AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 26, 1997
                                    REGISTRATION STATEMENT NO. 333-
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM SB-2
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933

                        DIVERSIFIED SENIOR SERVICES, INC.
                 (Name of small business issuer in its charter)

   NORTH CAROLINA                      8050                     56-1973923
  (State or other                    (Primary                (I.R.S. Employer
    jurisdiction                     Standard                 Identification
  of incorporation                  Industrial                     No.)
  or organization)                Classification
                                    Code Number)

                             915 WEST FOURTH STREET
                       WINSTON-SALEM, NORTH CAROLINA 27101
                                 (910) 724-1000
          (Address and telephone number of principal executive offices)

                             915 WEST FOURTH STREET
                       WINSTON-SALEM, NORTH CAROLINA 27101
          (Address of principal place of business or intended principal
                               place of business)

                              SUSAN L. CHRISTIANSEN
                             915 WEST FOURTH STREET
                       WINSTON-SALEM, NORTH CAROLINA 27101
                                 (910) 724-1000
            (Name, address and telephone number of agent for service)

                                   COPIES TO:
      DON R. HOUSE                                     JAMES R. TANENBAUM
    HOUSE LAW FIRM                                      STROOCK & STROOCK
     3325 Healy Dr.                                        & LAVAN LLP
     Winston-Salem,                                      180 Maiden Lane
       N.C. 27103                                        New York, N.Y.
     (910) 768-2225                                           10038
                                                          (212) 806-5400


                Approximate date of proposed sale to the public:
   As soon as practicable after this Registration Statement becomes effective.

     If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.

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




                         CALCULATION OF REGISTRATION FEE
==============================================================================================================================
  Title of each class of         Amount to be          Proposed maximum                Proposed maximum            Amount of
securities to be registered       registered        offering price per share      aggregate offering price    registration fee
                                                             (1)                              (1)
- ------------------------------------------------------------------------------------------------------------------------------
                                                                                                        
Common Stock, no par value...     1,200,000             $5.00                       $6,000,000                $1,818.18
- ------------------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants(2)....       120,000             $0.01                       $    1,200                   (3)
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value...       120,000             $6.00                       $  720,000                $  218.18
- ------------------------------------------------------------------------------------------------------------------------------
   TOTAL                                                                                                      $2,036.36
==============================================================================================================================
(1)  Estimated solely for the purpose of calculating the registration fee
     pursuant to Rule 457 (o).
(2)  Each Underwriter's Warrant entitles the Underwriter to purchase one share of
     Common Stock at a price equal to 120% of the initial public offering price
     per share.
(3)  No additional fee required pursuant to Rule 457(g).
                 ----------------------------------------------

   The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.


Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.



                              SUBJECT TO COMPLETION
                  PRELIMINARY PROSPECTUS DATED          ,1997

                                1,200,000 Shares
                        DIVERSIFIED SENIOR SERVICES, INC.
                                  Common Stock

     Diversified Senior Services, Inc., a North Carolina corporation (the
"Company"), is offering (the "Offering") for sale 1,200,000 shares of Common
Stock, no par value (the "Common Stock"). Prior to the Offering, there has been
no public market for the Common Stock and no assurances can be given that a
public market will develop following the completion of the Offering or, if
developed, that it will be sustained. Application has been made for the Common
Stock to be included in the Nasdaq SmallCap Market under the symbol "DSSI." The
initial public offering price (the "Offering Price") has been negotiated by the
Company and Strasbourger Pearson Tulcin Wolff Incorporated, as underwriter (the
"Underwriter"), and is not related to asset value, net worth or any other
established criteria of value. See "Underwriting" for a discussion of the
factors considered in determining the Offering Price. It currently is
anticipated that the Offering Price will be between $4.00 and $6.00 per share.

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

 AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE
       SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK FROM THE
           INITIAL PUBLIC OFFERING PRICE. ACCORDINGLY, THE SECURITIES
                OFFERED HEREBY SHOULD NOT BE PURCHASED BY ANYONE
               WHO CANNOT AFFORD A LOSS OF HIS ENTIRE INVESTMENT.
                     SEE "RISK FACTORS" BEGINNING ON PAGE 8.
                                ----------------

    THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
         AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
             HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
                 SECURITIES PASSED UPON THE ACCURACY OR ADEQUACY
                  OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
                         CONTRARY IS A CRIMINAL OFFENSE.



=======================================================================================================================
                                             PRICE TO PUBLIC       UNDERWRITING DISCOUNTS
                                              PUBLIC                 AND COMMISSIONS(1)         PROCEEDS TO COMPANY(2)
- -----------------------------------------------------------------------------------------------------------------------
                                                                                        
Per Share...............................        $                  $                             $
- -----------------------------------------------------------------------------------------------------------------------
Total...................................        $                  $                             $
=======================================================================================================================
(1)  Does not reflect additional compensation to be received by the Underwriter,
     including (a) a non-accountable expense allowance of $180,000 of which
     $100,000 has been paid; (b) Underwriter's Warrants entitling the
     Underwriter to purchase up to 120,000 shares of Common Stock at a price
     equal to $ per share for a period of four years commencing one year from
     the effective date of the Registration Statement of which this Prospectus
     forms a part (the "Underwriter's Warrants"); and (c) a financial consulting
     fee of $100,000. In addition, the Company has agreed to indemnify the
     Underwriter against certain civil liabilities. See "Underwriting."

(2)  Before deducting expenses of the Offering payable by the
     Company, estimated at $905,500, excluding the Underwriter's
     non- accountable expense allowance.  See "Underwriting."
                                 ---------------


     The shares of Common Stock are being offered by the Underwriter on a "firm
commitment" basis, when, as, and if delivered to and accepted by the
Underwriter, and subject to approval of certain legal matters by counsel for the
Underwriter. The Underwriter reserves the right to withdraw, cancel or modify
such offer and to reject orders either in whole or in part. It is expected that
delivery of the certificates evidencing the shares of Common Stock offered
hereby will be made at the offices of counsel to the Underwriter on or about ,
1997.
                                 ---------------

                        STRASBOURGER PEARSON TULCIN WOLFF
                                  INCORPORATED

                  THE DATE OF THIS PROSPECTUS IS         , 1997


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

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OFFERED
HEREBY, INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE,
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON STOCK MAINTAINED BY THE UNDERWRITER AND THE IMPOSITION OF PENALTY  BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

                                      -2-


                               PROSPECTUS SUMMARY

     THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS.
EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. ALL
REFERENCES TO THE "COMPANY" IN THIS PROSPECTUS ARE REFERENCES TO DIVERSIFIED
SENIOR SERVICES, INC. ("DSS") AND ITS WHOLLY-OWNED SUBSIDIARY, RESIDENTIAL
PROPERTIES MANAGEMENT, INC. ("RPM").

                                   THE COMPANY

GENERAL

     Diversified Senior Services, Inc. ("DSS" or the "Company") was founded in
May 1996 to develop and manage assisted living residences, to provide home care
services to the frail elderly and to manage low and moderate income apartment
complexes. Management believes that there is a growing demand for assisted
living residences for the low and moderate income frail elderly, specifically in
the Company's targeted areas of smaller cities and towns of North Carolina and
throughout the Southeast. Although the Company has been operating for less than
two years, through affiliates of the Company, senior management has over 20
years of experience in developing and operating housing specifically designed
for this target population with a concentration in Eastern North Carolina. The
Company's two-year growth objective is to develop at least 16 new assisted
living residences, with a capacity of approximately 960 residents. The Company
is in the early stages of its assisted living development program, with eleven
sites optioned to date and three feasibility studies completed. The Company
intends for the majority of the projects it develops to be owned by or sold to
qualified non-profit organizations, with the Company retaining management
contracts for these projects. By transferring ownership of the properties to
non-profit organizations, the Company expects to be able to utilize tax-exempt
bonds to finance the majority of its facilities, while at the same time carrying
little real estate on its balance sheet. With respect to the Company's current
cash generating operations, as of the date of this Prospectus, the Company
manages 62 apartment complexes, 31% of which are owned by non-profit
organizations, consisting of approximately 2,393 rental units of low and
moderate income rent-subsidized apartments, 56% of which are occupied by the
elderly. The Company also currently provides approximately 1,400 hours of home
care services per month.

     The Company was formed in May 1996 as a wholly owned subsidiary of Taylor
House Enterprises, Limited ("THE") and began operations in July 1996. THE is a
privately-held corporation controlled by the Company's senior management. DSS
was initially capitalized with $100 and its parent, THE, received 100 shares of
Common Stock. In July 1996, THE exchanged all of the stock of its wholly owned
subsidiary, RPM, for 2,277,678 shares of DSS. Effective June 30, 1997, THE
returned 477,778 shares of Common Stock to DSS which DSS retired leaving
1,800,000 shares of Common Stock issued and outstanding. RPM, now a wholly-owned
subsidiary of the Company, manages 2,393 rental housing units located across
four states: North Carolina, South Carolina, West Virginia and Pennsylvania. The
Company's management contracts have initial terms of one to three years, with
varying renewal provisions. Of the 62 RPM management contracts, 37, or 60%, are
controlled by affiliates and 25, or 40%, are controlled by third parties.
Currently, apartment management provides the majority of the Company's revenues.

     The Company's home care activities are limited to providing personal care
services to the same population targeted for its assisted living residences. The
Company does not provide medical services and, as such, is not subject to the
regulatory burdens of that market, nor the attendant legal liabilities. The
Company utilizes its home care business for two primary purposes: (i) to provide
services to residents of its existing subsidized senior apartments; and (ii) to
establish operating procedures for delivery of personal care services at its
future assisted living residences.

                                      -3-


 BUSINESS STRATEGY

     The Company's growth is expected to come primarily from developing and
managing assisted living residences. The Company expects its future assisted
living residences to serve as the foundation from which to provide a continuum
of care for low to moderate income senior citizens. The Company has already
developed and implemented its policies, procedures and operating systems for
providing personal care services and has hired its core staff for the personal
care division. Assisted living management is the combination of providing
personal care and real estate management services, both businesses in which the
Company is already involved and in which the Company's senior management has
extensive experience. The Company has developed a 60-unit assisted living
prototype for development primarily in small to mid-sized communities with
populations of under 75,000, whose target resident will be a low to moderate
income frail, elderly individual. In addition, the Company will continually
review apartment management opportunities and may add to its management
portfolio.

     Once the Company's assisted living residences have been developed, DSS will
be able to offer low and moderate income elderly individuals a continuum of
living arrangements: apartments managed specifically for the needs of the
elderly; home care services provided in such apartment facilities if, such
individual requires such assistance; and, finally, assisted living residences
when a greater level of support becomes necessary.

     The Company expects to achieve its business objectives by implementing the
following strategies:

     SELECTIVELY LOCATING ASSISTED LIVING RESIDENCES. During its initial phase
of development, the Company will locate some of its assisted living facilities
within close proximity to the Company's managed apartment complexes. Such
locations offer immediate benefits to the Company. Since over 56% of the
Company's apartments are occupied by low and moderate income elderly tenants,
when an elderly tenant needs to move into an assisted living residence, the
Company will be well positioned to be the provider of choice. In addition, since
over 31% of the Company's apartment complexes are owned by non-profit
organizations, the Company already has numerous relationships with regional
non-profit organizations, many of which are expected to become the ultimate
owners of the Company's assisted living facilities. Lastly, the Company expects
to be able to utilize certain staff positions in both apartment complexes and
assisted living facilities, namely maintenance staff and certain providers of
personal care, helping control costs at both locations.

     DEVELOPING ASSISTED LIVING FACILITIES SPECIFICALLY DESIGNED FOR LOW AND
MODERATE INCOME RESIDENTS. Each assisted living residence developed by the
Company will be designed, constructed and managed to be profitable with only
public pay residents, while providing features typically found in residences
designed for the private pay population, such as private bedrooms, personal
lavatories and diverse common areas. As such, for each private pay resident, for
whom monthly fees are typically $150 to $300 per month higher, the Company
expects to generate significantly greater profits. Most moderate income
residents will typically begin their residence as private pay individuals and
will convert to public pay only when such individual's personal resources are
exhausted. Since the Company's cost structure for its assisted living residences
has been designed based on complete occupancy by public pay residents, when
these changes occur the Company expects profitability to be maintained. In
addition, because many assisted living residences only accept residents who have
resources to cover a minimum time period, typically 18 months or longer, the
Company anticipates that demand for the Company's residences will be high among
the moderate income frail elderly who may not have the resources to cover such
an extended period of time.

     ACCESSING FAVORABLE FINANCING. Because of management's extensive experience
working with non-profit organizations, particularly entities which qualify for
Section 501(c)(3) treatment under the Internal Revenue Code of 1986, as amended
("501(c)(3)s"), the Company intends to use tax-exempt bonds to finance the
majority of its assisted living residences. This low-cost financing vehicle
provides the Company with a competitive cost advantage. The Company also
receives the added benefit of not carrying significant amounts of real estate on
its balance sheet, freeing up capital for new developments. In addition, future
earnings will not be charged with the associated depreciation and amortization.

                                      -4-


     TRANSFERRING EXPERIENCE TO ASSISTED LIVING RESIDENCES. Assisted living is
the combination of providing senior housing and providing home care services.
The Company and its affiliates have extensive experience in developing housing
for low and moderate income seniors and disabled persons. Several of the
Company-managed apartment complexes currently provide regular activities,
communal meals, laundry facilities, and other amenities frequently associated
with assisted living residences. In addition, the Company currently provides
home care services to low and moderate income frail elderly. The home care
services provided by the Company include assistance with dressing, personal
hygiene, medication management, preparation of simple meals, assistance with
mobility, dental, hair and skin care and maintenance of a safe environment.
These services are identical to those required in an assisted living residence.
The Company's staff is experienced in providing and documenting these services,
assessing and developing individual care plans, maintaining client records,
regulatory compliance, quality assurance and Medicaid billing. Thus, the Company
believes it already possesses the personnel skills and management systems
required for assisted living care.

     JOINT VENTURES AND CONVERSIONS. Management anticipates growth opportunities
in addition to those provided by its own independent development activities. The
Company is developing alliances with local government agencies, such as public
housing authorities, dedicated to providing housing and services to the low
income elderly and disabled. The Company intends to explore joint ventures with
local agencies which provide assisted living to its targeted population. These
activities may include newly developed facilities as well as the conversion of
sections of existing subsidized senior housing to assisted living residences.
The Company is in the preliminary stages of developing newly constructed
assisted living with the housing authority of one North Carolina community and
exploring the conversion to assisted living of two residential floors in two
existing subsidized senior housing complexes. Management sees these joint
venture and conversion opportunities as a method of providing assisted living in
larger communities, as well as in the small to medium sized communities
currently targeted by the Company.

     The Company's principal offices are located at 915 West Fourth Street,
Winston-Salem, North Carolina 27101 and its telephone number at that address is
(910) 724-1000.

                                      -5-


                                  THE OFFERING

Common Stock Offered....................   1,200,000 shares

Common Stock Outstanding
   after the Offering...................   3,000,000 Shares(1)
Use of Proceeds.........................   The Company intends to apply the net
                                           proceeds of this Offering (i)  to
                                           repay outstanding debt,
                                           approximately  $1.38 million as of
                                           August 15, 1997; (ii) to fund the
                                           development and construction of
                                           assisted living facilities,
                                           approximately $3 million; and, (iii)
                                           for  general corporate purposes.

Proposed Nasdaq SmallCap
 Market Symbol..........................   DSSI



(1)  Does not include (i) 120,000 shares of Common Stock issuable upon the
     exercise of the Underwriter's Warrants, and (ii) an aggregate of 80,329
     options to purchase Common Stock at exercise prices between $2.50 and $5.00
     per share held by certain members of senior management. See "Underwriting"
     and "Principal Shareholders."


                                  RISK FACTORS

     An investment in the Common Stock offered hereby is speculative and
involves a high degree of risk. See "Risk Factors."

                                      -6-


                          SUMMARY FINANCIAL INFORMATION
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

     The summary financial information set forth below is derived from the more
detailed financial statements appearing elsewhere in this Prospectus. This
information should be read in conjunction with such financial statements,
including the notes thereto. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."



                                          YEAR ENDED                 YEAR ENDED                SIX MONTHS ENDED
STATEMENT OF OPERATIONS DATA:         DECEMBER 31, 1995(1)      DECEMBER 31, 1996(2)            JUNE 30, 1997
                                  --------------------------------------------------------------------------------
                                                                                          
Income                                     __                         $2,319                      $1,180
Operating income (loss)                    __                          (676)                       (399)
Net income (loss)                         $87                          (881)                       (662)
Net income (loss) per share             $ 868                         $(.39)                      $(.29)




                                -----------------------------------------------
                                              JUNE 30, 1997
                                -----------------------------------------------
BALANCE SHEET DATA:                  ACTUAL                     AS ADJUSTED(3)
                                -----------------------------------------------
                                                                  
Current assets                       $       163                $     3,860
Current liabilities                        1,762                        544
Working capital                           (1,599)                     3,316
Total assets                               1,377                      5,074
Total liabilities                          2,732                      1,514
Accumulated deficit                       (1,355)                    (1,355)
Stockholders' equity                      (1,355)                     3,560
(deficit)




(1)  These results reflect the results of operations of RPM only. RPM was not
     actively engaged in business during 1995; its activities were limited to
     investing activities, thus the net income shown resulted from those
     investing activities.
(2)  Pro forma as if DSS had been incorporated and had owned the stock of RPM on
     January 1, 1996.
(3)  Gives effect to the sale of the Common Stock offered hereby and the
     application of the estimated net proceeds therefrom.
     See "Use of  Proceeds."

     UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS DOES NOT
GIVE EFFECT TO AND DOES NOT INCLUDE: (I) 500,000 SHARES OF COMMON STOCK RESERVED
FOR ISSUANCE UPON THE EXERCISE OF STOCK OPTIONS UNDER THE COMPANY'S STOCK OPTION
PLAN, OF WHICH NO OPTIONS TO PURCHASE SHARES HAVE BEEN GRANTED, (II) 120,000
SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THE UNDERWRITER'S WARRANTS,
AND (III) AN AGGREGATE OF 80,329 OPTIONS TO PURCHASE COMMON STOCK AT EXERCISE
PRICES BETWEEN $2.50 AND $5.00 PER SHARE HELD BY CERTAIN MEMBERS OF SENIOR
MANAGEMENT. SEE "MANAGEMENT-STOCK INCENTIVE PLAN," "PRINCIPAL SHAREHOLDERS"
AND "UNDERWRITING."

                                      -7-


                                  RISK FACTORS

     THE SECURITIES OFFERED HEREBY ARE SPECULATIVE IN NATURE AND INVOLVE A HIGH
DEGREE OF RISK. ACCORDINGLY, IN ANALYZING AN INVESTMENT IN THESE SECURITIES,
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, ALONG WITH OTHER MATTERS
REFERRED TO HEREIN, THE FOLLOWING RISK FACTORS. NO INVESTOR SHOULD PARTICIPATE
IN THIS OFFERING UNLESS SUCH INVESTOR CAN AFFORD A COMPLETE LOSS OF HIS OR HER
INVESTMENT. PROSPECTIVE INVESTORS SHOULD NOTE THAT THIS PROSPECTUS CONTAINS
CERTAIN "FORWARD-LOOKING STATEMENTS," AS SUCH TERM IS DEFINED IN THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, INCLUDING, WITHOUT LIMITATION,
STATEMENTS CONTAINING THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS," "INTENDS,"
"SHOULD," "SEEKS TO," AND SIMILAR WORDS. PROSPECTIVE INVESTORS ARE CAUTIONED
THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS
FACTORS, INCLUDING BUT NOT LIMITED TO, THE RISK FACTORS SET FORTH IN THIS
PROSPECTUS. THE ACCOMPANYING INFORMATION CONTAINED IN THIS PROSPECTUS IDENTIFIES
CERTAIN IMPORTANT FACTORS THAT COULD CAUSE SUCH DIFFERENCES.

LACK OF OPERATING HISTORY; SUBSTANTIAL LOSSES

     The Company was incorporated in May 1996 and, effective July 1, 1996,
acquired all of the outstanding capital stock of RPM, a company with substantial
subsidized apartment management experience. Through RPM, the Company began its
apartment management operations in July 1996. Also in July 1996 the Company
became a licensed home care agency under the laws of the State of North Carolina
and began providing home care services in August 1996. However, the Company's
growth plan is predicated almost exclusively on developing and managing assisted
living residences, a market in which the Company has no prior experience. The
Company experienced a net loss of $692,984 for the period from inception to
December 31, 1996 and a net loss of $662,068 for the six months ended June 30,
1997. With respect to most of the Company's intended operations (other than
apartment management), the Company has no operating history to provide
assurances that the Company can successfully implement its growth plans and thus
become profitable. The Company plans to begin and expand its operations as soon
as reasonably practicable. The Company will immediately incur significant
expenses for acquisitions, development and other activities. The Company's
success will depend on its ability to achieve and maintain profitability and to
successfully manage the Company's growth.

CAPITAL REQUIREMENTS

     The Company estimates that the net proceeds of this Offering, in
conjunction with other sources of funds, should provide adequate capital for the
Company's operation and growth over the next 24 months. The Company's ability to
sustain any operating losses and to otherwise meet its growth objectives will
depend, in part, on its ability to obtain additional financing on acceptable
terms from available financing sources, specifically the tax-exempt bonds that
the Company intends to be the predominant long-term financing source for its
assisted living residences. In addition, raising additional funds through the
issuance of equity securities could cause existing shareholders to experience
further dilution and could adversely affect the market price of the Common
Stock. The Company intends to finance future requirements through a combination
of its cash reserves, including the net proceeds of this Offering, additional
construction and permanent indebtedness or public or private sales of debt
securities or capital stock. There can be no assurance, however, that funds will
be available on terms favorable to the Company or that such funds will be
available when needed. The Company's inability to obtain additional financing on
acceptable terms could delay or eliminate some or all of the Company's growth
plans.

ABILITY TO MANAGE GROWTH

     The Company intends to expand its operations through development and
management of assisted living residences and, to a lesser extent, through
expansion of the Company's home care services. The Company currently plans to
develop 16 assisted living facilities over the next two years, with an estimated
aggregate capacity for 960 residents. The Company's ability to develop
successfully assisted living residences will depend on a number of factors,
including, but not limited to, the Company's ability to acquire suitable
development sites at reasonable prices; and the Company's success in obtaining
necessary zoning, licensing, and other required governmental permits and
authorizations. In addition, the Company's development plans are subject to
numerous factors over which it has little or no control, including competition

                                      -8-


for developable properties; shortages of labor or materials; changes in
applicable laws or regulations or their enforcement; strikes; and adverse
weather conditions. As a result of these factors, there can be no assurance that
the Company will not experience construction delays, that it will be successful
in developing and constructing currently planned or additional assisted living
residences, or that any developed assisted living residences will be
economically successful. If the Company's development schedule is delayed, the
Company's growth plans could be adversely affected. Additionally, the Company
anticipates that the development and construction of additional assisted living
residences will involve a substantial commitment of capital with little or no
revenue associated with facilities under development, the consequence of which
could be an adverse impact on the Company's liquidity.

     Although senior management of the Company has extensive experience in
providing housing for low and moderate income, frail elderly, the Company has
limited experience in developing and managing assisted living residences. The
Company's growth plans will also place significant demands on the Company's
management and operating personnel, which demands may divert management
resources away for the existing apartment management operations. Such diversion
of resources may cause apartment management operations to suffer. The Company's
ability to manage its future growth effectively will require it to improve its
operational, financial, and management information systems and to continue to
attract, retain, train, motivate, and manage key employees. If the Company is
unable to manage its growth effectively, its business, results of operations,
and financial condition will be adversely affected. See "Business--Business
Strategy."

DEVELOPMENT IN CONCENTRATED GEOGRAPHIC AREAS

     The Company's growth strategy involves the development of assisted living
residences in a concentrated geographic area. See "Business -- Business
Strategy." Accordingly, the Company's results of operations and growth plans may
be adversely affected by a number of factors, including regional and local
economic conditions, general real estate market conditions, including the supply
and proximity of senior living communities, competitive conditions, and
applicable local laws and regulations. See "Business-Development Division."

DISCRETIONARY USE OF PROCEEDS

     A significant portion of the net proceeds of this Offering will be
allocated to the development of assisted living facilities which are ready to
begin construction subject to arranging construction financing. Although the
Company has options for eleven assisted living sites, the Company has made no
firm commitments to acquire or develop any additional sites or facilities. The
Company will have broad discretion in developing and selecting potential sites
and acquisitions and, accordingly, will have broad discretion in using the net
proceeds of this Offering. See "Use of Proceeds."

COMPETITION

     The management of low and moderate income apartments and assisted living
facilities and the provision of home care services is highly competitive and the
Company expects that its businesses will become increasingly competitive in the
future. The Company will continue to face competition from numerous local,
regional and national providers of assisted living and long-term care whose
facilities and services are on either end of the senior care continuum. The
Company will compete with a range of providers based on many factors, including
cost, quality of care, services provided, reputation, geographic location and
family preferences. While there are currently few existing assisted living
facilities in the market the Company intends to serve, and even fewer serving
the low to moderate income frail elderly, the Company expects that as assisted
living receives increased attention and the number of states which include
assisted living in their Medicaid waiver programs increases, competition will
grow from new market entrants, including companies focusing primarily on
assisted living. Moreover, in implementing the Company's expansion program, the
Company expects to face competition for development and acquisition of assisted
living residences. Some of the Company's present and potential competitors are
significantly larger and have, or may obtain, greater financial resources than
those of the Company. Consequently, there can be no assurance that the Company
will not encounter increased competition in the future, which could limit its
ability to attract residents or expand its business and could have a material
adverse effect on the Company.

                                      -9-


 GOVERNMENT REGULATION

     Federal, state and local governments regulate various aspects of the
Company's business. The development and operation of assisted living residences,
the management of subsidized housing and the provision of home care services are
subject to federal, state and local licensure, certification, and inspection
laws that regulate, among other matters, the number of licensed beds, the
provision of services, the distribution of pharmaceuticals, billing practices
and policies, equipment, staffing (including professional licensing), operating
policies and procedures, fire prevention measures, environmental matters, and
compliance with building and safety codes. Changes in or the adoption of such
laws and regulations, or new interpretations of existing laws and regulations,
could have a significant effect on methods and costs of doing business and
amounts of reimbursement from governmental and other payors. The Company's
success will depend upon its ability to satisfy the applicable regulations and
requirements and to procure and maintain required licenses and subsidies. There
can be no assurance, however, that federal, state or local laws or regulatory
procedures will not be imposed or expanded which might adversely affect the
Company.

     A joint committee of the North Carolina Senate and House Representatives
has proposed a bill that would impose a 12-month moratorium on assisted living
licensure in North Carolina. The bill was originally drafted by the Human
Resource Subcommittee of the North Carolina House of Representatives
Appropriations Committee. As drafted, the bill provides several exclusions that
would exempt the Company's currently proposed activities based on the current
status of development (binding options entered into before August 15, 1997) and
the proposed location of facilities (counties with vacancies of less than 15% or
a special determination by a county's board of commissioners that a special need
exists). The purpose of the moratorium would be to study adult care homes in
North Carolina to determine whether the existing licensure procedures need to be
modified. "Adult care homes" now include everything from group homes to old
style rest homes to new assisted living facilities. If the bill is enacted into
law, the Company's current pipeline of developments should provide the Company
with adequate development activity during the moratorium period. Although it is
anticipated that the moratorium will result in stricter licensure procedures in
North Carolina, management believes that the alternative provided by the Company
will be the type of quality, cost effective assisted living that will be favored
by the State. In addition, the Company also intends to focus on expanding its
operations beyond the boundaries of North Carolina.

     Federal and state anti-remuneration laws, such as "anti-kickback" laws,
govern certain financial arrangements among health care providers and others who
may be in a position to refer or recommend patients to such providers. These
laws prohibit, among other things, certain direct and indirect payments that are
intended to induce the referral of patients to, the arranging for services by,
or the recommending of, a particular provider of health care items or services.
Federal anti-kickback laws have been broadly interpreted to apply to certain
contractual relationships between health care providers and sources of patient
referral. Similar state laws vary, are sometimes vague, and seldom have been
interpreted by courts or regulatory agencies. Violation of these laws can result
in loss of licensure, civil and criminal penalties, and exclusion of health care
providers or suppliers from participation in the Medicare and Medicaid programs.
There can be no assurance that such laws will be interpreted in a manner
consistent with the practices of the Company.

     Under the Americans with Disabilities Act of 1990, all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. A number of additional federal, state and
local laws exist that also may require modifications to existing and planned
communities to create access to the properties by disabled persons. Although the
Company believes that its managed apartment complexes and planned assisted
living residences are or will be substantially in compliance with present
requirements or are exempt therefrom, if required changes involve a greater
expenditure than anticipated or must be made on a more accelerated basis than
anticipated, additional costs would be incurred by the Company. Further
legislation may impose additional burdens or restrictions with respect to access
by disabled persons, the costs of compliance with which could be substantial.
See "Business--Regulation."

                                      -10-


 DEPENDENCE ON THIRD PARTY PAYORS

     The Company intends to focus its assisted living operations on the low and
moderate income frail elderly. It is anticipated that a large portion of the
residents in the Company's facilities will not have the resources to pay for the
Company's services, and the Company will depend, to a significant extent, on the
public pay systems in the states in which the Company's assisted living
residences are to be located. The Company's initial facilities will be located
in the State of North Carolina. The State of North Carolina currently provides
special assistance to cover the cost of room and board for qualified recipients.
In addition, North Carolina provides limited Medicaid funds to cover personal
care services and enhanced personal care services for these qualified
recipients. Considering the substantial savings incurred by the State of North
Carolina by providing these services in an assisted living setting, as opposed
to a traditional nursing home, the Company anticipates that the North Carolina
special assistance program will continue to be favorable to the assisted living
alternative. Potential investors should be aware, however, that adverse changes
in general economic factors affecting North Carolina's health care industry, or
in North Carolina laws and regulatory environment, including special assistance
and Medicaid reimbursement rates and qualifying standards, could have a material
adverse effect on the Company. In addition, as the Company expands its business
into other states, it will depend upon the reimbursement systems of such states.
The public pay programs as then in effect in such states will be a significant
consideration in determining whether to expand into any such state.

DEPENDENCE ON KEY PERSONNEL

     The success of the Company's business will be highly dependent upon the
services of its management team, specifically its executive officers: William G.
Benton, CEO; Susan L. Christiansen, COO; and, G.L. Clark, Jr., CFO All three
individuals have employment contracts with the Company, however, the loss of the
services of one or more of these employees could adversely affect the Company.
See "Management-Executive Compensation; Employment Agreements."

LACK OF OWNERSHIP OF REAL ESTATE

     Although the Company may own a small percentage of the acquired and
developed assisted living facilities, it is anticipated that most properties
will be owned by a third party non-profit entity and that the Company will
operate the facilities pursuant to a management contract. Although the assisted
living management agreements are anticipated to have a minimum rolling term of
three years renewable annually, and it is anticipated that the Company's
interest will be further protected by a fee for termination without cause during
the contract term and, further, that the Company will have an option to purchase
the facilities at fair market value, these protections do not afford the same
rights as direct ownership.

DEVELOPMENT AND CONSTRUCTION RISKS

     During the next two years, the Company plans to develop or acquire
approximately 16 new assisted living facilities with a capacity of approximately
960 residents. The Company's ability to achieve its development plans will
depend upon a variety of factors, many of which are beyond the Company's
control. There can be no assurance that the Company will not suffer delays in
its development program, which could slow the Company's growth. The successful
development of additional assisted living residences will involve a number of
risks, including the possibility that the Company may be unable to locate
suitable sites at acceptable prices or may be unable to obtain, or may
experience delays in obtaining, necessary zoning, land use, building, occupancy,
licensing and other required governmental permits and authorizations. The
Company may also incur construction costs that exceed original estimates, may
not complete construction projects on schedule and may experience competition in
the search for suitable development sites. The Company will be relying on
third-party general contractors to construct its assisted living residences.
There can be no assurance that the Company will not experience difficulties in
working with general contractors and subcontractors, which could result in
increased construction costs and delays. Accordingly, if the Company is unable
to achieve its development plans, it could be adversely affected.

                                      -11-


 FACILITIES MANAGEMENT, STAFFING, AND LABOR COSTS

     The Company competes with other providers of senior living and home care
services with respect to attracting and retaining qualified personnel. A
shortage of skilled personnel may require the Company to enhance its wage and
benefits package in order to compete in the hiring and retention of such
personnel or to hire more expensive temporary personnel. The Company will also
depend on the available labor pool of semi-skilled and unskilled employees in
each of the markets in which it operates. No assurance can be given that the
Company's labor costs will not increase, or that, if they do increase, they can
be matched by corresponding increases in rates charged by the Company. Any
significant failure by the Company to attract and retain qualified management
and staff personnel, to control its labor costs, or to pass on any increased
labor costs through rate increases could have a material adverse effect on the
Company.

CONTROL BY PARENT

     Upon completion of the Offering, THE will beneficially own approximately
60% of the outstanding shares of Common Stock. The outstanding voting securities
of THE are owned by a small group of investors, including the officers and
directors of the Company. A super majority of the voting securities of THE are
subject to a voting trust agreement electing William G. Benton as voting trustee
and a shareholders' agreement which grants THE and William G. Benton, Susan L.
Christiansen and G.L. Clark, Jr. a right of first refusal on any transfer of
stock and an option to buy all shares of any deceased, disabled or terminated
shareholder. Both of the agreements provide that William G. Benton, Susan L.
Christiansen and G.L. Clark, Jr. shall serve as the directors of THE.
Accordingly, the shares of Common Stock of the Company owned by THE will be
voted at the discretion of Mr. Benton, Ms. Christiansen and Mr. Clark.
Accordingly, such persons will have the ability to elect all of the Company's
Board of Directors and to determine the outcome of most matters submitted to the
Company's shareholders. Furthermore, such control could preclude any unsolicited
acquisition of the Company and, consequently, adversely affect the market price
of the Common Stock. See "Principal Shareholders."

ABSENCE OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK
PRICE

     Prior to the Offering, there has been no public market for the Company's
Common Stock. There can be no assurance that an active public market for the
Common Stock will develop or that, if developed, such market will be sustained.
The offering price of the Common Stock offered hereby has been determined by
negotiations between the Company and the Underwriter and may not be indicative
of the price that may prevail in the public market upon the completion of the
Offering. See "Underwriting." Consequently, there can be no assurance that the
market price for the Common Stock will not fall below the offering price.

     The market price of the Common Stock will be influenced by many factors,
including the depth and liquidity of the market for the Common Stock, investor
perceptions of the Company and its industry, and general economic and market
conditions. The market price of the Common Stock may also be significantly
influenced by factors such as quarter-to-quarter variations in the Company's
results of operations and conditions in the industry.

POSSIBLE DELISTING OF SECURITIES; PENNY STOCK RULES;
UNDERWRITER'S POTENTIAL INFLUENCE ON THE MARKET

     Application has been made for the Common Stock to be included in the Nasdaq
SmallCap market under the symbol "DSSI." While the Company presently meets the
required standards for continued inclusion in the Nasdaq SmallCap Market, there
can be no assurance that it will continue to be able to do so. If the Company
should fail to meet one or more of such standards, the Common Stock would be
subject to deletion from Nasdaq SmallCap Market. If this should occur, trading,
if any, in the Common Stock would then continue to be conducted in the
over-the-counter market on the Electronic Bulletin Board, a National Association
of Securities Dealers, Inc. ("NASD") -- sponsored inter-dealer quotation system,
or in what are commonly referred to as "pink sheets." As a result, an investor
may find it more difficult to dispose of, or to obtain accurate quotations as to
the market value of, the Common Stock. In addition, if the Common Stock ceases
to be quoted on Nasdaq SmallCap Market and the Company fails to meet certain
other criteria, trading in the Common Stock would be subject to Securities and
Exchange Commission (the "Commission") rules regulating broker-dealer practices
in connection with transactions in "penny stocks." If the Common Stock became

                                      -12-


subject to the penny stock rules, many brokers may be unwilling to engage in
transactions in the Common Stock because of the added disclosure requirements,
thereby making it more difficult for purchasers of Common Stock in this Offering
to dispose of their securities.

     Assuming the Common Stock is accepted for trading on the Nasdaq SmallCap
Market, the Underwriter may from time to time following the completion of this
Offering act as a market-maker and otherwise effect transactions in the Common
Stock. The Underwriter is not legally obligated by law or by contract to
continue such trading, which may be discontinued at any time. See
"Underwriting." Any such cessation could have a material adverse effect upon the
price and liquidity of the Common Stock. The Underwriter is subject to the
supervision of various governmental and self-regulatory organizations, as well
as certain capital requirements. Such regulatory authorities periodically
investigate and audit the activities of broker-dealers, such as the Underwriter.
In the event the Underwriter is required to curtail or cease operations as a
result of administrative actions instituted by the regulatory authorities or
because of lack of capital, the price and liquidity of the Common Stock may be
materially adversely affected by the reduced participation or complete absence
of the Underwriter from the market.

DILUTION

     The Offering involves an immediate and substantial dilution to investors of
$4.06 per share (assuming an initial offering price of $5.00, the midpoint of
the range) between the net tangible book value per share immediately after the
Offering and the offering price of each share of Common Stock offered hereby,
which dilution amounts to 81% of the offering price. See "Dilution."

NO DIVIDENDS

     The Company has not paid any cash dividends on its Common Stock since its
inception and does not currently anticipate paying dividends on its Common Stock
in the foreseeable future.

LIABILITY AND INSURANCE

     The provision of home care services entails an inherent risk of liability.
In recent years, participants in the long-term care industry have been become
subject to an increasing number of lawsuits alleging malpractice or related
legal theories, many of which involve large claims and significant defense
costs. The Company will maintain liability insurance intended to cover such
claims. There can be no assurance, however, that claims in excess of the
Company's insurance coverage, or claims not covered by the Company's insurance
coverage (e.g., claims for punitive damages) will not arise. A successful claim
against the Company not covered by, or in excess of, the Company's insurance
coverage could have a material adverse effect upon the Company. Claims against
the Company, regardless of their merit or eventual outcome, may also have a
material adverse effect upon the Company's ability to attract residents or
expand its business and would require management to devote time to matters
unrelated to the operation of the Company's business. In addition, insurance
policies are subject to annual renewal and there can be no assurance that the
Company will be able to maintain liability insurance coverage or that, if such
coverage is available, it will be on acceptable terms.

ENVIRONMENTAL RISKS

     Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
held liable for the cost of removal or remediation of certain hazardous or toxic
substances, including, without limitation, asbestos-containing materials that
could be located on, in or under such property. Such laws and regulations often
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of the hazardous or toxic substances. The costs of
any required remediation or removal of these substances could be substantial and
the liability of an owner or operator as to any property is generally not
limited under such laws and regulations and could exceed the property's value
and the aggregate assets of the owner or operator. The presence of these
substances or failure to remediate such substances properly may also adversely
affect the owner's ability to sell or rent the property.

                                      -13-


 EFFECT OF OUTSTANDING OPTIONS AND WARRANTS; FUTURE SALES OF
COMMON STOCK

     As of the date of this Prospectus, there are outstanding stock options to
purchase an aggregate of 80,329 shares of Common Stock at per share exercise
prices ranging from $2.50 to $5.00. In connection with this Offering, the
Company is also issuing the Underwriter's Warrants to purchase 120,000 shares of
Common Stock, at an exercise price of $ per share. The exercise of such
outstanding stock options and the Warrants will dilute the percentage ownership
of the Company's shareholders, and any sales in the public market of shares of
Common Stock underlying such stock options and warrants may adversely affect
prevailing market prices for the Common Stock. Moreover, the terms upon which
the Company will be able to obtain additional equity capital may be adversely
affected since the holders of such outstanding securities can be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain any needed capital on terms more favorable to the Company than those
provided in such stock option and warrants. In addition, the Company has granted
certain demand and piggyback registration rights to the Underwriter with respect
to the securities issuable upon exercise of the Underwriter's Warrants. See
"Management--Stock Option Plan," "Description of Securities" and "Underwriting."

     Sales of the Company's Common Stock in the public market after this
Offering could adversely affect the market price of the Common Stock. See
"Description of Securities" and "Shares Eligible for Future Sale."

EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS

     Certain provisions of the Company's Articles of Incorporation and Bylaws
and the North Carolina Business Corporation Act ("NCBCA") could delay or
frustrate the removal of incumbent directors and could make difficult a merger,
tender offer or proxy contest involving the Company, even if such events could
be viewed as beneficial by the Company's shareholders. For example, the Board of
Directors has the ability to issue "blank check" preferred stock without
shareholder approval. Although the Company does not currently plan to issue any
preferred stock, the rights of the holders of Common Stock may be materially
limited or qualified by the issuance of preferred stock. The Company's Articles
of Incorporation also require an 80% vote of each outstanding class of stock for
a number of "Business Combinations" with a person who, together with affiliates
and associates, owned 20% or more of the corporation's outstanding voting shares
(an "interested shareholder") at any time during the two-year period prior to
the proposed Business Combination. See "Description of Securities."

                                      -14-


                                    DILUTION

     The difference between the public offering price per share of Common Stock
and the pro forma net tangible book value per share of Common Stock of the
Company after this Offering constitutes the dilution per share of Common Stock
to investors in this Offering. Net tangible book value per share is determined
by dividing the net tangible book value (total tangible assets less total
liabilities) by the number of outstanding shares of Common Stock.

     At June 30, 1997, the Company had a negative net tangible book value of
approximately $(2,090,730), or approximately $(1.16) per share of Common Stock
(based on 1,800,000 shares of Common Stock outstanding). After giving effect to
the sale of the Common Stock offered hereby at an assumed price of $5.00 per
share (less underwriting discounts and estimated expenses of this Offering), the
net tangible book value at that date would have been approximately $2,823,770,
or approximately $.94 per share. This represents an immediate increase in net
tangible book value of $2.10 per share to the existing shareholders, and an
immediate dilution of $4.06 per share to purchasers of the Common Stock in this
Offering.

     The following table illustrates the per share dilution, without giving
effect to results of operations of the Company subsequent to June 30, 1997:



                                                                  
Offering price per share                                                $5.00
Net tangible book value before Offering              $(1.16)
Increase attributable to new investors                 2.10
                                                      -----
Net tangible book value after Offering                                    .94
                                                                         ----
Dilution to new investors                                                4.06
                                                                         ====


     The following table summarizes the number and percentage of shares of
Common Stock purchased from the Company, the amount and percentage of
consideration paid and the average price per share paid by the existing
shareholder and by new investors pursuant to this Offering:



                                                     PERCENT OF                                        AVERAGE
                                       SHARES          TOTAL          TOTAL       PERCENT OF TOTAL   PRICE PER
                                       ISSUED(1)       SHARES     CONSIDERATION   CONSIDERATION         SHARE
                                     ------------    ---------    -------------     ------------      --------
                                                                                       
Existing Shareholders............... 1,800,000          60%       $      100                0%        $0
New Investors....................... 1,200,000          40%       $6,000,000              100%       $5.00
                                     -------------   ------------   --------        ------------     ---------
     Total.......................... 3,000,000         100%       $6,000,100              100%       $2.00
                                     ============     =========     =============   ============     ========



         (1)   Does not include (i) 120,000 shares of Common Stock
               issuable upon the Exercise of the Underwriter's
               Warrants, and (ii) an  aggregate of 80,329 options to
               purchase Common Stock at exercise prices between $2.50
               and $5.00 per share held by certain  members of senior
               management.  See "Underwriting," and
               "Management--Executive Compensation; Employment Agreements."

                                      -15-


                                 USE OF PROCEEDS

     The net proceeds to the Company from the sale of the Common Stock offered
hereby (at an assumed public offering price of $5.00 per share of Common Stock)
are estimated to be approximately $4,914,500. The Company intends to apply the
net proceeds as follows: (i) $1,387,104 (the outstanding balance at August 15,
1997) to pay down the Company's line of credit, which currently bears interest
at the prime rate, (ii) $3,000,000 for the initial development of 8 to 12
assisted living facilities, and (iii) for general corporate purposes.

     Proceeds not immediately required for the purposes described above will be
invested in United States government securities, short term certificates of
deposit, money market funds or other investment grade, short term interest
bearing investments.

                                 DIVIDEND POLICY

     The Company has never paid any cash dividends on its Common Stock and it is
currently the intention of the Company not to pay cash dividends on its Common
Stock in the foreseeable future. Management intends to reinvest earnings, if
any, in the development and expansion of the Company's business. Any future
declaration of cash dividends will be at the discretion of the Board of
Directors and will depend upon the earnings, capital requirements and financial
position of the Company, general economic conditions and other pertinent
factors.

                                      -16-


                                 CAPITALIZATION

     The following table sets forth the capitalization of the Company (i) at
June 30, 1997 and (ii) as adjusted to give effect to the sale of the Common
Stock offered hereby and the application of the estimated net proceeds
therefrom, assuming an initial offering price of $5.00 per share, the midpoint
of the range. See "Use of Proceeds."



                                                   As of June 30, 1997
                                               -----------------------------
Debt:                                            ACTUAL          AS ADJUSTED
                                               ------------   --------------
                                                                
Current liabilities.............................$1,761,564     $  543,737
Long-term debt..................................   970,167        970,167
   Total liabilities............................ 2,731,731      1,513,904




STOCKHOLDERS' EQUITY:

                                                            
Preferred Stock, no par value, 100,000,000 
  shares authorized; none issued or
  outstanding..................................     --             --
Common Stock, no par value, 100,000,000 shares
   authorized; 1,800,000 shares  issued and
   outstanding, actual; 3,000,000 shares issued
   and outstanding, as adjusted................     --             --
Additional paid-in capital.....................        100      4,914,600
Accumulated deficit............................ (1,355,052)    (1,355,052)
                                                -----------   ------------
   Total stockholders' equity (deficit)........ (1,354,952)     3,559,548
                                                -----------    ------------
      TOTAL CAPITALIZATION..................... $1,376,779     $5,073,452 
                                                ==========      ===========

                                      -17-


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     THE DISCUSSION AND ANALYSIS BELOW SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES TO FINANCIAL STATEMENTS
INCLUDED ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

     DDS was formed in May 1996 as a wholly owned subsidiary of THE and began
operations in July 1996. DSS was capitalized with $100 and its parent, THE,
received 100 shares of Common Stock. THE provided working capital to DSS during
its start-up phase. Upon formation, DSS agreed to take responsibility for
deferred salaries and bonuses for certain executives of THE for the period
January 1, 1996 through June 30, 1996.

     In July 1996, THE exchanged all of the stock of its wholly owned subsidiary
RPM for 2,277,678 shares of DSS. RPM was formed in March 1989 to manage
government subsidized multi-family and elderly residential rental apartments.
From 1993 through 1995, RPM was inactive. Effective January 1, 1996, RPM
purchased certain assets including management contract rights from an affiliate
and resumed its business of managing apartments. Since July 1, 1996, the
financial statements of DSS are consolidated statements of DSS and RPM.
Effective June 30, 1997, THE returned 477,778 shares of Common Stock to DSS
which DSS retired leaving 1,800,000 shares of Common Stock issued and
outstanding.

     The Company anticipates a moderate growth in the number of apartment units
managed and also expects that income will increase due to inflationary effects
on rents. All personnel located at the apartments who manage the apartments and
perform maintenance are employees of the Company. However, the apartments
reimburse the Company for the services of the on site personnel. The Company
anticipates a moderate growth in reimbursement income as a result of increases
in salaries of on site personnel and an increase in the number of apartment
complexes under management.

     The Company began offering home care services in August 1996 at selected
apartment locations. Management anticipates that growth in home care service
income will continue at a moderate, controlled pace as it begins to offer these
services to elderly residents in other apartments that it manages. However,
management does not expect the income from these services to be material with
respect to the total income of the Company over the next several years.

     Because the Company has not yet completed development of any assisted
living residences, it has not recognized any development fee income or
management fee income from its assisted living development activities. The
policy of the Company is to recognize development fee income when the
construction of the facility is completed and a certificate of occupancy is
issued. The Company expects to earn a fee of approximately $225,000 per
facility. Three sites have been optioned and determined to be feasible;
construction is expected to start at all three in 1997. Eight more sites have
been located and are in the feasibility study process. The construction process
is estimated to be nine to twelve months. Once construction on an assisted
living residence is completed, the Company will begin to recognize management
fee income for those properties. Management believes that in the near future the
development and management of assisted living facilities will provide the vast
majority of the Company's revenues and profits.

     All the operating expenses of the Company are related to the personnel
directly performing the management services and the corporate management staff.
Between 85% and 90% of the expenses are for salaries and benefits. The remaining
expenses are administrative expenses that support the activities of the
personnel such as travel, rent, telephone and office expenses. Since the
Company's inception, the operating staff increases have been due primarily to
the entrance of the Company into the home care business. However, the corporate
staff has grown over that same period of time because of the need to have
adequate personnel in place to develop the assisted living residences.
Management expects that expenses associated with operating personnel will
continue to increase significantly as the Company expands, but management does
not expect to increase the number of corporate staff significantly during the
next several years.

                                      -18-


     DSS and RPM are both incorporated in North Carolina and, as C corporations,
file their federal income tax returns as part of a consolidated group with THE.
A provision for income tax benefit has been recorded in 1996 since the losses of
DSS and RPM can be applied to income in the consolidated group. No such
provision has been recorded in 1997 since there may not be adequate income
within the consolidated group to utilize losses from DSS and RPM. Upon the
completion of this Offering, DSS and RPM will cease filing tax returns as part
of the THE consolidated group and will file their own consolidated federal
return. DSS and RPM file separate state returns since North Carolina income tax
regulations do not permit filing consolidated returns.

     The Company owns office furniture and computer equipment that is being
depreciated, but most of its depreciation and amortization expense is the
amortization of the management contract rights. The management contract rights
were purchased by RPM from an affiliate on January 1, 1996 and September 1,
1996. Most of these contracts are being amortized over a three-year period. The
Company expects to extend the contracts at the end of the three years at no
additional cost to the Company.

RESULTS OF OPERATIONS

     To provide a meaningful comparison in the discussion below, pro forma
financial information for the six months ended June 30, 1996 is presented as if
DSS had been incorporated and had acquired RPM on January 1, 1996. The pro forma
operating statement is presented in Note 3 to the Company's financial statements
for the six months ended June 30, 1997.

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996

     Total income increased $100,497, or 9.3% to $1,180,456 for the six months
ended June 30, 1997 from $1,079,959 in the six moths ended June 30, 1996. During
the same period, the Company's total expenses increased $214,829 , or 13.2%, to
$1,842,524 from $1,627,695. As a result, the Company's net loss before income
tax benefit increased $114,332, or 20.9%, to $662,068 for the six months ended
June 30, 1997 from $547,736 for the six months ended June 30, 1996.

INCOME

     Total income increased $100,497, or 9.3%, to $1,180,456 for the six months
ended June 30, 1997 from $1,079,959 in the six months ended June 30, 1996. The
increase in revenues was primarily due to increases in management fees and home
care revenues.

MANAGEMENT FEES. Management fees increased $42,670, or 10.8%, to $437,416 for
the six months ended June 30, 1997 from $394,746 for the six months ended June
30, 1996. This increase was the result of managing more units and increased rent
collected at the apartments.

HOME CARE INCOME. Home care operations began in August 1996. Revenues for the
first six months of 1997 were $66,163.

REIMBURSEMENT INCOME. Reimbursement income decreased $8,336, or 1.2%, to
$676,877 for the six months ended June 30, 1997 from $685,213 for the six months
ended June 30, 1996. This decrease was primarily the result of reduced number of
personnel employed at the apartment sites.

EXPENSES

     Total expenses increased $214,829, or 13.2%, to $1,842,524 for the six
months ended June 30, 1997 from $1,627,695 for the six months ended June 30,
1996. The increase in expenses was primarily the result of increased personnel
expense and related administrative and other expense.

                                      -19-


PERSONNEL EXPENSE. Personnel expense increased $117,773, or 9.0%, to $1,424,493
for the six months ended June 30, 1997 from $1,306,720 for the six months ended
June 30, 1996. The increase in personnel expense was primarily due to increased
staffing in the Company's home care business.

ADMINISTRATION AND OTHER EXPENSES. Administrative and other expenses which
consist primarily of office and administrative, rent, insurance and travel
expenses increased $38,474, or 32.9%, to $155,240 for the six months ended June
30, 1997 from $116,766 for the six months ended June 30, 1996. The increase in
administrative expense was primarily due to an increase in personnel.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased $3,567,
or 1.6%, to $215,857 for the six months ended June 30, 1997 from $219,424 for
the six months ended June 30, 1996. The decrease in depreciation and
amortization was attributable to the completion of depreciation of certain
equipment.

INTEREST EXPENSE. Interest expense increased $46,194, or 1.6%, to $46,934 for
the six months ended June 30, 1997 from $740 for the six months ended June 30,
1996. The increase in interest expense was attributable to increased bank
borrowings which were used to cover the Company's operating deficit and start-up
expenses.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER
31, 1995

     With respect to fiscal year 1996 compared to fiscal year 1995, there are no
meaningful comparisons since DSS did not exist in 1995 and RPM had no operations
as an apartment manager during 1995. RPM's only income and expenses in 1995
resulted from its investments in securities, sales of securities and interest
expense on a note payable. The operating statement discussed below is the pro
forma operating statement for the year ended December 31, 1996 as if DSS had
been incorporated and had acquired RPM on January 1. 1996. The pro forma
operating statement is presented in Note 10 to the DSS financial statements for
the period ended December 31, 1996.

     Total income was $2,335,229 for the year ended December 31, 1996. During
the same period, the Company's total expenses were $3,566,283. As a result, the
Company's net loss before the provision for income tax benefit was $1,231,054.
The provision for income tax benefit was $349,800, resulting in a net loss of
$881,254.

     Income was made up of management fees of $833,426, home care income of
$18,797 and reimbursement income of $1,467,051 and other income of $15,955.
Expenses included personnel expense of $2,702,843, administrative and other
expenses of $307,676 and depreciation and amortization expense of $555,764.


FINANCIAL CONDITION

JUNE 30, 1997 COMPARED TO DECEMBER 31, 1996

     The Company had current assets of $163,396 on June 30, 1997 and $217,825 on
December 31, 1996. The primary asset in current assets is accounts receivable.
The Company had accounts receivable of $100,371 on June 30, 1997 and $133,649 on
December 31, 1996. The receivables decreased due to the collection of a single
receivable of approximately $35,000. The Company expects receivables to increase
as the Company increases management of apartment units and assisted living
residences.

     Furniture and equipment decreased to $69,887 at June 30, 1997 from $88,451
at December 31, 1996 due to depreciation expense. Intangible assets decreased to
$735,778 at June 30, 1997 from $918,071 at December 31, 1996 due to amortization
expense.

     Development costs increased to $154,102 at June 30, 1997 from $132,350 at
December 31, 1996 due to continuing development activities with respect to
assisted living residences. Development costs will either be recouped with the
successful completion of a facility or written off if a site is determined not
to be feasible.

                                      -20-


     Accounts receivable-affiliates, primarily fees receivable from affiliated
partnerships, did not change from $253,616.

     Total liabilities increased $428,534 to $2,731,731 at June 30, 1997 from
$2,303,197 at December 31, 1996 primarily due to increases in the deferred
salaries and bonuses of $210,144 and the note payable-bank of $286,205.

     Accounts payable and accrued expenses decreased by $18,367 from $122,009 at
December 31, 1996 to $103,642 at June 30, 1997 and payables to THE and other
affiliates decreased $54,347 from $814,691 at December 31, 1996 to $760,344 at
June 30, 1997. There was a slight increase in interest payable of $4,899 from
$6,587 at December 31, 1996 to $11,486 at June 30, 1997.

     Shareholder's deficit increased from $692,884 at December 31, 1996 to
$1,354,952 by the loss for six months ended June 30, 1997.

LIQUIDITY AND CAPITAL RESOURCES

     The Company has operated, and expects to continue to operate, on a negative
cash flow basis due to start- up expenses and length of the development cycle.
Currently, the Company's primary cash requirements include covering operating
deficits and development expenses related to the development, construction and
fill-up of assisted living residences. The Company has relied upon its parent,
THE, and its bank lender to provide it with operating cash.

     The Company has a bank credit line to support its daily operating
requirements and initial assisted living developments. It is a $1.5 million
credit line with a variable interest rate, based on the prime rate, renewable in
January 1998. This line of credit is fully secured by securities owned by an
affiliate.

     The net proceeds of the Offering will be used to pay off the outstanding
balance under the bank line of credit, provide $3 million in development working
capital for the assisted living projects and for general corporate purposes. The
Company anticipates that the net proceeds from the Offering, together with the
funds available under its credit facility will be sufficient to fund its
operations for the next twelve months, if the Company's future operations are
consistent with management's expectations. The Company may need additional
financing thereafter. There can be no assurance that the Company will be able to
obtain financing on a favorable or timely basis. The type, timing and terms of
financing selected by the Company will depend on its cash needs, the
availability of other financing sources and the prevailing conditions in the
financial markets.

     THE advanced funds to cover operating deficits for DSS and RPM in 1995 and
1996. In 1996, THE helped DSS secure a bank loan by providing collateral and
guaranteeing the loan. After the equity offering is completed and the bank loan
is repaid, THE will not offer either its collateral or its guarantee to DSS in
future bank financings.

INFLATION AND INTEREST RATES

     Inflation has minimal impact on the daily operations of the Company.
Increases in salaries and administrative expenses are offset by increases in
management fees that are computed as a percentage of rent and resident service
fees. Increases in resident service fees may lag behind inflation since the
amount of the fee is based on a cost reimbursement by public sources. Except for
the lag time, however, the Company expects the reimbursement to keep pace with
inflation.

     The primary concern regarding inflation is in interest rate fluctuations.
High interest rates would increase the cost of building new facilities and could
slow down the Company's development plans. Also, during a period of rapid
inflation, interest rates could become so expensive that it would not be
economical to use tax exempt bond financing for permanent financing.

                                      -21-


CERTAIN ACCOUNTING CONSIDERATIONS

SFAS NO. 123

     In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans. Those plans
include all arrangements by which employees receive shares of stock or other
equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of the employer's stock. Examples are
stock purchase plans, stock options, restricted stock awards, and stock
appreciation rights. This statement also applies to transactions in which an
entity issues its equity instruments to acquire goods or services from
non-employees. Those transactions must be accounted for, or at least disclosed
in the case of stock options, based on the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measurable. The accounting requirements of SFAS No. 123 are effective
for financial statements for fiscal years beginning after December 15, 1995, or
for an earlier fiscal year for which SFAS No. 123 is initially adopted for
recognizing compensation cost. The statement permits a company to choose either
a new fair value-based method or the current APB Opinion No. 25 intrinsic
value-based method of accounting for its stock-based compensation arrangements.
The Company adopted its Stock Incentive Plan (as defined herein) effective
January 1, 1997 but no grants have been made through the date hereof.

                                      -22-


                                    BUSINESS

GENERAL

     The Company was founded in May 1996 to develop and manage assisted living
residences, to provide home care services to the frail elderly and to manage low
and moderate income apartment complexes. Management believes that there is a
growing demand for assisted living residences developed for the low and moderate
income frail elderly, specifically in the Company's targeted areas of smaller
cities and towns of North Carolina and throughout the Southeast. Although the
Company has been operating for less than two years, through affiliates of the
Company, senior management has over 20 years of experience in developing and
operating housing specifically designed for this target population with a
concentration in Eastern North Carolina. The Company's two-year growth objective
is to develop at least 16 new assisted living residences, with a capacity of
approximately 960 residents. The Company is in the early stages of its assisted
living development program, with eleven sites optioned to date and three
feasibility studies completed. The Company intends for the majority of the
projects it develops to be owned by or sold to qualified non-profit
organizations, with the Company retaining management contracts for these
projects. By transferring ownership of the properties to non-profit
organizations, the Company expects to be able to utilize tax-exempt bonds to
finance the majority of its facilities, while at the same time carrying little
real estate on its balance sheet. With respect to the Company's current cash
generating operations, as of the date of this Prospectus, the Company manages 62
apartment complexes, consisting of approximately 2,393 rental units of low and
moderate income rent subsidized apartments, 31% of which are owned by non-profit
organizations and 56% of which are occupied by the elderly. The Company also
currently provides approximately 1,400 hours of home care services per month.

     The Company was formed in May 1996 as a wholly owned subsidiary of THE and
began operations in July 1996. THE is a privately-held corporation controlled by
the Company's senior management. DSS was initially capitalized with $100 and its
parent, THE, received 100 shares of Common Stock. In July 1996, THE exchanged
all of the stock of its wholly owned subsidiary RPM for 2,277,678 shares of DSS.
Effective June 30, 1997, THE returned 477,778 shares of Common Stock to DSS
which DSS retired leaving 1,800,000 shares of Common Stock issued and
outstanding. RPM, now a wholly-owned subsidiary of the Company, manages 2,393
rental housing units located across four states: North Carolina, South Carolina,
West Virginia and Pennsylvania. The Company's management contracts have initial
terms of one to three years, with varying renewal provisions. Of the 62
complexes managed by RPM, 37, or 60%, are controlled by affiliates and 25, or
40%, are controlled by third parties. Currently, apartment management provides
the majority of the Company's revenues.

     The Company's home care activities are limited to providing personal care
services to the same population targeted for its assisted living residences. The
Company does not provide medical services and, as such, is not subject to the
regulatory burdens of that market, nor the attendant legal liabilities. The
Company utilizes its home care business for two primary purposes: (i) to provide
services to residents of its existing subsidized senior apartments; and (ii) to
establish operating procedures for delivery of personal care services at its
future assisted living residences.

BUSINESS STRATEGY

     The Company's growth is expected to come primarily from developing and
managing assisted living residences. The Company expects its future assisted
living residences to serve as the foundation from which to provide a continuum
of care for low to moderate income senior citizens. The Company has already
developed and implemented its policies, procedures and operating systems for
providing personal care services and has hired its core staff for the personal
care division. Assisted living management is the combination of providing
personal care and real estate management services, both businesses in which the
Company is already involved and in which the Company's senior management has
extensive experience. The Company has developed a 60-unit assisted living
prototype for development primarily in small to mid-sized communities with
populations of under 75,000, whose target resident will be a low to moderate
income frail, elderly individual. In addition, the Company will continually
review apartment management opportunities and may add to its management
portfolio.

                                      -23-


     Once the Company's assisted living residences have been developed, DSS will
be able to offer low and moderate income elderly individuals a continuum of
living arrangements spanning the course of many years: apartments managed
specifically for the needs of the elderly; home care services provided in such
apartment facilities if, and when, such individual may come to require such
assistance; and, finally, assisted living residences for that time when a
greater level of support may become necessary.

     The Company expects to achieve its business objectives by implementing the
following strategies:

     SELECTIVELY LOCATING ASSISTED LIVING RESIDENCES. During its initial phase
of development, the Company will locate some of its assisted living facilities
within close proximity to one of the Company's managed apartment complexes. Such
locations offer immediate benefits to the Company. Since over 56% of the
Company's apartments are occupied by low and moderate income elderly tenants,
when an elderly tenant needs to move into an assisted living residence, the
Company will be well positioned to be the provider of choice. In addition, since
over 31% of the Company's apartment complexes are owned by non-profit
organizations, the Company already has numerous relationships with regional
non-profit organizations, many of which are expected to become the ultimate
owners of the assisted living facilities. Lastly, the Company expects to be able
to utilize certain staff positions in both apartment complexes and assisted
living facilities, namely maintenance staff and certain providers of personal
care, thus help to control costs at both locations.

     DEVELOPING ASSISTED LIVING FACILITIES SPECIFICALLY DESIGNED FOR LOW AND
MODERATE INCOME RESIDENTS. Each assisted living residence developed by the
Company will be designed, constructed and managed so as to be profitable with
only public pay residents, even while providing features typically found in
residences designed for the private pay population, such as private bedrooms,
personal lavatories and many diverse common areas located in various areas of
the residence. As such, for each private pay resident, for whom monthly fees are
typically $150 to $300 per month higher, the Company expects to generate
significantly greater profits. Most moderate income resident will typically
begin their residence as private pay individuals and will convert to public pay
only when such individual's personal resources are exhausted. Since the
Company's cost structure for its assisted living residences has been designed
based on complete occupancy by public pay residents, even when these changes
occur the Company expects profitability at any given location to be maintained.
In addition, because many assisted living residences only accept residents who
have resources to cover a minimum time period, typically 18 months or longer,
the Company anticipates that demand for the Company's residences will be high
among the moderate income frail elderly who may not have the resources to cover
such an extended period of time.

     ACCESSING FAVORABLE FINANCING. Because of management's extensive experience
working with non-profit organizations, particularly 501(c)(3)s, the Company
intends to use tax-exempt bonds to finance the majority of its assisted living
residences. This low-cost financing vehicle provides the Company with a
competitive cost advantage. The Company also receives the added benefit of not
carrying significant amounts of real estate on its balance sheet, thus freeing
up capital for new developments. In addition, future earnings will not be
charged with the associated depreciation and amortization.

     TRANSFERRING EXPERIENCE TO ASSISTED LIVING RESIDENCES. Assisted living is
the combination of providing senior housing with the provision of home care
services. The Company and its affiliates have extensive experience in developing
housing for low and moderate income seniors and disabled persons. Several of the
Company- managed apartment complexes currently provide regular activities,
communal meals, laundry facilities, and other amenities frequently associated
with assisted living. In addition, the Company currently provides home care
services to low and moderate income frail elderly. The home care services
provided by the Company include assistance with dressing, personal hygiene,
medication management, preparation of simple meals, assistance with mobility,
dental, hair and skin care and maintenance of a safe environment. These services
are identical to those required to be provided in an assisted living residences.
The Company's staff is experienced in providing and documenting these services,
assessing and developing individual care plans, maintaining client records,
regulatory compliance, quality assurance and Medicaid billing. Thus, the Company
believes it already possesses the personnel skills and management systems
required in providing assisted living.

                                      -24-


     JOINT VENTURES AND CONVERSIONS. Management anticipates growth opportunities
in addition to those provided by its own independent development activities. The
Company is developing alliances with local government agencies such as public
housing authorities dedicated to providing housing and services to the low
income elderly and disabled. The Company intends to explore joint ventures with
local agencies which provide assisted living to its targeted population. These
activities may include newly developed facilities as well as the conversion of
sections of existing subsidized senior housing to assisted living residences.
The Company is in the preliminary stages of developing newly constructed
assisted living with the housing authority of one North Carolina community and
exploring the conversion to assisted living of two residential floors in two
existing subsidized senior housing complexes. Management sees these joint
venture and conversion opportunities as a method of providing assisted living in
larger communities, as well as in the small to medium sized communities
currently targeted by the Company.

ORGANIZATION

     The Company is organized into three divisions: (i) developing assisted
living facilities; (ii) managing assisted living facilities targeted to the low
and moderate income frail elderly residents and (iii) managing low and moderate
income, rent subsidized apartments, primarily for the elderly.

DEVELOPMENT DIVISION

     The Company has designed a 60-unit prototype assisted living residence for
development primarily in communities with a population under 75,000. The target
resident is a low-to-moderate income, frail elderly individual with moderate
income equaling the area median income, and low income beginning at
approximately 50% of median income. Based on its own industry surveys, the
Company believes that there are currently few competitors who have targeted the
Company's demographic and regional market: the low-to-moderate income frail
elderly population of the Southeast, especially in rural areas. The Company will
target specific geographic areas where the only existing competition is old
style rest homes, home care and nursing homes.

     The Company breaks down development of assisted living facilities into
three major phases as follows: (a) development consisting of town and site
selection, marketing and environmental studies, acquiring local permits,
obtaining financing and construction contracts (4 to 6 months); (b) construction
(9 to 12 months); and (c) fill-up (3 to 9 months). Once a project is completed,
obtaining and qualifying residents is generally not a problem because of the
existing demand for assisted living facilities. The Company intends to utilize
both corporate and on-site marketing teams and anticipates a period of 3 to 9
months to fill-up a location. Management anticipates some private pay residents,
but intends to develop properties that can be profitable with only public pay
residents.

     The Company's current plan anticipates that most facilities it develops
will be owned by qualified non- profit 501(c)(3)s. In management's opinion,
non-profit ownership offers the best overall financing available for these
facilities, while at the same time allowing the Company to keep its balance
sheet relatively free of real estate. The Company may own or lease some of the
properties to be developed, depending upon financing, investment and marketing
considerations. The Company anticipates construction and permanent funding for
the facilities would be tax-exempt bond financing, Federal Housing
Administration financing or a sale/lease back with a health care REIT or other
real estate holding entity. The Company expects to combine 3 to 5 properties in
a package for non-profit owners since bond financing is more efficient with loan
amounts of $7.5 million and above. Therefore, the Company may own and operate
completed properties until enough can be packaged together for financing.

     The Company currently has 11 sites under option in the State of North
Carolina. Sites located in the three North Carolina communities of Rocky Mount,
Goldsboro and Southern Pines have received favorable feasibility analysis and
have been selected for the first round of development. The Company is in the
process of obtaining feasibility analyses on the remaining eight controlled
sites. The Company intends to maintain a geographic focus in North Carolina
developing approximately 3 to 5 facilities at a time. In the future, the Company
will advance into surrounding states, maintaining the same focus on small to
mid-sized communities with a relatively large low and moderate income elderly
population with an emphasis on developing newly constructed assisted living
facilities. Initially, the Company anticipates developing 8 projects, in groups
of four, per year but intends to increase the number to 12 to 14 per year. The

                                      -25-


Company believes the increased pace of development can be achieved with current
staffing levels. More importantly, management believe that such a heightened
development pace will bring greater economies of scale to project financings and
that demand for assisted living units among the low and moderate income
population in the medium sized markets that the Company is targeting will
sustain that pace. Development will be slightly staggered so that the Company
will not be taking delivery of all projects in the same month, but financing
will typically be arranged in packages of three to five properties. Turnkey
costs, including all development fees to the Company, for the 60-unit prototype
are estimated to average $2,581,000 for the first 8 projects. In the initial
phases of development, the Company intends to locate some facilities near its
existing subsidized elderly apartments. Such location creates many
cross-marketing opportunities for the Company. However, management believes that
its prototype assisted living residences can be successfully developed
independently.

     The Company will enter into management contracts with non-profit owners
that provide for the development of newly constructed assisted living
residences. Once a potential site is located, feasibility and due diligence is
completed, the prospective non-profit owner will make a final commitment to the
site, subject to financing. In general, tax-exempt bond financing proceeds will
be used for both construction and permanent financing. In this situation, the
Company will assign its option to acquire a site to the non-profit for exercise,
and title in the property will go directly to the non-profit owner. The Company
will be entitled to a base development fee equal to 10% of total development
costs, less the development fee. The Company may receive an additional 5%
development fee for a total maximum fee of 15% of development costs, based on
achieving certain performance goals and cost efficiencies.

     With respect to all of the current assisted living projects in development,
management has completed all of the internal analysis necessary to bring each to
what is commonly called the mortgage package phase. For each project planned for
the initial stage of development, the Company has some form of site control
(actual ownership or an option to purchase), a schematic architectural plan and
an estimate from a proposed contractor, and the Company's own market study. With
respect to three of the sites, the Company has received a favorable feasibility
analysis from an independent market feasibility company and is in the process of
obtaining feasibility analyses on the remaining eight sites. In addition, if
required by the lender, the Company will also engage a third party appraiser.

     The Company's approach to individual markets for potential development is
centered on senior management's long-term experience with mid-size and rural
markets. Consequently, senior managers of the Company perform the thorough
internal market analysis at the beginning of the site acquisition process. This
internal work is then carefully reassessed by a third party market study just
prior to entering into a formal commitment to the development, which typically
takes place when the site is acquired and construction commences. Management
believes that this approach provides the safest way to ensure a feasible
development in a timely and cost efficient manner.

     Prior to the Company's final commitment to proceed with a site, the project
will typically have a designated non-profit owner committed to purchase the
facility when the necessary financing to fund the purchase is in place. The
purchase price will be the sum of the net proceeds of the financing DSS
arranges. The Company currently has relationships with several qualified
non-profits and intends to develop new ones with area hospitals as the Company
continues to grow. In all cases, the Company will have an option to purchase and
other safeguards to protect its long term interest in the properties.

     As an alternative, the Company may consider more conventional
sale/leaseback arrangements with for- profit organizations. However, at this
time, management believes that for-profit organizations cannot compete with
financing alternatives available to non-profits. Management also believes that
developing assisted living residences for the low and moderate income frail
elderly for non-profits, as opposed to for-profit organization, will be better
received by localities.

                                      -26-


     With respect to architectural plans, specifications and construction
contracts, the Company intends to negotiate guaranteed not-to-exceed contracts
and not to put the work out for bid. The architect currently retained by the
Company has extensive elderly housing and healthcare experience.

     Developments will be staged to begin as previous developments reach
stabilized operations to maintain a pipeline of proposed projects with all
preliminary internal work done and land under option. The Company intends that a
few excess projects will always be in the pipeline because some proposed
projects will not prove feasible after final analysis.

     In addition to the foregoing development activities in which the Company
will develop newly constructed assisted living residences for management by the
Company in communities of 75,000 or less, the Company intends to participate in
development activities as a joint venturer with local government agencies and
non-profit organizations dedicated to providing housing and services to the low
income elderly. As part of these activities, the Company may perform development
activities for the construction or rehabilitation of a facility on a fee basis
with the Company having no further participation in the operation of the
facility upon completion of construction. Likewise, the Company may enter into
agreements to manage an existing property on behalf of a government agency or
non-profit owner.

     The Company currently manages several subsidized apartment complexes for
low and moderate income elderly individuals, which meet many of the physical
requirements of a licensed assisted living facility. That is, the facilities
have wide hallways, communal dining rooms, kitchens, laundry facilities,
activity rooms and other common areas available for use by residents. The
Company is currently working closely with its architect and the North Carolina
Division of Facility Services regarding the potential conversion of two floors
of existing apartment complexes to licensed assisted living residences.
Management believes that joint ventures and conversion opportunities provide an
attractive means of establishing a presence in larger communities with
populations in excess of 75,000, as well as in small to medium sized
communities.

ASSISTED LIVING MANAGEMENT DIVISION

     All developed assisted living residences will be managed either on a
management contract, cancelable only under very specific conditions or pursuant
to a lease between the owner and a single purpose wholly-owned subsidiary of the
Company formed specifically for the project. The term of the management contract
or lease will be for a minimum of three years, rolling forward each year unless
notice of termination is given. In addition, the Company will have an option to
purchase any project and will receive a fee if the management agreement is
terminated without cause.

     Management views assisted living operations as a combination of home care
services and real estate management services, both current operations of the
Company. Thus, this division will combine these two skills in buildings that the
Company will have developed and financed specifically for the low and moderate
income, public pay frail elderly market.

     The assisted living operations division will begin full operation when the
first Company-developed assisted living residences come on line. However, with
respect to the home care component of assisted living, the Company has already
instituted a successful pilot program in which the Company is providing home
care services to low and moderate income frail elderly residents at some of the
apartment complexes that it manages as well as in private homes. These home care
services are funded by state Medicaid programs as well as private payors. The
home care services provided by the Company include assistance with dressing,
personal hygiene, medication management, preparation of simple meals, assistance
with mobility, dental, hair and skin care and maintenance of a safe environment.
The Company also has staff experienced in providing and documenting these
services, assessing and developing individual care plans, maintaining client
records, regulatory compliance, quality assurance and Medicaid billing. These
services are identical to those which the Company will be providing at its
assisted living residences. Through this pilot program the Company has
established the operating procedures which will be utilized in delivering home
care services at its assisted living residences. The Company has focused its
activities on having an exemplary operation with respect to client care,
documentation, policies and procedures and quality assurance. The Company had

                                      -27-


its first on-site survey of its home care operations by the State of North
Carolina on May 16, 1997. The survey resulted in a deficiency-free finding by
the State. The State specifically complimented the Company's self-audit and
compliance procedures.

     Until DSS reaches a certain level of assisted living units under
management, currently estimated to be approximately eight properties, this
division will, in part, be operated with personnel already providing home care
and apartment management services. There will, therefore, be some significant
operating savings to the Company as a whole. For example, with respect to real
estate management, the Company anticipates being able to share maintenance
personnel between assisted living residences and nearby apartment complexes that
the Company manages. The same overlap feature will apply to certified nurse's
aides and choreworkers who currently perform their duties in individual homes or
apartments and who can provide those same services in the assisted living
residences. However, key on-site personnel, such as the facility administrator,
will not be shared or assigned duties outside their respective property. Sharing
will take place at the service provider level only on an as-available basis.

     Although the primary conduit for the Company's home care services in the
future will be its assisted living residences, the Company intends to continue
providing these services to individuals in apartments and private homes.

APARTMENT MANAGEMENT DIVISION

     Affiliates of the Company have been in the business of developing and
managing senior housing for more than 20 years. Of the 62 complexes currently
managed by the Company, the Company controls 37, representing 1,351 units,
either through the direct ownership of management rights or through ownership by
an affiliated entity. The remaining 40 complexes, representing 1,443 units are
owned by third parties. Approximately 31% of the complexes are owned by
non-profit organizations.

     The Company manages apartments in North Carolina, South Carolina,
Pennsylvania and West Virginia. Generally the managed properties receive
government subsidies through favorable financing and/or direct rent
contributions under programs administered by Housing and Urban Development
("HUD") or Rural Development ("RD," formerly the Farmer's Home Administration).
Approximately 39% of the units under management are eligible for rent subsidies
under Housing Assistance Payment ("HAP") contracts. The treatment of HAP
contracts upon expiration is under review by the United States Congress. No
current HAP affecting the Company's managed properties is up for renewal until
1999. The effect of the expiration of an individual property's HAP without
renewal varies and depends on the HUD determined fair market rent for the
specific market area.

     Management fees for government assisted housing are frequently higher than
fees for management of conventional apartments because of the added layers of
paperwork required to comply with government programs. The Company typically
receives a percentage of rent revenues ranging from 6% to 8% or a flat monthly
fee for occupied units. In addition, the Company receives a stated monthly
bookkeeping fee for all HUD properties it manages. The management agreements are
approved by the applicable government agency and are relatively standardized.
The initial term of a HUD management contract is two years with one-year
renewals thereafter. A typical RD management contract has a three-year term and
must be executed every three years. The Company's apartment management contracts
have initial terms of one to three years, with varying renewal provisions; the
Company's history of contract renewal has been excellent.

     As discussed above, management anticipates modest savings in operating
costs for both the properties managed in the apartment management division and
those in the assisted living management division. Because many of the initial
assisted living residences will be in close proximity to existing apartment
complexes managed by the Company, management believes that through the sharing
of certain personnel, mostly maintenance and property staff, operating costs in
both divisions will be lowered. An additional, very important benefit from the
Company's experience managing low and moderate income elderly properties is that
it gives management excellent operating histories to use as comparisons for the
assisted living residences. However, perhaps most important for cross- marketing
purposes, through its apartment management division the Company has established

                                      -28-


relationships with over a 1,000 low and moderate income elderly tenants. These
relationships give the Company a unique platform from which to develop its home
care and assisted living operations.

ASSISTED LIVING INDUSTRY

     The Company believes that the assisted living industry is evolving as the
preferred alternative to meet the growing demands for a cost effective setting
for seniors who cannot live independently due to physical or cognitive frailties
but who do not require the more intensive medical attention provided by a
skilled nursing facility.

     Generally, assisted living represents a combination of housing and 24-hour
per day personal support services designed to assist seniors with the activities
of daily living ("ADLs"), which include bathing, eating, personal hygiene,
grooming, ambulating and dressing. Certain assisted living facilities may offer
higher levels of personal assistance for residents with Alzheimer's disease or
other forms of dementia.

     Assisted living facilities in North Carolina generally fall into three
types: downscale, dormitory and institutional style rest homes with shared
bathrooms; newly constructed, high fee, upscale, residential style facilities;
and traditional nursing homes with assisted living beds. The Company's prototype
residence is distinguishable from the traditional rest home or downscale
dormitory style in several respects. The Company's residences are residential in
style, provide suites with a private bath and two bedrooms, each with separate
entrance and temperature control, and provide spacious common areas that are
comparable to those in the upscale model. The Company's prototype follows the
high fee, upscale residential style in all aspects other than price.

     The Company believes that a number of factors will allow assisted living
companies to continue as one of the fastest growing segments of senior care:

     SUPPLY/DEMAND IMBALANCE. While the senior population is growing
significantly, the supply of skilled nursing beds per thousand is declining.
This imbalance may be attributed to a number of factors in addition to the aging
of the population. Many states, in an effort to maintain controls of Medicaid
expenditures on long-term care, have implemented more restrictive certificate of
need regulations or similar legislation that restricts the supply of licensed
skilled nursing facility beds. Additionally, acuity-based reimbursement systems
have encouraged skilled nursing facilities to focus on higher acuity patients.
The Company also believes that high construction costs and limits on government
reimbursement for the full cost of construction and start-up expenses also will
constrain the growth and supply of traditional skilled nursing beds. These
factors, taken in combination, result in relatively fewer skilled nursing beds
available for the increasing number of seniors who require assistance with ADLs
but do not require 24-hour medical attention.

     COST EFFECTIVENESS. The average annual cost for a patient in a skilled
nursing home can exceed $75,000 per year in certain markets. In contrast,
assisted living services are provided at a cost which is generally 30% to 50%
lower than skilled nursing facilities located in the same region.

     DEMOGRAPHICS AND CHANGING FAMILY DYNAMICS. The target market for the
Company's services are persons generally 75 years and older, one of the fastest
growing segments of the U.S. population. According to the U.S. Census Bureau,
the portion of the U.S. population age 75 and older is expected to increase by
28.7%, from approximately 13.0 million in 1990 to approximately 16.8 million by
the year 2000, and the number of persons age 85 and older, as a segment of the
U.S. population, is expected to increase by 45%, from approximately 3.0 million
in 1990 to over 4.3 million by the year 2000. Furthermore, the number of persons
afflicted with Alzheimer's disease is also expected to grow in the coming years.
According to data published by the Alzheimer's Association, this group will grow
from the current 3.8 million people to 4.8 million, or an increase of 26.3%, by
the year 2000. As Alzheimer's disease and other forms of dementia are more
likely to occur as a person ages, the increasing life expectancy of seniors is
expected to result in a greater number of persons afflicted with Alzheimer's
disease and other forms of dementia in future years absent breakthroughs in
medical research.

     CONSUMER PREFERENCE. The Company believes that assisted living is
increasingly becoming the setting preferred by prospective residents as well as
their families, who are often the decision makers for seniors. Assisted living

                                      -29-


is a cost effective alternative to other types of facilities, offers seniors
greater independence and allows them to age in place in a residential setting.

COMPETITION

     The assisted living industry is highly competitive, fragmented,
characterized by numerous small operators but also with large, public,
well-financed competitors. The scope of assisted living services varies
substantially from one operator to another and with the requirements of one
state to another. The Company believes that residential style assisted living
offers an attractive approach to providing residential and personal care
services for the elderly, particularly in light of (i) the increased emphasis by
both federal and state governments on containing costs; (ii) limitations imposed
in many states on the construction of additional skilled nursing facilities,
which have generally increased the level of care provided in such facilities and
forced less acute elderly to seek alternative care arrangements; and (iii) the
decreasing availability of family care. The primary consumers of assisted living
residences are persons over the age of 65.

     The competition in managing subsidized housing for the elderly is
substantial with competition from numerous local, regional and national
companies, many of whom have greater financial resources than those of the
Company. There is increasing demand for such facilities due to the increasing
population of elderly in the United States but growth in this industry is
dependent upon the availability of government financing and subsidies which are
currently being restricted and undergoing reassessment and change. Many of the
current managers of such facilities are companies affiliated with the original
developers in the Company's geographic region. The Company does not anticipate
substantial near-term growth in this segment of its business and is not
dependent on such growth for future profitability. Management of the Company has
over twenty years experience in subsidized housing and extensive experience
interacting with governmental agencies, so the Company should be positioned to
take advantage of this business if and when conditions change.

REGULATORY MATTERS

     The assisted living operations of the Company are subject to substantial
regulation by federal, state and local governmental agencies which vary among
the types of facilities and from state to state. Assisted living facilities are
generally subject to less regulation than other licensed health care providers
but more regulation than standard congregate care or independent living
facilities. However, the Company anticipates that additional regulations and
licensing requirements will likely be imposed by the states and the federal
government. Currently, North Carolina requires licenses to provide the assisted
living services provided by the Company but not a certificate of need. The North
Carolina legislature is considering a bill that imposes a 12 month moratorium on
assisted living licensure. As currently drafted, the bill provides several
exclusions that would exempt the Company's proposed activities based on the
current status of development and the proposed location of the facilities. The
purpose of the moratorium is to study adult care homes in North Carolina to
determine whether the existing licensure procedures need to be modified. "Adult
care homes" now include everything from group homes to old style rest homes to
new assisted living facilities. It is anticipated that the moratorium will
result in stricter licensure procedures in North Carolina.

     The licensing statutes typically establish physical plant specifications,
resident care policies and services, administration and staffing requirements,
financial requirements, emergency service procedures plus after construction
approval of the as-built building and the Company's operating policies and
procedures. The Company's facilities must also comply with the requirements of
the Americans With Disabilities Act and are subject to various local building
codes and other ordinances, including fire safety codes. The Company is a
provider of services under Medicaid programs and is subject to Medicaid
regulations designed to limit fraud and abuse, violations of which could result
in civil and criminal penalties and exclusion from participation in Medicaid
programs. The Company believes it is in substantial compliance with all
applicable regulatory requirements. No actions are pending against the Company
for non-compliance with any regulatory requirement.

     The targeted residents for the Company's facilities are eligible for
several types of public funds in North Carolina. North Carolina's Division of
Special Assistance of the Department of Social Services pays a monthly maximum

                                      -30-


of $874 for room and board. This payment is funded from the federal Supplemental
Security Income program ("SSI") and state supplements. In addition, the state
Medicaid program provides funds for personal care services. The State and County
are each responsible for half of the Medicaid payment. The amount available
depends on the services required. Finally, an allowance of 50 cents per day is
paid by Medicaid to fund medically related resident transportation.

     Subsidized apartments are also subject to substantial regulations primarily
from HUD/FHA and the Rural Development Agency, as applicable. In most states,
subsidized apartments are also subject to state and local building and fire
codes.

     Providers of personal care services in North Carolina must obtain a license
from the Department of Facility Services. There are different levels of
licensure depending on the nature of the services provided. A provider must
obtain a Certificate of Need ("CON") to participate in the Medicare-funded Home
Health Program, which generally entails the provision of skilled medical
services and therapies. No CON is required to participate in the Medicaid funded
personal care service ("PCS") program which is available to the low income
elderly in their place of residence nor the Community Access Program ("CAP")
which provides extensive personal care and related services for the low income
disabled. The Company participates in both the PCS and CAP programs. The
reimbursement rate is currently $11.60 per hour. Eligible participants in the
PCS program can receive up to a maximum of 80 hours of personal care services
each month. Services include assistance with the basic ADL's including bathing,
dressing, grooming, transfers, personal hygiene, assistance with medication
monitoring, maintaining a safe and clean environment, household management and
simple meal preparation, The Company's personal care revenues for 1996 and 1997
were funded 97% and 90% respectively by the Medicaid PCS program.

FACILITIES/PROPERTIES

     The Company subleases 90% of the office and administrative building located
at 915 West Fourth Street, Winston-Salem, North Carolina from THE at a monthly
rent of $2,700 plus its share of property insurance and maintenance expenses.
There is no written sub-lease and the base lease between THE and an independent
third party has a remaining term of approximately two and one-half years.

EMPLOYEES

     As of August 15, 1997, the Company had 146 employees, 54 of whom are
full-time. None of the Company's employees are subject to collective bargaining
agreements and none of the employees have been on strike in the past three
years.

LEGAL PROCEEDINGS

     As of the date of this Prospectus, the Company is not a party to any legal
proceedings which could have a materially negative impact on the Company.

                                      -31-


                                   MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

         The directors and executive officers of the Company are as follows:

William G. Benton        52       Chairman of the Board and Chief
                                  Executive Officer
Susan L. Christiansen    44       President, Chief Operating Officer and
                                  Director
G. L. Clark, Jr.         52       Treasurer, Chief Financial Officer and
                                  Director
Perry C. Craven          57       Director
Walter H. Ettinger, Jr.  45       Director

     Mr. William G. Benton has served as Chief Executive Officer and Chairman of
the Board of the Company since inception. Mr. Benton is a Director, President
and the controlling shareholder of THE since its incorporation in 1991, and
served as a director, an executive officer and sole shareholder of predecessor
corporations since 1983. THE, through its predecessor and subsidiary
corporations, has engaged in the commercial real estate business in the areas of
multifamily apartments, hotels, shopping centers, long-term health care
facilities and restaurants. Mr. Benton originally developed and serves as
General Partner on many of the Section 8 elderly properties which the Company
manages. From 1988 through September 1994, Mr. Benton served as CEO and director
of Health Equity Properties Incorporated ("HEP"), a New York Stock Exchange
listed real estate investment trust with over $150 million in long-term health
care assets. At the time of the merger of HEP and Omega Healthcare Investors,
Inc., Mr. Benton was the Chairman of the Board and Chief Executive Officer of
HEP. He is also a director of Tanger Factory Outlet Centers, Inc., a New York
Stock Exchange-listed REIT.

     Ms. Susan L. Christiansen has served as President and Chief Operating
Officer and has been a director of the Company since inception. Ms Christiansen
is an officer, director, General Counsel and a shareholder of THE. Ms.
Christiansen served as Vice President, General Counsel and Secretary of HEP from
1990 until its merger in 1994. She has 20 years of experience in legal and
financial matters affecting senior housing-with-services. Ms. Christiansen also
has extensive experience with compliance with various government regulations and
in managerial and personnel matters. Ms. Christiansen is also a licensed real
estate broker in North Carolina.

     Mr. G.L. Clark, Jr. has served as Chief Financial Officer and has been a
director of the Company since inception. Mr. Clark is a Director, Chief
Financial Officer and a shareholder of THE, and has been Chairman of the Board
of RPM since January 1, 1996. Mr. Clark served as Vice President and Chief
Financial Officer of HEP from 1988 until its merger in 1994. Mr. Clark is a
Certified Public Accountant and has been involved in financial and accounting
aspects of low and moderate income housing and long-term health care facilities
since 1983.

     Ms. Perry C. Craven has been the sole shareholder and director of Perry C.
Craven Associates, Inc. since 1977, a company which specializes in elderly
housing development, non-profit development, housing training, rural housing
development and communications.

     Dr. Walter H. Ettinger, Jr. has been Associate Professor of Medicine, Head
of Section of Internal Medicine and Gerontology, Department of Medicine, Bowman
Gray School of Medicine, Winston-Salem, North Carolina and Deputy Director of
the J. Paul Sticht Center on Aging, Bowman Gray/Baptist Hospital Medical Center
since 1987. From 1985 to 1987 he was Assistant Professor of Medicine, Division
of Geriatrics and Gerontology, The John Hopkins University School of Medicine,
Baltimore, Maryland, and from 1982 to 1987 was on the staff of Francis Scott Key
Medical Center, Baltimore, Maryland.

     The Company's executive officers are appointed annually by, and serve at
the discretion of, the Board of Directors. All directors hold office until the
next annual meeting of the Company or until their successors have been duly

                                      -32-


elected or qualified. There are no family relationships among any of the
executive officers and directors of the Company.

     In July 1995, Grandfather Mountain Limited Partnership, which owns a
shopping center in Boone, North Carolina, filed a Chapter 11 Reorganization
under the Federal Bankruptcy Laws because both the anchor tenant, Roses
Department Store, and the lender, Mutual Savings and Loan Association,
Morganton, North Carolina filed for Reorganization. Benton Investment Company, a
wholly-owned subsidiary of THE, is one of the two General Partners of
Grandfather Mountain Limited Partnership, Mr. Benton and Mr. Clark serve as CEO
and President of Benton Investment Company, respectively.

DIRECTOR COMPENSATION

     The Company's directors receive $250 for their attendance at meetings. The
Company intends to compensate directors but has not determined the level of
compensation. In addition, the Company will reimburse directors for out-
of-pocket and travel expenses incurred for their attendance at meetings.

EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS

     During the fiscal year ended December 31, 1996, THE, the Company's parent,
paid and/or accrued compensation to Mr. Benton, Mr. Clark and Ms. Christiansen
for pre-incorporation services rendered to the Company. The Company has agreed
to assume the liability for all accrued but unpaid compensation and to reimburse
THE for all compensation prior to the Company's date of incorporation. Ms.
Walker and Ms. Robinson were paid by the Company's wholly-owned subsidiary, RPM
for the fiscal year ended December 31, 1996.

     The following table reflects all compensation earned by the named employees
of the Company for the year ended December 31, 1996.



                                            SUMMARY COMPENSATION TABLE

                                                                                           LONG-TERM
                                                                                          COMPENSATION          ALL OTHER
                                                  ANNUAL COMPENSATION                        AWARDS            COMPENSATION
                                ------------------------------------------------------------------------------------------------
                                                                                                SECURITIES
                                                                           OTHER ANNUAL         UNDERLYING           ALL OTHER
NAME AND PRINCIPAL POSITION      YEAR        SALARY(1)       BONUS         COMPENSATION           OPTIONS          COMPENSATION

                                                                                                 
William G. Benton...........     1996       $189,264(2)      $84,132             -                   -                   -
 Chief Executive Officer

Susan L. Christiansen.......     1996        104,000          14,500             -                   -                   -
 Chief Operating Officer

G.L. Clark, Jr..............     1996         94,500          36,750             -                   -                   -
   Chief Financial Officer                   

Deborah O. Robinson.........     1996         60,000            -                -                   -                   -
   Chief Accounting Officer

Sandra T. Walker............     1996         89,615            -                -                   -                   -
   Executive Vice President



   ----------------------
(1)  Each of the employees in the table accrued a portion of their 1996 salary
     listed above. Mr. Benton accrued $168,264 . Ms. Christiansen accrued
     $29,000. Mr. Clark accrued $73,500. Ms. Robinson accrued $5,000. Ms. Walker
     accrued $5,000. Under an agreement with the Company, those employees
     agreeing to accrue a portion of base compensation are entitled to repayment
     of the accrued compensation, plus a bonus equal to 50% of the accrued
     compensation. Mr. Benton and Mr. Clark are entitled to purchase shares of
     the Company's common stock with the bonus portion attributed to accrued
     compensation at a purchase price of $2.50 per share. Ms. Christiansen is
     entitled to purchase shares of the Company's common stock with the bonus
     portion attributable to accrued compensation at a purchase price of $5.00
     per share. Additional amounts of compensation have been accrued during
     1997. See below.  Management anticipates that all such accruals will cease
     by December 31, 1997.

                                      -33-


(2)  Mr. Benton agreed to reduce his base annual salary from $189,264 to
     $104,000 per year beginning January 1, 1997. In addition to his base
     compensation, Mr. Benton will continue to be entitled to a performance
     bonus.

     No Directors other than those who are full time employees of the Company
received any compensation during 1996.

     DIRECTORS AS A GROUP            CASH             ACCRUED

     Number of Persons (5)           $117,000         $270,764

     Salaries for executives and other management personnel of $292,906 have
been accrued during 1996 and $135,703 during the first six months of 1997.
Employees agreeing to the accrual of a portion of their base salary are entitled
to receive payment of accrued amounts, plus a bonus equal to 50% of the accrued
amount. Management anticipates that all such accruals will cease by December 31,
1997.

         EMPLOYMENT AGREEMENTS

     Mr. Benton, Mr. Clark and Ms. Christiansen have employment agreements with
the Company. The employment agreements provide for a base salary with increases
as authorized by the Board of Directors. The Agreements are for terms of five
years, with each day worked being deemed to extend the term by an additional
day.

     The agreements provide for the payment to each executive officer of a
lump-sum severance payment if the Company terminates such executive's employment
during the term of the agreements other than for cause, or if the employment is
terminated for certain reasons, including a change of control of the Company.
The lump-sum payment is equal to three times the amount of such executive's
average base salary for the previous 5 years. These three employment agreements
contain terms prohibiting solicitation of Company employees for 18 months after
termination, non-disclosure of confidential information and return of all
Company documents.

STOCK INCENTIVE PLAN

     The Company's 1997 Stock Incentive Plan (the "Stock Incentive Plan") was
adopted by the Company's Board of Directors and approved by the sole shareholder
in January 1997. A total of 500,000 shares of Common Stock have been reserved
for issuance under the Stock Incentive Plan. Stock options, stock appreciation
rights, restricted stock and deferred stock may be granted under the Stock
Incentive Plan to key employees and directors or consultants of the Company or a
subsidiary. To date, no options to purchase shares have been granted under the
Stock Incentive Plan.

     The Stock Incentive Plan will be administered by a Committee (the "Stock
Incentive Committee") consisting of at least two disinterested directors. The
Stock Incentive Plan requires that the members of the Stock Incentive Committee
be "disinterested persons" within the meaning of Rule 16b-3, as from time to
time amended, under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Stock Incentive Committee has the authority, within
limitations as set forth in the Stock Incentive Plan, to establish rules and
regulations concerning the Stock Incentive Plan, to determine the persons to
whom options may be granted, the number of shares of Common Stock to be covered
by each option, and the terms and provisions of the option to be granted. In
addition, the Stock Incentive Committee has the authority, subject to the terms
of the Stock Incentive Plan, to determine the appropriate adjustments in the
terms of each outstanding option in the event of a change in the Common Stock or
the Company's capital structure.

     Options granted under the Stock Incentive Plan may be either incentive
stock options ("ISO's") within the meaning of Section 422 of the Code, or
non-qualified stock options ("NQSOs"), as the Stock Incentive Committee may
determine. The exercise price of an option will be fixed by the Stock Incentive
Committee on the date of grant, except that (i) the exercise price of an ISO
granted to any individual who owns (directly or by attribution) shares of Common
Stock possessing more than 10% of the total combined voting power of all classes
of outstanding stock of the Company (a "10% Owner") must be at least equal to

                                      -34-


110% of the fair market value of the Common Stock on the date of grant and (ii)
the exercise price of an ISO granted to any individual other than a 10% Owner
must be at least equal to the fair market value of the Common Stock on the date
of the grant. Any options granted must expire within ten years from the date of
grant (five years in the case of an ISO granted to a 10% Owner). Shares subject
to options granted under the Stock Incentive Plan which expire, terminate or are
canceled without having been exercised in full become available again for option
grants. No options shall be granted under the Stock Incentive Plan more than ten
years after the adoption of the Stock Incentive Plan.)

     Options are exercisable by the holder subject to terms fixed by the Stock
Incentive Committee. However, an option will be exercisable immediately upon the
happening of any of the following (but in no event during the six- month period
following the date of grant or subsequent to the expiration of the term of an
option): (i) the holder's retirement on or after attainment of age 65; (ii) the
holder's disability or death; or (iii) the occurrence of such special
circumstances or events as the Stock Incentive Committee determines merits
special consideration. Under the Stock Incentive Plan, a holder generally may
pay the exercise price in cash, by check, by delivery to the Company of shares
of Common Stock already owned by the holder or, in certain circumstances, in
shares issuable in connection with the options, or by such other method as the
Stock Incentive Committee may permit from time to time.

     Options granted under the Stock Incentive Plan will be non-transferable and
non-assignable; provided, however, that the estate of a deceased holder may
exercise any options held by the decedent. If an option holder terminates
employment or consultancy with the Company or service as a director of the
Company while holding an unexercised option, the option will terminate
immediately, but the option holder will have until the end of the 90th business
day following his or her termination of employment or service to exercise the
option. However, all options held by an option holder will terminate immediately
if the termination is for cause or voluntarily on the part of the employee.

     The Stock Incentive Plan may be terminated and may be modified or amended
by the Stock Incentive Committee or the Board of Directors at any time;
provided, however, that (i) no modification or amendment either increasing the
aggregate number of shares which may be issued under options or to any
individual, increasing materially the benefits accruing to participants under
the Stock Incentive Plan, or materially modifying the requirements as to
eligibility to receive options will be effective without shareholder approval of
such amendment and (ii) no such termination, modification or amendment of the
Stock Incentive Plan will alter or affect the terms of any then outstanding
options without the consent of the holders thereof.

OPTION GRANTS

     As of the date hereof, no grants of options under the Stock Incentive Plan
have been made. However, separately from the Stock Incentive Plan, 80,329
options have been granted to Mr. William Benton, Ms. Susan Christiansen and Mr.
G.L. Clark, Jr. in consideration for their deferral of certain cash
compensation.

                                      -35-


                             PRINCIPAL SHAREHOLDERS


     THE owns 1,800,000 shares of Common Stock and is the sole shareholder of
the Company. Upon completion of the Offering, THE will continue to own
approximately 60% of the Company's Common Stock.

     The outstanding voting securities of THE are owned by a small group of
investors, including the officers and directors of the Company. A super majority
of the voting securities of THE are subject to a voting trust agreement electing
William G. Benton as voting trustee and a shareholders' agreement which grants
THE and William G. Benton, Susan L. Christiansen and G.L. Clark, Jr. a right of
first refusal on any transfer of stock and an option to buy all shares of any
deceased, disabled or terminated shareholder. Both of the agreements provide
that William G. Benton, Susan L. Christiansen and G.L. Clark, Jr. shall serve as
the directors of THE. Accordingly, the shares of Common Stock of the Company
owned by THE will be voted at the discretion of Mr. Benton, Ms. Christiansen and
Mr. Clark. Such persons effectively will control the outcome of all matters
submitted to shareholders for approval, including the election of directors of
the Company.

     The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1997, and as adjusted to
reflect the sale of the Common Stock offered hereby, by (i) each shareholder
known by the Company to be the beneficial owner of five percent or more of the
outstanding Common Stock, (ii) each director and Named Officer of the Company
individually, and (iii) all directors and executive officers as a group. In each
case, the address of the beneficial owner is the address of the principal
executive offices of the Company.




                                                  Number of Shares                          PERCENTAGE
NAME                                                BENEFICIALLY OWNED(1)

                                                                                 BEFORE OFFERING        AFTER OFFERING
                                                                                                       
THE(1)..................................              1,800,000                      100%                     60.0%
William G. Benton(2)....................              1,179,000                      65.5                     39.3%
Susan L. Christiansen(3)................               295,200                       16.4                      9.8
G.L. Clark, Jr. (4)                                    264,600                       14.7                      8.8

Walter H. Ettinger, Jr..................                  0                            0                        0
Perry C. Craven.........................                  0                            0                        0
All directors and executive officers as
 a group (5 persons)....................              1,738,000                      96.6%                    58.0%




(1)  In May 1996, THE contributed $100 for 100 shares of Common Stock of the
     Company. In July 1996, THE exchanged all of the issued and outstanding
     shares of RPM. for 2,277,678 shares of Common Stock of the Company.
     Effective June 30, 1997, THE returned 477,778 shares which DSS retired.

(2)  Mr. Benton owns, directly or indirectly 65.6% of the issued and outstanding
     shares of THE. Shares held does not include 52,579 shares of the Company
     that Mr. Benton is entitled to if he exercises an option to convert
     deferred compensation to stock.

(3)  Ms. Christiansen owns, directly or indirectly 16.4% of the issued and
     outstanding shares of THE. Shares held does not include 3,600 shares of the
     Company that Ms. Christiansen is entitled to if she exercises an option to
     convert deferred compensation to stock.

(4)  Mr. Clark owns, directly or indirectly 14.7%% of the issued and outstanding
     shares of THE. Shares held does not include 24,150 shares of the Company
     that Mr. Clark is entitled to if he exercises an option to convert deferred
     compensation to stock.

                                      -36-


                              CERTAIN TRANSACTIONS

     On January 1, 1996, RPM purchased certain assets, consisting of management
contracts valued at $1,209,060, trade accounts receivable of $119,023, land
valued at $70,536 and furniture and equipment valued at $121,659 from an entity
related through common ownership with RPM, by assuming certain liabilities of
THE. The value of the assets acquired was determined based on the fair value of
the liabilities assumed, and was allocated to the assets according to their
relative values. The value allocated to the management contracts was
approximately 1.5 times annual fees.

     On January 1, 1996, RPM transferred its investment in securities available
for sale, and the associated margin account payable to THE, the parent, in a
non-cash transaction which exchanged the securities at a market value of
$494,693, less unrealized gains of $270,214 and relief of a liability to THE of
$48,344, for the assumption of a margin account by THE of $185,509 and a
reduction of the paid-in capital in excess of par by $87,314. The transaction
was recorded at book value on the records of both companies.

     On July 1, 1996, the Company acquired 100% of RPM from THE through the
exchange of 2,277,678 shares of DSS common stock for RPM stock. No value was
assigned to the DSS common stock issued since RPM had no positive book value at
that date. The acquisition was treated as a purchase for reporting purposes.

     On September 1, 1996, RPM acquired additional assets and assumed certain
liabilities of an affiliate, consisting of management contract rights of
$200,340 in exchange for a reduction of accounts receivable from the affiliate
of $110,903 and the assumption of accounts payable to THE of $89,437. The value
of the assets acquired was the fair value of the liabilities assumed and the
fair value of the reduction of the receivable. The value of the management
contracts approximates 1.5 times annual fees.

     Management fee income of RPM includes $143,434 and $284,296, for the six
months ended June 30, 1997, and the year ended December 31, 1996, respectively,
earned from partnerships, a general partner of which is the beneficial
shareholder of the Company; $24,348 and $30,835 of such fees were included in
accounts receivable at June 30, 1997, and December 31, 1996. In addition, the
Company was reimbursed for payments made through its central payroll system for
payroll and related expenses by such partnerships of $236,439 and $473,313 for
the six months ended June 30, 1997 and the year ended December 31, 1996,
respectively.

     Beginning in May 1997, the Company entered into a month to month lease with
THE, its parent, for office space for THE's corporate headquarters with required
monthly rent payments of $2,700. In addition, RPM leases computer equipment from
THE, which requires monthly payments of $404.

     From time to time, the Company advances or borrows funds from THE or other
related entities. Note 2 to the financial statements for the six months ended
June 30, 1997 schedules those advances and repayments to and advances and
repayments from such related parties. These transactions have resulted in
balances of $253,616 due to the Company from affiliates, and $22,755 due from
the Company to affiliates. In addition, the account payable to THE was converted
to a note payable to the parent during 1996. The non-interest bearing note,
which has a balance of $737,589 at June 30, 1997, is due 366 days after payment
is demanded by the parent. Accounts payable to or receivable from related
parties bear no interest and have no scheduled repayment terms.

     On June 30, 1997, the Company retired 477,778 shares of Common Stock,
leaving 1,800,000 shares outstanding on that date.

     The Company participates in a defined contribution savings incentive plan
covering substantially all of its and its subsidiaries' full time employees. The
Company and its subsidiaries are required to provide a 50% matching contribution
to each employee participant for contributions up to the first 5% of
compensation. The Company's required contributions for the six months ended June
30, 1997 and the twelve months ended December 31, 1996 were $5,783 and $11,613,
respectively.

                                      -37-


                            DESCRIPTION OF SECURITIES

GENERAL

     The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, no par value. As of the date of this Prospectus, 1,800,000
shares of Common Stock are outstanding and all of such shares authorized are
held of record by THE. See "Principal Shareholders." After the completion of
this Offering there will be 3,000,000 shares of Common Stock outstanding.

COMMON STOCK

     The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by shareholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voted can elect all of the directors then
being elected. The holders of Common Stock are entitled to receive dividends
when, as and if declared by the Board of Directors out of funds legally
available therefor. In the event of liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining available for distribution to them after payment of liabilities
and after provision has been made for each class of stock, if any, having
preference over the Common Stock. Holders of shares of Common Stock, as such,
have no redemption, preemptive or other subscription rights, and there are no
conversion provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are fully paid and nonassessable.

PREFERRED STOCK

     The Company's authorized shares of Preferred Stock may be issued in one or
more series and classes, and the Board of Directors is authorized, without
further action by the shareholders, to designate the preferences, limitations
and relative rights of shares of each series, including dividend, voting,
redemption and conversion rights. The Company believes that the availability of
Preferred Stock issuable in series will provide increased flexibility for
structuring possible future financings and acquisitions, if any, and in meeting
other corporate needs. It is not possible to state the actual effect of the
authorization and issuance of any series of Preferred Stock upon the rights of
holders of Common Stock until the Board of Directors determines the specific
preferences, limitations and relative rights of a series of Preferred Stock.
However, such effects might include, among other things, restricting dividends
on the Common Stock, diluting the voting power of the Common Stock, or impairing
liquidation rights of such shares without further action by holders of the
Common Stock. In addition, under various circumstances, the issuance of
Preferred Stock may have the effect of facilitating, as well as impeding or
discouraging, a merger, tender offer, proxy contest, the assumption of control
by a holder of a large block of the Company's securities or the removal of
incumbent management. Issuances of Preferred Stock could also adversely effect
the market price of the Common Stock. The Company has no present plan to issue
any shares of Preferred Stock.

WARRANTS

     In connection with this Offering, the Company will issue to the Underwriter
warrants to purchase an additional 120,000 shares of Common Stock
("Underwriter's Warrants").

     Each Underwriter's Warrant will entitle the registered holder to purchase
one share of the Company's Common Stock at an exercise price of $ per share
during the four-year period commencing one year from the date of this
Prospectus. No fractional shares of Common Stock will be issued in connection
with the exercise of Underwriter's Warrants. Upon exercise, the Company will pay
the holder of the value of any such fractional shares in cash, based upon the
market value of the Common Stock at such time.

     Unless extended by the Company at its discretion, the Underwriter's
Warrants will expire at 5:00 p.m., New York time, on the fifth anniversary of
the date of this Prospectus. In the event a holder of Underwriter's Warrants
fails to exercise the Underwriter's Warrants prior to their expiration, the
Underwriter's Warrants will expire and the holder thereof will have no further
rights with respect to the Underwriter's Warrants.

                                      -38-


     The Company may redeem the Underwriter's Warrants at a price of $ per
Underwriter's Warrant, at any time once they become exercisable upon not less
than 30 days prior written notice if the last sale price of the Common Stock has
been at least           per share for the 20 consecutive trading days ending on
the third day prior to the date on which the notice is given.

     No Underwriter's Warrants will be exercisable unless at the time of
exercise there is a current prospectus covering the shares of Common Stock
issuable upon exercise of such Underwriter's Warrants under an effective
registration statement filed with the Commission and such shares have been
qualified for sale or are exempt from qualification under the securities laws of
the state or residence of the holder of such Underwriter's Warrants. Although
the Company intends to have all shares so qualified for sale in those states
where the Securities are being offered and to maintain a current prospectus
relating thereto until the expiration of the Underwriter's Warrants, subject to
the terms of the warrant agreement, there can be no assurance that it will be to
do so.

     A holder of Underwriter's Warrants will not have any rights, privileges or
liabilities as a shareholder of the Company prior to exercise of the
Underwriter's Warrants. The Company is required to keep available a sufficient
number of authorized shares of Common Stock to permit exercise of the
Underwriter's Warrants.

     The exercise price of the Underwriter's Warrants and the number of share
issuable upon exercise of the Underwriter's Warrants will be subject to
adjustment to protect against dilution in the event of stock dividends, stock
splits, combinations, subdivisions and reclassifications. No assurance can be
given that the market price of the Company's Common Stock will exceed the
exercise price of the Underwriter's Warrants at any time during the exercise
period.

TRANSFER AGENT AND REGISTRAR

     The transfer agent and registrar for the Company's securities is         ,
              and its telephone number is .

INDEMNIFICATION OF OFFICERS AND DIRECTORS

     The NCBCA allows a corporation's articles of incorporation to contain a
provision limiting a director's personal liability to the corporation and its
shareholders for monetary damages. No such provision may limit a director's
liability for: (i) acts or omissions known by the director to conflict with the
best interests of the corporation; (ii) liability for unlawful distributions;
(iii) any transactions from which the director received an improper personal
benefit; or (iv) acts or omissions occurring prior to the effective date of such
provision of the articles of incorporation. The Company's Articles of
Incorporation limit the personal liability of its directors for monetary damages
to the fullest extent permitted by the NCBCA.

     The NCBCA contains provisions setting forth conditions under which a
corporation may indemnify its directors, officers, employees and agents from any
liability incurred in their activities on behalf of the corporation. The NCBCA
permits indemnification unless, in connection with a proceeding by or in the
right of the corporation, the person seeking indemnification is adjudged liable
to the corporation or, in connection with a proceeding charging the receipt of
an improper personal benefit, the person seeking indemnification is adjudged to
have improperly received a benefit.

     The Company's Articles of Incorporation provide indemnify to the fullest
extent of North Carolina law to all persons serving as Directors and Officers of
the Corporation against all liability and litigation expense, including but not
limited to reasonable attorneys' fees, arising out of their status as such or
their activities in the foregoing capacities. The Company's Articles of
Incorporation also provide that, to the fullest extent permitted by applicable
law, no director of the Company shall have any personal liability arising out of
any action for monetary damages for breach of his or her duty as a director.

                                      -39-


 NORTH CAROLINA LAW

     The NCBCA contains control shares acquisition statutes limiting the ability
of others to make tender offers for the shares of companies incorporated in
North Carolina. Under this statute, if "control shares" are acquired in "control
share acquisitions," then the "control shares" acquired have no voting rights
unless allowed by the affirmative vote of the shareholders by majority vote of
all shares entitled to be cast on the issue, excluding the interested shares.
"Control shares" are shares which, when aggregated with shares already owned,
give a person a certain threshold of voting power. "Control share acquisitions"
are acquisitions in which control shares are acquired. The NCBCA further
provides that in the event that the shareholders elect to give voting rights to
the control shares, then, in certain instances, the other holders of a
corporation's stock have the right to require that corporation to redeem their
shares. The Company has specifically waived the protections of this statute in
its articles of incorporation.

     The NCBCA also contains prohibitions on business combinations with
interested shareholders. The NCBCA generally prohibits certain "business
combinations" with interested shareholders for a period of five years from the
date on which the person became an interested shareholder unless the business
combination is recommended by the board of directors and approved by the
affirmative vote of 95% of the votes entitled to be cast on the matter and by
the affirmative vote of two-thirds of the votes held by holders other than the
interested shareholder entitled to be cast on the matter. An interested
shareholder is a shareholder that beneficially owns, directly or indirectly, 20%
or more of the voting power of the outstanding voting stock of a corporation or
is or was an affiliate or associate of a corporation and at any time during the
two-year period prior the date in question owned 20% or more of the voting power
of the outstanding voting stock of the corporation. The "business combinations"
that are prohibited include: (i) any merger, consolidation or share exchange
with an interested shareholder or affiliate; (ii) any sale, lease, transfer or
other disposition of the corporation's assets to an interested shareholder or
affiliate; (iii) the issuance or transfer of any equity securities of the
corporation representing 5% or more of the total market value of the
corporation's outstanding stock to an interested shareholder or affiliate; (iv)
the adoption of a plan of liquidation of the corporation where an interested
shareholder or affiliate receives anything other than cash; (v) certain
transactions that would have the effect of increasing by 5% or more the
proportionate amount of shares held by an interested shareholder or affiliate;
and (vi) the receipt by an interested shareholder or affiliate of certain direct
or indirect benefits from the corporation.

     Certain "Fair Price" exemptions from the special voting requirements are
available under this statute based on the amount of consideration to be paid to
the holders of the shares being acquired. Generally, the exemption provide that
the amount paid for the corporation's stock in the business combination must be
in excess of a statutorily prescribed amount based on preset formulas involving
the highest per share price paid by the acquirer during a defined period. The
Company has specifically waived the protections of these statutes in their
Articles of Incorporation.

     The Company's Articles of Incorporation prohibit the Company from entering
into certain business arrangements with "interested shareholders" without the
affirmative vote of 80% of the Company's shares entitled to vote thereon. An
interested shareholder is an entity that beneficially owns, directly or
indirectly, more than 20% of the voting shares of the Company. The prohibited
business combinations include transactions such as mergers and asset sales with
the interested shareholder. The affirmative vote of 80% of the shareholders is
not required, however, if, in connection with the business combination, the
shareholders receive cash in exchange for their shares equal to the highest
per-share price paid by the interested shareholder in acquiring any of his
holdings or if the business combination is approved by a majority of the
Company's disinterested directors.

     These provisions of the NCBCA could have the effect of delaying, deferring
or preventing a change in control of the Company.

                                      -40-


                         SHARES ELIGIBLE FOR FUTURE SALE

     Upon completion of this Offering, the Company will have outstanding
3,000,000 shares of Common Stock, not including shares of Common Stock issuable
upon exercise of outstanding options or the Underwriter's Warrants. Of these
outstanding shares, the 1,200,000 shares of Common Stock sold to the public in
this Offering may be freely traded without restriction or further registration
under the Securities Act, except that any shares that may be held by an
"affiliate" of the Company (as that term is defined in the rules and regulations
under the Securities Act) may be sold only pursuant to a registration under the
Securities Act or pursuant to an exemption from registration under the
Securities Act, including the exemption provided by Rule 144 adopted under the
Securities Act.

     The 1,800,000 shares of Common Stock outstanding prior to this Offering are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act ("Restricted Shares") and may not be sold unless such sale is registered
under the Securities Act, or is made pursuant to an exemption from registration
under the Securities Act, including the exemption provided by Rule 144. THE has
agreed that for a period of 24 months from the date of this Prospectus, it will
not sell any of its shares without the prior consent of the Underwriter.
Accordingly, all of such shares will be available for sale pursuant to Rule 144
commencing , 1999. In addition, all of the officers and directors of the Company
have agreed not to sell any of their shares of Common Stock for a period of
months from the date of this Prospectus without the consent of the Underwriter.
Such lock-up, however, does not apply to any shares purchased in this Offering
or thereafter in the public market.

     The Company has been advised by the Underwriter that in determining whether
to give or withhold consent to any sale within the applicable lock-up periods,
it will consider whether such sale would have an adverse effect on the market
for the Company's Common Stock. Depending upon the trading market for the Common
Stock, sales of a significant number of shares or sales by an affiliate may have
an adverse effect on the market for the Company's Common Stock.

     In general, under Rule 144 as currently in effect, a shareholder (or
shareholders whose shares are aggregated) who has beneficially owned any
Restricted Shares for at least one year (including a shareholder who may be
deemed to be an affiliate of the Company), will be entitled to sell, within any
three-month period, that number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
date on which notice of such sale is given to the Securities and Exchange
Commission, provided certain public information, manner of sale and notice
requirements are satisfied. A shareholder who is deemed to be an affiliate of
the Company, including members of the Board of Directors and senior management
of the Company, will still need to comply with the restrictions and requirements
of Rule 144, other than the one-year holding period requirement, in order to
sell shares of Common Stock that are not Restricted Securities, unless such sale
is registered under the Securities Act. A shareholder (or shareholders whose
shares are aggregated) who is deemed not to have been an affiliate of the
Company at any time during the 90 days preceding a sale by such shareholder, and
who has beneficially owned Restricted Shares for at least two years, will be
entitled to sell such shares under Rule 144 without regard to the volume
limitations described above.

     In addition, any employee, officer or director of or consultant to the
Company who purchased his or her shares pursuant to a written compensatory plan
or contract may be entitled to rely on the resale provisions of Rule 701. Rule
701 permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the public information, volume limitation or
notice provisions of Rule 144. In both cases, a holder of Rule 701 shares is
required to wait until 90 days after the date of this Prospectus.

     Prior to this Offering, there has been no public trading market for the
Common Stock of the Company, and no predictions can be made of the effect, if
any, that future sales of shares or the availability of shares for sale will
have on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock in the public market could adversely
affect the then-prevailing market price.

                                      -41-


 REGISTRATION RIGHTS

     See "Underwriting" for information concerning demand and piggyback
registration rights of the holder of the Underwriter's Warrants.

                                  UNDERWRITING

     Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell 1,200,000 shares of Common Stock to
Strasbourger Pearson Tulcin Wolff Incorporated (the "Underwriter"). The
Underwriter will be obligated to purchase all of such shares of Common Stock if
any are purchased.

     The Common Stock being offered by the Company to the public is being
offered at a price of $5.00 per share as set forth on the cover page of this
Prospectus. The Common Stock is offered by the Underwriter subject to receipt
and acceptance by it, to the right to reject any order, in whole or in part, to
approval of certain legal matters by counsel and to certain other documents.

     The Underwriter has advised that sales to certain dealers may be made at
the Offering Price less a concession not in excess of % or $ per share. After
the initial public offering, the Offering Price and other selling terms may be
changed by the Underwriter. The Underwriter does not intend to confirm sales of
more than one percent of the shares of Common Stock offered hereby to any
accounts over which it exercises discretionary authority.

     The Company has agreed to sell the Common Stock to the Underwriter at a
discount of 10% of the Offering Price. The Company has also agreed to pay the
Underwriter a non-accountable expense allowance of 3% of the gross proceeds of
the Offering to be paid at closing, $50,000 of which has been advanced to the
Underwriter. In the event this Offering is not completed because the Company
prevents such completion or breaches any covenant, representation or warranty
contained in the Underwriting Agreement, the Underwriter shall be reimbursed for
all actual accountable out-of-pocket costs and expenses incident to the
performance of the Company's obligations set forth in the Underwriting
Agreement, including the accountable expenses of the Underwriter, including
legal fees, but in no event to exceed the sum of $180,000, less a credit for any
amounts previously paid to the Underwriter. In the event this Offering is not
completed because the Underwriter prevents its completion (unless such
prevention is based upon a breach by the Company of any covenant, representation
or warranty contained in the Underwriting Agreement), the Company shall not be
liable for the Underwriter's expenses, except that the Underwriter may retain
the $50,000 to the extent that the Underwriter has incurred accountable costs
previously paid to it.

     Prior to the Offering, there has not been a market for the Common Stock.
Consequently, the Offering Price has been determined by negotiations between the
Company and the Underwriter. The major factors considered by the Company and the
Underwriter in determining the Offering Price of the Common Stock, in addition
to prevailing market conditions, were the Company's historical performance and
growth rates; the history of, and prospects for, the industry in which the
Company operates; an assessment of the Company's management, business potential
and earning prospects; the market prices of publicly traded common stocks of
comparable companies; and the present state of the Company's development. Based
upon their analysis of these factors, all of which are applicable to the
Company, the Company and the Underwriter believe that the Offering Price bears a
relationship to the assets, book value and other criteria of value applicable to
the Company.

     The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act arising out of, or
based upon, any untrue statement or alleged untrue statement of any material
fact contained in this Prospectus or the Registration Statement on Form SB-2 of
which this Prospectus is a part. Insofar as indemnification for liabilities
arising under the Securities Act may be provided to officers, directors or
persons controlling the Company, the Company has been informed that, in the
opinion of the Commission, such indemnification is against public policy and
therefore unenforceable.

                                      -42-


     As part of the consideration to the Underwriter for its services in
connection with the Offering, the Company has agreed to grant to the Underwriter
warrants (the "Underwriter's Warrants") to purchase 120,000 shares of Common
Stock exercisable for a period of four years, commencing 12 months after the
date of this Offering, at an exercise price of $ per share, subject to certain
adjustments. The exercise price of the Underwriter's Warrants was determined by
negotiation between the Company and Underwriter and should not be deemed to
reflect any estimate of the intrinsic value of either the Underwriter's Warrants
or the underlying Common Stock. The Underwriter's Warrants contain anti-dilution
provisions in event of any recapitalization, split-up of shares or certain stock
dividends, as well as certain registration rights. The Underwriter's Warrants
cannot be transferred, sold, assigned or hypothecated, in whole or in part
(other than by will or pursuant to the laws of descent and distribution) except
to officers of the Underwriter. Furthermore, if any of the Underwriter's
Warrants are transferred after one year following the effective date of the
Company's Registration Statement on Form SB-2 (the "Registration Statement") of
which this Prospectus forms a part, such warrants must be exercised immediately
upon transfer, and if not exercised immediately upon transfer, such warrants
will lapse. The Company has agreed that, upon the request of the then holder(s)
of a majority of the Underwriter's Warrants and the underlying securities, if
issued, which were originally issued to the Underwriter or its designees, made
at any time within the period commencing one year and ending four years after
the effective date of the Registration Statement of which this Prospectus forms
a part, the Company will file, at its sole expense, not more than once, a
registration statement under the Securities Act, registering or qualifying the
shares underlying the Underwriter's Warrants for public sale. The Company has
also agreed, with certain limitations, that if at any time within the period
commencing one year and ending four years after such effective date, it should
file a registration statement with the Commission pursuant to the Securities
Act, the Company, at its own expense (other than seller's commissions and the
expenses of seller's counsel or others hired by seller), will offer to said
holder(s) the opportunity to register or qualify the shares underlying the
Underwriter's Warrants. In addition, the Company has agreed to cooperate with
the holders of the Underwriter's Warrants and the underlying securities in
preparing and signing any other registration statement at the holder's expense
not more than once.

     For the life of the Underwriter's Warrants, the holders thereof are given
the opportunity to profit from a rise in the market price of Common Stock which
may result in a dilution of the interest of the holders of Common Stock. The
Company may find it more difficult to raise additional equity capital if it
should be needed for the business of the Company while the Underwriter's
Warrants are outstanding. At any time when the holders of the Underwriter's
Warrants might be expected to exercise them, the Company would probably be able
to obtain additional equity capital on terms more favorable than those provided
by the Underwriter's Warrants. Any profit realized on the sale of the securities
issuable upon the exercise of the Underwriter's Warrants may be deemed
additional underwriting compensation. As described above, the Company has
granted to the Underwriter certain registration rights with respect to the
Underwriter's Warrants and the securities issuable thereunder.

     The Company, its officers, directors and THE have agreed with the
Underwriter that such shareholders will not publicly sell or otherwise dispose
of any of their shares of Common Stock (nor any shares which may be issued upon
exercise of options or warrants granted to the shareholders) for a period of two
years from the closing of this Offering without the prior written consent of the
Underwriter, which consent cannot be unreasonably withheld.

     In addition, the Company has entered into a consulting agreement (the
"Consulting Agreement") with the Underwriter whereby the Underwriter has agreed
to provide certain advisory services to the Company for a period of two years
from the closing of the Offering for a fee of $50,000 per year, or an aggregate
of $100,000.

     The foregoing is a summary of certain terms of the Underwriting Agreement,
the Consulting Agreement and the Warrant Agreement relating to the Underwriter's
Warrants, copies of which were filed with the Commission as exhibits to the
Registration Statement. Reference is hereby made to such exhibits for a detailed
description of the provisions thereof as summarized above. See "Additional
Information."

     In connection with the Offering, the Underwriter and selling group members
(if any) and its affiliated may engage in transactions that stabilize, maintain
or otherwise affect the market price of the Common Stock. Such transactions may
include stabilization transactions effected in accordance with Rule 104 of
Regulation M, pursuant to which such persons may bid for or purchase Common
Stock for the purpose of stabilizing its market price. The Underwriter also may

                                      -43-


create a short position for the account of the Underwriter by selling more
Common Stock in connection with the Offering then it is committed to purchase
from the Company, and in such case may purchase Common Stock in the open market
following completion of the Offering to cover all or a portion of such short
position. In addition, the Underwriter may impose "penalty bids" under
contractual arrangements whereby it may reclaim from an a dealer participating
in the Offering for its account, the selling concession with respect to the
Common Stock that is distributed in the Offering but subsequently purchased for
its account in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if any is undertaken,
may be discontinued at any time.


                                  LEGAL MATTERS

     The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by House Law Firm. Certain legal matters in connection with
the Offering will be passed upon for the Underwriter by Stroock & Stroock &
Lavan LLP.


                                     EXPERTS

     The consolidated financial statements of DSS and Subsidiary as of December
31, 1996 and for the period from May 17, 1996 (date of inception) to December
31, 1996, included in this Prospectus and in the related Registration Statement,
have been audited by The Daniel Professional Group, Inc., independent auditors,
as set forth in their report thereon, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.


     The statements of operations, changes in stockholder's equity (deficit),
and cash flows for the six months ended June 30, 1996 and the year ended
December 31, 1995 of RPM included in this Prospectus and in the related
Registration Statement, have been audited by the Daniel Professional Group,
Inc., independent auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.


                             ADDITIONAL INFORMATION

     The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the shares of Common Stock,
reference is hereby made to the Registration Statement and the exhibits and
schedules filed as a part thereof. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily complete and,
in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. The Registration Statement,
including exhibits and schedules thereto, may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C., and at the Commission's Regional Offices located at 7
World Trade Center, New York, New York 10048 and 500 West Madison Street, Suite
1400, Northwestern Atrium Center, Chicago, Illinois 60661. Copies of such
materials may also be obtained at prescribed rates from the Public Reference
Section of the Commission, Washington, D.C. 20549. The Commission maintains a
site on the world wide web at http://www.sec.gov that contains reports, proxy
statements and information regarding registrants that file electronically with
the Commission.

                                      -44-


                        DIVERSIFIED SENIOR SERVICES, INC.

                          INDEX TO FINANCIAL STATEMENTS


                                                                          PAGE

Management's Responsibility for  Financial Reporting...................    F-2

DIVERSIFIED SENIOR SERVICES, INC.

         Consolidated Financial Statements for the six months ended June 30,
         1997 and Unconsolidated Statements of Operations, Changes in
         Shareholder's Deficit  and Cash Flows for the
         period from May 17, 1996 (Date of Inception) to     
         June 30, 1996.................................................    F-3

         Notes to Consolidated Financial Statements, June 30, 1997.....    F-7

         Independent Auditors' Report..................................    F-10

         Consolidated Financial Statements for the period from
         May 17, 1996 (Date of Inception) to December 31, 1996.........    F-11

         Notes to Consolidated Financial Statements, December 
         31, 1996......................................................    F-16

         Supplemental Schedule of Consolidating Statements of
         Operations for the period from May 17, 1996 (Date of
         Inception) to December 31, 1996...............................    F-27

RESIDENTIAL PROPERTIES MANAGEMENT, INC.

         Independent Auditors' Report..................................    F-28

         Statements of Operations, Changes in  Shareholder's
         Equity (Deficit), and Cash Flows for the six months
         ended June 30, 1996 and the year ended December 31, 1995......    F-29

         Notes to Statements of Operations, Changes
         in Shareholder's Equity (Deficit),
         and Cash Flows for the six months ended June 30, 1996 and the
         year ended December 31, 1995...................................   F-33

                                      F-1


               MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

The consolidated financial statements of Diversified Senior Services, Inc. and
Residential Properties Management, Inc. have been prepared by management, which
is responsible for their integrity and objectivity. These statements have been
prepared in conformity with generally accepted accounting principles ("GAAP")
and, where appropriate, reflect estimates based on judgments of management.

The system of internal controls for the companies is designed to provide
reasonable assurance that company assets are safeguarded from loss or
unauthorized use or disposition, and that transactions are executed in
accordance with management's authorization and properly recorded to permit the
preparation of financial statements in accordance with GAAP. This system is
augmented by careful selection and training of qualified personnel, proper
division of responsibilities, the dissemination of written policies and
procedures, and frequent review by management to monitor its effectiveness.

The Board of Directors oversees management's financial reporting
responsibilities and programs for ethical business conduct. As part of these
responsibilities, the directors meet periodically with management to discuss the
financial statements and administrative and financial controls.




William G. Benton                               G.L. Clark, Jr.
Chairman of the Board                           Vice President
and Chief Executive Officer                     and Chief Financial Officer

                                      F-2


                DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                  June 30, 1997




                  ASSETS

Current assets:
                                                                 
         Cash and cash equivalents                           $   17,563
         Accounts receivable - trade                            100,371
         Refundable income taxes                                 32,853
         Prepaid expenses                                        12,609
                                                        --------------------
                                                                163,396

Furniture and equipment, net                                     69,887
Intangible assets, net                                          735,778
Development costs                                               154,102
Accounts receivable - affiliates (Note 2)                       253,616
                                                        --------------------
                                                             $1,376,779
                                                        ====================




                  LIABILITIES

Current liabilities:
                                                                 
         Accounts payable and accrued expenses                 $103,642
         Interest payable                                        11,486
         Note payable - bank                                  1,217,827
         Deferred salaries                                      428,609
                                                       --------------------
                                                              1,761,564

Deferred bonuses                                                209,823
Accounts payable - affiliates (Note 2)                           22,755
Note payable - affiliate (Note 2)                               737,589
                                                       --------------------
                                                               2,731,731
                                                       --------------------




                  SHAREHOLDER'S DEFICIT

Preferred stock, no par; authorized 100,000,000
         shares; no shares issued and outstanding
Common stock, no par; authorized 100,000,000
                                                                 
         shares; 1,800,000 shares issued and outstanding            100
Accumulated deficit                                          (1,355,052)
                                                     --------------------
                                                             (1,354,952)
                                                     --------------------
                                                        $     1,376,779
                                                     ====================


The accompanying notes are an integral part of the financial statements.

                                      F-3


                DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS






                                                                        (UNCONSOLIDATED)
                                                                         FOR THE PERIOD
                                                FOR THE SIX              MAY 17, 1996
                                                MONTHS ENDED          (DATE OF INCEPTION)
                                                  JUNE 30,                TO JUNE 30,
                                                    1997                      1996

Income:
                                                                        
         Management fees                           $  437,416                  $  -
         Reimbursement income                         676,877                     -
         Home care income                              66,163                     -
                                                    1,180,456                     -

         Expenses:
         Personnel related                          1,424,493                    255,265
         Administrative                               114,259                     -
         Other                                         40,981                     -
                                            -----------------------   -----------------------
                                                    1,579,733                    255,265

Operating loss                                        399,277                    255,265

Other expenses:
         Depreciation and amortization                215,857                       -
         Interest expense                              46,934                       -
Net loss                                           $  662,068                   $ 255,265

Net loss per share                                 $      .29                   $   2,553

Weighted number of shares outstanding               2,277,778                         100
                                             =======================   ======================


The accompanying notes are an integral part of the financial statements.

                                      F-4


                DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
                 STATEMENTS OF CHANGES IN SHAREHOLDER'S DEFICIT
               For the Six Months Ended June 30, 1997 and December 31, 1996
      and for the Period May 17, 1996 (Date of Inception) to June 30, 1996




                                                  COMMON               COMMON              ACCUMULATED                 TOTAL
                                                  SHARES                STOCK                 DEFICIT                 DEFICIT
                                             -----------------     ---------------     --------------------     -------------------

                                                                                                          
Balance, May 17, 1996                              -                     $  -                $           -            $       -

Issuance of common stock                               100               100                 -                              100

Net loss for the period
  May 17, 1996
  (Date of Inception) to
  June 30,  1996                                    -                     -                   (255,265)                (255,265)

Balance, June 30, 1996                                 100               100                  (255,265)                (255,165)

Issuance of common stock                         2,277,678                -                   -                        -

Net loss for the six months ended
  December 31, 1996                                 -                     -                   (437,719)                (437,719)

Balance, December 31, 1996                       2,277,778               100                  (692,984)                (692,884)

Net loss for the six months ended
  June 30, 1997                                     -                     -                   (662,068)                (662,068)

Retirement of common stock                        (477,778)               -                    -                        -

Balance, June 30, 1997                           1,800,000              $100                $ (1,355,052)            $(1,354,952)


The accompanying notes are an integral part of the financial statements.

                                      F-5


                DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                Increase (Decrease) in Cash and Cash Equivalents



                                                                                       (UNCONSOLIDATED)
                                                                                        FOR THE PERIOD
                                                                 FOR THE SIX             MAY 17, 1996
                                                                 MONTHS ENDED         (DATE OF INCEPTION)
                                                                   JUNE 30,               TO JUNE 30,
                                                                     1997                     1996

Operating activities:

                                                                                            
Net loss                                                        $     (662,068)               $   (255,265)
Adjustments to reconcile net loss to net cash
   used by operating activities:
     Depreciation and amortization                                     215,857                        -
     Changes in operating assets and liabilities:
       Accounts receivable                                              (1,972)                       -
       Prepaid expenses                                                  7,582                        -
       Accounts payable, trade                                         (18,367)                       -
       Accounts payable, affiliates                                      7,824                        -
       Interest payable                                                  4,899                        -
       Deferred salaries and bonuses                                   210,144                     255,265
         Total adjustments                                             425,967                     255,265
    Net cash used by operating activities                             (236,101)                       -
 Investing activities:
       Investment in franchise fees                                    (15,000)                       -
       Development costs paid                                          (21,752)                       -
       Payment of organization costs                                       -                        (4,552)
       Other                                                            35,250                        -
       Net cash used by investing activities                            (1,502)                     (4,552)
 Financing activities:
     Proceeds from bank line of credit                                 286,205                        -
     Advances and repayments to affiliates                             (62,171)                       -
     Advances and repayments from affiliates                              -                          4,552
     Contribution of capital                                              -                            100
     Net cash provided by financing activities                         224,034                       4,652

Net increase (decrease) in cash                                        (13,569)                        100
Cash and cash equivalents - beginning                                   31,132                          -
Cash and cash equivalents - ending                                     $17,563                        $100
Cash payments for interest                                             $42,035                          $-
Cash payments for taxes                                                $-                               $-


     The accompanying notes are an integral part of the financial statements.

                                      F-6


                Diversified Senior Services, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                  June 30, 1997
                                   (Continued)




NOTE 1:  SELECTED DISCLOSURES

The accompanying unaudited consolidated financial statements, which are for
interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the footnotes thereto for the period from May 17, 1996 (Date of
Inception) to December 31, 1996 of Diversified Senior Services, Inc. ("DSS").

In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (which are of a normal recurring nature)
necessary for a fair presentation of the financial statements. The results of
operations for the six months ended June 30, 1997, are not necessarily
indicative of the results to be expected for the full year.

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

                                      F-7


                Diversified Senior Services, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                  June 30, 1997
                                   (Continued)


NOTE 2:  RELATED PARTY TRANSACTIONS

From time to time, the Company advances or borrows funds from the parent, Taylor
House Enterprises, Limited (THE), or other related entities. The following
schedule summarizes related party activities for the six months ended June 30,
1997.




                                                                                            NOTE
                                                       DUE FROM          DUE TO          PAYABLE
                                                      AFFILIATES       AFFILIATES       AFFILIATE          TOTAL
                                                   ---------------   ---------------  --------------  ----------------

Amounts due (to) from affiliates
 at December 31, 1996:
   Management fees due from
                                                                                                       
     related partnerships                          $     253,616      $    -           $    -          $       253,616
   Amounts due to related partnership                       -           (20,000)            -                  (20,000)
   Amounts due to other related entities                    -            (2,755)            -                   (2,755)
   Advances due to affiliate                                -           (33,415)            -                  (33,415)
   Issuance of note to parent                               -              -             (758,521)            (758,521)
                                                         253,616        (56,170)         (758,521)            (561,075)

   Repayment to affiliate                                   -            33,415             -                   33,415
   Computer equipment lease payments
      due parent                                            -              -               (2,424)              (2,424)
   Rent due parent                                          -              -               (5,400)              (5,400)
   Repayments to parent                                     -              -               28,756               28,756
   Balance, June 30, 1997                           $     253,616     $ (22,755)       $ (737,589)       $    (506,728)


There was no interest income received from or interest expense paid or accrued
to related parties during the six months ended June 30, 1997. Accounts payable
to related parties bear no interest and have no scheduled repayment terms.

Management fee income includes $143,434 earned from partnerships, a general
partner of which is a beneficial shareholder of THE; $24,348 of such fees are
included in trade accounts receivable at June 30, 1997. In addition, the Company
was reimbursed for payments made through its central payroll system for payroll
and related expenses, by partnerships related through common ownership, of
$236,429 for the period ended June 30, 1997.

On June 30, 1997, the Company retired 477,778 shares of common stock, leaving
1,800,000 shares outstanding.

                                      F-8


                Diversified Senior Services, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                  June 30, 1997
                                   (Continued)


NOTE 3: PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS

     The following pro forma consolidating statement of operations for the six
months ended June 30, 1996 is presented as if the Company were incorporated and
had acquired RPM on January 1, 1996.



                                                                                           PRO FORMA
                                                     DSS,            RPM, INC.           CONSOLIDATED

Income:
                                                                                           
     Management fees                                $    -           $   394,746          $     394,746
     Reimbursement income                                -               685,213                685,213
                                                         -             1,079,959              1,079,959
Expenses:
     Personnel related                                 255,265         1,051,455              1,306,720
     Administrative                                      -                88,836                 88,836
     Other                                               -                27,930                 27,930
                                                       255,265         1,168,221              1,423,486
Operating loss                                         255,265            88,262                343,527

Other (income) expenses:
     Depreciation and amortization                       -               219,424                219,424
     Interest and other income                           -               (15,955)               (15,955)
     Interest and other expense                          -                   740                    740
Loss before provision for                              255,265           292,471                547,736
income tax benefit
     Provision for income tax benefit                    -              (104,200)              (104,200)
Net loss                                           $   255,265       $   188,271          $     443,536
Net loss per share                                                                        $         .19
Weighted number of shares outstanding                                                         2,277,778


NOTE 4: PROVISION FOR INCOME TAXES

     A provision for income tax benefit has not been established since the
earnings of the parent and the amount of loss carryforward which could be used
to offset such earnings cannot be reasonably estimated at June 30, 1997.

                                      F-9


                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors of
Diversified Senior Services, Inc.
Winston-Salem, North Carolina

     We have audited the accompanying consolidated balance sheet of Diversified
Senior Services, Inc. and Subsidiary (the Company) as of December 31, 1996, and
the related consolidated statements of operations, changes in shareholder's
deficit and of cash flows for the period from inception on May 17, 1996 to
December 31, 1996. 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 audit.

     We conducted our audit in accordance with generally accepted auditing
standards. 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 financial position of Diversified
Senior Services, Inc. and Subsidiary as of December 31, 1996, and the results of
its operations and cash flows for the period then ended, as described above, in
conformity with generally accepted accounting principles.

     Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of
consolidating statements of operations for the period from May 17, 1996 to
December 31, 1996 is presented for the purposes of additional analysis and is
not a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.



The Daniel Professional Group, Inc.

/s/ The Daniel Professional Group, Inc.



August 6, 1997
Winston-Salem, North Carolina

                                      F-10



                DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                December 31, 1996




          ASSETS

Current assets:
                                                                    
     Cash and cash equivalents                              $       31,132
     Accounts receivable - trade                                    32,853
     Refundable income tax                                          32,853
     Prepaid expenses                                               20,191
                                                            _______________
                                                                   217,825

Furniture and equipment, net (Note 3)                               88,451
Intangible assets, net (Note 4)                                    918,071
Development costs                                                  132,350
Accounts receivable - affiliates (Note 2)                          253,616
                                                            ______________
                                                            $    1,610,313
                                                            ==============




          LIABILITIES

Current liabilities:
                                                                    
     Accounts payable and accrued expenses                  $      122,009
     Interest payable                                                6,587
     Deferred salaries                                             292,906
                                                            ______________
                                                                   421,502

Deferred bonuses                                                   135,382
Accounts payable - affiliates (Note 2)                              56,170
Note payable - affiliate (Notes 2 and  5)                          758,521
Note payable - bank (Note 5)                                       931,622
                                                            ______________
                                                                 2,303,197
                                                            ______________




          SHAREHOLDER'S DEFICIT
Preferred stock, no par; authorized 100,000,000
     shares; no shares issued and outstanding
Common stock, no par; authorized 100,000,000
                                                                  
     shares; 2,277,778 shares issued and outstanding                 100
Accumulated deficit                                             (692,984)
                                                            _____________
                                                                (692,884)
                                                            _____________
                                                            $   1,610,313
                                                            =============


    The accompanying notes are an integral part of the financial statements.

                                      F-11


                DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF OPERATIONS
    For the Period from May 17, 1996 (Date of Inception) to December 31, 1996








Income:
                                                                  
     Management fees                                     $       438,680
     Reimbursement income                                        781,838
     Home care income                                             18,797
                                                         _______________
                                                               1,239,315
                                                         _______________

Expenses:
     Personnel related                                         1,651,388
     Administrative                                              111,232
     Other                                                        64,490
                                                         _______________
                                                               1,827,110
                                                         _______________

Operating loss                                                   587,795

Other expenses:
     Depreciation and amortization                               336,340
     Interest expense                                             14,449
                                                         _______________

Loss before provision for income tax benefit                     938,584

     Provision for income tax benefit                           (245,600)
                                                         _______________

Net loss                                                 $       692,984
                                                         ===============

Net loss per share                                       $           .38
                                                         ===============

Weighted number of shares outstanding                          1,838,236
                                                         ===============


    The accompanying notes are an integral part of the financial statements.

                                      F-12




                DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S DEFICIT
    For the Period from May 17, 1996 (Date of Inception) to December 31,1996








                                           Common          Common          Accumulated           Total
                                           Shares          Stock            Deficit             Deficit
                                           ________        ________        ___________          ___________

                                                                                    

Balance, May 17, 1996                             -        $      -        $         -          $        -

Issuance of common stock                        100             100                  -                 100

Issuance of common stock                  2,277,678               -                  -                   -

Net loss for the period ended
     December 31, 1996                            -               -           (692,984)           (692,984)
                                          _________        ________        ___________          ___________
Balance, December 31, 1996                2,277,778        $    100          $(692,984)          $(692,884)
                                          =========        ========        ===========          ===========


    The accompanying notes are an integral part of the financial statements.

                                      F-13


                DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CASH FLOWS
    For the Period from May 17, 1996 (Date of Inception) to December 31, 1996
                Increase (Decrease) in Cash and Cash Equivalents



Operating activities:
                                                                
Net loss                                                    $(692,984)
                                                            __________
Adjustments to reconcile net loss to net cash
used by operating activities:
         Depreciation and amortization                        336,340
         Changes in operating assets and liabilities:
             Accounts receivable                              (14,615)
             Prepaid expenses                                 (11,930)
             Accounts payable, trade                           24,200
             Accounts payable, affiliates                    (240,752)
             Interest payable                                   6,587
             Deferred salaries and bonuses                    428,288
                                                            __________
                  Total adjustments                           528,118
                                                            __________
         Net cash used by operating activities               (164,866)
                                                            __________
Investing activities:
         Purchase of furniture and equipment                   (2,903)
         Development costs paid                               (58,499)
         Payment of organization costs                         (9,586)
         Other                                                (35,250)
                                                            __________
         Net cash used by investing activities               (106,238)
                                                            __________
Financing activities:
         Contribution of capital                                  100
         Proceeds from bank line of credit                    931,622
         Advances and repayments to affiliates               (668,991)
         Advances and repayments from affiliates               48,882
         Payment of finance costs                             (13,887)
                                                            __________
         Net cash provided by financing activities            297,726
                                                            __________
Net increase in cash                                           26,622
Cash and cash equivalents - beginning                            -
Cash held by subsidiary at date of acquisition                  4,510
                                                            __________
Cash and cash equivalents - ending                          $  31,132
                                                            =========
Cash payments for interest                                  $   7,862
                                                            =========
Cash payments for income taxes                              $       -
                                                            =========


    The accompanying notes are an integral part of the financial statements.

                                      F-14


                DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (continued)

            Supplemental schedule of non-cash investing and financing
              activities For the Period from May 17, 1996 (Date of
                         Inception) to December 31, 1996


On July 1, 1996, Taylor House Enterprises Limited (THE), the parent, exchanged
100% of the stock of Residential Properties Management, Inc. (RPM) for 2,277,678
shares of DSS in a non-cash transaction.

On September 1, 1996, RPM, the subsidiary, acquired certain assets and assumed
certain liabilities of an affiliate, as follows:



     Assets:
                                                                      
          Management contract rights acquired                      $ 200,340
          Reduction of accounts receivable from affiliate          $(110,903)
     Liabilities:
          Accounts payable to THE assumed                          $( 89,437)


    The accompanying notes are an integral part of the financial statements.

                                      F-15

                Diversified Senior Services, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                December 31, 1996




NOTE 1:  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Diversified Senior Services, Inc. (the Company), a North Carolina
corporation, was formed on May 17, 1996, to continue the operation of apartment
management for the low income elderly and other properties, to provide home care
for residents of the apartments and others, to manage assisted living facilities
for the low income elderly, and to develop and construct or acquire and
refinance assisted living facilities and apartments for the elderly. It began
operations on July 1, 1996 and its operations are currently being conducted in
North Carolina. The Company is owned by Taylor House Enterprises, Limited (THE),
a privately owned North Carolina corporation. In July 1996, THE exchanged 100%
of the stock of Residential Properties Management, Inc. (RPM), a wholly owned
subsidiary of THE, for 2,277,678 shares of common stock of the Company. RPM
manages approximately 2500 housing units in North Carolina, South Carolina, West
Virginia, and Pennsylvania for the owners of THE and for third parties.

         The following significant accounting policies have been followed in the
preparation of the Company's financial statements.

CONSOLIDATION

     The consolidated financial statements include the assets, liabilities, and
     operations of RPM, a 100% owned subsidiary of the Company. All significant
     inter-company transactions have been eliminated in consolidation.

CASH EQUIVALENTS

     For purposes of the statement of cash flows, the Company considers all
     highly liquid investments purchased within three months of maturity to be
     cash equivalents.

ACCOUNTS RECEIVABLE - TRADE

     Accounts receivable - trade consists of management fees and reimbursements
     for administrative services due from partnerships whose properties are
     managed by RPM, and home care income which is due primarily from Medicaid
     of North Carolina. The general partners of the partnerships are liable for
     the payment of the receivables if the partnerships do not have adequate
     cash flow; therefore, the Company considers such accounts receivable to be
     fully collectible. The Company and its subsidiary provide services to
     customers and clients on a noncollateralized basis.

                                      F-16




                Diversified Senior Services, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                December 31, 1996
                                   (Continued)




NOTE 1:  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FURNITURE AND EQUIPMENT

     Furniture and equipment are stated at cost. Depreciation is determined
     using the straight line method and is based on the estimated useful lives
     of the related assets of three (3) to five (5) years. Expenditures for
     maintenance and repairs which do not improve or extend the life of an asset
     are expensed as incurred. Major renewals and betterments are charged to the
     property accounts. Upon retirement or sale of an asset, its cost and
     related accumulated depreciation are removed from the property accounts and
     any gain or loss is recorded as income or expense.

INTANGIBLE ASSETS

     Management contract rights represent the contractual rights purchased to
     allow the Company to manage various apartment or housing projects and are
     amortized on a straight line basis over the lives of the contracts, which
     range from three (3) to seven (7) years.

     Finance costs consist of expenses incurred for the bank line of credit, and
     are amortized over the life of the loan.

     Organization costs include expenses incurred during the start up of the
     Company, and are amortized ratably over sixty (60) months, beginning July
     1, 1996.

DEVELOPMENT COSTS

     Development costs are expenses that are capitalized during the development
     stage on new assisted living facilities. The costs are reimbursed upon the
     completion of construction and sale of the facilities to the permanent
     owner of the real estate. Costs for abandoned sites are written off when
     the sites are considered not feasible.

NET INCOME (LOSS) PER SHARE

     Net income (loss) per share is computed based on the weighted average
     number of common shares outstanding for the period.

ADVERTISING

     The costs of advertising and marketing programs are expensed as incurred.

                                      F-17



                Diversified Senior Services, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                December 31, 1996
                                   (Continued)




NOTE 1:  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ESTIMATES AND ASSUMPTIONS

     The preparation of financial statements in conformity with generally
     accepted accounting principles (GAAP) 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 income and expenses during
     the reporting period. Actual results could differ from those estimates.

INCOME TAXES

     The Company is a C corporation and files its federal income tax return as a
     part of a consolidated group with THE as the parent. Federal tax expense or
     benefit is allocated based on net income or loss for each entity in the
     consolidated group. North Carolina state income tax regulations do not
     permit filing of consolidated income tax returns. Accordingly, the Company
     and its subsidiary file separate state corporate income tax returns.

     The Company uses the asset and liability approach for financial accounting
     and reporting for income taxes and deferred tax assets and liabilities. If
     it is more likely than not that some portion or all of a deferred tax asset
     will not be realized, a valuation allowance is recognized.

INCOME RECOGNITION

     Management fee income is assessed as a percentage of rent collected at
     apartments. Income is recognized monthly as rent collections are made.

     Reimbursement income consists of amounts reimbursed or due to the Company
     from properties managed for the services of management and maintenance
     personnel employed by the Company.

     Home care income is recognized at the time the service is provided.

PREFERRED STOCK

     The Company's Articles of Incorporation provide authority for the issuance
     of 100,000,000 shares of preferred stock, no par value. The Company has not
     issued such stock, nor have attributes or preferences been established.

                                      F-18


                Diversified Senior Services, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                December 31, 1996
                                   (Continued)




NOTE 2:  RELATED PARTY TRANSACTIONS

     On July 1, 1996, the Company, a 100% owned subsidiary of THE, acquired 100%
of RPM from THE. RPM is a management company formed in 1989 to manage
residential apartments, many of which are HUD or RECD (formerly FmHA)
subsidized. The acquisition was accomplished by the exchange of 2,277,678 shares
of common stock of DSS for 100% of the stock (100 shares) of RPM. No value was
assigned to the stock at the time of acquisition, as RPM had no positive book
value at the date of acquisition. The acquisition was treated as a purchase for
reporting purposes. The results of operations are included in the financial
statements of DSS from July 1, 1996 to December 31, 1996. In addition, a pro
forma financial statement has been included in Note 10 which includes a full
year of operations of RPM as if DSS were incorporated and had acquired RPM on
January 1, 1996.

     On September 1, 1996, RPM purchased certain management contract rights from
an entity related through common ownership. The purchase was funded by RPM
reducing its receivable due from the affiliate by $110,903 and by assuming the
affiliate's account payable due THE in the amount of $89,437. The value of the
asset acquired of $200,340, was determined by the fair value of the reduction in
the account receivable and the fair value of the liability assumed.

     Development costs totaling $50,000 were incurred by THE on behalf of the
Company during the period ended December 31, 1996.

     RPM leases certain computer equipment from THE under operating lease
agreements expiring in 2001. These lease agreements are included in the lease
information disclosed in Note 8.

     From time to time, the Company advances or borrows funds from the parent,
THE, or other related entities.

                                      F-19







                Diversified Senior Services, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                December 31, 1996
                                   (Continued)


NOTE 2:  RELATED PARTY TRANSACTIONS (CONTINUED)

     The following schedule summarizes the related party activities for the
period ended December 31, 1996.

                                                                                  Note
                                                       Due from     Due to      Payable
                                                       Affiliates   Affiliates  Affiliate        Total
                                                                                     
Amounts due (to) from affiliates:
   Amounts due to (from) RPM at date of
     acquisition:
     Management fees due from related
       partnerships                                    $  257,673   $         -   $          -   $  257,673
     Advances due from affiliate                           50,441                            -       50,441
     Amounts due to related partnership                         -       (20,000)             -      (20,000)
     Amounts due to other related entities                      -        (2,755)             -       (2,755)
     Advances due to parent                                     -    (1,506,955)             -   (1,506,955)
                                                        ---------    -----------     ---------  ------------
                                                          308,114    (1,529,710)             -   (1,221,596)

     Issuance of note to parent                                 -       829,296       (829,296)           -
     Working capital advances from affiliate               38,996             -              -       38,996
     Receipts from related partnerships                    (4,057)            -              -       (4,057)
     Purchase of management contract rights
       from affiliate                                     (89,437)     (110,903)             -     (200,340)
     Development costs incurred by parent                       -       (50,000)             -      (50,000)
     Repayment of development costs                             -        50,000              -       50,000
     Computer equipment lease payments due
       parent                                                   -        (4,848)             -       (4,848)
     Working capital advances from parent                       -       (44,825)             -      (44,825)
     Repayments to parent                                       -       559,220         70,775      629,995
     Tax benefit of operating losses due from
       parent                                                   -       245,600              -      245,600
                                                        ---------    -----------     ---------  ------------

Balance, December 31, 1996                              $  253,616   $  (56,170)   $  (758,521)   $(561,075)
                                                        ==========   ===========   ============   ==========



     There was no interest income received from or interest expense paid or
accrued to related parties during the period ended December 31, 1996. Accounts
payable to related parties bear no interest and have no scheduled repayment
terms. See Note 5 for the terms of the note payable to affiliate.

                                      F-20



                Diversified Senior Services, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                December 31, 1996
                                   (Continued)




NOTE 2:  RELATED PARTY TRANSACTIONS (CONTINUED)

     Management fee income includes $143,774 earned from partnerships, a general
partner of which is a beneficial shareholder of THE; $30,835 of such income is
included in trade accounts receivable at December 31, 1996. In addition, the
Company was reimbursed for payments made through its central payroll system for
payroll and related expenses, by partnerships which are related through common
ownership, of $250,354 for the period ended December 31, 1996.

NOTE 3:  FURNITURE AND EQUIPMENT

     The Company has furniture and equipment as follows at December 31, 1996:



                                                                        
              Computer equipment                                 $      84,679
              Office furniture                                          39,794
                                                                 _____________
                                                                       124,473
              Less accumulated depreciation                             36,022
                                                                 _____________
                                                                 $      88,451



         Depreciation expense for the period ended December 31, 1996 was
$18,108.

NOTE 4:  INTANGIBLE ASSETS

     Intangible assets consist of the following at December 31, 1996:



                                                                        
              Management contract rights                         $   1,258,732
              Finance costs                                             13,887
              Organization costs                                         9,586
                                                                 _____________
                                                                 $   1,282,205
              Less accumulated amortization                            364,134
                                                                 _____________
                                                                 $     918,071



         Amortization expense for the period ended December 31, 1996 was
$318,232.

                                      F-21


                Diversified Senior Services, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                December 31, 1996
                                   (Continued)

NOTE 5:  NOTES PAYABLE



     Notes payable consist of the following at December 31, 1996:

           Bank line of credit, bearing
               interest at prime (8.25% at
               December 31, 1996), payable
               quarterly, originally maturing
               October 1997. The note is
               guaranteed by THE, and 61,303
               shares of Omega Healthcare
               Investors, Inc. common stock
               owned by THE are pledged as
               collateral for the loan. In
               July 1997, the Company
               modified its line of credit by
               increasing the authorized
               amount to $1.5 million and
               extending the maturity date to
                                                                      
               January 1998.                                     $   931,622
          Note payable to THE, bearing no interest, payable
                366 days after demand                                758,521
                                                                 -----------
          Notes payable due during 1998                          $ 1,690,143
                                                                 ===========



     NOTE 6:  SAVINGS INCENTIVE PLAN

     The Company participates in a defined contribution savings incentive plan
covering substantially all of its full time employees. The Company is required
to provide a 50% matching contribution to each employee participant for
contributions up to the first 5% of compensation. On January 1, 1996, the plan
was amended to cover substantially all employees of the controlled group of
companies owned by THE. The Company's required contribution for the period ended
December 31, 1996 was $6,085.

NOTE 7:  PROVISION FOR INCOME TAXES

     Deferred taxes are recorded based upon differences between the financial
statement and tax bases of assets and liabilities and for available tax loss
carryforwards. The primary temporary difference between the financial statement
and tax bases of assets and liabilities consists of accrued compensation for the
Company's majority beneficial owner. In addition, the Company and subsidiary
have available deferred tax assets related to state income tax loss
carryforwards. A valuation allowance is provided to reduce the deferred tax
assets to a level which, more likely than not, will be realized. The net
deferred assets reflect management's estimate of the amount which will be
realized from future profitability. At December 31, 1996, deferred tax assets of
DSS and RPM were $122,268, and $55,069, respectively, totaling $177,337. The
Company has established a valuation allowance of 100% of the assets. Deferred
tax assets of RPM totaled $25,444 on July 1, 1996, the date it was acquired by
DSS. Again, management established a valuation allowances of 100% of the
deferred assets. There were no deferred tax liabilities at December 31, 1996.

                                      F-22



                Diversified Senior Services, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                December 31, 1996
                                   (Continued)




NOTE 7:  PROVISION FOR INCOME TAXES (CONTINUED)

     DSS and RPM had state loss carryforwards of $340,108 and $710,562
respectively, available at December 31, 1996 to be applied against future
taxable income. The tax loss carryforwards are subject to examination by taxing
authorities and if not previously utilized, expire December 31, 2001.

     The Company files a consolidated federal return with its parent, THE;
therefore, loss carryforwards for federal purposes have been utilized.

     The provision for income tax benefit of $245,600 is for losses used by the
parent in the federal consolidated income tax return for the year ended December
31, 1996.

NOTE 8:  COMMITMENTS AND CONTINGENCIES

     Various litigation occurs from time to time in the normal course of
business of the Company. These issues are not considered to be significant to
the financial statements of the Company and management does not contemplate
losses in regard to such issues. There was no outstanding litigation at December
31, 1996.

     The Company has various operating leases for office space and equipment.
Future minimum lease payments of $70,042 are as follows for the years ending
December 31:



                                              
               1997                   $       36,869
               1998                   $       15,558
               1999                   $        9,673
               2000                   $        4,848
               2001                   $        3,094


     Rent expense for the period ended December 31, 1996 was $43,292. Beginning
in May 1997, the Company entered into a month-to-month lease with THE, the
parent, for office space for its corporate headquarters with required monthly
rent payments of $2,700. In addition, RPM leases certain computer equipment from
THE under operating lease agreements expiring in 2001, with monthly payments of
$404.

                                      F-23



                Diversified Senior Services, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                December 31, 1996
                                   (Continued)




NOTE 9:  SUBSEQUENT EVENTS

     During the period January 1, 1997 to August 6, 1997, the Company has
accelerated its development activities. As of August 6, 1997, the Company has
control, through options or direct ownership, of several tracts of land
throughout North Carolina for development of assisted living facilities. The
Company has obtained favorable market feasibility analyses on three of the
sites. The Company will hold these properties as nominee for the nonprofit owner
until such time as the proposed bond financing for such property is ready to
close.

     Effective January 1, 1997, the Board of Directors approved five-year
employment agreements with certain officers of the Company. Under the terms of
the agreements, the Company agreed to assume responsibility for accrued but
unpaid salaries incurred by the Company's parent relating to the startup
activities of the Company of $271,263 during 1996 and $148,882 during 1997.
These salaries have been recorded as expense during the periods.

     In addition, officers are entitled to a bonus in the amount of 50% of the
stated amounts of the unpaid salaries in consideration for the deferral. Again,
these bonuses have been recorded as expenses during the periods. The agreements
permit the bonus amount to be used for the purchase of stock ranging from 50% to
100% of the offering price of the shares on the public market.

     The agreements provide for the payment to each executive officer of a lump
sum severance payment if the Company terminates such executive's employment
during the term of the agreements other than for cause, or if the employment is
terminated for certain reasons, including a change of control of the Company.
The lump sum payment is equal to three times the amount of such executive's
average base salary for the previous five years.

     Effective January 1, 1997, the Directors and shareholder adopted the
Company's 1997 Stock Incentive Plan for 500,000 shares of common stock, which
authorizes the Board (or future committee) to issue stock options, stock
appreciation rights, restricted stock and deferred stock subject to the Plan and
such other terms as set by the Board. As of August 6, 1997, no grants have been
made.

                                      F-24



                Diversified Senior Services, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                December 31, 1996
                                   (Continued)




NOTE 9:  SUBSEQUENT EVENTS (CONTINUED)

     The Company currently proposes to undertake a public offering of 1,200,000
shares of common stock. The Company has entered into an engagement letter with
an investment banking firm for a firm underwriting of the stock. The Company has
agreed to sell the stock to the underwriter at a discount of 10% of the public
offering price. The Company has also agreed to pay the underwriter a
non-accountable expense allowance of $180,000, $100,000 of which will be
advanced during the registration process. The Company is obligated to pay up to
$180,000 of the underwriter's expense if the stock is not sold. As additional
compensation, the Company will grant the underwriter warrants to purchase
120,000 shares of common stock exercisable for four years, commencing 12 months
after the closing of the offering, at an exercise price equal to 120% of the
public offering price. In addition, the Company will contract with the
underwriter for advisory services for two years after the completion of the
offering for $50,000 per year. The entire $100,000 obligation will be prepaid at
the completion of the equity offering.

     On June 30, 1997, the Company retired 477,778 shares of its common stock,
leaving 1,800,000 shares outstanding.

                                      F-25

                Diversified Senior Services, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                December 31, 1996
                                   (Continued)





NOTE 10:  PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS

     The following consolidating statement of operations includes the full year
of operations of RPM as if it were acquired on January 1, 1996, and as if DSS
were incorporated on January 1, 1996.






                                                                                       Pro forma
                                                          DSS, Inc.     RPM, Inc.    Consolidated
                                                         -----------  ------------   --------------
                                                                            

Income:
     Management fees                                     $       -    $ 833,426      $833,426
     Reimbursement income                                        -    1,467,051     1,467,051
       Home care income                                     18,797            -        18,797
                                                         ---------    ---------     ---------
                                                            18,797    2,300,477     2,319,274
                                                         ---------    ---------     ---------
Expenses:
     Personnel related                                     559,285    2,143,558     2,702,843
     Administrative                                         17,058      183,010       200,068
     Other                                                  16,621       75,798        92,419
                                                         ---------    ---------     ---------
                                                           592,964    2,402,366     2,995,330
                                                         ---------    ---------     ---------
Operating loss                                             574,167      101,889       676,056

Other (income) expenses:
     Depreciation and amortization                           3,930      551,834       555,764
     Interest and other income                                   -      (15,955)      (15,955)
     Interest and other expense                             14,449          740        15,189
                                                         ---------    ---------     ---------

     Loss before provision for income tax benefit          592,546      638,508     1,231,054

Provision for income tax benefit                          (115,600)    (234,200)     (349,800)
                                                         ---------    ---------     ---------

Net loss                                                  $476,946    $ 404,308     $ 881,254
                                                          ========    ========      =========
Net loss per share                                                                  $     .39
                                                                                    =========

Weighted number of shares outstanding                                               2,277,778
                                                                                    =========



                                      F-26






                DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY

         Supplemental Schedule of Consolidating Statements of Operations
    For the Period from May 17, 1996 (Date of Inception) to December 31, 1996




                                                     DSS, Inc.      RPM, Inc.(1)        Consolidated
                                                     -----------    ------------        ------------

                                                                               
Income
     Management fees                                 $        -     $    438,680        $   438,680
     Reimbursement income                                     -          781,838            781,838
     Home care income                                    18,797                -             18,797
                                                     -----------    ------------        ------------
                                                         18,797        1,220,518          1,239,315
                                                     -----------    ------------        ------------

Expenses:
     Personnel related                                  559,285        1,092,103          1,651,388
     Administrative                                      17,058           94,174            111,232
     Other                                               16,621           47,869             64,490
                                                     -----------    ------------        ------------
                                                        592,964        1,234,146          1,827,110
                                                     -----------    ------------        ------------

Operating loss                                          574,167           13,628            587,795

Other expenses:
     Depreciation and amortization                        3,930          332,410            336,340
     Interest and other expenses                         14,449                -             14,449
                                                     -----------    ------------        ------------

Loss before provision for income tax benefit            592,546          346,038            938,584

     Provision for income tax benefit                  (115,600)        (130,000)          (245,600)
                                                     -----------    ------------        ------------

Net loss                                             $   476,946    $    216,038        $   692,984
                                                     ===========    ============        ===========


(1)   Operations from the date of acquisition, July 1, 1996 to December 31, 1996

                                      F-27


                         REPORT OF INDEPENDENT AUDITORS




To the Board of Directors of
Residential Properties Management, Inc.
Winston-Salem, North Carolina

     We have audited the accompanying statements of operations, changes in
shareholder's equity (deficit) and cash flows of Residential Properties
Management, Inc. (the Company) for the six month period ended June 30, 1996 and
the year ended December 31, 1995. 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 audit.

     We conducted our audit in accordance with generally accepted auditing
standards. 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, evidenced 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 financial statements referred to above present fairly,
in all material respects, the stockholder's equity (deficit) of Residential
Properties Management, Inc. as of June 30, 1996 and December 31, 1995, and the
results of its operations and cash flows for the periods then ended, as
described above, in conformity with generally accepted accounting principles.

The Daniel Professional Group, Inc.

/s/ The Daniel Professional Group, Inc.

August 6, 1997
Winston-Salem, North Carolina

                                      F-28

                     RESIDENTIAL PROPERTIES MANAGEMENT, INC.
                            STATEMENTS OF OPERATIONS





                                            FOR THE SIX          FOR THE YEAR
                                            MONTHS ENDED             ENDED
                                               JUNE 30,           DECEMBER 31,
                                                 1996                1995
                                            ------------        --------------


Income
                                                                    
     Management fees                           $ 394,746               $    -
     Reimbursement income                        685,213                    -
                                             -----------        -------------
                                               1,079,959                    -
                                             -----------        -------------

Expenses:
     Personnel related                         1,051,455                    -
     Administrative                               88,836                    -
     Other                                        27,930                    -
                                            ------------         ------------
                                               1,168,221                    -
                                            ------------         ------------

Operating loss                                   (88,262)                   -

Other income (expenses):
     Depreciation and amortization              (219,424)                   -
     Interest and other income                    15,955               52,507
     Gain on sale of stock available for sale          -               99,108
     Interest and other expense                     (740)             (19,690)
                                               ----------        -------------

Income (loss) before provision for income
         tax benefit (expenses)                 (292,471)             131,925

     Provision for income tax benefit (expense)  104,200              (45,100)
                                              ----------         -------------


Net income (loss)                              $(188,271)             $86,825
                                              ===========        ============

Net earnings (loss) per share                   $ (1,883)              $  868

Shares outstanding                                   100                  100




    The accompanying notes are an integral part of the financial statements.

                                      F-29



                     RESIDENTIAL PROPERTIES MANAGEMENT, INC.
             STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)
   For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995




                                                                       Unrealized    Retained        Total
                                    Common     Common     Paid-in       Gain on      Earnings       Equity
                                    Shares     Stock      Capital     Investments    (Deficit)     (Deficit)
                                   --------   -------    ---------    -----------   ----------     ---------
                                                                                     


Balance, January 1, 1995              100     $  100     $ 87,314       $309,164     $ 96,406       $492,984

Unrealized loss on securities           -          -            -        (38,950)           -        (38,950)
   available for sale

Net income for the year ended           -          -            -              -       86,825         86,825
   December 31, 1995                 -----      -----     -------       --------      -------        -------

Balance, December 31, 1995            100        100       87,314        270,214      183,231        540,859

Transfer securities available           -          -      (87,314)      (270,214)           -       (357,528)
   for sale to parent

Net loss for the six months             -          -            -              -     (188,271)      (188,271)
   ended June 30, 1996               -----      -----     -------       --------      -------        -------

Balance, June 30, 1996                100     $  100     $      -       $      -    $  (5,040)     $  (4,940)
                                     =====      =====     =======       ========      =======        =======








    The accompanying notes are an integral part of the financial statements.

                                      F-30


                     RESIDENTIAL PROPERTIES MANAGEMENT, INC.
                            STATEMENTS OF CASH FLOWS

                Increase (Decrease) in Cash and Cash Equivalents






                                                               FOR THE SIX           FOR THE YEAR
                                                               MONTHS ENDED              ENDED
                                                                  JUNE 30,           DECEMBER 31,
                                                                   1996                  1995
Operating activities:
                                                                                   

Net income (loss)                                            $  (188,271)            $  86,825
                                                             ------------            ---------
Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
      Depreciation and amortization                          $   219,424             $       -
      Gain on sale of investments                                      -               (99,108)
      Changes in operating assets and liability:
            Accounts receivable                                   40,137                     -
            Dividends receivable                                       -                13,912
            Interest receivable                                        -               (16,000)
            Prepaid expenses                                     (10,639)                    -
            Accounts payable                                      97,809                 2,498
            Advances to affiliates                              (104,200)               19,590
                                                             -----------             ---------
                      Total adjustments                          242,531               (79,108)
                                                             -----------             ---------
      Net cash provided by operating activities                   54,260                 7,717
                                                             -----------             ---------
   Investing activities:
      Proceeds from sale of investments                                -               134,396
      Other                                                       (3,315)                4,985
                                                             -----------             ---------
      Net cash provided (used) by investing activities            (3,315)              139,381
                                                             -----------             ---------

   Financing activities:
      Advances and repayments to affiliates                      (50,441)             (344,773)
      Advances and repayments from affiliates                      2,005                     -
      Increase in margin payable                                       -               185,509
                                                             -----------             ---------
      Net cash used by financing activities                      (48,436)             (159,264)
                                                             -----------             ---------

   Net increase (decrease) in cash                                 2,509               (12,166)
   Cash and cash equivalents - beginning                           2,001                14,167
                                                             -----------             ---------
   Cash and cash equivalents - ending                        $     4,510             $   2,001
                                                             ===========             =========
   Cash payments for interest                                $         -             $       -
                                                             ===========             =========
   Cash payments for income taxes                            $         -             $       -
                                                             ===========             =========


                                      F-31

                    RESIDENTIAL PROPERTIES MANAGEMENT, INC.

                      STATEMENTS OF CASH FLOWS (continued)

Supplemental schedule of non-cash investing and financing activities for the six
months ended June 30, 1996 and the year ended December 31, 1995


On January 1, 1996, the Company's investment in securities available for sale
and associated margin account payable were transferred to THE, the parent, in a
non-cash transaction as follows:



   Assets:
                                                                         
     Investment in securities, at market                            $ (494,693)

   Liabilities:
     Margin payable                                                 $  185,509
     Accounts payable THE                                           $  (48,344)

   Equity:
     Unrealized gains on investment                                 $  270,214
     Paid in capital in excess of par                               $   87,314


In addition, as described in Note 6 to the financial statements, 
the Company acquired certain assets and assumed certain 
liabilities of an affiliate, in a non-cash transaction as follows:



   Assets acquired:
                                                                        
     Management contract rights                                    $1,209,060 
     Land                                                          $   70,536
     Furniture and equipment                                       $  121,569
     Accounts receivable - trade                                   $  119,023

   Liabilities assumed:
     Accounts payable THE                                          $(1,520,188)

    The accompanying notes are an integral part of the financial statements.

                                      F-32


                     Residential Properties Management, Inc.
                         Notes to Financial Statements
   For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995



NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Residential Properties Management, Inc. (the Company), a North Carolina
corporation, was formed on March 29, 1989, to manage government subsidized
multi-family and elderly resident rental apartments through management contracts
with the owners of the real estate. The apartments are subsidized through Rural
Economic and Community Development, Section 515, and Housing and Urban
Development, Section 8 programs. The Company also manages properties developed
under the Low-Income Housing Tax Credit program as well as conventional
apartments and homes. The Company's operations are located primarily in North
Carolina, South Carolina, West Virginia and Pennsylvania.

The following significant accounting policies have been followed in the
preparation of the Company's financial statements.

CASH EQUIVALENTS

      For purposes of the statement of cash flows, the Company considers all
      highly liquid investments purchased within three months of maturity to
      be cash equivalents.

ACCOUNTS RECEIVABLE - TRADE

      Accounts receivable - trade consists of management fees and
      reimbursements for administrative services due from partnerships whose
      properties are managed by the Company. The general partners of the
      partnerships are liable for the payment of the receivables if the
      partnerships do not have adequate cash flow; therefore, the Company
      considers such accounts receivable to be fully collectable. The Company
      provides services to customers on a ` basis.

FURNITURE AND EQUIPMENT

      Furniture and equipment are stated at cost. Depreciation is determined
      using the straight line method and is based on estimated useful lives
      of the related assets of three (3) to five (5) years. Expenditures for
      maintenance and repairs which do not improve or extend the life of an
      asset are expensed as incurred. Major renewals and betterments are
      charged to the property accounts. Upon retirement or sale of an asset,
      its cost and related accumulated depreciation are removed from the
      property accounts and any gain or loss is recorded in income or
      expense.

                                      F-33


                     Residential Properties Management, Inc.
                          Notes to Financial Statements
   For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995
                                   (Continued)


NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INTANGIBLE ASSETS

      Intangible assets consist of management contract rights, which
      represent the contractual rights purchased to allow the Company to
      manage various apartment or housing projects and are amortized on a
      straight-line basis over the lives of the contracts which range from
      three (3) to seven (7) years.

INCOME TAXES

      The Company is a C corporation and files its federal income tax return
      as part of a consolidated group with its parent, Taylor House
      Enterprises, Limited (THE). Federal tax expense or benefit is allocated
      based upon the net income or loss of each entity of the consolidated
      group. North Carolina state income tax regulations do not permit filing
      of consolidated income tax returns. Accordingly, the Company files a
      separate state corporate income tax return.

      The Company uses the asset and liability approach for financial
      accounting and reporting for income taxes and deferred tax assets and
      liabilities. If it is more likely than not that some portion or all of
      a deferred tax asset will not be realized, a valuation allowance is
      recognized.

INCOME RECOGNITION

      Management fee income is assessed as a percentage of rent collected at
      the apartments. Income is recognized in the month rent collections are
      made.

      Reimbursement income consists of amounts reimbursed or due to the
      Company from the properties managed for the services of management and
      maintenance personnel employed by the Company.

ADVERTISING

      The costs of advertising and marketing programs are expensed as incurred.

NET INCOME (LOSS) PER SHARE

      Net income (loss) per share is computed based on the weighted average
      number of common shares outstanding for the respective periods.

                                      F-34






                     Residential Properties Management, Inc.
                          Notes to Financial Statements
   For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995
                                   (Continued)


NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

MARKETABLE SECURITIES

     The Company follows SFAS No. 115, "Accounting for Certain Investments
     in Debt and Equity Securities." SFAS No. 115 requires certain
     investments to be categorized as either trading, available for sale, or
     held to maturity. Trading securities are reported at fair value, with
     changes in fair value included in earnings. Available for sale
     securities are reported at fair value, with net unrealized gains and
     losses recorded as a special component of stockholders' equity. Held to
     maturity debt securities are carried at amortized cost. Fair values are
     determined based upon quoted market prices. The cost of securities sold
     is determined using the average cost method.

     At December 31, 1995, all of the Company's investments were in equity
     securities, classified as available for sale securities.

ESTIMATES AND ASSUMPTIONS

     The preparation of financial statements in conformity with generally
     accepted accounting principles (GAAP) 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 income
     and expenses during the reporting period. Actual results could differ
     from those estimates.

                                      F-35







                     Residential Properties Management, Inc.
                          Notes to Financial Statements
   For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995
                                   (Continued)


NOTE 2: RELATED PARTY TRANSACTIONS

     As discussed in Note 6, the Company purchased assets consisting of
management contract rights, trade accounts receivable, land, furniture and
equipment from an entity related through common ownership.

     From time to time, the Company advances or borrows funds from the parent or
other related entities. In addition, due to filing federal consolidated income
tax returns, the parent sometimes funds the income tax expense of the Company.

     The following schedule summarizes related party activities for the six
months ended June 30, 1996 and for the year ended December 31, 1995.





                                                                       Due from              Due to
                                                                      Affiliates           Affiliates             Total
                                                                     -----------          -----------         -------------
                                                                                                            

Amounts due (to) from affiliates at January 1, 1995:
 Management fees due from related partnerships                       $   257,673         $         -          $    257,673
 Advances due from affiliate                                             220,540                   -               220,540
 Interest receivable from affiliate                                       16,658                   -                16,658
 Amounts due to related partnership                                            -             (20,000)              (20,000)
 Amounts due to other related entities                                         -              (2,755)               (2,755)
 Advances due to parent                                                        -            (618,999)             (618,999)
                                                                    ------------          -----------         -------------
Balance, January 1, 1995                                                 494,871            (641,754)             (146,883)

 Interest assessed to affiliate                                           16,000                    -               16,000
 Advance to parent                                                             -              340,693              340,693
 Payment of income taxes by parent                                             -              (19,590)             (19,590)
 Repayment of advances to parent                                               -                4,080                4,080
                                                                    ------------          -----------         ------------
Balance, December 31, 1995                                               510,871             (316,571)             194,300

 Purchase of assets from affiliate                                    (1,520,188)                   -           (1,520,188)
 Assumption of affiliate's liability to parent                         1,266,990           (1,266,990)                   -
 Transfer of securities and associated margin account to parent                -              (48,344)             (48,344)
 Working capital advance to affiliate                                     50,441                    -                50,441
 Working capital advance from parent                                           -               (2,005)              (2,005)
 Tax benefit of operating losses due from parent                               -              104,200              104,200
                                                                    ------------          -----------         ------------
Balance June 30, 1996                                                $   308,114          $(1,529,710)         $(1,221,596)
                                                                    ============          ===========         ============



                                      F-36



                     Residential Properties Management, Inc.
                          Notes to Financial Statements
   For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995
                                   (Continued)




NOTE 2: RELATED PARTY TRANSACTIONS (CONTINUED)

     Interest income from related party notes receivable was $16,000 for the
year ended December 31, 1995. There was no interest income received from or
interest expense paid or accrued to related parties during the six months ended
June 30, 1996. Accounts payable to affiliates bear no interest and have no
scheduled repayment terms.

     Management fee income includes $140,522 for the six months ended June 30,
1996 earned from partnerships, a general partner of which is a beneficial
shareholder of the Company; $20,141 of such fees are included in trade accounts
receivable at June 30, 1996. In addition, the Company was reimbursed for
payments made through its central payroll system for payroll and related
expenses, by partnerships related through common ownership of $222,959 for the
period ended June 30, 1996.


NOTE 3: FURNITURE AND EQUIPMENT



     The Company has furniture and equipment as follows at June 30, 1996:

                                                                 
          Computer equipment                              $      84,679
          Office furniture and equipment                         36,890
                                                          -------------
                                                                121,569
          Less accumulated depreciation                          17,914
                                                          -------------
                                                          $     103,655


     The Company held no furniture and equipment at June 30, 1995.
Depreciation expense was $17,914 for the six months ended June 30, 1996.


NOTE 4: INTANGIBLE ASSETS



     Intangible assets consist of the following at June 30, 1996:

                                                                
          Management contract rights                      $  1,209,060
          Less accumulated amortization                        201,510
                                                          ------------
                                                           $ 1,007,550



     Amortization expense was $201,510 for the six months ended June 30, 1996.

     As further discussed in Notes 2 and 6 management contract rights were
purchased from an entity related through common ownership.

                                      F-37



                     Residential Properties Management, Inc.
                          Notes to Financial Statements
   For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995
                                   (Continued)


NOTE 5: INVESTMENT IN EQUITY SECURITIES

     At December 31, 1995, the Company held equity securities consisting of
common stock in Omega Healthcare Investors, Inc. ("Omega"). In January 1996, the
Omega stock and related accounts were transferred to the parent at book value.
The following information is presented with regard to the stock:



                                                      DECEMBER 31, 1995
                                                      -----------------

                                                               
             Fair Value                                 $     494,693
             Unrealized gains                           $    (270,214)
             Unrealized losses                          $           -



     Market values were based on quoted market prices. The change in the
unrealized gains for the year ended December 31, 1995 was a decrease of $38,750.

     Proceeds from the sale of securities were $134,396 for the year ended
December 31, 1995, and gross realized gains of $99,108 have been recognized. The
average cost method is used to determine cost basis when calculating realized
gains and losses.

     Margin payable at December 31, 1995 to a securities firm bears interest at
the prime rate and is payable on demand. The stock in Omega is collateral for
the margin account.



NOTE 6: PURCHASE OF ASSETS

     On January 1, 1996, the Company purchased certain assets, consisting of
management contract rights, trade accounts receivable, land, and furniture and
equipment from an affiliate, by assuming certain liabilities to THE. The value
of the assets acquired was determined by the fair value of the liability
assumed, and was allocated to assets according to the relative value of assets
acquired as follows:



                                                             
             Management contracts                      $  1,209,060
             Land                                            70,536
             Furniture and equipment                        121,569
             Accounts receivable                            119,023
                                                       ------------
                                                       $  1,520,188
                                                       ============


                                      F-38



                     Residential Properties Management, Inc.
                          Notes to Financial Statements
   For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995
                                   (Continued)


NOTE 7: SAVINGS INCENTIVE PLAN

     The Company participates in a defined contribution savings incentive plan
covering substantially all of its full time employees. The Company is required
to provide a 50% matching contribution to each employee participant for
contributions up to the first 5% of compensation. On January 1, 1996 the plan
was amended to cover substantially all employees of the controlled group of
companies owned by THE. The Company's required contributions for the period
ended June 30, 1996 were $5,528. The Company did not participate in the plan
during 1995.

NOTE 8:  PROVISION FOR INCOME TAXES

     Deferred taxes are recorded based upon differences between the financial
statement and tax bases of assets and liabilities and for available tax loss
carryforwards. As there are no significant temporary differences between the
financial statement and tax bases of assets and liabilities, deferred tax assets
are related primarily to state tax loss carryforwards. A valuation allowance is
provided to reduce the deferred tax assets to a level which, more likely than
not, will be realized. At June 30, 1996, deferred tax assets totaled $25,444.
The Company has established a valuation allowance of 100% of this asset. There
were no deferred tax assets or liabilities at December 31, 1995.

The provision for income tax expense (benefit) attributable to continuing
operations consists of the following:



                                                      June 30,     December 31,
                                                         1996          1995
      Currently payable (refundable):
                                                                    
        State income tax                            $        -      $   8,900
        Federal income tax (benefit)                  (104,200)        36,200
                                                    ----------      ---------
      Provision for income tax expense (benefit)    $ (104,200)       $45,100


The Company had state loss carryforwards available of $328,309 at June 30, 1996
to be applied against future taxable income. The tax loss carryforward is
subject to examination by taxing authorities and if not previously utilized,
will expire December 31, 2001.

                                      F-39



                     Residential Properties Management, Inc.
                          Notes to Financial Statements
   For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995
                                   (Continued)


NOTE 9: COMMITMENTS AND CONTINGENCIES

Various litigation occurs from time to time in the normal course of business.
These issues are not considered to be significant to the financial statements of
the Company and management does not contemplate losses with regard to such
issues. There was no outstanding litigation at June 30, 1996.

The Company has various operating leases for office space and equipment. Future
minimum lease payments of $101,135 are as follows at June 30, 1996:




                                                            
      Six months ending December 31, 1996              $    31,093
           Years ending December 31, 1997              $    36,869
                                     1998              $    15,558
                                     1999              $     9,673
                                     2000              $     4,848
                                     2001              $     3,094


Total rent expense for the period ended June 30, 1996 was $33,169. The Company
incurred no lease expense during 1995. Beginning in May, 1997, the Company
entered into a month-to-month lease with THE, the parent, for office space for
its corporate headquarters with required monthly rent payments of $1,350. In
addition the Company leases certain computer equipment from the parent under
operating lease agreements expiring in 2001 with monthly payments of $404.

                                      F-40



No dealer, salesperson or any other person has been authorized to give any
information or to make any representations in connection with this offering
other than those contained in this Prospectus and, if given or made, such
information or representations must not be relied on as having been authorized
by the Company or by the Underwriter. This Prospectus does not constitute an
offer to sell or solicitation of an offer to buy any security other than the
securities offered by this Prospectus, or an offer to sell or a solicitation of
an offer to buy any securities by any person in any jurisdiction in which such
offer or solicitation is not authorized or is unlawful. The delivery of this
Prospectus shall not, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date of this
Prospectus.

                                TABLE OF CONTENTS

                                                                          PAGE
Prospectus Summary.........................................................  3
Risk Factors...............................................................  8
Dilution................................................................... 15
Use of Proceeds............................................................ 16
Dividend Policy............................................................ 16
Capitalization............................................................. 17
Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations ........................................................... 18
Business................................................................... 23
Management................................................................. 32
Principal Shareholders..................................................... 36
Certain Transactions....................................................... 37
Description of Securities.................................................. 38
Shares Eligible for Future Sale............................................ 41
Underwriting............................................................... 42
Legal Matters.............................................................. 44
Experts.................................................................... 44
Additional Information .................................................... 44
Index to Financial Statements............................................. F-1

Until ______________, 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.



                       DIVERSIFIED SENIOR SERVICES, INC.

                                1,200,000 SHARES



                    ---------------------------------------
                                   PROSPECTUS
                    ---------------------------------------


                            --------------- --, 1997


                              STRASBOURGER PEARSON
                                  TULCIN WOLFF
                                  INCORPORATED


                                120 Wall Street
                            New York, New York 10005
                                 (212) 952-7500




                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

     The North Carolina Business Corporation Act ("NCBCA") allows a
corporation's articles of incorporation to contain a provision limiting a
director's personal liability to the corporation and its shareholders for
monetary damages. No such provision may limit a director's liability for: (i)
acts or omissions known by the director to conflict with the best interests of
the corporation; (ii) liability for unlawful distributions; (iii) any
transactions from which the director received an improper personal benefit; or
(iv) acts or omissions occurring prior to the effective date of such provision
of the articles of incorporation. The Registrant's Articles of Incorporation
limit the personal liability of its directors for monetary damages to the
fullest extent permitted by the NCBCA.

     The NCBCA contains provisions setting forth conditions under which a
corporation may indemnify its directors, officers, employees and agents from any
liability incurred in their activities on behalf of the corporation. The NCBCA
permits indemnification unless, in connection with a proceeding by or in the
right of the corporation, the person seeking indemnification is adjudged liable
to the corporation or, in connection with a proceeding charging the receipt of
an improper personal benefit, the person seeking indemnification is adjudged to
have improperly received a benefit.

     ARTICLE SIX of the Registrant's Articles of Incorporation provide that: "To
the fullest extent permitted by applicable law, as it now exists or may
hereafter be amended, the Corporation shall indemnify all persons serving as
Directors and Officers of the Corporation against all liability and litigation
expense, including but not limited to reasonable attorneys' fees, arising out of
their status as such or their activities in the foregoing capacities, regardless
of when such status existed or activity occurred and regardless of whether or
not they are Directors or Officers of the Corporation at the time such
indemnification is sought or obtained. Without limiting the generality of the
foregoing, such persons may also recover from the Corporation all reasonable
costs, expense and attorney's fees in connection with the enforcement of rights
to indemnification granted by this Article. The provisions of this Article are
in addition to and not in limitation of the power of the Corporation to receive
the benefit, any other or further indemnification, insurance, elimination of
liability or other right or benefit which is either required by the NORTH
CAROLINA BUSINESS CORPORATION ACT or permitted thereby and duly adopted by the
Corporation in accordance therewith."

     ARTICLE SEVEN of the Registrant's Articles of Incorporation provide that:
"To the fullest extent permitted by applicable law, as it now exists or may
hereafter be amended, no Director of the Corporation shall have any personal
liability arising out of any action, whether by or in the right of the
Corporation or otherwise, for monetary damages for breach of his or her duty as
a Director. This Article shall not impair any right to receive indemnity or
insurance from the Corporation or any third party which any Director may now or
hereafter have. Any repeal or modification of this Article shall not impair or
otherwise adversely affect any limitation on, or elimination of, the personal
liability of a Director effected hereby with respect to acts or omissions
occurring prior to such repeal or modification."

                                      II-1



ITEM 25.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

     The Registrant estimates that expenses payable by it in connection with the
offering described in this Registration Statement (other than the underwriting
discount and commissions) will be as follows:



                                                                         
     SEC filing fee................................................$   2,036.36
     Nasdaq filing fee.............................................$   3,000.00
     Printing and engraving expenses...............................$  30,000.00
     Accounting fees and expenses..................................$  25,000.00
     Legal fees and expenses.......................................$  75,000.00
     Blue sky qualification fees and expenses......................$  10,000.00
     Transfer Agent................................................$  10,000.00
     Miscellaneous.................................................$  50,000.00
                                                                      ---------

         Total.....................................................$ 205,036.36
                                                                     ==========


ITEM 26.  RECENT SALES OF UNREGISTERED SECURITIES.

     The Registrant was formed in May 1996 as a wholly owned subsidiary of
Taylor House Enterprises, Limited and began operations in July 1996. The
Registrant was initially capitalized with $100 and its parent, Taylor House
Enterprises, Limited, received 100 shares of Common Stock. In July 1996, Taylor
House Enterprises, Limited exchanged all of the stock of its wholly owned
subsidiary Residential Property Management, Inc. for 2,277,678 shares of the
Registrant. Effective June 30, 1997, Taylor House Enterprises, Limited returned
477,778 shares of Common Stock to the Registrant which the Registrant retired
leaving 1,800,000 shares of Common Stock issued and outstanding.

ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

     (a) The following exhibits are filed as part of this Registration
Statement:

EXHIBIT NO.                                 DESCRIPTION

*  1.1      Form of Underwriting Agreement

*  1.3      Form of Financial Consulting Agreement between the Company 
            and the Underwriter

   3.1      Articles of Incorporation of the Registrant

   3.2      Bylaws of the Registrant, as amended

*  4.1      Specimen stock certificate of the Company's Common Stock

*  4.2      Form of Underwriter's Warrant Agreement

   5        Opinion of House Law Firm

   10.1     Employment Agreement dated as of January 1, 1997 between the
            Company and William G. Benton, as amended

   10.2     Employment Agreement dated as of January 1, 1997 between the
            Company and Susan L. Christiansen, as amended

                                      II-2


   10.3    Employment Agreement dated as of January 1, 1997 between the 
           Company and G. L. Clark, Jr., as amended

*  10.4    Forms of lock-up agreements

   10.5    The Company's 1997 Stock Incentive Plan

   10.6    Loan Agreement dated July 21, 1997 between the Company and 
           Centura Bank

*  15      Letter on unaudited interim financial information

   23.1    Consent of The Daniel Professional Group, Inc.

   23.2    Consent of House Law Firm (included in its opinion filed as
           Exhibit 5)

   24      Power of Attorney (included on the signature page of the 
           Company's Registration Statement on Form SB-2)

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

*To be filed by amendment

     (b) Financial Statement Schedules:

     Schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions or
are not applicable, and therefore have been omitted.


ITEM 28.  UNDERTAKINGS.

     Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

     The undersigned registrant hereby undertakes that:

     (1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.

     (2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

                                      II-3


     The undersigned registrant hereby undertakes that it will:

     (1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:

     (i) Include any prospectus required by Section 10(a)(3) of the Securities
Act;

     (ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement;

     (iii) Include any additional or changed material information on the plan of
distribution.

     (2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered and the offering of the securities at the time to be the initial bona
fide offering.

     (3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.

                                      II-4


                                   SIGNATURES

     In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned in the City of
Winston-Salem, State of North Carolina, on the 26th day of August, 1997.

                                  DIVERSIFIED SENIOR SERVICES, INC.


                                  By:  /S/ WILLIAM G. BENTON
                                       William G. Benton, Chairman of the Board
                                          and Chief Executive Officer


                                POWER OF ATTORNEY

     Each person whose signature appears below constitutes and appoints William
G. Benton and Susan L. Christiansen his true and lawful attorney-in-fact and
agent, each acting alone, with full power of substitution and resubstitution for
him and in his name, place and stead, in any and all capacities to sign any and
all amendments including post-effective amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

     In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.


                 SIGNATURE               TITLE                        DATE
                 ---------               -----                        ----

/S/ WILLIAM G. BENTON            Chairman of the Board          August 26, 1997
- -----------------------------
William G. Benton                and Chief Executive Officer

/S/ SUSAN L. CHRISTIANSEN        Chief Operating Officer        August 26, 1997
- -----------------------------
Susan L. Christiansen            and Director

/S/ G.L. CLARK, JR.              Chief Financial Officer,       August 26, 1997
- -----------------------------
G.L. Clark, Jr.                  Treasurer and Director

/S/ PERRY C. CRAVEN              Director                       August 26, 1997
- -----------------------------
Perry C. Craven

/S/ WALTER H. ETTINGER, JR.      Director                       August 26, 1997
- -----------------------------
Walter H. Ettinger, Jr.




                                INDEX TO EXHIBITS


Exhibit
  NO.    DESCRIPTION OF EXHIBIT                                            PAGE
- -------  ----------------------                                            ----

*  1.1   Form of Underwriting Agreement........................................

*  1.3   Form of Financial Consulting Agreement between the Company and 
         the Underwriter.......................................................

   3.1   Articles of Incorporation of the Registrant...........................

   3.2   Bylaws of the Registrant, as amended..................................

*  4.1   Specimen stock certificate of the Company's Common Stock..............

*  4.2   Form of Underwriter's Warrant Agreement...............................

   5     Opinion of House Law Firm ............................................

   10.1  Employment Agreement dated as of January 1, 1997 between the 
         Company and William G. Benton, as amended.............................

   10.2  Employment Agreement as of January 1, 1997 between the Company 
         and Susan L. Christiansen, as amended.................................

   10.3  Employment Agreement as of January 1, 1997 between the Company
         and G. L. Clark, Jr., as amended......................................

*  10.4  Forms of lock-up agreements...........................................

   10.5  The Company's 1997 Stock Incentive Plan...............................

   10.6  Loan Agreement dated July 21, 1997 between the Company and
         Centura Bank..........................................................


*  15    Letter on unaudited interim financial information.....................

   23.1  Consent of The Daniel Professional Group, Inc.........................

   23.2  Consent of House Law Firm (included in its opinion 
         filed as Exhibit 5)...................................................

   24    Power of Attorney (included on the signature page of the 
         Company's Registration Statement on Form SB-2)........................



- --------------------------------
*To be filed by amendment