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

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FORM 10-Q
---------------

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

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

FOR THE TRANSITION PERIOD FROM ___________ TO ___________

COMMISSION FILE NUMBER: 0-26980

ARV ASSISTED LIVING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 33-0160968
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

245 FISCHER AVENUE, D-1
COSTA MESA, CA 92626
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 751-7400

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [ ]

The number of outstanding shares of the Registrant's Common Stock, no par value,
as of May 8, 2000 was 17,459,689.

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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.

ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)

ASSETS

MARCH 31, DECEMBER 31,
2000 1999
-------- ------------

Current assets:
Cash and cash equivalents..................................... $ 12,417 $ 14,570
Accounts receivable and amounts due from affiliates........... 1,519 2,165
Prepaids and other current assets............................. 3,016 2,772
Properties held for sale, net................................. 3,571 4,301
-------- --------
Total current assets.................................. 20,523 23,808
Property, furniture and equipment, net.......................... 101,502 102,185
Goodwill, net................................................... 19,284 19,430
Operating lease security deposits............................... 12,169 12,164
Other non-current assets........................................ 15,546 15,700
-------- --------
$169,024 $173,287
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable.............................................. $ 2,193 $ 1,503
Accrued liabilities........................................... 8,537 10,270
Notes payable, current portion................................ 1,352 1,363
Accrued interest payable...................................... 1,864 1,292
Net current liabilities from discontinued operations.......... 2,951 2,510
-------- --------
Total current liabilities............................. 16,897 16,938
Notes payable, less current portion............................. 106,314 114,369
Lease liabilities............................................... 1,933 1,922
Other non-current liabilities................................... 898 934
-------- --------
126,042 134,163
-------- --------
Commitments and contingent liabilities

Shareholders' equity:
Preferred stock, no par value. Authorized
8,000 shares, none issued and outstanding................... - -
Common stock, no par value. Authorized
100,000 shares; issued and outstanding
17,460 and 16,679 shares at March 31, 2000
and December 31, 1999, respectively........................ 145,512 144,280
Accumulated deficit........................................... (102,530) (105,156)
-------- --------
Total shareholders' equity............................ 42,982 39,124
-------- --------
$169,024 $173,287
======== ========

See accompanying notes to unaudited condensed consolidated financial statements.

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ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------

Revenue:
Assisted living community revenue:
Rental revenue ............................................ $ 28,289 $ 28,623
Assisted living and other services ........................ 6,389 6,876
Management fees from others ............................... -- 143
Management fees from affiliates ........................... 215 237
-------- --------
Total revenue .............................. 34,893 35,879
-------- --------
Operating expenses:
Assisted living community operating expense ................. 22,686 21,822
Assisted living community lease expense ..................... 8,388 8,075
General and administrative .................................. 2,863 4,278
Depreciation and amortization ............................... 2,109 2,257
-------- --------
Total operating expenses .................. 36,046 36,432
-------- --------
Loss from operations .......................................... (1,153) (553)
-------- --------

Other income (expense):
Interest income ............................................. 314 145
Other income, net ........................................... 4 55
Interest expense ............................................ (2,212) (2,008)
-------- --------
Total other expense ....................... (1,894) (1,808)
-------- --------

Loss from continuing operations before income tax expense,
minority interest in income of majority owned entities,
extraordinary item and change in accounting principle ......... (3,047) (2,361)

Income tax expense ............................................ 8 --
-------- --------
Loss from continuing operations before minority interest in
income of majority owned entities, extraordinary item and
change in accounting principle ................................ (3,055) (2,361)
Minority interest in (income) loss of majority owned entities.. 67 (415)
-------- --------
Loss from continuing operations before extraordinary item
and change in accounting principle ........................... (2,988) (2,776)
Extraordinary gain from early extinguishment of debt, net
of income tax ............................................... 5,613 --
-------- --------
Income (loss) from continuing operations before change in
accounting principle ........................................ 2,625 (2,776)
Cumulative effect of change in accounting principle ........... -- (1,259)
-------- --------
Net income (loss) .................................... $ 2,625 $ (4,035)
======== ========

Basic and diluted loss per common share:
Loss from continuing operations before extraordinary item
and change in accounting principle ......................... $ (0.18) $ (0.17)
Extraordinary gain from early extinguishment of debt, net
of income tax .............................................. 0.33 --
Cumulative effect of change in accounting principle ......... -- (0.08)
-------- --------
Net income (loss) .................................... $ 0.15 $ (0.25)
======== ========

Weighted average common shares outstanding .................... 17,048 15,873
======== ========

See accompanying notes to unaudited condensed consolidated financial statements.

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ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS)

THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------

Net cash used in operating activities of continuing
operations.................................................... $ (946) $ (2,088)
Net cash provided by operating activities of discontinued
operations.................................................... 441 272
-------- --------
Net cash used in operating activities.................. (505) (1,816)
-------- --------
Cash flows used in investing activities:
Proceeds from the sale of partnership, net of cost............ 713 21,260
Purchase of previously leased communities..................... -- (14,636)
Additions to property, furniture and equipment................ (863) (2,205)
Additions to property held for sale........................... (78) --
Increase in leased property security deposits................. (5) (4,582)
Cash contributed to joint venture............................. -- (1,248)
Other......................................................... -- (16)
-------- --------
Net cash used in investing activities.................. (233) (1,427)
-------- --------
Cash flows provided by (used in) financing activities:
Borrowings under notes payable for purchase of previously
leased communities........................................... -- 14,678
Repayments of notes payable................................... (271) (9,813)
Repayments of subordinated debt............................... (984) --
Distributions from majority owned entities.................... (149) (195)
Loan fees..................................................... (11) --
Other......................................................... -- (213)
-------- --------
Net cash provided by (used in) financing activities.... (1,415) 4,457
-------- --------
Net (decrease) increase in cash and cash equivalents... (2,153) 1,214
Cash and cash equivalents at beginning of period................ 14,570 11,885
-------- --------
Cash and cash equivalents at end of period...................... $ 12,417 $ 13,099
======== ========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest...................................................... $ 1,640 $ 3,429
======== ========
Income taxes $ -- $ --
======== ========
Supplemental schedule of non-cash investing activities:
Conversion of subordinated notes to common stock.............. $ 1,232 $ --
Financing of leased property security deposits................ -- 2,033

See accompanying notes to unaudited condensed consolidated financial statements.

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ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

We prepared the accompanying condensed consolidated financial statements of ARV
Assisted Living, Inc. and subsidiaries ("the Company" or "ARV") following the
requirements of the Securities and Exchange Commission ("SEC") for interim
reporting. As permitted under those rules, certain footnotes or other financial
information that are normally required by generally accepted accounting
principles ("GAAP") can be condensed or omitted. We have reclassified certain
prior year data to conform to the 2000 presentation.

The financial statements include all normal and recurring adjustments that we
consider necessary for the fair presentation of our financial position and
operating results. These are condensed financial statements. To obtain a more
detailed understanding of our results, you should also read the financial
statements and notes in our Form 10-K for 1999, which is on file with the SEC.

The results of operations can vary during each quarter of the year. Therefore,
the results and trends in these interim financial statements may not be the same
as those for the full year.

PRINCIPLES OF CONSOLIDATION

The condensed consolidated financial statements include the accounts of the
Company and its subsidiaries. Subsidiaries, which include limited partnerships
in which we have controlling interests, have been consolidated into the
financial statements. All significant intercompany balances and transactions
have been eliminated in consolidation.

USE OF ESTIMATES

In preparing the financial statements conforming with GAAP, we have made
estimates and assumptions that affect the following:

~ reported amounts of assets and liabilities at the date of the financial
statements;

~ disclosure of contingent assets and liabilities at the date of the
financial statements; and

~ reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

RECLASSIFICATIONS

We have reclassified certain prior period amounts to conform to the March 31,
2000 presentation.

RECENT ACCOUNTING DEVELOPMENTS

In April 1998, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") No. 98-5, "Reporting on the Costs of Start-up Activities,"
which is effective for fiscal years beginning after December 15, 1998. The SOP
provides guidance on the financial reporting of start-up activities and
organizational costs. It requires costs of start-up activities and
organizational costs to be expensed when incurred and, upon adoption, the
write-off as a cumulative effect of a change in accounting principle of any
previously capitalized start-up or organizational costs. We adopted the
provisions of SOP 98-5 on January 1, 1999 and reported a charge of approximately
$1.3 million for the cumulative effect of this change in accounting principle.
There was no effect on income taxes related to the write-off.

The Financial Accounting Standards Board has also issued Statement of Financial
Accounting Standards No.131, "Disclosure about Segments of an Enterprise and
Related Information" ("SFAS 131"). This standard requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. Operating segments are components of an enterprise

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about which separate financial information is available that is regularly
evaluated by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. We evaluate performance and make
resource allocation decisions on a community-by-community basis. Accordingly,
each community is considered an "operating segment" under SFAS 131. However,
SFAS 131 did not have an impact on the financial statements because the
communities have similar economic characteristics, as defined by SFAS 131, and
meet the criteria for aggregation into one "reportable segment."

EARNINGS (LOSS) PER SHARE

Basic earnings per share ("EPS") excludes all dilution and is based upon the
weighted average number of common shares outstanding during the period. Diluted
EPS reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised, or converted into common stock.
The effect of potentially dilutive securities was not included for any of the
periods presented as the effect was antidilutive. Potentially dilutive
securities include convertible notes and stock options, which convert to
26,081,865 and 3,883,693 shares of common stock for the three-month periods
ended March 31, 2000 and 1999, respectively.

(2) COMMITMENTS AND CONTINGENT LIABILITIES

COMMITMENTS

We guarantee indebtedness of certain affiliated partnerships as of March 31,
2000 as follows:

(IN THOUSANDS)

Notes secured by real estate $75,297
Construction loans associated with the
development and construction of
affordable housing apartments secured by
real estate $14,651

The maximum aggregate amount of guaranteed indebtedness is $89.9 million at
March 31, 2000. We have guaranteed tax credits for certain partnerships in the
aggregate amount of $65.3 million, excluding interest, penalties or other
charges which might be assessed against the partners. We have provided
development and operating deficit guarantees for certain affiliated
partnerships. In our opinion, no claims may be currently asserted under any of
the aforementioned guarantees based on the terms of the respective agreements
other than those accrued nor are any additional accruals anticipated.

LITIGATION

On June 15, 1999, six California limited partnerships of which the Company
is the managing general partner and a majority limited partner - American
Retirement Villas Properties II, American Retirement Villas Properties III, Casa
Bonita Fullerton, Ltd., Collwood Knolls, L.P., and San Gabriel Retirement Villa,
L.P. (the "ARV Partnerships")-filed an action in the Superior Court for the
State of California, County of Orange, seeking a declaratory judgment and
damages for breach of contract, promissory estoppel, fraud and negligent
misrepresentation against PRN Mortgage Capital, L.L.C. and Red Mountain Funding,
L.L. C. (the "Defendants").

Defendants have filed a counter-claim seeking payment by the ARV
Partnerships of certain loan commitment fees allegedly owed to Defendants. The
ARV Partnerships believe that they have substantial and meritorious defenses to
Defendants' counter-claims. The parties have conducted minimal discovery and
will participate in voluntary mediation in an attempt to resolve their dispute
before discovery continues.

We are from time to time subject to lawsuits and other matters in the normal
course of business. While we cannot predict the results with certainty, we do
not believe that any liability from any such lawsuits or other matters will have
a material effect on our financial position, results of operations, or
liquidity.

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(3) SALE OF PARTNERSHIP INTEREST

In December 1999, we entered into a sale agreement for ARV's partnership
interest in the partnership WHW. WHW was the general partner of Sterling Court,
a community we managed through February 29, 2000. On March 1, 2000, we completed
the sale of the partnership interest. As of December 31, 1999, this partnership
was included in assets held for sale at its sales price. The resulting gain or
loss was insignificant in 2000.

(4) RELATED PARTY TRANSACTIONS

On April 24, 2000, the Company entered into a Term Loan Agreement with LFSRI
II Assisted Living LLC ("LFSRI"), an affiliate of Prometheus. As of April 27,
2000, Prometheus beneficially owned approximately 43.5% of the Company's
outstanding Common Stock. Pursuant to the Term Loan Agreement, the Company may
borrow up to $10,000,000 from LFSRI with a maturity date of April 24, 2002,
which, subject to certain conditions, may be extended by one year if no default
has occurred. The outstanding amount under the loan will bear interest at the
annual rate equal to the LIBOR rate for each interest period plus a 10% margin.
In connection with the Term Loan Agreement, the Company issued to LFSRI a
warrant to purchase up to 750,000 shares of the company's Common Stock at a
price of $3.00 per share, subject to various adjustments exercisable until April
24, 2005. The Company also amended its stockholder rights agreement to prevent
shares that Prometheus may be deemed to beneficially own by reason of LFSRI's
rights under the warrant from causing Prometheus to become an "Acquiring Person"
and thus causing a triggering event under the rights agreement.

(5) SUBSEQUENT EVENTS

The Company began retiring portions of its 6 3/4% convertible
subordinated debt during 1999 and continued retiring debt in the first quarter
of 2000. Subsequent to March 31, 2000 the Company has continued to retire
additional bonds for a total of $23.7 million principal amount resulting in a
$15.6 million extraordinary gain, net of tax. Through these transactions, we
have retired a total of $40.7 million of our public debt yielding extraordinary
gains of $28.0 million to date.

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

FACTORS AFFECTING FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS

This 10-Q report contains forward-looking statements, including statements
regarding, among other items:

- our business strategy;

- our liquidity requirements and ability to obtain financing;

- the impact of future acquisitions and developments;

- the anticipated sale of 18 ALCs and other properties during the second
and third quarters of 2000;

- the level of future capital expenditures;

- the impact of inflation and changing prices; and

- the outcome of certain litigation matters.

These forward-looking statements are based on our expectations and are subject
to a number of risks and uncertainties, some of which are beyond our control.
These risks and uncertainties include, but are not limited to:

- access to capital necessary for acquisitions and development;

- our ability to manage growth;

- the successful integration of ALCs into our portfolio;

- governmental regulations;

- competition; and

- other risks associated with the assisted living industry.

Although we believe we have the resources required to achieve our objectives,
actual results could differ materially from those anticipated by these
forward-looking statements. There can be no assurances that events anticipated
by these forward-looking statements will in fact transpire as expected.

OVERVIEW

As of March 31, 2000, we operated 56 assisted living communities ("ALCs")
containing 6,852 units, including 36 ALCs that are leased pursuant to long-term
operating leases ("Leased ALCs"); 15 communities that we own for our own account
("Owned ALCs"); and 5 communities that are managed for related parties ("Managed
ALCs"). As of March 31, 2000, we were in various stages of construction on 3
ALCs with an anticipated total of 403 units.

Since commencing operation of ALCs for our own account in April 1994, we have
focused our growth efforts on the acquisition and development of additional ALCs
and expansion of services to our residents as they "age in place." As of March
31, 2000, a substantial portion of our business and operations was conducted in
California, where 37 of the 56 ALCs we operate are located. We intend to
continue to make California the primary focus of our geographic clustering
strategy. However, we intend to reduce our prior growth rate in order to focus
greater attention on enhancing the profitability of our existing core operations
and on leasing up new developments at an increased rate. In addition, we plan to
divest ALCs that do not expand or enhance one of our geographic clusters or do
not meet our financial objectives. In December 1999 we decided to sell twelve
ALCs outside of the western United States. This decision was in keeping with our
strategy to focus our efforts on occupancy gains and to lease up ALCs faster.

Newly opened ALCs are expected to incur operating losses until sufficient
occupancy levels and operating efficiencies are achieved. Based upon historical
experience, we believe that a typical community will achieve its targeted
occupancy levels 12 - 24 months from the commencement of operations.
Accordingly, we will require substantial amounts of liquidity to maintain the
operations of newly opened ALCs. If sufficient occupancy levels are not achieved
within reasonable periods, our results of operations, financial position and
liquidity could be materially and adversely impacted.

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RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999

The following table sets forth a comparison of the three months ended March 31,
2000 ("the 2000 Quarter") and the three months ended March 31, 1999 ("the 1999
Quarter").

FOR THE THREE MONTHS
(DOLLARS IN MILLIONS) ENDED MARCH 31, INCREASE/
2000 1999 (DECREASE)
----- ----- ----------

Revenue:
Assisted living community revenue .................. $34.7 $35.5 (2.3)%
Management fees from affiliates and others ......... 0.2 0.4 (43.4)%
----- ----- -----
Total revenue .............................. 34.9 35.9 (2.8)%
----- ----- -----
Operating expenses:
Assisted living community operating expense .......... 22.7 21.8 4.0%
Assisted living community lease expense .............. 8.4 8.1 3.9%
General and administrative ........................... 2.9 4.2 (33.1)%
Depreciation and amortization ........................ 2.1 2.3 (6.6)%
----- ----- -----
Total operating expenses ..................... 36.1 36.4 (1.1)%
----- ----- -----
Loss from operations ................................... (1.2) (0.5) 108.5%
Other income (expense):
Interest income ...................................... 0.3 0.1 116.6%
Other income, net .................................... -- -- (92.7)%
Interest expense ..................................... (2.2) (2.0) 10.2%
----- ----- -----
Total other income (expense) ................. (1.9) (1.9) 4.8%
----- ----- -----
Loss from operations before minority interest in
income of majority owned entities, extraordinary
item and cumulative effect of change in accounting
principle ............................................. (3.1) (2.4) 29.4%
Minority interest in income of majority owned
entities............................................... 0.1 (0.4) 116.1%
----- ----- -----
Loss from operations before extraordinary item and
cumulative effect of change in accounting principle.... (3.0) (2.8) 7.6%
Extraordinary gain from early extinguishment of debt,
net of income tax ..................................... 5.6 -- 100.0%
----- -----
Loss from operations before cumulative effect of
change in accounting principle ....................... 2.6 (2.8) 194.6%
Cumulative effect of change in accounting .............. -- (1.2) 100.0%
----- ----- -----
Net income (loss) ............................ $ 2.6 $(4.0) 165.1%
===== ===== =====

The decrease in assisted living community revenue is attributable to the
following:

- the reduction of the number of ALCs which we own or lease from 55
during the 1999 Quarter to 51 during the 2000 Quarter;

- a decrease in average occupancy for ALCs not in development which we
own or lease from 87.4% for the 1999 Quarter as compared to 86.4%
for the 2000 Quarter; offset by

- an increase in average rate per occupied unit for ALCs which we
owned and leased in both periods to $2,124 for the 2000 Quarter as
compared to $2,026 for the 1999 Quarter; and

- an increase in assisted living penetration to 45.7% for the 2000
Quarter as compared to 44.4% for the 1999 Quarter;

Management fees from affiliates and others decreased due to the decrease in the
number of management contracts to five in 2000 from eight in 1999.

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Assisted living community operating expense increased $0.9 million due to:

- an increase in the amount of payroll related expenses of $1.6
million;

- an increase in variable expenses, primarily food costs of $0.6
million

- start up costs of $0.5 million for a new community;

- an increase in marketing and related activities of $0.3 million;

- an increase in property taxes of $0.2 million; and

- various other costs of $0.2 million; offset by

- reduced expenses of $2.5 million from the sale of five communities
during 1999.

Assisted living community lease expense increased $0.3 million due to:

- increased lease payments on leased facilities for additional capital
expenditures; and

- additional lease expenses due to improved revenue in 2000 Quarter
compared to the revenue in the base years on certain leases.

General and administrative expenses decreased $1.3 million due to:

- recovery from insurance of cost for proxy fight, $0.5 million;

- $0.2 million reversal of accrual for settlement for outstanding
legal bills;

- 1999 included $0.6 million in proxy fight legal costs which were not
incurred in the 2000 quarter.

Depreciation and amortization expenses decreased due to the sale of five
communities in 1999; partially offset by one new community that opened in
December 1999 and the purchase of 4 previously leased communities in February of
1999.

Interest income increased due to higher average cash balances carried by us
during the 2000 Quarter as compared to the 1999 Quarter as proceeds from the
sale of communities and refinancing flowed through.

Other income decreased slightly for the 2000 Quarter as compared to the 1999
Quarter.

Interest expense increased due to additional debt assumed in connection with the
1999 refinancing and acquisition of previously leased communities.

Minority interest decreased $0.5 million due to the loss incurred in the 2000
Quarter as compared to a gain in the 1999 Quarter by a partnership in which
ARVAL is invested.

LIQUIDITY AND CAPITAL RESOURCES

Our unrestricted cash balances were $12.4 million and $14.6 million at March 31,
2000 and December 31, 1999, respectively.

Working capital decreased to $3.6 million as of March 31, 2000 compared to
working capital of $6.9 million at December 31, 1999. The decrease was due
primarily to cash used in the buy back of subordinated debt, and operating
activities and capital expenditures.

Cash used in operating activities was $0.5 million for the 2000 Quarter,
compared to $1.8 million for the 1999 Quarter. The primary components of cash
used in operating activities for the 2000 Quarter were:

- a net loss before extraordinary item of $3.0 million;

- a $0.7 million decrease in net liabilities; offset by

- $0.4 million of cash provided by operations of discontinued
operations;

- non-cash charges of $2.1 million for depreciation and amortization;
and

- $0.8 million in other non-cash items.

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Cash used in investing activities was $0.2 million for the 2000 Quarter,
compared to $1.4 million for the 1999 Quarter. The primary components of cash
used in investing activities for the 2000 Quarter were:

- $0.9 million of purchases of property, furniture and equipment;
offset by:

- $0.7 million of proceeds from the sale of our interest in the WHW
partnership.

Net cash used in financing activities was $1.4 million for the 2000 Quarter,
compared to net cash provided by financing activities of $4.5 million for the
1999 Quarter. The primary components of cash used in financing activities for
the 2000 Quarter were:

- $1.0 million for repayments of subordinated debt;

- $0.3 million for repayments of notes payable; and

- $0.1 million for distributions paid from majority owned partnerships
to the minority unit holders.

The various debt and lease agreements contain restrictive covenants requiring us
to maintain certain financial ratios, including current ratio, working capital,
minimum net worth, debt-to-equity and debt service coverage, among others. At
March 31, 2000, we were not in compliance with the current ratio, tangible net
worth, debt service coverage and facility coverage ratio under certain lease
agreements. We have obtained waivers for those covenants with which we were not
in compliance through March 31, 2000. If the waivers for non-compliance had not
been obtained, then we would be in default under certain lease agreements.

We believe that our existing liquidity, our ability to sell ALCs and land sites
which do not meet our financial objectives or geographic clustering strategy,
and our ability to refinance certain Owned ALCs and investments will provide
adequate resources to meet our current operating and investing needs and support
our current growth plans for the next 12 months. We do not currently generate
sufficient cash from operations to fund recurring working capital requirements.
We will be required from time to time to incur additional indebtedness or issue
additional debt or equity securities to finance our growth strategy, including
the acquisition and development of ALCs as well as other capital expenditures
and additional funds to meet increased working capital requirements.

IMPACT OF INFLATION AND CHANGING PRICES

Operating revenue from ALCs we operate is the primary source of our revenue.
These ALCs are affected by rental rates which are highly dependent upon market
conditions and the competitive environments where the communities are located.
Employee compensation is the principal cost element of property operations.
Although there can be no assurance we will be able to continue to do so, we have
been able historically to offset the effects of inflation on salaries and other
operating expenses by increasing rental and assisted living rates.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks related to fluctuations in interest rates on
our notes payable. Currently, we do not utilize interest rate swaps. The purpose
of the following analysis is to provide a framework to understand our
sensitivity to hypothetical changes in interest rates as of March 31, 2000. You
should be aware that many of the statements contained in this section are
forward looking and should be read in conjunction with our disclosures under the
heading "Forward-Looking Statements."

For fixed rate debt, changes in interest rates generally affect the fair
market value of the debt instrument, but not our earnings or cash flows.
Conversely, for variable rate debt, changes in interest rates generally do not
impact fair market value of the debt instrument, but do affect our future
earnings and cash flows. We do not have an obligation to prepay fixed rate debt
prior to maturity, and as a result, interest rate risk and changes in fair
market value should not have a significant impact on the fixed rate debt until
we would be required to refinance such debt. Holding the variable rate debt
balance constant, each one-percentage point increase in interest rates would
result in an increase in variable rate interest incurred for the coming year of
approximately $255,000.

The table below details the principal amount and the average interest rates
of notes payable in each category based upon the expected maturity dates. The
fair value estimates for notes payable are based upon future discounted cash
flows of similar type notes or quoted market prices for similar loans. The
carrying value of our variable rate debt approximates fair value due to the
frequency of re-pricing of this debt. Our fixed rate debt consists of
convertible subordinated notes payable and mortgage payables. The fixed rate
debt bears interest at rates that approximate current market value except for
the convertible subordinated debt which bears interest at 6.75%.

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EXPECTED MATURITY DATE - MARCH 31,
FAIR
2001 2002 2003 2004 2005 THEREAFTER TOTAL VALUE
-------- -------- --------- --------- -------- ---------- ----- -----
(DOLLARS IN THOUSANDS)

Fixed rate debt $ 738 $ 41,033 $ -- $ -- $ -- $ 40,428 $ 82,199 $ 82,199
Average interest rate 9.15% 9.15% -- -- -- 6.75%

Variable rate debt $ 614 $ 632 $19,813 $ 4,408 $ -- $ -- $ 25,467 $ 25,467
Average interest rate 8.95% 9.00% 9.06 8.69% -- --

We do not believe that the future market rate risks related to the above
securities will have a material adverse impact on our financial position,
results of operations or liquidity.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

ITEM 2. CHANGES IN SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY-HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) EXHIBITS

10.1 Term Loan Agreement
10.2 Warrant to Purchase Common Stock of ARV Assisted Living, Inc
10.3 Second Amendment to Rights Agreement

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10.4 Term Note
10.5 Waiver
27 Financial Data Schedule

(b) REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the quarter ended March 31, 2000.

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

ARV ASSISTED LIVING, INC.,
A Delaware Corporation

By: /s/ Douglas M. Pasquale
----------------------------------
Douglas M. Pasquale
President and Chief Executive Officer
(Duly authorized officer)

Date: May 12, 2000

By: /s/ Abdo H. Khoury
----------------------------------
Abdo H. Khoury
Senior Vice President and
Chief Financial Officer
(Duly authorized officer)

Date: May 12, 2000

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EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
------ -----------

10.1 Term Loan Agreement
10.2 Warrant to Purchase Common Stock of ARV Assisted Living, Inc
10.3 Second Amendment to Rights Agreement
10.4 Term Note
10.5 Waiver
27 Financial Data Schedule