<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED MAY 31, 1999
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____to____.
Commission File Number: 0-18249
ILM SENIOR LIVING, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 04-3042283
- ----------------------- -------------------
(State of organization) (I.R.S. Employer
Identification No.)
8180 Greensboro Drive, Suite 850, McLean, VA 22102
- -------------------------------------------- -------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (888) 257-3550
-------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Shares Of Common Stock $.01 Par Value
-------------------------------------
(Title of Class)
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 / / No /X/
Shares of common stock outstanding as of May 31, 1999: 7,520,100.
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Page 1 of 22
<PAGE>
ILM SENIOR LIVING, INC.
INDEX
<TABLE>
<S> <C>
Part I. Financial Information PAGE
Item 1. Financial Statements
Consolidated Balance Sheets
May 31, 1999 (Unaudited) and August 31, 1998.................................................4
Consolidated Statements of Income
For the nine months and three months ended May 31, 1999 and 1998 (Unaudited).................5
Consolidated Statements of Changes in Shareholders' Equity
For the nine months ended May 31, 1999 and 1998 (Unaudited)..................................6
Consolidated Statements of Cash Flows
For the nine months ended May 31, 1999 and 1998 (Unaudited)..................................7
Notes to Consolidated Financial Statements (Unaudited)....................................8-14
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....15-20
Part II. Other Information
Item 5. Other Information...........................................................................21
Item 6. Exhibits and Reports on Form 8-K............................................................21
Signatures....................................................................................................22
</TABLE>
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<PAGE>
ILM SENIOR LIVING, INC
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
(See next page)
-3-
<PAGE>
ILM SENIOR LIVING, INC.
CONSOLIDATED BALANCE SHEETS
May 31, 1999 (Unaudited) and August 31, 1998
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS
May 31, 1999 August 31, 1998
------------ ---------------
<S> <C> <C>
Operating investment properties, at cost:
Land $ 4,865 $ 4,768
Building and improvements 38,166 38,166
Furniture, fixtures and equipment 4,948 4,948
-------- --------
47,979 47,882
Less: accumulated depreciation (13,096) (12,131)
-------- --------
34,883 35,751
Unamortized mortgage fees 2,256 2,256
Less: accumulated amortization (2,106) (1,937)
-------- --------
150 319
Loan origination fees 270 102
Less: accumulated amortization (51) --
-------- --------
219 102
Cash and cash equivalents 718 2,264
Accounts receivable - related party 296 336
Prepaid expenses and other assets 136 89
Deferred rent receivable 22 49
-------- --------
$ 36,424 $ 38,910
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 435 $ 326
Preferred shareholders' minority
interest in subsidiary 132 125
-------- --------
Total liabilities 567 451
Contingencies
Shareholders' equity:
Common stock, $0.01 par value,
10,000,000 shares authorized,
7,520,100 shares issued and outstanding 75 75
Additional paid-in capital 65,711 65,711
Accumulated deficit (29,929) (27,327)
-------- --------
Total shareholders' equity 35,857 38,459
-------- --------
$ 36,424 $ 38,910
======== ========
</TABLE>
See accompanying notes.
-4-
<PAGE>
ILM SENIOR LIVING, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the nine months and three months ended May 31, 1999 and 1998 (Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
May 31, May 31,
------------------ ------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES
Rental and other income $5,638 $5,397 $1,877 $1,814
Interest income 48 67 9 11
------ ------ ------ ------
5,686 5,464 1,886 1,825
EXPENSES
Depreciation expense 965 962 322 321
Amortization expense 220 169 73 56
General and administrative 361 156 105 45
Professional fees 1,878 339 834 186
Directors' compensation 69 91 20 30
------ ------ ------ ------
3,493 1,717 1,354 638
------ ------ ------ ------
NET INCOME $2,193 $3,747 $ 532 $1,187
====== ====== ====== ======
Basic earnings per share of common stock $ 0.29 $ 0.50 $ 0.07 $ 0.16
====== ====== ====== ======
Cash dividends paid per share of common stock $ 0.64 $ 0.59 $ 0.22 $ 0.20
====== ====== ====== ======
</TABLE>
The above earnings and cash dividends paid per share of common stock are based
upon the 7,520,100 shares outstanding during each period.
See accompanying notes.
-5-
<PAGE>
ILM SENIOR LIVING, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the nine months ended May 31, 1999 and 1998 (Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Common Stock
$.01 Par Value Additional
-------------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
--------- ----------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Shareholders' equity
at August 31, 1997 7,520,100 $ 75 $65,711 $(26,128) $ 39,658
Cash dividends paid -- -- -- (4,418) (4,418)
Net income -- -- -- 3,747 3,747
--------- ----------- ------- -------- --------
Shareholders' equity
at May 31, 1998 7,520,100 $ 75 $65,711 $(26,799) $ 38,987
========= =========== ======= ======== ========
Shareholders' equity
at August 31, 1998 7,520,100 $ 75 $65,711 $(27,327) $ 38,459
Cash dividends paid -- -- -- (4,795) (4,795)
Net income -- -- -- 2,193 2,193
--------- ----------- ------- -------- --------
Shareholders' equity
at May 31, 1999 7,520,100 $ 75 $65,711 $(29,929) $ 35,857
========= =========== ======= ======== ========
</TABLE>
See accompanying notes.
-6-
<PAGE>
ILM SENIOR LIVING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended May 31, 1999 and 1998 (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
May 31,
---------------------
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,193 $ 3,747
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization expense 1,185 1,131
Accrued dividends on subsidiary's preferred
stock 7 6
Changes in assets and liabilities:
Accounts receivable - related party 40 (1,708)
Prepaid expenses and other assets (47) 44
Deferred rent receivable 27 28
Accounts payable and accrued expenses -- 32
Accounts payable - related party 109 112
------- -------
Net cash provided by operating activities 3,514 3,392
------- -------
Cash flows used in investing activities:
Additions to operating investment properties (97) (852)
------- -------
Net cash used in investing activities (97) (852)
Cash flows used in financing activities:
Loan origination fees paid (168) --
Cash dividends paid to shareholders (4,795) (4,418)
------- -------
Net cash used in financing activities (4,963) (4,418)
------- -------
Net decrease in cash and cash equivalents (1,546) (1,878)
Cash and cash equivalents, beginning of period 2,264 3,136
------- -------
Cash and cash equivalents, end of period $ 718 $ 1,258
======= =======
</TABLE>
See accompanying notes.
-7-
<PAGE>
ILM SENIOR LIVING, INC.
Notes to Consolidated Financial Statements (Unaudited)
1. GENERAL
The accompanying consolidated financial statements, footnotes and
discussions should be read in conjunction with the consolidated financial
statements and footnotes contained in ILM Senior Living, Inc.'s (the
"Company") Annual Report on Form 10-K for the fiscal year ended August
31, 1998. In the opinion of management, the accompanying interim
consolidated financial statements, which have not been audited, reflect
all adjustments necessary to present fairly the results for the interim
periods. All of the accounting adjustments reflected in the accompanying
interim consolidated financial statements are of a normal recurring
nature.
The accompanying consolidated financial statements have been
prepared on the accrual basis of accounting in accordance with U.S.
generally accepted accounting principles for interim financial
information, which requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of May 31, 1999 and
revenues and expenses for each of the nine- and three-month periods ended
May 31, 1999 and 1998. Actual results may differ from the estimates and
assumptions used. Certain numbers in the prior period's financial
statements have been reclassified to conform to the current period's
presentation. The results of operations for the nine- and three-month
periods ended May 31, 1999, are not necessarily indicative of the results
that may be expected for the year ending August 31, 1999.
The Company was incorporated on March 6, 1989 under the laws of
the State of Virginia as a Virginia finite-life corporation, formerly
PaineWebber Independent Mortgage Fund, Inc. On June 21, 1989, the Company
sold to the public in a registered initial offering 7,520,100 shares of
common stock, $.01 par value. The Company received capital contributions
of $75,201,000, of which $201,000 represented the sale of 20,100 shares
to an affiliate at that time, PaineWebber Group, Inc. ("PaineWebber").
For discussion purposes, PaineWebber will refer to PaineWebber Group,
Inc. and all affiliates that provided services to the Company in the
past.
The Company elected to qualify and be taxed as a Real Estate
Investment Trust ("REIT") under the Internal Revenue Code of 1986, as
amended, for each taxable year of operations.
The Company originally invested the net proceeds of the initial
public offering in eight participating mortgage loans secured by senior
housing facilities located in seven different states ("Senior Housing
Facilities"). All of the loans made by the Company were originally to
Angeles Housing Concepts, Inc. ("AHC"), as mortgagor, a company
specializing in the development, acquisition and operation of Senior
Housing Facilities and guaranteed by AHC's corporate parent, Angeles
Corporation ("Angeles").
ILM Holding, Inc. ("ILM Holding"), a majority-owned subsidiary of
the Company, now holds title to the eight Senior Housing Facilities,
which comprise the balance of the operating investment properties on the
accompanying consolidated balance sheets, subject to certain mortgage
loans payable to the Company. Such mortgage loans and the related
interest expense are eliminated in the consolidation of the financial
statements of the Company.
The Company made charitable gifts of one share of the preferred
stock in ILM Holding to each of 111 charitable organizations so that ILM
Holding would meet the stock ownership requirements of a REIT as of
January 30, 1997. The preferred stock has a liquidation preference of
$1,000 per share plus any accrued and unpaid dividends. Dividends on the
preferred stock accrue at a rate of 8% per annum on the original $1,000
liquidation preference and are cumulative from the date of issuance.
Since ILM Holding is not expected to have sufficient cash flow in the
foreseeable future to make the required dividend payments, it is
anticipated that dividends will accrue and be paid at liquidation of ILM
Holding. Cumulative dividends accrued as of May 31, 1999 on the preferred
stock in ILM Holding totaled approximately $20,720.
-8-
<PAGE>
ILM SENIOR LIVING, INC.
Notes to Consolidated Financial Statements (Unaudited)
(continued)
1. GENERAL (CONTINUED)
As part of the fiscal 1994 settlement agreement with AHC, ILM
Holding retained AHC as the property manager for all of the Senior
Housing Facilities pursuant to the terms of a management agreement. The
management agreement with AHC was terminated in July 1996. Subsequent to
the effective date of the settlement agreement with AHC, in order to
maximize the potential returns to the Company's existing Shareholders
while maintaining its qualification as a REIT under the Internal Revenue
Code, the Company formed a new corporation, ILM I Lease Corporation
("Lease I"), for the purpose of operating the Senior Housing Facilities
under the terms of a facilities lease agreement (the "Facilities Lease
Agreement"). All of the shares of capital stock in Lease I were
distributed to the holders of record of the Company's common stock and
the Senior Housing Facilities were leased to Lease I effective September
1, 1995 (see Note 2 for a description of the Facilities Lease Agreement).
Lease I is a public company subject to the reporting obligations of the
Securities and Exchange Commission. All responsibility for the day-to-day
management of the Senior Housing Facilities, including administration of
the property management agreement with AHC, was transferred to Lease I.
On July 29, 1996, the management agreement with AHC was terminated and
Lease I retained Capital Senior Management 2, Inc. ("Capital") to be the
new property manager of its Senior Housing Facilities pursuant to a
management agreement (the "Management Agreement"). Lawrence A. Cohen,
who, through July 28, 1998, served as President, Chief Executive Officer
and Director of the Company and a Director of Lease I, has also served in
various management capacities at Capital Senior Living Corporation, an
affiliate of Capital, since 1996. Mr. Cohen currently serves as Chief
Executive Officer and Acting Chief Financial Officer of Capital Senior
Living Corporation. As a result, through July 28, 1998, Capital was
considered a related party.
-9-
<PAGE>
ILM SENIOR LIVING, INC.
Notes to Consolidated Financial Statements (Unaudited)
(continued)
2. OPERATING INVESTMENT PROPERTIES SUBJECT TO FACILITIES LEASE AGREEMENT
At May 31, 1999, through its consolidated subsidiary, the Company
owned eight Senior Housing Facilities. The name, location and size of the
properties are as set forth below:
<TABLE>
<CAPTION>
Year Facility Rentable Resident
Name Location Built Units Capacities
---- -------- ----- ------ ----------
<S> <C> <C> <C> <C>
Independence Village of East Lansing East Lansing, MI 1989 161 162
Independence Village of Winston-Salem Winston-Salem, NC 1989 159 161
Independence Village of Raleigh Raleigh, NC 1991 164 205
Independence Village of Peoria Peoria, IL 1990 166 183
Crown Pointe Apartments Omaha, NE 1984 135 163
Sedgwick Plaza Apartments Wichita, KS 1984 150 170
West Shores Hot Springs, AR 1986 136 166
Villa Santa Barbara (1) Santa Barbara, CA 1979 125 125
</TABLE>
(1) The acquisition of Villa Santa Barbara was financed jointly by the
Company and an affiliated entity, ILM II. All amounts generated
from Villa Santa Barbara are equitably apportioned between the
Company, together with its consolidated subsidiary, and ILM II,
together with its consolidated subsidiary, generally 25% and 75%,
respectively. Villa Santa Barbara is owned 25% by ILM Holding and
75% by ILM II Holding. Upon the sale of the Company or ILM II,
arrangements would be made to transfer the Santa Barbara facility
to the non-selling joint tenant (or one of its subsidiaries). The
property was extensively renovated in 1995.
Subsequent to the effective date of the Settlement Agreement with
AHC, in order to maximize the potential returns to the existing
Shareholders while maintaining the Company's qualification as a REIT
under the Internal Revenue Code, the Company formed a new corporation,
Lease I, for the purpose of operating the Senior Housing Facilities under
the terms of a Facilities Lease Agreement dated September 1, 1995 between
the Company's consolidated affiliate, ILM Holding, as owner of the
properties and lessor (the "Lessor"), and Lease I as lessee (the
"Lessee"). The facilities lease is a "triple-net" lease whereby the
Lessee pays all operating expenses, governmental taxes and assessments,
utility charges and insurance premiums, as well as the costs of all
required maintenance, personal property and non-structural repairs in
connection with the operation of the Senior Housing Facilities. ILM
Holding, as the Lessor, is responsible for all major capital improvements
and structural repairs to the Senior Housing Facilities. During the term
of the Facilities Lease Agreement, which is scheduled to expire on
December 31, 1999, unless terminated earlier at the election of the
Lessor in connection with the sale by the Lessor of the Senior Housing
Facilities to a non-affiliated third party upon 30 days' notice to the
Company. Lease I pays annual base rent for the use of all of the
Facilities in the aggregate amount of $6,364,800 per year. Lease I also
pays variable rent, on a quarterly basis, for each facility in an amount
equal to 40% of the excess of aggregate total revenues for the Senior
Housing Facilities, on an annualized basis, over $16,996,000. Variable
rent was $859,000 and $295,000 for the nine- and three-month periods
ended May 31, 1999, respectively, compared to $651,000 and $232,000 for
the nine- and three-month periods ended May 31, 1998, respectively.
RECENT DEVELOPMENTS
On February 7, 1999, the Company entered into an agreement and
plan of merger with Capital Senior Living Corporation, the corporate
parent of Capital, and certain affiliates of Capital. While there can be
no assurance, consummation of the merger is presently anticipated by the
end of calendar year 1999. In connection with the merger, the Company has
agreed to cause ILM Holding to cancel and terminate the Facilities Lease
Agreement with Lease I immediately prior to the effective time of the
merger. As noted above, the Facilities Lease Agreement, which is
scheduled to expire on December 31, 1999, may be terminated earlier at
the election of the Lessor in connection with the sale by the Lessor of
the Senior Housing Facilities to a non-affiliated third party. As a
result, Lease I would have little "going concern" value. There can be no
assurance as to whether the merger will
-10-
<PAGE>
ILM SENIOR LIVING, INC.
Notes to Consolidated Financial Statements (Unaudited)
(continued)
be consummated or, if consummated, as to the timing thereof. If the
merger is consummated, the stockholders of the Company will receive the
merger consideration of approximately $12.75 per share, which approximate
amount is based, in part, upon the per-share market price of Capital
Senior Living Corporation's common stock on February 5, 1999.
3. RELATED PARTY TRANSACTIONS
Subject to the supervision of the Company's Board of Directors,
assistance in managing the business of the Company was provided by
PaineWebber. As discussed in the Company's Annual Report on Form 10-K for
the year ended August 31, 1998, PaineWebber resigned effective as of June
18, 1997.
Lease I has retained Capital to be the property manager of the
Senior Housing Facilities and the Company has guaranteed the payment of
all fees due to Capital pursuant to the Management Agreement which
commenced on July 29, 1996. Lawrence A. Cohen, who, through July 28,
1998, served as President, Chief Executive Officer and Director of the
Company and a Director of Lease I, has also served in various management
capacities at Capital Senior Living Corporation, an affiliate of Capital,
since 1996. Mr. Cohen currently serves as Chief Executive Officer and
Acting Chief Financial Officer of Capital Senior Living Corporation. For
the nine- and three-month periods ended May 31, 1999, Capital earned
property management fees from Lease I of $778,000, and $241,000,
respectively. For the nine- and three-month periods ended May 31, 1998,
Capital earned property management fees from Lease I of $742,000 and
$258,000, respectively.
On September 18, 1997, Lease I entered into an agreement with
Capital Senior Development, Inc., an affiliate of Capital, to manage the
development process for the potential expansion of several of the Senior
Housing Facilities. Capital Senior Development, Inc. will receive a fee
equal to 7% of the total development costs of these expansions if they
are pursued. The Company will reimburse Lease I for all costs related to
these potential expansions, including fees to Capital Senior Development,
Inc. For the nine- and three-month periods ended May 31, 1999, Capital
Senior Development, Inc. earned no fees from Lease I, compared to fees of
$212,000 and $83,000 earned for the nine- and three-month periods ended
May 31, 1998, respectively, for managing pre-construction development
activities for potential expansions of the Senior Housing Facilities.
Jeffry R. Dwyer, Secretary and Director of the Company, is a
shareholder of Greenberg Traurig, Counsel to the Company and its
affiliates since 1997. For the nine- and three-month periods ended May
31, 1999, Greenburg Traurig earned fees from the Company of $1,027,000
and $651,000, respectively. For the nine- and three-month periods ended
May 31, 1998, Greenberg Traurig earned fees from the Company of $168,000
and $90,000, respectively.
Accounts receivable - related party at May 31, 1999 and August 31,
1998 represent amounts due from an affiliated company, Lease I,
principally for variable rent. There were no accounts payable - related
party at May 31, 1999 and August 31, 1998.
4. LEGAL PROCEEDINGS AND CONTINGENCIES
TERMINATION OF MANAGEMENT CONTRACT WITH AHC
On July 29, 1996, Lease I and ILM Holding ("the Companies")
terminated a property management agreement with AHC covering the eight
Senior Housing Facilities leased by Lease I from ILM Holding. The
management agreement was terminated for "cause" pursuant to the terms of
the contract. Simultaneously, with the termination of the management
agreement, the Companies, together with certain affiliated entities,
filed suit against AHC in the United States District Court for the
Eastern District of Virginia for breach of contract, breach of fiduciary
duty and fraud. The Companies alleged, among other things, that AHC
willfully performed actions specifically in violation of the management
agreement and that such actions caused damages to the Companies.
-11-
<PAGE>
ILM SENIOR LIVING, INC.
Notes to Consolidated Financial Statements (Unaudited)
(continued)
4. LEGAL PROCEEDINGS AND CONTINGENCIES (continued)
Due to the termination of the agreement for cause, no termination
fee was paid to AHC. Subsequent to the termination of the management
agreement, AHC filed for protection under Chapter 11 of the U.S.
Bankruptcy Code in its domestic State of California. The filing was
challenged by the Companies, and the Bankruptcy Court dismissed AHC's
case effective October 15, 1996. In November 1996, AHC filed with the
Virginia District Court an answer in response to the litigation initiated
by the Companies and a counterclaim against ILM Holding. The counterclaim
alleged that the management agreement was wrongfully terminated for cause
and requested damages which included the payment of a termination fee in
the amount of $1,250,000, payment of management fees pursuant to the
contract from August 1, 1996 through October 15, 1996, which is the
earliest date the management agreement could have been terminated without
cause, and recovery of attorneys' fees and expenses.
The aggregate amount of damages against all parties as requested
in AHC's counterclaim exceeded $2,000,000. On June 13, 1997 and July 8,
1997, the court issued orders to enter judgment against the Company and
ILM II in the aggregate amount of $1,000,000. The orders did not contain
any findings of fact or conclusions of law. On July 10, 1997, the
Company, ILM II, Lease I and Lease II filed a notice of appeal to the
United States Court of Appeals for the Fourth Circuit from the orders.
On February 4, 1997, AHC filed a complaint in the Superior Court
of the State of California against Capital, the new property manager;
Lawrence Cohen, who, through July 28, 1998, was President, Chief
Executive Officer and a Director of the Company; and others alleging that
the defendants intentionally interfered with AHC's property management
agreement (the "California litigation"). The complaint sought damages in
the amount of at least $2,000,000. On March 4, 1997, the defendants
removed the case to Federal District Court for the Central District of
California. At a Board meeting on February 26, 1997, the Company's Board
of Directors concluded that since all of Mr. Cohen's actions relating to
the California litigation were taken either on behalf of the Company
under the direction of the Board or as a PaineWebber employee, the
Company or its affiliates should indemnify Mr. Cohen with respect to any
expenses arising from the California litigation, subject to any insurance
recoveries for those expenses. Legal fees paid by Lease I and Lease II on
behalf of Mr. Cohen totaled $229,000 as of May 31, 1999. The Company's
Board also concluded that, subject to certain conditions, the Company or
its affiliates should advance up to $20,000 to pay reasonable legal fees
and expenses incurred by Capital in the California litigation.
Subsequently, the Boards of Directors of Lease I and Lease II voted to
increase the maximum amount of the advance to $100,000. By the end of
November 1997, Capital had incurred $100,000 of legal expenses in the
California litigation. On February 2, 1998, the amount to be advanced to
Capital was increased to include 75% of the California litigation legal
fees and costs incurred by Capital for December 1997 and January 1998,
plus 75% of such legal fees and costs incurred by Capital thereafter, not
to exceed $500,000. As of May 31, 1999, the amount of legal fees either
advanced to Capital or accrued on the financial statements of Lease I and
Lease II totaled approximately $563,000.
On August 18, 1998, the Company and its affiliates along with
Capital and its affiliates entered into a settlement agreement with AHC.
Lease I and Lease II agreed to pay $1,625,000 and Capital and its
affiliates agreed to pay $625,000 to AHC in settlement of all claims
including those related to the Virginia litigation and the California
litigation. The Company and its affiliates also entered into an agreement
with Capital and its affiliates to mutually release each other from all
claims that any such parties may have against each other, other than any
claims under the property management agreements. The Company's Board of
Directors believed that settling the AHC litigation was a prudent course
of action because the settlement amount represented a small percentage of
the increase in cash flow and value achieved for the Company and its
affiliates over the past two years.
On September 4, 1998, the full settlement amounts were paid to AHC
and its affiliates with Lease I paying $975,000 and Lease II paying
$650,000.
-12-
<PAGE>
ILM SENIOR LIVING, INC.
Notes to Consolidated Financial Statements (Unaudited)
(continued)
4. LEGAL PROCEEDINGS AND CONTINGENCIES (continued)
OTHER LITIGATION
On May 8, 1998 Andrew A. Feldman and Jeri Feldman, As Trustees for
the Andrew A. & Jeri Feldman Revocable Trust dated September 18, 1990,
commenced a purported class action on behalf of that trust and all other
shareholders of the company and ILM II in the Supreme Court of the State
of New York, County of New York against the Company, ILM II and the
Directors of both corporations. The class action complaint alleges that
the directors engaged in wasteful and oppressive conduct and breached
fiduciary duties in preventing the sale or liquidation of the assets of
the Company and ILM II, diverting certain of their assets and changing
the nature of the Company and ILM II. The complaint seeks damages in an
unspecified amount, punitive damages, the judicial dissolution of the
Company and ILM II, an order requiring the Directors to take all steps to
maximize Shareholder value, including either an auction or liquidation,
and rescinding certain agreements, and attorney's fees. On July 8, 1998,
the Company joined with all other defendants to dismiss the complaint on
all counts.
In an oral ruling from the bench on December 8, 1998, the Court
granted the Company's dismissal motion in part and gave the plaintiffs
leave to amend their complaint. In sum, the Court accepted the Company's
position that all claims relating to so-called "derivative" actions were
filed improperly and were dismissed. In addition, the Court dismissed
common law claims for punitive damages, but allowed plaintiffs 30 days to
allege any claims, which may have injured shareholders without injuring
the Company as a whole.
On January 22, 1999, the Feldman plaintiffs filed an amended
complaint, again purporting to commence a class action, and adding claims
under Section 10(b) and 20(a) of the Securities and Exchange Act of 1934
and Rule 10b-5 promulgated thereunder. Even before the Company and the
Board of Directors responded to that amended complaint, the Feldman
plaintiffs moved for leave to file a second amended complaint to add
claims directed at enjoining the announced potential merger with Capital
Senior Living Corporation and, alternatively, for compensatory and
punitive damages. At a hearing held on March 4, 1999 relating to the
motion for leave to file that second amended complaint and to expedite
discovery, the Court granted leave to amend and set a schedule for
discovery leading to a trial (if necessary) in Summer 1999. The
plaintiffs have requested documents and depositions of certain current
and former Directors.
On March 9, 1999, the Feldman plaintiffs filed a second amended
complaint which included claims for injunctive relief and, in the
alternative, damages in an unspecified amount. In response to the
Company's motion to dismiss the second amended complaint filed by the
plaintiffs, the court hearing the motion issued an order dismissing the
plaintiffs' federal security claims. The plaintiffs have requested
documents and depositions of certain current and former directors. The
Company and the Board of Directors is continuing to contest the action
vigorously.
5. CONSTRUCTION LOAN FINANCING
The Company has secured a construction loan facility with a major
bank that will provide the Company with up to $24.5 million to fund the
capital costs of the potential expansion programs. The construction loan
facility is secured by a first mortgage of the Senior Housing Facilities
and collateral assignment of the Company's leases of such properties. The
loan has a three-year term with interest accruing at a rate equal to
LIBOR plus 1.10% or Prime plus 0.5%. The loan term can be extended for an
additional two years beyond its maturity date with monthly payments of
principal and interest on a 25-year amortization schedule. Loan
origination costs in connection with this loan facility are being
amortized over the life of the loan.
-13-
<PAGE>
ILM SENIOR LIVING, INC.
Notes to Consolidated Financial Statements (Unaudited)
(continued)
5. CONSTRUCTION LOAN FINANCING (continued)
On June 7, 1999, the Company borrowed $2,093,000 under the
construction loan facility to fund the pre-construction capital costs,
incurred through April 1999, of the potential expansions of the Senior
Housing Facilities, leaving approximately $22.4 million unused and
available.
6. SUBSEQUENT EVENT
On June 15, 1999, the Company's Board of Directors declared a
quarterly dividend for the three-month period ended May 31, 1999. On July
15, 1999, a dividend of $0.2125 per share of common stock, totaling
approximately $1,598,000, was paid to Shareholders of record as of June
30, 1999.
-14-
<PAGE>
ILM SENIOR LIVING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company offered shares of its common stock to the public from June
21, 1989 to July 21, 1989 pursuant to a Registration Statement filed under the
Securities Act of 1933. Capital contributions of $75,201,000 were received by
the Company (including $201,000 contributed by PaineWebber) and, after deducting
selling expenses and offering costs and allowing for adequate cash reserves,
approximately $62.8 million was available to be invested in participating first
mortgage loans secured by Senior Housing Facilities. The Company originally
invested the net proceeds of the initial public offering in eight participation
mortgage loans secured by Senior Housing Facilities located in seven different
states. All of the loans made by the Company were originally with AHC. As
previously reported, AHC defaulted on the scheduled mortgage loan payments due
to the Company on March 1, 1993. Its parent company, Angeles, subsequently filed
for bankruptcy. In fiscal 1994, a Settlement Agreement was executed whereby
ownership of the properties was transferred from AHC to certain designated
affiliates of the Company which were majority owned by the Company.
Subsequently, these affiliates were merged into ILM Holding, which is majority
owned by the Company. ILM Holding holds title to the eight Senior Housing
Facilities which comprise the balance of operating investment properties in the
accompanying consolidated balance sheets, subject to certain mortgage loans
payable to the Company. As part of the fiscal 1994 Settlement Agreement with
AHC, ILM Holding retained AHC as the property manager for all of the Senior
Housing Facilities pursuant to the terms of the Agreement. As discussed further
below, the Agreement with AHC was terminated in July 1996.
Subsequent to the effective date of the Settlement Agreement with AHC, in
order to maximize the potential returns to the Company's existing Shareholders
while maintaining its qualification as a REIT under the Internal Revenue Code,
the Company formed a new corporation, Lease I, for the purpose of operating the
Senior Housing Facilities under the terms of a Facilities Lease Agreement. As of
August 31, 1995, Lease I, which is taxable as a so-called "C" corporation and
not as a REIT, was a wholly-owned subsidiary of the Company. On September 1,
1995 the Company, after receiving the required regulatory approval, distributed
all of the shares of capital stock of Lease I to the holders of record of the
Company's common stock. One share of common stock of Lease I was issued for each
full share of the Company's common stock held. Prior to the distribution, the
Company capitalized Lease I with $700,000 from existing cash reserves, which was
an amount estimated to provide Lease I with necessary working capital.
The Facilities Lease Agreement is between the Company's consolidated
affiliate, ILM Holding, as owner of the Senior Housing Facilities and Lessor,
and Lease I as Lessee. The facilities lease is a "triple-net" lease whereby the
Lessee pays all operating expenses, governmental taxes and assessments, utility
charges and insurance premiums, as well as the costs of all required
maintenance, personal property and non-structural repairs in connection with the
operation of the Senior Housing Facilities. ILM Holding, as the Lessor, is
responsible for all major capital improvements and structural repairs to the
Senior Housing Facilities. Pursuant to the Facilities Lease Agreement, which
expires on December 31, 1999, Lease I pays annual base rent for the use of all
of the Senior Housing Facilities in the aggregate amount of $6,364,800. Lease I
also pays variable rent, on a quarterly basis, for each Senior Housing Facility
in an amount equal to 40% of the excess, if any, of the aggregate total revenues
for the Senior Housing Facilities, on an annualized basis, over $16,996,000.
Variable rental income for the nine- and three-month periods ended May 31, 1999
was $859,000 and $295,000, respectively, compared to variable rental income of
$651,000 and $232,000 for the nine- and three-month periods ended May 31, 1998,
respectively
The Company completed its restructuring plans by qualifying ILM Holding
as a REIT for Federal tax purposes. In connection with these plans, on November
21, 1996, the Company requested that PaineWebber sell all of its stock in ILM
Holding to the Company for a price equal to the fair market value of the 1%
economic interest in ILM Holding represented by the common stock. On January 10,
1997, this transfer of the common stock of ILM Holding was completed at an
agreed upon fair value of $46,000. With this transfer completed, effective
January 23, 1997, ILM Holding recapitalized its common stock and preferred stock
by replacing the outstanding shares with 50,000 shares of new common stock and
275 shares of non-voting, 8% cumulative preferred stock issued to the Company
(the "Preferred Stock"). The number of authorized shares of preferred stock and
common stock in ILM Holding were also
-15-
<PAGE>
ILM SENIOR LIVING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL (CONTINUED)
increased as part of the recapitalization. Following the recapitalization, the
Company made charitable gifts of one share of the Preferred Stock in ILM Holding
to each of 111 charitable organizations so that ILM Holding would meet the stock
ownership requirements of a REIT as of January 30, 1997. The Preferred Stock has
a liquidation preference of $1,000 per share plus any accrued and unpaid
dividends. Dividends on the Preferred Stock accrue at a rate of 8% per annum on
the original $1,000 liquidation preference and are cumulative from the date of
issuance. Since ILM Holding is not expected to have sufficient cash flow in the
foreseeable future to make the required dividend payments, it is anticipated
that dividends will accrue and be paid at liquidation. Cumulative dividends
accrued as of May 31, 1999 on the Preferred Stock in ILM Holding totaled
approximately $20,720.
The assumption of ownership of the properties through ILM Holding, which
was organized as a so-called "C" corporation for tax purposes, has resulted in a
possible future tax liability which would be payable upon the ultimate sale of
the properties (the "built-in gain tax"). The amount of such tax would be
calculated based on the lesser of the total net gain realized from the sale
transaction or the portion of the net gain realized upon a final sale which is
attributable to the period during which the properties were held in a C
corporation.
Any future appreciation in the value of the Senior Housing Facilities
subsequent to the conversion of ILM Holding to a REIT would not be subject to
the built-in gain tax. The built-in gain tax would most likely not be incurred
if the properties were to be held for a period of at least ten years from the
date of the conversion of ILM Holding to a REIT. However, since the end of the
Company's original anticipated holding period is within two years, the
properties may not be held for an additional ten years. The Board of Directors
may defer the Company's scheduled liquidation date if in the opinion of a
majority of the Directors the disposition of the Company's assets at such time
would result in a material under-realization of the value of such assets;
provided, however, that no such deferral may extend beyond December 31, 2014
absent amendment of the Company's Articles of Incorporation. Based on
management's estimate of the increase in values of the Senior Housing Facilities
which occurred between April 1994 and January 1996, as supported by independent
appraisals, ILM Holding would incur a sizeable tax if the properties were sold.
Based on this increase of values during the time that ILM Holding was operated
as a regular C corporation, a sale within ten years of the date of the
conversion of ILM Holding to a REIT could result in a built-in gain tax of as
much as $2.9 million.
Because the ownership of the assets of ILM Holding was expected to be
transferred to the Company or its wholly-owned subsidiary, ILM Holding was
capitalized with funds to provide it with working capital only for a limited
period. At the present time, ILM Holding is not expected to have sufficient cash
flow during fiscal 1999 to (i) meet its obligations to make the debt service
payments due under the loans and (ii) pay for capital improvements and
structural repairs in accordance with the terms of the Facilities Lease
Agreement. Although ILM Holding is not expected to fully fund its scheduled debt
service payments to the Company, the estimated current values of the Senior
Housing Facilities are well in excess of the mortgage principal amounts plus
accrued interest at May 31, 1999. As a result, the Company is expected to
receive the full amount that would be due under the loans upon sale of the
Facilities.
RECENT DEVELOPMENTS
On February 7, 1999, the Company entered into an agreement and plan of
merger with Capital Senior Living Corporation, the corporate parent of Capital,
and certain affiliates of Capital. While there can be no assurance, consummation
of the merger is presently anticipated by the end of calendar year 1999. In
connection with the merger, the Company has agreed to cause ILM Holding to
cancel and terminate the Facilities Lease Agreement with Lease I immediately
prior to the effective time of the merger. As noted above, the Facilities Lease
Agreement, which is scheduled to expire on December 31, 1999, may be terminated
earlier at the election of the Lessor in connection with the sale by the Lessor
of the Senior Housing Facilities to a non-affiliated third party. As a result,
Lease I would have little "going concern" value. There can be no assurance as to
whether the merger will be consummated or, if consummated, as to the timing
thereof. If the merger is consummated, the stockholders of the Company will
receive the merger consideration of approximately $12.75 per share, which
approximate amount is based, in part, upon the per-share market price of Capital
Senior Living Corporation's common stock on February 5, 1999.
-16-
<PAGE>
ILM SENIOR LIVING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Occupancy levels for the eight properties in which the Company has
invested averaged 94% and 93% for the nine- and three-month periods ended May
31, 1999, respectively, compared to 95% and 96% for the nine- and three-month
periods ended May 31, 1998, respectively. The Company's net operating cash flow
is expected to be relatively stable and predictable due to the structure of the
Facilities Lease Agreement. The annual base rental payments owed to ILM Holding
are $6,364,800 and will remain at that level for the remainder of the lease
term. In addition, the Senior Housing Facilities are currently generating gross
revenues which are in excess of the specified threshold in the variable rent
calculation, as discussed further above, which became effective in January 1997.
The Company and ILM II have been pursuing the potential for future
expansion to increase cash flow and shareholder value. Potential expansion
candidates include the facilities located in Raleigh, North Carolina, East
Lansing, Michigan, Omaha, Nebraska, Peoria, Illinois and Hot Springs, Arkansas.
Approximately two acres of land located adjacent to the East Lansing facility
and approximately two-and-one-half acres of land located adjacent to the Omaha
facility were acquired by ILM Holding during the quarter ended November 30,
1997. In addition, an agreement has been obtained by ILM Holding to purchase
approximately five acres of land located adjacent to the Peoria facility. The
Hot Springs facility already includes a vacant land parcel of approximately two
acres which could accommodate an expansion of the existing facility or the
construction of a new free-standing facility. Preliminary feasibility
evaluations have been completed for all of these potential expansions and
pre-construction design and construction-cost evaluations are underway for
expansions of the facilities located in Raleigh and Omaha.
The Company has secured a construction loan facility with a major bank
that will provide the Company with up to $24.5 million to fund the capital costs
of the potential expansion programs. The construction loan facility is secured
by a first mortgage of the Senior Housing Facilities and collateral assignment
of the Company's leases of such properties. The loan has a three-year term with
interest accruing at a rate equal to LIBOR plus 1.10% or Prime plus 0.5%. The
loan term can be extended for an additional two years beyond its maturity date
with monthly payments of principal and interest on a 25-year amortization
schedule. Loan origination costs in connection with this loan facility are being
amortized over the life of the loan.
On June 7, 1999, the Company borrowed $2,093,000 under the construction
loan facility to fund the pre-construction capital costs, incurred through April
1999, of the potential expansions of the Senior Housing Facilities, leaving
approximately $22.4 million unused and available.
At May 31, 1999, the Company had cash and cash equivalents of $718,000
compared to $2,264,000 at August 31, 1998. Such amounts will be used for the
working capital requirements of the Company, along with the possible investment
in the properties owned by ILM Holding for certain capital improvements and for
dividends to the Shareholders. Future capital improvements could be financed
from operations or through borrowings, depending on the magnitude of the
improvements, the availability of financing and the Company's incremental
borrowing rate. The source of future liquidity and dividends to the Shareholders
is expected to be through facilities lease payments from Lease I, interest
income earned on invested cash reserves and proceeds from the future sales of
the underlying operating investment properties. Such sources of liquidity are
expected to be adequate to meet the Company's operating requirements on both a
short-term and long-term basis. The Company generally will be obligated to
distribute annually at least 95% of its taxable income to its shareholders in
order to continue to qualify as a REIT under the Internal Revenue Code.
While the Company has potential liabilities pending due to ongoing
litigation against the Company, the eventual outcome of this litigation cannot
presently be determined. The Company will vigorously defend against all claims
made against it and, at this time, it is not certain that the Company will have
ultimate responsibility for any such claims.
-17-
<PAGE>
ILM SENIOR LIVING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize the year 2000 as a date other than the year 2000.
This could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
The Company has assessed its exposure to operating equipment, and such
exposure is not significant due to the nature of the Company's business.
The Company is not aware of any external agent with a Year 2000 issue
that would materially impact the Company's results of operations, liquidity or
capital resources. However, the Company has no means of determining whether or
ensuring those external agents will be Year 2000 ready. The inability of
external agents to complete their Year 2000 resolution process in a timely
fashion could impact the Company.
Management of the Company believes it has an effective program in place
to resolve the Year 2000 issue in a timely manner. As noted above, the Company
has substantially completed all necessary phases of its Year 2000 program. In
addition, disruptions in the economy generally resulting from Year 2000 issues
could also adversely affect the Company. Although the amount of potential
liability and lost revenue cannot be reasonably estimated at this time, in a
worst case situation, if Capital, the Company's most significant third party
contractor, were to experience a year 2000 problem, it is likely that Lease I
would not receive rental income as it became due from Senior Living Facility
residents. Lease I in turn would fail to pay ILM Holding lease payments as they
arise under the master lease, and ILM Holding in turn would fail to pay the
Company mortgage payments due it. However, the Company believes that given the
nature of its business, such problem would be temporary and easily remediable
with a simple accounting.
MARKET RISK
The Company believes its market risk is immaterial.
-18-
<PAGE>
ILM SENIOR LIVING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED MAY 31, 1999 VERSUS NINE MONTHS ENDED MAY 31, 1998
Net income decreased $1,554,000, or 41.5%, to $2,193,000 for the
nine-month period ended May 31, 1999 compared to $3,747,000 for the nine-month
period ended May 31, 1998. Total revenue was $5,686,000 representing an increase
of $222,000, or 4.1%, compared to $5,464,000 for the same period of the prior
year. Interest income decrease $19,000 to $48,000, or 28.4%, for the nine-month
period ended May 31, 1999 compared to $67,000 000 for the nine-month period
ended May 31, 1998 primarily due to a decrease in cash and cash equivalents.
Rental and other income increased $241,000, or 4.5%, to $5,638,000 from
$5,397,000, due to increased rental income earned pursuant to the terms of the
Facilities Lease Agreement. Total expenses increased $1,776,000, or 103.4%, to
$3,493,000 for the nine-month period ended May 31, 1999, compared to $1,717,000
for the nine-month period ended May 31, 1998. This increase in expenses is
primarily attributable to an increase in professional fees due to increased
legal, financial and advisory professionals who were engaged to assist the
Company with the proposed agreement and plan of merger with Capital Senior
Living Corporation, as discussed in Note 2 to the financial statements and
increased legal fees associated with the construction loan facility. The
$205,000 increase in general and administrative expenses to $361,000, for the
nine-month period ended May 31, 1999, compared to $156,000 for the same period
last year, was due to a variety of factors including increased Director and
Officer insurance costs of $142,000; increased printing costs of $48,000 for the
annual and quarterly reports which were completed earlier in the current year
when compared to the previous year; and minor increases and decreases in other
general and administrative costs. Directors' Compensation decreased $22,000, or
24.2%, due to a decrease in the number of Board members.
THREE MONTHS ENDED MAY 31, 1999 VERSUS THREE MONTHS ENDED MAY 31, 1998
Net income decreased $655,000, or 55.2%, to $532,000 for the third
quarter ended May 31, 1999 compared to $1,187,000 for the third quarter ended
May 31, 1998. Total revenue was $1,886,000 representing an increase of $61,000,
or 3.3%, compared to $1,825,000 for the same period of the prior year. Rental
and other income increased $63,000, or 3.5%, to $1,877,000 from $1,814,000, due
to increased rental income earned pursuant to the terms of the Facilities Lease
Agreement. Total expenses increased $716,000, or 112.2%, to $1,354,000 for the
quarter ended May 31, 1999 compared to $638,000 for the quarter ended May 31,
1998. This increase in expenses is primarily attributable to an increase in
professional fees due to legal, financial and advisory professionals who were
engaged to assist the Company with the proposed agreement and plan of merger
with Capital Senior Living Corporation, as discussed in Note 2 to the financial
statements. The $60,000 increase in general and administrative expenses to
$105,000, for the third quarter ended May 31, 1999, compared to $45,000 for the
same period last year, was due to a variety of factors including increased
Director and Officer insurance costs of $34,000; increased printing costs of
$8,000 for shareholder reports which were completed earlier in the current year
when compared to the previous year; and minor increases and decreases in other
general and administrative costs. Directors' Compensation decreased $10,000, or
33.3%, due to a decrease in the number of Board members.
-19-
<PAGE>
ILM SENIOR LIVING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
CERTAIN STATEMENTS INCLUDED IN THIS QUARTERLY REPORT ON FORM 10-Q
("QUARTERLY REPORT") CONSTITUTE "FORWARD-LOOKING STATEMENTS" INTENDED TO QUALIFY
FOR THE SAFE HARBORS FROM LIABILITY ESTABLISHED BY SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF THE
SECURITIES ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). THESE FORWARD-LOOKING
STATEMENTS GENERALLY CAN BE IDENTIFIED AS SUCH BECAUSE THE CONTEXT OF THE
STATEMENT WILL INCLUDE WORDS SUCH AS "BELIEVES," "COULD," "MAY," "SHOULD,"
"ENABLE," "LIKELY," "PROSPECTS," "SEEK," "PREDICTS," "POSSIBLE," "FORECASTS,"
"PROJECTS," "ANTICIPATES," "EXPECTS" AND WORDS OF ANALOGOUS IMPORT AND
CORRELATIVE EXPRESSIONS THEREOF, AS WELL AS STATEMENTS PRECEDED OR OTHERWISE
QUALIFIED BY: "THERE CAN BE NO ASSURANCE" OR "NO ASSURANCE CAN BE GIVEN."
SIMILARLY, STATEMENTS THAT DESCRIBE THE COMPANY'S FUTURE PLANS, OBJECTIVES,
STRATEGIES OR GOALS ALSO ARE FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS MAY
ADDRESS FUTURE EVENTS AND CONDITIONS CONCERNING, AMONG OTHER THINGS, THE
COMPANY'S CASH FLOWS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION; THE
CONSUMMATION OF ACQUISITION AND FINANCING TRANSACTIONS AND THE EFFECT THEREOF ON
THE COMPANY'S BUSINESS, ANTICIPATED CAPITAL EXPENDITURES, PROPOSED OPERATING
BUDGETS AND ACCOUNTING RESERVES; LITIGATION; PROPERTY EXPANSION AND DEVELOPMENT
PROGRAMS OR PLANS; REGULATORY MATTERS; AND THE COMPANY'S PLANS, GOALS,
STRATEGIES AND OBJECTIVES FOR FUTURE OPERATIONS AND PERFORMANCE. ANY SUCH
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED
IN SUCH FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO A NUMBER OF ASSUMPTIONS REGARDING, AMONG OTHER THINGS, GENERAL ECONOMIC,
COMPETITIVE AND MARKET CONDITIONS. SUCH ASSUMPTIONS NECESSARILY ARE BASED ON
FACTS AND CONDITIONS AS THEY EXIST AT THE TIME SUCH STATEMENTS ARE MADE, THE
PREDICTION OR ASSESSMENT OF WHICH MAY BE DIFFICULT OR IMPOSSIBLE AND, IN ANY
CASE, BEYOND THE COMPANY'S CONTROL. FURTHER, THE COMPANY'S BUSINESS IS SUBJECT
TO A NUMBER OF RISKS THAT MAY AFFECT ANY SUCH FORWARD-LOOKING STATEMENTS AND
ALSO COULD CAUSE ACTUAL RESULTS OF THE COMPANY TO DIFFER MATERIALLY FROM THOSE
PROJECTED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING
STATEMENTS CONTAINED IN THIS QUARTERLY REPORT ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY THE CAUTIONARY STATEMENTS IN THIS PARAGRAPH. MOREOVER, THE COMPANY
DOES NOT INTEND TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS TO REFLECT
ANY CHANGES IN GENERAL ECONOMIC, COMPETITIVE OR MARKET CONDITIONS AND
DEVELOPMENTS BEYOND ITS CONTROL.
READERS OF THIS QUARTERLY REPORT ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON ANY OF THE FORWARD-LOOKING STATEMENTS SET FORTH HEREIN AND THE
COMPANY MAKES ABSOLUTELY NO PROMISES, GUARANTEES, REPRESENTATIONS OR WARRANTIES
AS TO THE ACCURACY THEREOF.
-20-
<PAGE>
ILM SENIOR LIVING, INC.
PART II-OTHER INFORMATION
ITEM 1 THROUGH 5. NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: 27. Financial Data Schedule
(b) Reports on Form 8-K: NONE
-21-
<PAGE>
ILM SENIOR LIVING, INC.
SIGNATURES
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.
BY: ILM SENIOR LIVING, INC.
By: /s/ J. William Sharman, Jr.
---------------------------------
J. William Sharman, Jr.
President and Director
Dated: July 15, 1999
-22-
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