<PAGE>   1

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

                       SECURITIES AND EXCHANGE COMMISSION

                              Washington D.C 20549

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

        For the quarterly period ended March 31, 1999
                                       OR
[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

Commission File Number 333-43549

                        EXTENDICARE HEALTH SERVICES, INC.

             (Exact Name of Registrant as Specified in its Charter)

<TABLE>

<S>                                  <C>                                        <C>       
         DELAWARE                               8051                                98-0066268
(State or other Jurisdiction of      (Primary Standard Industrial                 (I.R.S. Employer
Incorporation or Organization)        Classification Code Number)               Identification Number)
</TABLE>

                            111 WEST MICHIGAN STREET
                            MILWAUKEE, WI 53203-2903
              (Address of Principal Executive Offices and Zip Code)

                                 (414) 908-8000
              (Registrant's telephone number, including area code)
                       SEE TABLE OF ADDITIONAL REGISTRANTS



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

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

Yes  X             No   
    ---              ---


===============================================================================

<PAGE>   2




                       EXTENDICARE HEALTH SERVICES, INC.
                                      INDEX

<TABLE>
<CAPTION>

PART I.                      FINANCIAL INFORMATION                                    Page
                                                                                      ----
<S>                          <C>                                                      <C>
Item 1                       Condensed Financial Statements

                             Consolidated Statements of Earnings
                             for the three months ended
                             March 31, 1999 and 1998                                    3

                             Consolidated Balance Sheets
                             March 31, 1999 and December 31, 1998                       4

                             Consolidated Statements of Cash Flows
                             for the three months ended 
                             March 31, 1999 and 1998                                    5

                             Notes to Consolidated Financial Statements                 6

Item 2                       Management's Discussion and Analysis                       8
                     

Item 3                       Quantitative and Qualitative Disclosures
                             about Market Risk                                         18

PART II.                     OTHER INFORMATION

Item 1                       Legal Proceedings                                         21

Item 2                       Change in Securities                                      21

Item 3                       Defaults Upon Senior Securities                           21

Item 4                       Submission of Matters to a
                             Vote of Security Holders                                  21

Item 5                       Other Information                                         21

Item 6                       Exhibits and Reports on Form 8-k                          21

SIGNATURES                                                                             23
</TABLE>

<PAGE>   3




                                     PART I
                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                        EXTENDICARE HEALTH SERVICES, INC.

                 CONSOLIDATED STATEMENTS OF NET (LOSS) EARNINGS
                FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
                             (Dollars in Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                 Three Months       Three Months
                                                                                    Ending             Ending
                                                                                March 31, 1999     March 31, 1998
                                                                                --------------     --------------
<S>                                                                             <C>                  <C>      
REVENUES:
  Nursing and assisted living centers                                             $ 227,846            $ 247,902
  Medical supplies and outpatient therapy                                            11,415               42,570
  Other                                                                               2,280                1,900
                                                                                  ---------            ---------
                                                                                    241,541              292,372
                                                                                  
COSTS AND EXPENSES:
  Operating                                                                         211,154              244,247
  General and administrative                                                          9,523               12,176
  Lease costs                                                                         4,645                3,706
  Depreciation and amortization                                                      12,707               13,614
  Interest expense                                                                   12,382               15,332
  Interest income                                                                      (354)                (703)
                                                                                  ---------            ---------
                                                                                    250,057              288,372
                                                                                  ---------            ---------
 (Loss) earnings from operations                                                     (8,516)               4,000

(BENEFIT) PROVISION FOR INCOME TAXES                                                 (2,708)               1,880
                                                                                  ---------            ---------
  (Loss) earnings before minority interests                                          (5,808)               2,120

MINORITY INTERESTS                                                                       15                 (213)
                                                                                  ---------            ---------
  Net (loss) earnings                                                             $  (5,793)           $   1,907
                                                                                  =========            =========
PER COMMON SHARE:
 Net (loss) earnings per common share                                             $      (6)           $       2
                                                                                  =========            =========
</TABLE>


The accompanying notes are an integral part of these consolidated financial 
statements.

<PAGE>   4
                        EXTENDICARE HEALTH SERVICES, INC.

                           CONSOLIDATED BALANCE SHEETS
                      MARCH 31, 1999 AND DECEMBER 31, 1998
                            (Dollars in Thousands)

<TABLE>
<CAPTION>

                             ASSETS                                   March 31, 1999        December 31, 1998
                                                                      --------------        -----------------
                                                                        (Unaudited)
<S>                                                                      <C>                       <C>       
CURRENT ASSETS:
  Cash and cash equivalents                                              $     5,574               $    1,084
  Accounts receivable, less
       allowances of $26,897 and $25,899                                     175,870                  188,100
  Inventories, supplies and prepaid expenses                                  10,890                   10,803
  Income taxes receivable                                                      5,807                    3,321
  Deferred state income taxes                                                  4,540                    4,128
  Debt service trust funds                                                       166                      202
  Due from shareholder -
      Deferred federal income taxes                                           23,845                   21,294
                                                                          ----------               ----------
      Total current assets                                                   226,692                  228,932

PROPERTY AND EQUIPMENT, NET                                                  696,414                  700,141
GOODWILL, NET                                                                141,329                  142,349
IDENTIFIABLE INTANGIBLE ASSETS, NET                                            9,733                    9,621
OTHER ASSETS                                                                  50,560                   54,434
                                                                          ----------               ----------
                                                                          $1,124,728               $1,135,477
                                                                          ==========               ==========
                      LIABILITIES AND SHAREHOLDER'S EQUITY

CURRENT LIABILITIES:
  Accounts payable, accrued liabilities and due to shareholder            $  148,474               $  190,808
  Current maturities of long-term debt                                        24,980                   20,647
                                                                          ----------               ----------
      Total current liabilities                                              173,454                  211,455 
                                                                                                              
LONG-TERM DEBT                                                               566,292                  527,101 
                                                                                                              
OTHER LONG-TERM LIABILITIES                                                    9,127                   13,410 
                                                                                                              
DUE TO SHAREHOLDER AND AFFILIATES                                                                     
      Deferred federal income taxes and other                                 60,275                   60,150 
                                                                                                              
DEFERRED STATE INCOME TAXES                                                   11,096                   10,801 
                                                                                                              
MINORITY INTERESTS                                                               916                      931 
                                                                                                       
SHAREHOLDER'S EQUITY:
 Common stock, $1 par value, 1,000 shares authorized, 
      947 shares issued and outstanding                                            1                        1 
 Additional paid-in capital                                                  208,787                  209,787 
 Accumulated other comprehensive (loss) income                                (2,081)                     187 
 Retained earnings                                                            96,861                  102,654 
                                                                          ----------               ----------
      Total shareholder's equity                                             303,568                  311,629 
                                                                          ----------               ----------
                                                                          $1,124,728               $1,135,477
                                                                          ==========               ==========
</TABLE>


   The accompanying notes are an integral part of these consolidated financial 
statements.


<PAGE>   5




                        EXTENDICARE HEALTH SERVICES, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS
               FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
                             (Dollars in Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                       Three Months         Three Months
                                                                           ended                 ended
                                                                      March 31, 1999       March 31, 1998
                                                                      --------------       --------------
<S>                                                                        <C>                 <C>     
OPERATING ACTIVITIES:
Net (loss) earnings                                                        $ (5,793)           $  1,907
Adjustments to reconcile net income to net cash (used for)
      provided from operating activities:
      Depreciation and amortization                                          13,234              14,349
      Provision for uncollectible accounts receivable                         2,860               2,799
      Deferred income taxes                                                  (1,029)             (1,279)
      Minority interests                                                        (15)                213

Changes in assets and liabilities:
      Accounts receivable                                                     9,370             (15,173)
      Inventories, supplies and prepaid expenses                                (87)              1,028
      Debt service trust funds                                                   36                 247
      Bank indebtedness                                                           -                (376)
      Accounts payable and accrued liabilities                              (17,335)             20,146
      Income taxes receivable                                                (2,486)                150
      Other long-term liabilities                                            (4,283)                889
                                                                           --------            --------
       Cash (used for) provided from operating activities                    (5,528)             24,900

INVESTING ACTIVITIES:
      Payment for acquisitions                                                    -              (3,786)
      Payments for purchase of property and equipment                        (7,262)            (17,312)
      Proceeds from sale of property and equipment                               95               2,832
      Income taxes paid on sale of operations                               (25,000)                  -
      Changes in other non-current assets                                    (1,339)             (2,111)
                                                                           --------            --------
       Cash used for investing activities                                   (33,506)            (20,377)

FINANCING ACTIVITIES:

      Proceeds from issuance of long-term debt                               44,000               9,000
      Payments of long-term debt                                               (476)             (9,098)
      Distribution of minority interest                                          -                 (100)
                                                                           --------            --------
       Cash provided from (used for) financing activities                    43,524                (198)
                                                                           --------            --------
INCREASE IN CASH AND CASH EQUIVALENTS                                         4,490               4,325

CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD                                 1,084               1,418
                                                                           --------            --------
CASH AND CASH EQUIVALENTS END OF PERIOD                                    $  5,574            $  5,743
                                                                           ========            ========
</TABLE>


The accompanying notes are an integral part of these consolidated financial 
statements.










<PAGE>   6


                          NOTES TO FINANCIAL STATEMENTS



1-  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION  

         The accompanying financial statements reflect the operations of
Extendicare Health Services, Inc. ("Extendicare" or the "Company"). Extendicare,
a Delaware corporation is a wholly owned subsidiary of Extendicare Inc.

BASIS OF PRESENTATION

         The accompanying financial statements include the accounts of the
Company and its majority-owned subsidiaries. All transactions between
Extendicare and its majority-owned subsidiaries have been eliminated.

         The financial information presented as of any date other than December
31 has been prepared from the books and record without audit. The accompanying
consolidated financial statements have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and the
footnotes required by generally accepted accounting principles for complete
statements. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of such
financial statements, have been included.

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

         These consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto for the year ended
December 31, 1998 contained in the Company's 10-K.

RECLASSIFICATIONS

The Corporation has reclassified certain 1998 line items within revenue to
conform to the 1999 presentation. Under the new Prospective Payment System,
Medicare ancillary services provided to the Corporation's residents are now
combined with routine care revenue as part of the per diem rate for nursing
residents. As a result, the Corporation has reclassified the prior year medical
specialty revenue provided to affiliated residents to nursing and assisted
living centers revenue. Medical supplies and outpatient therapy revenue includes
revenue to non-affiliated residents and individuals in their own homes, 

                                       6
<PAGE>   7


and for 1998 includes revenue from pharmacy services provided to non-affiliated
residents.


2- RECENTLY ISSUED ACCOUNTING STANDARD

         In June, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS No. 133 is not expected to significantly impact the
Company's reporting and disclosures.


3- COMMITMENTS AND CONTINGENCIES

CAPITAL EXPENDITURES

The Company as of March 31, 1999 had capital expenditure purchase commitments
outstanding of approximately $2,595.
                                          
LITIGATION

The Company periodically is a defendant in actions brought against it in
connection with its operations. Management believes, on the basis of information
furnished by legal counsel, that none of these actions will have a material
effect on the financial position or results of operations of the Company.

4- SUBSEQUENT EVENT 

SENIOR CREDIT FACILITY AMENDED

Subsequent to March 31, 1999, the Company amended its $412.6 million senior
credit facility, consisting of a $200.0 million revolving credit facility and
term loans of $212.6 million. The amendments to the credit facility include
revision to the financial covenants to reflect the financial impact of the
Medicare Prospective Payment System (PPS) and include increased interest rates.
Following the amendment, the applicable interest rate margins in the pricing
matrix pertaining to the Company's Revolving Credit Facility and Tranche A Term
Loan range from 0.75% to 2.75% for Eurodollar loans and 0.50% to 2.00% for base
rate loans. The applicable margin for the Tranche B Term Loan is 3.00% for
Eurodollar loans and a range of 1.25% to 2.75% for base rate loans. Effective
April 29, 1999, the applicable margins under the Revolving Credit Facility and
Tranche A Term Loan were 2.75% for Eurodollar loans and 2.00% for base rate
loans, and the applicable margin under the Tranche B Term Loan was 3.00% for
Eurodollar loans and 2.75% for base rate loans.


                                       7

<PAGE>   8


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS

The Company is one of the largest providers of long-term care and related
services in the United States. The Company operated 204 nursing (21,868
operational beds) and 43 assisted living and retirement facilities (1,802 units)
at March 31, 1999. The Company's facilities are located in 14 states.

The Company's revenues are derived through the provision of healthcare services
in its network of facilities, including long-term care services such as skilled
nursing care, assisted living care and related support services and medical
specialty services such as subacute care and rehabilitative therapy, and medical
equipment, supplies and services. As a result of PPS, the Company has
reclassified its revenue components. Nursing and assisted living centers revenue
are derived from the provision of routine and ancillary services for the
Company's residents. Medical supplies and outpatient therapy revenues are
derived from providing medical supplies and outpatient therapy services to
non-affiliated residents and individuals in their own home.

The Company derives its revenue from Medicare, Medicaid and private pay sources.
The following table sets forth the Company's private pay, Medicare and Medicaid
sources of revenue by percentage of total revenue:

<TABLE>
<CAPTION>

                                              THREE MONTHS ENDED
                                                   MARCH 31
                                          ------------------------
                                             1999         1998
                                          ------------ -----------
<S>                                              <C>          <C>
           Private pay                           37%          35%
           Medicare                              22           29
           Medicaid                              41           36
</TABLE>


Private Pay. The Company classifies payments from individuals who pay directly
for services without governmental assistance as private pay revenue. The
private-pay classification also includes revenues from commercial insurers,
health maintenance organizations ("HMOs"), preferred provider organizations
("PPOs") and other charge-based payment sources as well as revenue from HMO
Medicare risk plans. Blue Cross and Veterans' Administration payments are
included in private pay and are made pursuant to renewable contracts with these
payors.

Medicare. Medicare is a health insurance program funded and administered by the
federal government primarily for individuals entitled to Social Security who are
age 65 or older. Medicare covers the first 20 days of stay in a skilled nursing
facility ("SNF") in full, and the next 80 days above a daily coinsurance amount,
after the individual has qualified by a three-day hospital stay. The Medicare
program consists of two parts: Medicare Part A and Medicare Part B. Medicare
Part A covers inpatient services for hospitals, nursing facilities, and certain
other healthcare providers, and patients requiring daily professional skilled
nursing and other rehabilitative care. Medicare Part B covers services for
suppliers of certain medical items, outpatient services, and doctor's services.

                                       8
<PAGE>   9


The Balanced Budget Act of 1997 (the "Balanced Budget Act"), signed into law on
August 5, 1997, makes numerous changes to the Medicare and Medicaid programs
which affect the Company. With respect to the Medicare program, the new law
established a Prospective Payment System ("PPS") for SNF services. Under the
PPS, long-term care providers are reimbursed for Medicare Part A services based
on federally established per diem rates for 44 various categories of care
associated with the medical complexities and needs of the patients. The
patient's payment category dictates the amount that the provider will receive to
care for the patient on a daily basis. This new legislation became effective for
cost report periods commencing July 1, 1998 and after. For the Company, this new
system became effective for three facilities during 1998. The remainder of the
Company's facilities became PPS funded as of January 1, 1999. Under certain
criteria, a three-year phase-in to the PPS is effective. This change will reward
efficient providers and penalize those that are inefficient.

Prior to the implementation of the new Medicare PPS the Company was reimbursed
under the Medicare program for its direct costs plus an allocation of indirect
costs up to a regional limit. The costs of care for Medicare patients receiving
specialty medical services often exceeded the regional reimbursement limits. The
Company in such cases filed for routine cost limit ("RCL") exceptions in an
attempt to recover such additional costs. There can be no assurance that the
Company will be able to recover such excess costs under pending or future
exception requests. In addition, on-going efforts by third-party payors to
contain healthcare costs by limiting reimbursement rates, increasing case
management reviews and negotiating reduced contract pricing could affect the
Company's future revenues and profitability.


Medicaid. Medicaid is a state-administered program financed by state funds and
matching federal funds. The program provides for medical assistance to the
indigent and certain other eligible persons. Medicaid reimbursement formulas are
established by each state with the approval of the federal government in
accordance with federal guidelines. All of the states in which the Company
operates currently use cost-based reimbursement systems which generally may be
categorized as prospective or retrospective in nature. Under a prospective
system, per diem rates are established based upon the historical cost of
providing services during a prior year, adjusted to reflect factors such as
inflation and any additional services which are required to be performed. Many
of the prospective payment systems under which the Company operates contain an
acuity measurement system which adjusts rates based on the care needs of the
patient. Retrospective systems operate much like the Medicare program. Nursing
facilities are paid on an interim basis for services provided, subject to
adjustments based on allowable costs, which are generally submitted on an annual
basis. Additional payment to a nursing facility by the state or repayment from a
nursing facility to the state can result from the submission of cost reports and
their ultimate settlement. The majority of the states in which the Company
operates nursing facilities use prospective systems.

The Balanced Budget Act repealed the federal payment standard (known as the
Boren 

                                       9
<PAGE>   10


Amendment), which required state Medicaid programs to pay rates that were
reasonable and adequate to meet the costs which must be incurred by efficiently
and economically operated nursing facilities. As a result, for Medicaid services
provided on or after October 1, 1997, states have considerable flexibility in
establishing payment rates. The Company is not able to predict whether any
states will adopt changes in their Medicaid reimbursement systems, or, if
adopted and implemented, what effect such initiatives would have on the Company.
Nevertheless, there can be no assurance that such changes in Medicaid
reimbursement to nursing facilities will not have an adverse effect on the
Company. The Balanced Budget Act also allows states to mandate enrollment in
managed care systems without seeking approval from the Secretary of Health and
Human Services for waivers from certain Medicaid requirements as long as certain
standards are met. Although historically these managed care programs have
exempted institutional care, no assurance can be given that these waiver
projects ultimately will not change the reimbursement system for long-term care
facilities from fee-for-service to managed care negotiated or capitated rates or
otherwise affect the levels of payment to the Company.

Funds received by the Company under Medicare and Medicaid are subject to audit
with respect to proper application of various payment formulas. Such audits can
result in retroactive adjustments to revenue. The Company believes that the
payment formulas applicable to it have been properly applied and that any future
adjustments will not have a material impact on its operations.

The following is a summary of significant events in 1999 and 1998.

ACQUISITIONS

The Company acquired five nursing facilities (456 operational beds) and one
assisted living facility (88 units) for $19.1 million, including the assumption
of $2.7 million of debt and the assets of four medical specialty services
related businesses for $3.5 million during 1998. The Company also added one
nursing facility (76 beds) through an operating lease in 1998.

CONSTRUCTION

The Company completed construction of a nursing facility (120 operational beds)
during the first three months of 1999.

The Company completed construction of four nursing facilities (384 operational
beds), one nursing facility addition (47 operational beds), five assisted living
facilities (244 units) and two therapy additions during 1998.

DIVESTITURES

In 1998, the Company sold its institutional pharmacy business to Omnicare, Inc.
for proceeds of $258.0 million. The sale resulted in a pre-tax gain of $97.8
million and related income tax expense of $72.6 million. Goodwill and other
intangible assets were reduced by $90 million as part of the sale.

                                       10
<PAGE>   11


The Company applied the after-tax net proceeds of the sale to reduce $165
million of debt.

In connection with the debt reduction, related deferred financing costs of $2.7
million, or $1.7 million after-tax, were written off and classified as an
extraordinary item.

The divestiture follows a 1997 management decision that the pharmacy operations
were non-strategic assets. The transaction realized the value of the Company's
pharmacy operations, reduced its debt-to-equity ratio and significantly lowered
interest expense.

RESULTS OF OPERATIONS

The following table sets forth details of revenues and earnings as a percentage
of total revenues:

<TABLE>
<CAPTION>

                                                                     Three Months
                                                                        Ended
                                                                       March 31
                                                          -----------------------------------
                                                               1999               1998
                                                          ---------------    ----------------
<S>                                                              <C>                <C> 
       Revenues
         Nursing and assisted living                             94.3               84.8
         Medical supplies and outpatient therapy                  4.7               14.5
         Other                                                    1.0                0.7
                                                                -----              -----
                                                                100.0              100.0

       Operating and general
         and administrative costs                                91.3               87.7
       Lease costs, depreciation and amortization                 7.2                5.9
       Interest, net                                              5.0                5.0
       (Loss) earnings before taxes                              (3.5)               1.4
       Income taxes                                              (1.1)               0.6
       (Loss) earnings before minority interests                 (2.4)               0.8
                                                                -----              -----
       Net (Loss) Earnings                                       (2.4)               0.7
</TABLE>


THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998

Revenues in the three months ended March 31, 1999 were $241.5 million,
representing a decrease of $50.8 million (17.4%) from $292.4 million in the
three months ended March 31, 1998. The decrease in revenues of $50.8 million
included decreases in nursing and assisted living centers revenues of $20.0
million, medical supplies and outpatient therapy revenues of $31.2 million,
partially offset by an increase in other revenues of $0.4 million.

The decrease in nursing and assisted living centers revenues of $20.0 million 

                                       11
<PAGE>   12


included an increase of $6.3 million from the opening of newly constructed
facilities, the acquisition of one facility effective January 31, 1998, one
facility effective April 1, 1998, and four facilities effective November 1,
1998, partially offset by a facility closure. Revenues from facilities which the
Company operated during each of 1999 and 1998 ("same-facility") decreased $26.3
million when comparing periods. Same-facility revenues decreased between periods
due to the effects of PPS and lower occupancy. Under PPS, the average Medicare
rate per day was reduced to approximately $310.60 per patient day during the
first quarter of 1999 compared to approximately $402.21 per patient day for the
first quarter of 1998. Same-facility occupancy, defined as patient days for
nursing facilities and units occupied for assisted living facilities, declined
1.6%. Average percentage occupancy for same-facilities, based on beds/units in
operation, was 86.2% in the first quarter of 1999 compared with 87.7% in the
comparable period of 1998.

The decrease in medical supplies and outpatient therapy revenues of $31.2
million (73.2%) included $31.4 million from divestitures during 1998 and 1999
(primarily pharmacy operations of $30.1 million), net of acquisitions. The
remaining increase of $0.2 million is primarily due to growth in outpatient and
contracted services operations.

OPERATING AND GENERAL AND ADMINISTRATIVE COSTS

Operating and general and administrative costs decreased $35.7 million or 13.9%
between periods. The decrease included decreases in costs relating to
divestitures, net of acquisitions and newly constructed facilities, of
approximately $18.0 million. The remaining decrease in operating and general and
administrative costs of $17.7 million (7.8%) included decreased costs of $26.2
million, primarily due to decreased therapy activity as a result of PPS,
partially offset by an increase in wage-related costs of $8.5 million. The
increase in wage-related costs included an increase of $8.7 million to attract
and retain qualified personnel, offset by a decrease in workers' compensation
costs of $0.2 million due to more favorable actuarial adjustments for prior
years in 1999 compared to 1998.

LEASE COSTS, DEPRECIATION AND AMORTIZATION

Total lease costs and depreciation and amortization were constant at $17.3
million when comparing 1999 to 1998. Lease costs increased $0.9 million when
comparing the three months ended March 31, 1999 to the three months ended March
31, 1998 due to the new corporate office facility and upgrade of the computer
system, offset by a decrease in amortization expense of $0.9 million primarily
due to the sale of the pharmacy operation and related goodwill.

INTEREST

Net interest expense decreased $2.6 million to $12.0 million in the three months
ended March 31, 1999 compared with $14.6 million in the comparable period in
1998. The decrease is due to a decrease in the average debt level to $586.1
million during the first quarter of 1999 compared to $717.5 million during the
first quarter of 1998 resulting from the company's use of pharmacy sale proceeds
to paydown debt and due to a decrease in the weighted average interest rate of
all long-term debt to approximately 8.45% during the first quarter of 1999
compared to approximately 8.55% during the first quarter of 1998.

                                       12
<PAGE>   13


Net interest expense was also affected by less favorable investment earnings in
the first quarter of 1999 compared to the first quarter of 1998.

START-UP COSTS

The Company has absorbed pre-tax start-up losses associated with newly
constructed facilities in the first quarter of 1999 of $1.4 million compared to
$1.9 million in the first quarter of 1998. The $0.5 million decrease when
comparing periods was due to the timing of facility openings in 1999 versus
1998.

INCOME TAXES

Income taxes in the three months ended March 31, 1999 decreased to a $2.7
million tax benefit from a $1.9 million provision for taxes in the comparable
period in 1998 as a result of decreased earnings.

NET (LOSS) EARNINGS

The net loss in the three months ended March 31, 1999 was $5.8 million, a
decrease of $7.7 million over net earnings of $1.9 million in the comparable
period in 1998.

LIQUIDITY AND CAPITAL RESOURCES

The Company had cash and cash equivalents of $5.6 million at March 31, 1999 and
$1.1 million at December 31, 1998.

Cash flow generated from operations before working capital changes was $9.3
million for the three months ended March 31, 1998 compared with $18.0 in the
comparable period of 1998. The decrease in cash flow from operations before
working capital changes is the result of a decline in operating earnings.

The Company experienced an increase in working capital since December 31, 1998,
excluding cash and borrowings included in current liabilities, of $35.6 million.
The increase in working capital resulted from a decrease in taxes payable of
$31.9 million and a $15.8 million decrease in accounts payable and accrued
liabilities. Taxes payable included a payment of $25.0 million related to the
sale of the pharmacy operation and a tax benefit of $4.6 million. Accounts
receivable at March 31, 1999, were $175.9 million compared with $188.1 million
at December 31, 1998, representing a decrease of $12.2 million. The reduction in
accounts receivable included a decrease within the nursing operations of $5.5
million, a decline within the Company's UPC Health Network medical supplies and
outpatient therapy operations of $5.3 million and a decline in prior policy year
workers' compensation receivables of $1.4 million due to collections. Billed
patient care and other receivables decreased $6.7 million while third-party
payor settlement receivables increased $1.2 million within the nursing
operations. The decrease in billed patient care receivables of $6.7 million
included a decrease of $3.5 million primarily due to a decline in Medicare
revenues as a result of changes in the Federal reimbursement policies. The
remaining decrease in billed patient 

                                       13
<PAGE>   14
 care receivables of $3.2 million was due to the timing of the receipt of
remittances between periods. The increase in settlement receivables of $1.2
million between periods included $1.4 million due to favorable Medicare rate
accruals adjustments resulting from 1995 cost reimbursement findings partially
offset by decrease of $0.2 million from the collection of Medicaid program
settlements. The decrease in UPC Health Network receivables of $5.3 million
between periods is primarily due to decreased therapy operations as a result of
PPS.

Property and equipment decreased $3.7 million from December 31, 1998 to a total
of $696.4 million at March 31, 1999. The decrease was the result of depreciation
expense of $11.3 million offset by, capital expenditures and asset transfers of
$7.6 million. Property and equipment capital expenditures during 1998 included
approximately $3.1 million related to the construction of new facilities and bed
and therapy unit additions to existing facilities. The Company had under
construction at March 31, 1999 one nursing facility, one nursing bed addition
and, two assisted living facilities at a total cost of $13.4 million, of which
$11.8 million was incurred prior to March 31, 1999.

Total borrowings, including both current and long-term maturities of debt,
totaled $591.3 million at March 31, 1999 for an increase of $43.5 million from
December 31, 1998. The increase was attributable to the payment of taxes
associated with the sale of the pharmacy operations, deferred compensation
payments and as a result of the growth in property and equipment due to capital
expenditures. The weighted average interest rate of all long-term debt was 7.93%
at March 31, 1999 and such debt had maturities ranging from 1999 to 2015.

The Company had a $200 million revolving credit agreement at March 31, 1999.
Borrowing availability under this line of credit totaled $43.5 million at March
31, 1999.

The principal source of liquidity for the Company is cash flow from operations
and approximately $43.5 million (net of letters of credit in the amount of $35.5
million) in additional borrowing availability under the revolving credit
facility. The Company contemplates incurring capital expenditures (excluding any
acquisitions) of approximately $19.6 million in 1999, of which approximately
$4.6 million relates to the completion of projects in progress at March 31,
1999. The Company believes that internally generated cash flow, together with
borrowings under the Revolving Credit Facility, will be sufficient to meet the
Company's current operational cash requirements to fund its capital expenditure
program and to meet current debt obligations.

IMPACT OF THE YEAR 2000 ISSUE

The Year 2000 problem arises from the potential inability of information systems
and other computer-based technology to properly recognize the process
data-sensitive information for dates after December 31, 1999. The Year 2000
issue presents potential problems not only for the Company's computer hardware
and software but also for devices that have embedded technology (including
building infrastructure and medical devices utilized in the Company's
facilities) and issues relating to third parties with which the Company has
material relationship.

                                       14
<PAGE>   15

The Company derives a substantial portion of its revenues from government
programs. According to a published report on Year 2000 readiness, HCFA is
confident that all Medicare claims processes will be ready to function by
January 1, 2000.

The Company intends to confirm the Year 2000 readiness status for each
intermediary and to take all possible and necessary measures to ensure
appropriate continuing payments for services rendered to all government-insured
patients.

In 1998, the Company initiated a program to identify and resolve its Year 2000
issues. The program followed a standard methodology for Year 2000 compliance and
includes the following phases:

I.    Planning and awareness of the Company's Year 2000 program, where
      compliance is defined, the complexity and depth of the Year 2000 problem
      is communicated and the business impact of non-compliance is identified.
II.   Inventory is performed to identify all systems, catalog electronic
      partners and interfaces, ascertain those systems that will be affected by
      the Year 2000 date and assess technical risks associated with each system.
III.  Complete a detailed assessment of the compliance of the essential systems
      that will be remediated, which includes business risks, a determination to
      repair, replace, or retire each system, and then develop detailed plans,
      schedules and costs for the correction cycle. This includes an assessment
      of critical suppliers, customers, and other third parties.
IV.   Correction of non-compliant systems and equipment - which includes
      resolution, resource allocation, testing and deployment.

The Company has completed its inventory and assessment of its information
technology ("IT") systems and equipment. The inventory of non-IT systems and
equipment (embedded technology) has been completed. The Year 2000 risks
identified were:

I.    Any embedded technology within the Company's facilities that could pose a
      threat to overall patient health and safety. This included but is not
      limited to: telephone, nurse call, elevator or fire control systems; and
      clinical equipment such as ventilators and infusion pumps.

II.   External systems not within the control of the Company such as
      governmental agencies, investment management companies, and other
      financial intermediaries, that could pose a significant risk to the cash
      management and health of the Company.

The Company has:

                                       15
<PAGE>   16


I.       completed an upgrade of corporate servers to Year 2000 compliant 
         systems in the third quarter of 1998;
II.      remediated, tested and deployed the Fixed Assets and Budget systems;
         and
III.     made initial contacts to key vendors regarding their Year 2000
         compliance status;
IV.      tested the Accounts Receivable and Accounts Payable systems,
V.       remediated the General Ledger and Minimum Data Set systems,
VI.      updated or replaced all personal computers at the corporate office,
VII.     assessed  compliance of embedded  systems within the facilities to 
         ensure our patients'  continued  health and safety,
VIII.    contacted, and continue to pursue, key suppliers to gain assurance that
         they will be Year 2000 compliant. Most key suppliers who have responded
         to inquiries have indicated that they expect to be Year 2000 compliant
         in a timely fashion. As a contingency, the Company maintains a broad
         base of vendors and does not believe it is at risk with respect to any
         individual vendor or supplier who may be non-compliant,

Activities have also included the introduction of a new Payroll system and the
installation of approximately 1,000 new personal computer workstations in the
facilities. While these activities will resolve Year 2000 problems related to
theses systems, they have been planned for some time and are not considered to
be directly related to Year 2000 readiness.

The Company is planning to be Year 2000 compliant for all its essential systems
and equipment by September 30, 1999, although there can be no assurance that it
will achieve its objective by such date or by January 1, 2000.

The Company currently estimates that its aggregate costs directly related to
Year 2000 compliance efforts will be approximately $600,000 for corporate
applications and approximately $1,400,000 for all of the Company's facilities,
of which approximately $700,000 has been spent through March 31, 1999. The
Company's Year 2000 efforts are ongoing and its overall plan and cost
estimations will continue to evolve, as new information becomes available. All
costs, except long-lived assets, are expensed as incurred.

The ultimate impact of the Year 2000 issue depends not only on the Company's
actions to mitigate problems, but also on how the issue is addressed by third
parties with which the Company has a material relationship. Risks for the
Company could include the inability to receive reimbursement form government
agencies (directly or through intermediaries). In addition, uncertainties exist
as to the Company's ability to detect all Year 2000 problems and to resolve all
identified issues in a timely manner. The Company is unable to quantify the
potential effect on its operations, liquidity and financial position should any
of these events occur. While the Company expects to resolve all Year 2000 risks
without a material adverse impact on its results of operations and financial
position, there can be no assurance as to its ultimate success.

                                       16
<PAGE>   17
The Company's has developed contingency plans for the Company's Year
2000-related issues, which include, but are not limited to, identification of
alternate suppliers, technologies and manual systems. 


FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, and other information provided by the
Company from time to time, contains certain "forward-looking" statements as
that term is defined by the Private Securities Litigation Reform Act of 1995.
All statements regarding the Company's expected future financial position,
results of operations, cash flows, continued performance improvements, ability
to service its debt obligations, finance growth opportunities, respond to
changes in government regulations, and similar statements including, without
limitation, those containing words such as "believes," "anticipates,"
"expects," "intends," "estimates," "plans," and other similar expressions are
forward-looking statements. Forward-looking statements involve known and unknown
risks and uncertainties that may cause the Company's actual results in future
periods to differ materially from those projected or contemplated in the
forward-looking statements as a result of, but not limited to, the following
factors: national and local economic conditions, the effect of government
regulation and changes in regulations governing the healthcare industry,
including the Company's compliance with such regulations; changes in Medicare
and Medicaid payment levels; liabilities and other claims asserted against the
Company; the ability to attract and retain qualified personnel; the
availability and terms of capital to fund acquisitions; the competitive
environment in which the Company operates; demographic changes; the ability to
timely locate and correct all relevant computer codes prior the year 2000; and
the availability and cost of labor and materials. Given these risks and
uncertainties, the Company can give no assurances that these forward-looking
statements will, in fact, transpire and, therefore, cautions investors not to
place undue reliance on them.

                                       17

<PAGE>   18


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

QUALITATIVE DISCLOSURES

OBJECTIVES AND CONTEXT

The Company uses variable-rate debt to finance its operations. In particular, a
portion of the Company's short-term and long-term debt obligation is based upon
floating LIBOR rates. These debt obligations expose the Company to variability
in interest payments due to changes in interest rates. If interest rates
increase, interest expense increases. Conversely, if interest rates decrease,
interest expense also decreases.

Management believes that in the current interest rate environment that it is
prudent to limit the variability of a portion of its interest payments. It is
the Company's objective to hedge between 50 to 80 percent of its interest rate
exposure.

Furthermore, the Company also holds stock and stock warrants obtained in
connection with a recent sale of the Company's pharmacy operations. In effect,
these holdings can be considered contingent purchase price whose value, if any,
may not be realized for several years.  These stock and warrant holdings are
subject to various trading and exercise limitations and will be held until such
time that management feels the market opportunity is appropriate to trade or
exercise such holdings.

STRATEGIES

To meet these objectives, management enters into various types of derivative
instruments to manage fluctuations in cash flows resulting from interest rate
risk. These instruments consist of interest rate swaps. The interest rate swaps
change the variable rate cash-flow exposure on the short-term and long-term
interest payments to fixed-rate cash flows by entering into receive-variable,
pay-fixed interest rate swaps. Under the interest rate swaps, the Company
receives variable interest rate payments and makes fixed interest rate
payments, thereby creating fixed-rate short-term and long-term debt.

With respect to the stock and warrant holdings, management monitors the market
to adequately determine the appropriate market timing to act in order to
maximize the value of these instruments. With the exception of the above
holdings, the Company does not enter into derivative instruments for any
purpose other than cash flow hedging purposes. That is, the Company does not
speculate using derivative instruments.

RISK MANAGEMENT POLICIES

The Company assesses interest rate cash flow risk by continually identifying
and monitoring changes in interest rate exposures that may adversely impact
expected future cash flows and by evaluating hedging opportunities.




                                       18
<PAGE>   19

QUANTITATIVE DISCLOSURES

The Company is a party to several interest rate swap agreements to reduce the
impact of changes in interest rates on certain of its floating rate long-term
debt. The first agreement, entered into in 1995, effectively changes the
Company's interest rate exposure on $32 million of floating rate Industrial
Development Bonds due in 2014 to a fixed rate of 4.155% through October, 2000.
During 1998, the Company entered into five agreements (each $50 million of
principal) with three banks which effectively changes the interest rates on
LIBOR based borrowings to fixed rates ranging from 5.53% to 5.84% plus
applicable margins, for periods over three to seven years. The differential
between the fixed rates and the variable rate interest to be paid or received
will be accrued as interest rates change and recognized over the life of the
agreement. The Company may be exposed to credit loss in the event of
non-performance by the banks under the swap agreements but does not anticipate
such non-performance.

Interest expense for the three months ended March 31, 1999 includes $839 of net
expense relating to the cash flow hedge's ineffectiveness. The component
relating to the hedges' ineffectiveness was not deemed maternal.

Since the Company has not adopted SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, changes in the fair value of interest rate
swaps designed to hedge the variability of cash flows associated with the
floating-rate, long-term debt obligations are not reported in accumulated other
comprehensive income (AOCI). If this statement were adopted as of December 31,
1998, AOCI would reflect a loss of $3,171 based upon quoted market prices
provided by the financial institutions which are counterparts to the swaps.
Changes in the fair values of the stock and warrant holdings are reported in
AOCI net of related deferred tax accruals required under SFAS 115. The amount
reflected in AOCI for 1999 related to stock and warrant holdings equals $2,268.
The estimated net amount of the gains or losses that are expected to be
reclassified into earnings within the next 12 months is uncertain due to the
uncertainty of stock market conditions and the interest rate environment.
However, if market opportunities arise, it is management's intention to reduce
the amount of fixed interest debt to levels existing previous the disposition of
the Company's pharmacy operations.

As of March 31, 1999, the maximum length of time over which the Company is
hedging its exposure to the variability in future cash flows associated with
variable-rate, long-term debt is seven years.

For the three months ended March, 31, 1999, there were no gains or losses
reclassified from AOCI as a result of the early extinguishment of a portion of a
hedged debt obligation.

                                       19
<PAGE>   20
The table below presents principal (or notional) amounts and related weighted
average interest rates by year of maturity for the Company's debt obligations
and interest rate swaps.

<TABLE>
<CAPTION>

                                                                                                            Fair
                                   1999     2000     2001       2002     2003     Thereafter     Total      Value 
                                   ----     ----     ----       ----     ----     ----------     -----      -----
<S>                               <C>      <C>     <C>       <C>     <C>           <C>          <C>         <C>
Long-term Debt
   Fixed Rate..................    2,054    4.685    1,750      648      632       209,543      219,312     245,722
   Average Interest Rate.......     9.22%    9.22%    9.22%    9.22%    9.22%         9.22%        9.22%
   Variable Rate...............   18,117   18,195   20,979   23,762   23,776       267,131      371,960            
   Average Interest Rate.......     6.88%    6.87%    6.84%    6.81%    6.78%         6.78%        6.90%    360,285
Interest Rate Swaps
   Variable to Fixed...........       --   32,000       --   50,000  100,000       100,000      282,000      (3,171)
   Average Pay Rate............     5.53%    5.70%    5.70%    5.69%    5.74%         5.74%        5.53%
   Average Receive Rate........     4.81%    5.00%    5.00%    5.00%    5.00%         5.00%        4.81%
</TABLE>

The above table incorporates only those exposures that exist as of March 31, 
1999 excluding the First Amendment to the Credit Agreement which became
effective April 29, 1999 and does not consider those exposures or positions
which could arise after that date or future interest rate movements. As a
result, the information presented above has limited predictive value. The
Company's ultimate results with respect to interest rate fluctuations will
depend upon the exposure that arise during the period, the Company's hedging
strategies at the time and interest rate movements.




                                       20
<PAGE>   21


PART II
                                OTHER INFORMATION

ITEM 1.     Legal Proceedings

           There are no material pending legal proceedings other than litigation
           arising in the ordinary course of business. Management believes, on
           the basis of information furnished by legal counsel, that none of
           these actions will have a material effect on the financial position
           results of operations of the Company.

ITEM 2.     Change in Securities

            None

ITEM 3.     Defaults Upon Senior Securities

            None

ITEM 4.     Submission of Matters to a Vote of Security Holders

            None

ITEM 5.     Other Information

            None

ITEM 6.    Exhibits and Reports on Form 8-K
(a)      List of Exhibits:

        10.0     First Amendment to Credit Agreement
        11.0     Computation of earnings per share for the three months ended
                 March 31, 1999
        27.0     Financial Data Schedule

(b)      Reports on Form 8-K

     There were no reports on Form 8-K filed during the three months ended March
31, 1999.

                                       21

<PAGE>   22

                        EXTENDICARE HEALTH SERVICES, INC.

                                  EXHIBIT INDEX

Exhibit No.                         Description

  10.0     First Amendment to Credit Agreement

  11.0     Computation of earnings per share for the three months ended 
           March 31, 1999

  27.0     Financial Data Schedule


                                       22
<PAGE>   23


                                   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.

EXTENDICARE HEALTH SERVICES, INC.

Date:    May 14, 1999              By:  /s/  Stephen F. Dineley
                                        Stephen F. Dineley
                                        Vice President, Chief Financial Officer,
                                        Treasurer and Director (principal
                                        financial officer and principal
                                        accounting officer)



                                       23