<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED FEBRUARY 28, 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 February 28, 1999: 7,520,100.
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Page 1 of 23
<PAGE>
ILM SENIOR LIVING, INC.
INDEX
Part I. Financial Information PAGE
Item 1. Financial Statements
Consolidated Balance Sheets
February 28, 1999 (Unaudited) and
August 31, 1998..........................................4
Consolidated Statements of Income
For the three months and six months ended February 28,
1999 and 1998 (Unaudited)................................5
Consolidated Statements of Changes in Shareholders' Equity
For the six months ended February 28, 1999
and 1998 (Unaudited).....................................6
Consolidated Statements of Cash Flows
For the six months ended February 28,
1999 and 1998 (Unaudited)................................7
Notes to Consolidated Financial
Statements (Unaudited)................................8-15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................15-21
Part II. Other Information
Item 5. Other Information........................................21
Item 6. Exhibits and Reports on Form 8-K.........................21
Signatures................................................................22
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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
February 28, 1999 (Unaudited) and August 31, 1998
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS
February 28, 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 (12,774) (12,131)
------------- --------------
35,205 35,751
Unamortized mortgage fees 2,256 2,256
Less: accumulated amortization (2,050) (1,937)
------------- --------------
206 319
Loan origination fees 270 102
Less: accumulated amortization (34) --
------------- --------------
236 102
Cash and cash equivalents 1,519 2,264
Accounts receivable - related party 289 336
Prepaid expenses and other assets 27 89
Deferred rent receivable 31 49
------------- --------------
$ 37,513 $ 38,910
------------- --------------
------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 459 $ 326
Preferred shareholders' minority
interest in subsidiary 130 125
------------- --------------
Total liabilities 589 451
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 (28,862) (27,327)
------------- --------------
Total shareholders' equity 36,924 38,459
------------- --------------
$ 37,513 $ 38,910
------------- --------------
------------- --------------
</TABLE>
See accompanying notes.
-4-
<PAGE>
ILM SENIOR LIVING, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the three months and six months ended February 28, 1999 and 1998
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
February 28, February 28,
---------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Rental and other income $3,761 $3,583 $1,870 $1,800
Interest income 39 56 17 28
--------- --------- ---------- ---------
3,800 3,639 1,887 1,828
EXPENSES
Depreciation expense 643 642 320 321
Amortization expense 147 112 74 56
General and administrative 256 66 129 44
Professional fees 1,044 199 824 123
Directors' compensation 49 61 29 37
--------- --------- ---------- ---------
2,139 1,080 1,376 581
--------- --------- ---------- ---------
NET INCOME $1,661 $2,559 $ 511 $1,247
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Basic earnings per share of common stock $ 0.22 $ 0.34 $ 0.07 $ 0.17
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Cash dividends paid per share of common stock $ 0.42 $ 0.39 $ 0.21 $ 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 six months ended February 28, 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 -- -- -- (2,914) (2,914)
Net income -- -- -- 2,559 2,559
----------- --------- ---------- ----------- -----------
Shareholders' equity
at February 28, 1998 7,520,100 $ 75 $65,711 $(26,483) $ 39,303
----------- --------- ---------- ----------- -----------
----------- --------- ---------- ----------- -----------
Shareholders' equity
at August 31, 1998 7,520,100 $ 75 $65,711 $(27,327) $ 38,459
Cash dividends paid -- -- -- (3,196) (3,196)
Net income -- -- -- 1,661 1,661
----------- --------- ---------- ----------- -----------
Shareholders' equity
at February 28, 1999 7,520,100 $ 75 $65,711 $(28,862) $ 36,924
----------- --------- ---------- ----------- -----------
----------- --------- ---------- ----------- -----------
</TABLE>
See accompanying notes.
-6-
<PAGE>
ILM SENIOR LIVING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended February 28, 1999 and 1998 (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
February 28,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,661 $ 2,559
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization expense 790 754
Charitable contribution of subsidiary's preferred
stock and accrued dividends of subsidiary 5 4
Changes in assets and liabilities:
Accounts receivable - related party 47 (633)
Prepaid expenses and other asse 62 84
Deferred rent receivable 18 18
Accounts payable and accrued expenses -- (7)
Accounts payable - related party 133 --
-------------- -------------
Net cash provided by operating activities 2,716 2,779
-------------- -------------
Cash flows used in investing activities:
Additions to operating investment properties (97) (730)
-------------- -------------
Net cash used in investing activities (97) (730)
Cash flows used in financing activities:
Loan origination fees paid (168) --
Cash dividends paid to shareholders (3,196) (2,914)
-------------- -------------
Net cash used in financing activities (3,364) (2,914)
-------------- -------------
Net decrease in cash and cash equivalents (745) (865)
Cash and cash equivalents, beginning of period 2,264 3,136
-------------- -------------
Cash and cash equivalents, end of period $ 1,519 $ 2,271
-------------- -------------
-------------- -------------
</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 February 28, 1999 and revenues and expenses
for each of the six- and three-month periods ended February 28, 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 six- and three-month periods ended February 28, 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 February 28, 1999 on the preferred stock in ILM Holding
totaled approximately $18,500.
-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 as Vice Chairman and Chief Financial
Officer of Capital Senior Living Corporation, an affiliate of Capital,
since November 1996. 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 February 28, 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
Type of Facility Rentable Resident
Property Name and Location Property Built Units (2) Capacities(2)
--------------------------- -------- ----- --------- -------------
<S> <C> <C> <C> <C>
Independence Village of Winston-Salem Senior Housing 1989 159 161
Winston-Salem, NC Facility
Independence Village of East Lansing Senior Housing 1989 161 162
East Lansing, MI Facility
Independence Village of Raleigh Senior Housing 1991 164 205
Raleigh, NC Facility
Independence Village of Peoria Senior Housing 1990 166 183
Peoria, IL Facility
Crown Pointe Apartments Senior Housing 1984 135 163
Omaha, NE Facility
Sedgwick Plaza Apartments Senior Housing 1984 150 170
Wichita, KS Facility
West Shores Senior Housing 1986 136 166
Hot Springs, AR Facility
Villa Santa Barbara (1) Senior Housing 1979 125 125
Santa Barbara, CA Facility
</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 as
tenants in common. 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.
(2) Rentable units represent the number of apartment units and is a
measure commonly used in the real estate industry. Resident capacity
equals the number of bedrooms contained within the apartment units and
corresponds to measures commonly used in the healthcare industry.
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.
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
-10-
<PAGE>
ILM SENIOR LIVING, INC.
Notes to Consolidated Financial Statements (Unaudited)
(continued)
2. OPERATING INVESTMENT PROPERTIES SUBJECT TO FACILITIES LEASE AGREEMENT
(CONTINUED)
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 $564,000 and $288,000 for the six- and three-month periods ended
February 28, 1999, respectively, compared to $418,000 and $218,000 for the
six- and three-month periods ended February 28, 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. Consummation of the merger is
presently anticipated in October 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.
-11-
<PAGE>
ILM SENIOR LIVING, INC.
Notes to Consolidated Financial Statements (Unaudited)
(continued)
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 served through July 28, 1998 as President,
Chief Executive Officer and Director of the Company and a Director of Lease
I, has also served as Vice Chairman and Chief Financial Officer of Capital
Senior Living Corporation, an affiliate of Capital, since November 1996.
For the six-month periods ended February 28, 1999 and 1998, Capital earned
property management fees from Lease I of $537,000, and $484,000,
respectively. For the three-month periods ended February 28, 1999 and 1998,
Capital earned property management fees from Lease I of $277,000 and
$241,634, 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.
During fiscal 1999, Capital Senior Development, Inc. earned no fees from
Lease I, compared to fees of $226,659 and $129,849 earned for the six- and
three-month periods ended February 28, 1998, respectively, for managing
pre-construction development activities for potential expansions of the
Senior Housing Facilities.
Jeffry R. Dwyer is a shareholder of Greenberg Traurig, Counsel to the
Company and its affiliates since 1997. For the six-month periods ended
February 28, 1999 and 1998, Greenberg Traurig earned fees from the Company
of $426,000 and $102,533, respectively. For the three-month periods ended
February 28, 1999 and 1998, Greenberg Traurig earned fees from the Company
of $287,000 and $52,189, respectively.
Accounts receivable - related party at February 28, 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 February 28, 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.
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
-12-
<PAGE>
ILM SENIOR LIVING, INC.
Notes to Consolidated Financial Statements (Unaudited)
(continued)
4. LEGAL PROCEEDINGS AND CONTINGENCIES (CONTINUED)
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 February 28, 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 February 28, 1999, the amount of legal fees either advanced
to Capital or accrued on the financial statements of Lease I and Lease II
totaled approximately $619,000.
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.
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
-13-
<PAGE>
ILM SENIOR LIVING, INC.
Notes to Consolidated Financial Statements (Unaudited)
(continued)
4. LEGAL PROCEEDINGS AND CONTINGENCIES (CONTINUED)
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
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. The Company and the Board of
Directors anticipate filing a motion to dismiss the second amended
complaint in April 1999 and to continue to contest the action vigorously.
5. CONSTRUCTION LOAN FINANCING
The Company has finalized negotiations with a major bank to provide a
construction loan facility 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 will be secured by a first mortgage of the
Company's properties and collateral assignment of the Company's leases of
such properties. The loan will have a three-year term with interest
accruing at a rate equal to LIBOR plus 1.10% or Prime plus 0.5%. The loan
term could 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.
6. SUBSEQUENT EVENT
On March 15, 1999, the Company's Board of Directors declared a
quarterly dividend for the three-month period ended February 28, 1999.
On April 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 March 31, 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 six- and three-month periods ended February 28, 1999
was $564,000 and $288,000, respectively, compared to variable rental income
of $418,000 and $218,000 for the six- and three-month periods ended February
28, 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, representing a
$39,000 increase in fair value. This increase in fair value is based on the
increase in values of the Senior Housing Facilities which occurred between
April 1994 and January 1996, as supported by independent appraisals. With
this transfer completed, effective
-15-
<PAGE>
ILM SENIOR LIVING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL (CONTINUED)
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 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 February 28, 1999 on the Preferred Stock
in ILM Holding totaled approximately $18,500.
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 February 28, 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.
-16-
<PAGE>
ILM SENIOR LIVING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
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. Consummation of the merger is
presently anticipated in October 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.
LIQUIDITY AND CAPITAL RESOURCES
Occupancy levels for the eight properties in which the Company has
invested averaged 95% and 95%, for the three-month periods ended February
28, 1999 and 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 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 finalized negotiations with a major bank to provide a
construction loan facility that would provide the Company with up to $24.5
million to fund the capital costs of these potential expansion programs.
The construction loan facility would be secured by a first mortgage of the
Company's properties 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 could be
extended for an additional two years beyond its maturity date with monthly
payments of principal and interest on a 25-year amortization schedule.
At February 28, 1999, the Company had cash and cash equivalents of
$1,519,000 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
-17-
<PAGE>
ILM SENIOR LIVING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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
made against it and, at this time, it is not certain that the Company will
have ultimate responsibility for any such claims.
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
SIX MONTHS ENDED FEBRUARY 28, 1999 VERSUS SIX MONTHS ENDED FEBRUARY 28, 1998
Net income decreased $898,000 or 35.1% to $1,661,000 for the six-month
period ended February 28, 1999 compared to $2,559,000 for the six-month
period ended February 28, 1998. Total revenue was $3,800,000 representing
an increase of $161,000 or 4.4%, compared to $3,639,000 for the same period
of the prior year. Rental and other income increased $178,000, or 5.0%, to
$3,761,000 from $3,583,000, due to increased rental income earned pursuant
to the terms of the Facilities Lease Agreement. Total expenses increased
$1,059,000 or 98.1%, to $2,139,000 for the six-month period ended February
28, 1999, compared to $1,080,000 for the six-month period ended February
28, 1998. This increase in expenses is primarily attributable to an
$845,000 or 424.6% 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
$190,000 or 287.9% increase in general and administrative expenses to
$256,000, for the six-month period ended February 28, 1999, compared to
$66,000 for the same period last year, was due to a variety of factors
including increased Director and Officer insurance costs of $109,000;
increased printing costs of $39,000 for the annual and quarterly reports
which were completed earlier in the current year when compared to the
previous year; $38,000 in state tax payments which were incurred
principally during the most recent quarter; and minor increases and
decreases in other general and administrative costs. Directors'
Compensation decreased $12,000 or 19.7%, due to a decrease in the number of
Board members.
THREE MONTHS ENDED FEBRUARY 28, 1999 VERSUS THREE MONTHS ENDED FEBRUARY 28, 1998
Net income decreased $736,000 or 59%, to $511,000 for the second
quarter ended February 28, 1999 compared to $1,247,000 for the second
quarter ended February 28, 1998. Total revenue was $1,887,000 representing
an increase of $59,000 or 3.2%, compared to $1,828,000 for the same period
of the prior year. Rental and other income increased $70,000 or 3.9%, to
$1,870,000 from $1,800,000, due to increased rental income earned pursuant
to the terms of the Facilities Lease Agreement. Total expenses increased
$795,000, or 136.8%, to $1,376,000 for the quarter ended February 28, 1999
compared to $581,000 for the quarter ended February 28, 1998. This increase
in expenses is primarily attributable to an increase of $701,000 or 569.9%
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; and increased legal fees associated with the
construction loan facility. The $85,000 or 193.2% increase in general and
administrative expenses to $129,000, for the second quarter ended February
28, 1999, compared to $44,000 for the same period last year, was due to a
variety of factors including increased Director and Officer insurance costs
of $32,000; increased printing costs of $20,000 for the annual and
quarterly reports which were completed earlier in the current year when
compared to the previous year; $23,000 in state tax payments; and minor
increases and decreases in other general and administrative costs.
Directors' Compensation decreased $8,000, or 21.6%, 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: The Company filed a Current Report on Form 8-K dated
February 7, 1999 reporting that the Company had entered into an Agreement
and Plan of Merger with Capital Senior Living Corporation.
-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: November 16, 1999
------------------
-22-
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