no material loss would be
expected from their nonperformance.  The fair value of the interest rate swap
agreements was not recognized in the consolidated financial statements since
they are accounted for as hedges.  At December 31, 1999, the estimated fair
value of the interest rate swap agreements, based on current market rates,
approximated a net receivable of approximately $528,000.

  Prior to 1998, Centennial self-insured for workers' compensation claims for
its employees. The Company maintained stop-loss insurance such that the
Company's liability for losses is limited. Beginning January 1998, the Company
entered into a guaranteed cost insurance program for workers' compensation.
Beginning in July 1999, the Company increased the deductible under its general
and professional liability insurance policies from $25,000 per occurrence to
$150,000 per occurrence with a $5.0 million aggregate limit. The Company is
self-insured for its employee group health program but carries excess insurance
with commercial carriers for losses above $75,000 per participant. The provision
for estimated workers' compensation, general liability and health insurance
claims includes estimates of the ultimate costs for both reported claims and
claims incurred but not reported ("IBNR"). The Company accrues for IBNR claims
for its general and professional liability and workers' compensation on a
discounted basis.

15. Employee Benefits

  The Company has 401(k) savings plans available to substantially all employees
depending on their length of service. Employees may defer up to 15% of their
salary, subject to the maximum permitted by law. The Company may, at its
discretion, match a portion of the employee contribution. The Company

                                     F-23


<PAGE>

funded approximately $27,000, $161,000 and $363,000 during the years ended
December 31, 1999, 1998 and 1997, respectively, as a match to the employee
contributions.

16. Disclosures About Fair Value of Financial Instruments

  The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

Cash and Cash Equivalents

  The carrying amount approximates fair value because of the short maturity of
those instruments and includes restricted cash reflected on the balance sheet
under the caption "Other Assets."

Notes Receivable and Advances

  The carrying amount approximates fair value for the notes receivable. The fair
value is estimated as the net present value of cash flows that would be received
on the notes over the remaining term of the notes using current market interest
rates rather than stated interest rates.

Long-Term Debt

  The carrying amount of the Credit Agreement approximates fair value since the
Credit Agreement was recently renegotiated at market rates. The carrying amount
of mortgage notes approximates their values based on the net present value of
cash flows that would be paid on each note over the remaining note term using
the Company's current incremental borrowing rate rather than the stated interest
rates on the notes.

17. Segment Information

  In 1998, Centennial adopted SFAS No. 131.  The Company has determined that its
reportable segments are those that are based on the Company's method of internal
reporting, which disaggregates its business by services provided.  The Company's
reportable segments are management services/corporate, long-term care facilities
and rehabilitative therapy services. Management fee revenues and all corporate
expenses and overhead are recorded in the management services/corporate segment.
The long-term care facilities segment provides basic healthcare services to
patients in a long-term care setting, including skilled nursing and support,
housekeeping, laundry, dietary, recreational and social services.  The
rehabilitative therapy services segment provides specialty healthcare services,
including comprehensive rehabilitation therapy, respiratory therapy and infusion
therapy.  The "All Other" category represents the Company's hospital services,
home health services, and the Company's subsidiary providing intravenous therapy
and other services.

  The accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies," except that income tax expense is
allocated to the segments by an application of the company wide effective rate
to the profit/loss of each segment.  Centennial evaluates the performance of its
segments and allocates resources to them based on earnings before interest,
taxes, depreciation, and amortization ("EBITDA").

  The tables below presents information about EBITDA and total assets used by
the chief operating decision maker of Centennial as of and for the years ended
December 31, 1999, 1998 and 1997:


                                     F-24
<PAGE>

<TABLE>
<CAPTION>
1999:                                                                Rehabil-
(in thousands)                  Management        Long-Term          itative
                                 Services/           Care            Therapy        All          Reconciling
                                 Corporate        Facilities        Services       Other           Items           Total
----------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>               <C>                <C>          <C>            <C>             <C>
Revenues                        $ 10,413          $309,219          $37,464       $46,717        $(25,284)       $378,529
EBITDA                           (10,982)           10,974            1,320        (4,588)              -          (3,276)
Total Assets                     130,649           124,762           16,282        18,784         (26,132)        264,345


1998:                                                                Rehabil-
(in thousands)                  Management        Long-Term          itative
                                 Services/           Care            Therapy        All          Reconciling
                                 Corporate        Facilities        Services       Other           Items           Total
----------------------------------------------------------------------------------------------------------------------------------

Revenues                        $ 15,842          $248,007          $72,255       $50,265        $(28,724)(1)     357,645
EBITDA                           (11,321)           15,931            9,045         4,259               -          17,914
Total Assets                     128,007           140,250           24,684        25,002         (32,611)(2)     285,332


1997:                                                                Rehabil-
(in thousands)                  Management        Long-Term          itative
                                 Services/           Care            Therapy        All          Reconciling
                                 Corporate        Facilities        Services       Other           Items           Total
----------------------------------------------------------------------------------------------------------------------------------
Revenues                        $  8,237          $228,490          $52,603       $31,174        $(16,231)       $304,273
EBITDA                            (3,593)           23,877            6,764         5,171               -          32,219
Total Assets                     109,206           126,130           16,267        18,222         (26,176)        243,649
</TABLE>


1. Represents elimination of intersegment revenue
2. Represents elimination of intersegment receivables and unallocated corporate
   purchase adjustments


                                     F-25
<PAGE>

Specified items included in segment profit/loss for the years ended December 31,
1999, 1998 and 1997:

<TABLE>
<CAPTION>

1999:                                                                Rehabil-
(in thousands)                  Management        Long-Term          itative
                                 Services/           Care            Therapy        All
                                 Corporate        Facilities        Services       Other           Total
----------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>              <C>               <C>           <C>             <C>
Interest revenue                 $  1,388         $     45          $    16       $    30         $  1,479
Interest expense                   (5,183)          (5,615)            (632)         (620)         (12,050)
Depreciation & amortization        (4,626)          (5,498)          (1,899)         (565)         (12,588)
Income tax benefit                  6,459            3,728            1,359         1,619           13,165
Terminated merger costs             2,583                -                -             -            2,583
Provision for asset
 revaluation                       (1,285)         (10,558)          (2,687)            -          (14,530)
Minority interest                    (226)               -                -             -             (226)
Cumulative effect of
 accounting change                   (427)               -                -             -             (427)
Net loss                          (12,300)          (6,924)          (2,522)       (4,124)         (25,870)


1998:                                                                Rehabil-
(in thousands)                  Management        Long-Term          itative
                                 Services/           Care            Therapy        All
                                 Corporate        Facilities        Services       Other           Total
----------------------------------------------------------------------------------------------------------------------------------
Interest revenue                  $ 1,672          $    88          $   160       $    91          $ 2,011
Interest expense                   (2,294)          (5,541)            (630)         (700)          (9,165)
Depreciation and amortization      (2,560)          (4,516)          (1,745)         (471)          (9,292)
Income tax benefit/(expense)        5,835           (2,325)          (2,664)       (2,350)          (1,504)
Minority interest (net of tax)       (279)               -                -             -             (279)
Net income (expense)               (9,126)           3,637            4,167         1,007             (315)

1997:                                                                Rehabil-
(in thousands)                  Management        Long-Term          itative
                                 Services/           Care            Therapy        All
                                 Corporate        Facilities        Services       Other           Total
----------------------------------------------------------------------------------------------------------------------------------
Interest revenue                  $   467          $    56          $    81       $    32          $   636
Interest expense                   (3,050)          (4,883)            (263)         (462)          (8,658)
Depreciation and amortization      (1,631)          (3,998)            (858)         (273)          (6,760)
Income tax benefit (expense)        3,204           (5,870)          (2,233)       (1,901)          (6,800)
Minority interest (net of tax)       (252)               -                -             -             (252)
Extraordinary loss (net of tax)      (537)               -                -             -             (537)
Net income (expense)               (5,798)           9,181            3,492         2,973            9,848

</TABLE>


                                     F-26
<PAGE>

The majority of the Company's revenues comes from contracts with third-party
payors, primarily Medicare and Medicaid programs. The tables below represent a
summary of the Company's revenues from Medicare and Medicaid programs by
reporting segment for the years ending December 31, 1999, 1998 and 1997:


<TABLE>
<CAPTION>
1999:                                                                Rehabil-
(in thousands)                  Management        Long-Term          itative
                                 Services/           Care            Therapy        All                         % of Total
                                 Corporate        Facilities        Services       Other           Total         Revenues
----------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>              <C>               <C>           <C>             <C>           <C>
Revenues from:
Medicare                         $ -              $ 71,600              $ -        $8,661        $ 80,261          21.2%
Medicaid                           -               164,853                -            -          164,853          43.6%
</TABLE>


<TABLE>
<CAPTION>
1998:                                                                Rehabil-
(in thousands)                  Management        Long-Term          itative
                                 Services/           Care            Therapy        All                         % of Total
                                 Corporate        Facilities        Services       Other           Total         Revenues
----------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>              <C>               <C>           <C>             <C>
Revenues from:
Medicare                            $ -          $ 77,012              $ -        $8,510        $ 87,522            23.9%
Medicaid                              -           119,559                -            -          119,559            33.2%
</TABLE>

<TABLE>
<CAPTION>
1997:                                                                Rehabil-
(in thousands)                  Management        Long-Term          itative
                                 Services/           Care            Therapy        All                         % of Total
                                 Corporate        Facilities        Services       Other           Total         Revenues
----------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>              <C>               <C>           <C>             <C>
Revenues from:
Medicare                            $ -          $ 68,296              $ -        $4,226        $ 72,522            23.8%
Medicaid                              -           111,380                -            -          111,380            36.6%
</TABLE>



18.  Earnings per Share

In 1997, Centennial adopted SFAS No. 128, "Earnings per Share." Prior year
amounts have been restated in accordance with SFAS No. 128. Basic earnings per
share are computed by dividing income applicable to common stock by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share are computed similarly but reflects the potential dilution that could
occur if options were exercised or convertible securities were converted into
common stock. The accretion and dividends accrued on Series A and B Preferred
Stock and the accretion and dividends on Series C Preferred Stock was deducted
from net income in the computation of net income applicable to common stock in
1997. The following table calculates basic earnings per share and diluted
earnings per share at December 31:


                                     F-27
<PAGE>

<TABLE>
<CAPTION>
                                                                                         1999       1998      1997
                                                                                      ----------  --------  ---------
<S>                                                                                   <C>         <C>       <C>

 Income (loss) before extraordinary loss and cumulative effect of change in
 accounting method................................................................     $(25,443)  $  (315)   $10,385
 Deduct: dividends and accretion of preferred stock...............................            -         -      5,873
                                                                                       --------   -------    -------
 Income (loss) applicable to common stock before extraordinary loss and cumulative
 effect of change in accounting method............................................      (25,443)     (315)     4,512
 Extraordinary loss on extinguishment of debt.....................................            -         -       (537)
 Cumulative effect of change in accounting method.................................         (427)        -          -
                                                                                       --------   -------     ------
 Income (loss) applicable to common stock.........................................      (25,870)     (315)     3,975
 Average common shares outstanding (in thousands).................................       11,906    11,906      8,289

 Basic earnings per common share:
 Income (loss) applicable to common stock before extraordinary loss and cumulative
 effect of change in accounting method............................................     $  (2.13)  $ (0.03)    $ 0.54
 Extraordinary loss on extinguishment of debt.....................................            -         -      (0.06)
 Cumulative effect of change in accounting method.................................        (0.04)        -          -
                                                                                       --------   -------     ------
 Basic earnings (loss) per common share...........................................     $  (2.17)  $ (0.03)    $ 0.48
                                                                                       ========   =======     ======

 Income (loss) before extraordinary loss and cumulative effect of change in
 accounting method................................................................     $(25,443)  $  (315)    $4,511
 Add: Interest savings on convertible debt........................................            -         -         65
                                                                                       --------   -------     ------
                                                                                        (25,443)     (315)     4,576
 Extraordinary loss on extinguishment of debt.....................................            -         -       (537)
 Cumulative effect of change in accounting method.................................         (427)        -          -
                                                                                       --------   -------     ------
 Income (loss) applicable to common stock.........................................      (25,870)     (315)     4,039
 Average common shares outstanding (in thousands).................................       11,923    11,906      8,289
 Add: options (in thousands)......................................................            -       172        173
                                                                                       --------   -------     ------
 Average diluted common shares outstanding (in thousands).........................       11,923    12,078      8,462
 Diluted earnings (loss) per common share:
 Income (loss) applicable to common stock before extraordinary loss and cumulative
 effect of change in accounting method............................................     $  (2.13)  $ (0.03)    $ 0.54
 Extraordinary loss on extinguishment of debt.....................................            -         -      (0.06)
 Cumulative effect of change in accounting method.................................        (0.04)        -          -
                                                                                       --------   -------     ------
 Diluted earnings (loss) per common share.........................................     $  (2.17)  $ (0.03)    $ 0.48
                                                                                       ========   =======     ======

</TABLE>

19. Subsequent Events

On February 25, 2000, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Hilltopper Acquisition Corp. (the "Acquisition") a


                                     F-28
<PAGE>

wholly owned subsidiary of Hilltopper Holding Corp., ("Holding") which is a
wholly owned subsidiary of Warburg, Pincus Equity Partnership, L.P. ("Warburg").
Pursuant to the terms of the Merger Agreement, Acquisition began a cash tender
offer for all outstanding shares of the Company at $5.50 per share. Warburg must
beneficially own a minimum of 68.5 percent of the shares (on a fully diluted
basis) as a condition to the consummation of the tender offer. The tender offer
is not subject to a financing contingency but is subject to the approval of
certain lenders, lessors and governmental authorities and other conditions. A
special committee of independent directors of the Company recommended that the
merger and tender offer transactions be approved by the Board of Directors of
the Company. The Board of Directors approved the merger and tender offer
transactions and recommended that the shareholders approve the merger and tender
their shares pursuant to the tender offer. The Company's executive management
and certain private equity shareholders representing about 39.5 percent of the
Company's outstanding shares will become shareholders of Holding and have agreed
to vote their shares in favor of the transaction. J. Stephen Eaton will remain
as the Company's chairman and chief executive.

20. Quarterly Financial Information (Unaudited)

The table below sets forth summarized quarterly financial data for the years
ended December 31, 1999 (amended) and 1998 (in thousands, except per share
data):

<TABLE>
<CAPTION>
                                                              1999
                                            ----------------------------------------
                                             First     Second      Third     Fourth
                                            Quarter    Quarter    Quarter    Quarter
                                            -------    -------    -------    -------
<S>                                         <C>        <C>        <C>        <C>

Total revenues...........................   $96,226    $98,042    $97,956   $ 86,305
Net loss.................................    (1,753)    (9,552)    (1,092)   (13,473)
Net loss applicable to
   common shareholders...................   $(1,753)   $(9,552)   $(1,092)  $(13,473)
                                            =======    =======    =======   ========
Loss applicable to common stock and
   equivalents:
   Basic:                                   $ (0.15)   $ (0.80)   $ (0.09)  $  (1.13)
                                            =======    =======    =======   ========
   Diluted:                                 $ (0.15)   $ (0.80)   $ (0.09)  $  (1.13)
                                            =======    =======    =======   ========
Weighted average common shares
   outstanding:
   Basic.................................    11,924     11,923     11,923    11,923
   Diluted...............................    11,956     11,923     11,923    11,923
Common stock market prices:
   High..................................   $ 15.56    $ 10.00    $  5.53   $  3.56
   Low...................................   $  8.00    $  1.00    $  2.63   $  2.22
</TABLE>


                                     F-29
<PAGE>

<TABLE>
<CAPTION>
                                                              1998
                                            ----------------------------------------
                                             First     Second      Third     Fourth
                                            Quarter    Quarter    Quarter    Quarter
                                            -------    -------    -------    -------
<S>                                          <C>       <C>        <C>        <C>
Total revenues...........................   $87,072    $87,900    $89,585    $93,088
Net income (loss)........................   $ 3,826    $ 3,834    $(7,363)   $  (612)
Net income (loss) applicable to
   common shareholders...................   $ 3,826    $ 3,834    $(7,363)   $  (612)
                                            =======    =======    =======    =======
Income (loss) applicable to common stock
   and equivalents:
   Basic:                                   $  0.32    $  0.32    $ (0.62)   $ (0.05)
                                            =======    =======    =======    =======
   Diluted:                                 $  0.31    $  0.32    $ (0.62)   $ (0.05)
                                            =======    =======    =======    =======
Weighted average common shares
   outstanding:
   Basic.................................   11,866      11,910     11,924     11,924
   Diluted...............................   12,202      12,215     11,942     11,944

Common stock market prices:
   High..................................  $25.125     $25.000    $20.375    $15.500
   Low...................................  $19.625     $16.438    $ 7.500    $ 7.375
</TABLE>


                                     F-30
<PAGE>

Schedule II - Valuation and Qualifying Accounts for the Years Ended
     December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                           Balance at    Charged to     Balances                  Balance at
                                          Beginning of    Cost and      Written                     End of
                                              Year        Expense         off          Other         Year
                                          ------------------------------------------------------------------
<S>                                       <C>            <C>            <C>            <C>        <C>

December 31, 1999
Allowance for doubtful
accounts (deducted from
accounts receivable)....................    $4,963        $3,605       $(2,288)       $  146 (1)    $6,426

December 31, 1998
Allowance for doubtful
accounts (deducted from
accounts receivable)....................    $2,998        $1,432       $(1,874)       $2,407 (1)    $4,963

December 31, 1997
Allowance for doubtful
accounts (deducted from
accounts receivable)....................    $2,472        $  863       $  (637)       $  300 (2)    $2,998
</TABLE>
----------------------------------------------------
(1) Allowance on accounts receivable purchased during the respective years
    in connection with several nursing facility acquisitions.
(2) Allowance transferred from notes receivable.

                                     F-31
<PAGE>

                                 Exhibit Index


Exhibit                           Description
-------    --------------------------------------------------------------------
 3.1   --  Third Amended and Restated Articles of Incorporation of the Company
           (incorporated by reference to Exhibit 3.1 of the Company's
           Registration Statement on Form S-1, Registration No. 333-24267, as
           amended).

 3.2   --  Amended and Restated Bylaws of the Company (incorporated by reference
           to Exhibit 3.2 of the Company's Registration Statement on Form S-1
           Registration No. 333-24267, as amended).

 4.1   --  Third Amended and Restated Articles of Incorporation of the Company,
           including, without limitation Article III and Article VII
           (incorporated by reference to Exhibit 3.1 of the Company's
           Registration Statement on Form S-1, Registration No. 333-24267, as
           amended).

10.1   --  WelCare International, Inc. 1994 Employee Stock Option Plan
           (incorporated by reference to Exhibit 10.1 of the Company's
           Registration Statement on Form S-1, Registration No. 333-24267, as
           amended).

10.2   --  WelCare International, Inc. 1996 Executive Stock Plan (incorporated
           by reference to Exhibit 10.2 of the Company's Registration Statement
           on Form S-1, Registration No. 333-24267, as amended).

10.3   --  WelCare International, Inc. 1996 Employee Stock Option Plan
           (incorporated by reference to Exhibit 10.3 of the Company's
           Registration Statement on Form S-1, Registration No. 333-24267, as
           amended).

10.4   --  Centennial HealthCare Corporation 1997 Stock Plan (incorporated by
           reference to Exhibit 10.4 of the Company's Registration Statement on
           Form S-1, Registration No. 333-24267, as amended).

10.5   --  Second Amended and Restated Credit Agreement dated December 16, 1997
           by and among Centennial HealthCare Corporation and the Borrowers
           named therein, the Lenders named therein, and Core States Bank, N.A.
           and NationsBank, N.A., as lenders and agents for the lenders named
           therein

10.6   --  Amended and Restated Employment Agreement between Welcare
           International, Inc. and J. Stephen Eaton dated December 31, 1995
           (incorporated by reference to Exhibit 10.6 of the Company's
           Registration Statement on Form S-1, Registration No. 333-24267, as
           amended).

10.7   --  Amended and Restated Employment Agreement between Paragon
           Rehabilitation, Inc. and Laurence W. Lepley, Jr. dated as of January
           1, 1998 (incorporated by reference to Exhibit 10.7 of the Company's
           Annual Report on Form 10-K for the fiscal year ended December 31,
           1997).

10.8   --  Lease between Grant Park Nursing Home L.P. and WelCare Acquisition
           Corp. n/k/a Centennial Acquisition Corporation ("CAC") commencing on
           January 1, 1998 (incorporated by reference to Exhibit 10.9 of the
           Company's Registration Statement on Form S-1, Registration No. 333-
           24267, as amended).

10.9   --  Amended and Restated Lease Agreement by and between Aston Woods
           Limited Partnership and WelCare/Ashton Properties, Inc. n/k/a
           Centennial/Ashton Properties Corporation ("CAPC"), dated December
           20, 1994 (incorporated by reference to Exhibit 10.11 of the Company's
           Registration Statement on Form S-1, Registration No. 333-24267, as
           amended).