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      Unassociated Document

    Writer's
      Direct Line: (614) 628-0788

      Writer's
        E-Mail Address: mas@cpmlaw.com

    May
      18,
      2006

    Mr.
      Jeffrey T. Weaver
Assistant
      Director

    Securities
      and Exchange Commission

    450
      Fifth
      Street, N.W.

    Mail
      Stop
      03-04

    Washington,
      D.C. 20549

              Re:

              AdCare
                Health Systems, Inc.

              Amendment
                No. 2 to Form SB-2

              File
                No. 333-131542

    Dear
      Mr.
      Weaver:

    Today
      we
      filed our second Amended Registration Statement for AdCare Health Systems,
      Inc.
      (“AdCare”) pursuant to EDGAR. As a courtesy, we are enclosing three (3) marked
      copies and three (3) clean copies of amended Registration Statement on Form
      SB-2
      of AdCare which incorporates, among other things, changes made to the
      Registration Statement as a result of comments contained in your letter of
      April
      25, 2006. The numbered paragraphs in this letter correspond to the numbered
      comments in your letter and the comments are provided in italics before each
      answer.

    Summary,
      page 1

              1.

              Please
                revise the discussion of the revenues earned by the facilities you
                manage
                for third parties to explain the significance of this measure and
                the
                significance of the combined revenues of facilities you own and facilities
                you manage. Also, clarify how the revenues recognized by the facilities
                you manage for third parties affect your revenue. We note your statement
                that the long-term care facilities you own had annual revenues of
                $21,900,360. What were the revenues you recognized for managing facilities
                for third parties and where is this amount shown on your income
                statement?

      Mr.
        Jeffrey T. Weaver

      May
        17,
        2006

      Page
        2

    We
      have
      deleted the discussion regarding revenues earned from facilities that we manage
      for third parties.

    Summary
      Financial Information, page 3

              2.

              Refer
                to your response to our prior comment number seven. Please revise
                your
                disclosure to separately present the income from continuing and
                discontinued operations as well as the impact of the “Return to Minority
                Interests” line item that significantly impacts your EPS calculation.
                Additionally, present separately the earnings per share for continuing
                and
                discontinued operations in this
                section.

    The
      disclosure has been revised in response to your request.

    Capitalization,
      page 13

              3.

              Refer
                to your response to comment 18. We were unable to identify where
                you
                adjusted this presentation. It appears that you still provide the
                same two
                columns and do not provide an interim column to reflect only the
                effects
                of the offering. Please revise you presentation to include a column
                that
                reflects only the offering prior to the additional pro forma columns
                that
                you present.

    The
      disclosure has been revised in response to your request.

    Liquidity
      and Capital Resources, page 19

              4.

              Refer
                to your response to comment 20. Your discussion of operating cash
                flows
                still seems to focus on what happened in the cash flow statement
                as a
                result of reconciling items. For instance your reference to the cash
                gain
                in 2004 seems to indicate that you included this cash gain within
                operations. Your reference to the increase in total receivables as
                a
                result of the Assured acquisition also infers that the addition of
                these
                receivables at acquisition impacted your cash flows, which would
                not
                appear to be the case. Please revise your discussion to better reflect
                actual cash flows from operations including these preceding points
                in lieu
                of referencing reconciling items in the statement of cash
                flows.

        Mr.
          Jeffrey T. Weaver

        May
          17,
          2006

        Page
          3

    The
      discussion regarding Liquidity and Capital Resources on page 20 of the
      Registration Statement has been revised pursuant to your request.

    Security
      Ownership of Certain Beneficial Owners and Management, page
      44

              5.

              We
                note your response to comment 34. Please revise your registration
                statement to include this
                information.

    We
      revised footnote 8 on page 45 of the Registration Statement to address this
      issue.

    Selling
      Shareholders, page AA-3

              6.

              We
                note your response to comment 47. Please note, if any of the selling
                shareholders are broker dealers, they must be identified as broker
                dealers
                and as underwriters. If any of the selling shareholders are affiliates
                of
                broker dealers, please identify them as such and include representations
                that the securities were purchased in the ordinary course and there
                were
                no agreements to distribute the securities. If the selling shareholders
                are not able to make these representations, they should also be identified
                as underwriters.

    If
      any of
      the selling shareholders are broker dealers, we will identify them as broker
      dealers and as underwriters in the prospectus. If any of the selling
      shareholders are affiliates of broker dealers, we will identify them as such
      and
      include representations that the securities were purchased in the ordinary
      course and there were no agreements to distribute the securities. If the selling
      shareholders are not able to make a representation that they are not broker
      dealers, we will identify them as underwriters in the prospectus.

    Financial
      Statements, page F-1

    Consolidated
      Statements of Operations, page F-4

              7.

              Refer
                to your response to our prior comment number 37. Please clarify for
                us why
                you feel that treating this return of earnings to the minority interest
                holders in a manner similar to a preferred share dividend is appropriate.
                Include specific reference to any authoritative literature upon which
                you
                relied in arriving at the accounting treatment.

        Mr.
          Jeffrey T. Weaver

        May
          17,
          2006

        Page
          4

    The
      accounting literature (SFAS 128) provides that calculations of earnings per
      share should be limited to earnings applicable to common or residual shares.
      In
      making such calculations, the claims of senior securities or preferential rights
      to earnings should be deducted from earnings for the period or added to losses
      for the period before computing earnings per share. The distributions in
      question were preferential distributions to the minority interest. As a result,
      the Company believes that loss attributable to common stockholders should be
      increased by this distribution.

    Consolidated
      Statements of Changes in Owner’s Equity, page F-5

              8.

              We
                have reviewed your response to our prior comment number 36 and have
                the
                following comments:

              a.

              According
                to your disclosure on F-8, you issued 191,000 shares. This does not
                agree
                to the disclosure here which states that 45,800 shares were issued
                in
                conjunction with the acquisition of the remaining interest in SPI.
                Please
                clarify this inconsistency.

              b.

              Tell
                us how the shares issued to shareholders to acquire related entity
                resulted in the issuance of treasury
                stock.

              c.

              Include
                how you determined the fair value to assign to the shares that you
                issued
                in connection with the “Shares issued to acquire related entity”
                transaction.

              d.

              Explain
                how you determined the value assigned to the “Treasury shares contributed
                by related party” and where you applied the related credit.

              e.

              Explain
                how the amounts included in the line items “Beneficial conversion on
                convertible debentures” and “Warrants issued in connection with debt”
                reconcile to the amounts included in your respond to comment
                45.

    Senior
      Property Investment LLC (SPI), by virtue of a contribution from its members
      owned 50,000 (post split) shares of AdCare at the time the exchange of AdCare
      shares for debt and equity interests of the Members took place. In previous
      periods the AdCare shares owned by SPI were reflected as treasury shares when
      SPI was consolidated with AdCare. In addition, AdCare had shares held in
      treasury. As a result, the 191,000 (post split) AdCare shares that were
      transferred to the SPI Members in exchange for debt and equity interests came
      to
      145,200 from treasury and 45,800 were newly issued shares. Due to the fact
      that
      all SPI members are stockholders of AdCare this transaction was recorded at
      historical cost. The SPI members received 191,000 AdCare shares in exchange
      for
      their equity interests in SPI and in full satisfaction of the $432,000 of debt.
      The disclosure with respect to this issue on page F-9 has been
      clarified.

        Mr.
          Jeffrey T. Weaver

        May
          17,
          2006

        Page
          5

    The
      debt
      to the Members which was exchanged for the AdCare shares had market interest
      rates. The debt resulted from cash loaned by the Members to SPI. Therefore,
      the
      face value of the notes was considered to be the fair value of the debt. The
      Company calculated the per share price, based on the number of AdCare shares
      exchanged and the carrying value of the debt and equity exchanged, to be $5.00
      per share. This is in excess of the fair value of the AdCare shares on
      December 31, 2005, which management believed was approximately $5.00
      per share post split. The recording of the transaction resulted in an increase
      in stockholders’ equity equal to the $432,000 of debt satisfied. This is due to
      the fact that SPI had previously been consolidated with AdCare and therefore
      the
      carrying value of the equity interests was already included in the financial
      statements.

    The
      beneficial conversion and the warrants issued in connection with the mezzanine
      financing have been separated on the statement of stockholders’ equity to make
      the presentation easier to reconcile and more transparent to the
      reader.

              9.

              Refer
                to your response to our prior comment number 38. Your response seems
                to
                indicate that a portion of this amount relates to an additional investment
                in the subsidiary partnered with Van Wert, and that a portion of
                this
                payment represents an extension of a put obligation. Please explain
                to us
                why you have accounted for each of these transactions as you did
                through
                equity.

    The
      Company considered the value of the extension of the right to offer to purchase
      the equity interests of the minority interests to be of immaterial value and
      allocated the amount paid to the minority interest holders to the additional
      equity interests acquired. This was treated as an equity transaction through
      the
      guidance of the exposure draft SFAS “Consolidated Financial Statements,
      Including Accounting and Reporting of Noncontrolling Interests in Subsidiaries.”
That exposure draft provides that changes in ownership interests that do not
      result in the loss of control would be treated as equity transactions.
      Differences between the fair value (amount paid) and the adjustment of the
      noncontrolling interest would be reflected in equity attributable to the
      controlling interest (paid in capital). This is the manner in which the Company
      has recorded these transactions.

        Mr.
          Jeffrey T. Weaver

        May
          17,
          2006

        Page
          6

    Note
      1. Description of Business, page F-8

              10.

              Refer
                to your response to our prior comment number 39. It does not appear
                that
                your analysis is based on the appropriate guidance. Please give us
                your
                analysis as to whether this obligation is subject to the requirements
                of
                SFAS 150, SFAS 133, EITF 00-6, or EITF D-98 and if applicable, how
                your
                accounting and disclosures comply with the guidance. If you believe
                that
                the options are not subject to this literature, please explain
                why.

    In
      connection with Van Wert the Company has the obligation to offer to purchase
      the
      minority interests on or before December 31, 2008. The minority interests have
      no obligation to accept the offer. This is a contingent obligation, outside
      the
      control of the Company which is not certain to occur. As a result, the Company
      does not believe a true option exists and therefore that SFAS 150, SFAS 133,
      EITF 00-6 and EITF D-98 are not applicable. The underlying minority interests
      are reflected in the consolidated financial statements as minority interests
      in
      the liability section of the balance sheet. As a result, disclosure only is
      the
      appropriate financial reporting response.

    Note
      2. Summary of Significant Accounting Policies, page F-9

    Principles
      of Consolidation, page F-9

              11.

              Refer
                to your response to our prior comment number 40. Please revise your
                discussion in this policy note to provide a more detailed discussion
                of
                the reasons why you feel that you meet the consolidation criteria
                under
                that guidance. Include specifically the key points in your analysis
                that
                led you to this determination.

    Footnote
      has been expanded to included additional disclosure relating to the Company’s
      evaluation of its application