<PAGE>   1

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

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

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

                                    FORM 10-Q

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

(MARK ONE)

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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

                                       OR

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

            FOR THE TRANSITION PERIOD FROM ___________ TO ___________

                         COMMISSION FILE NUMBER: 0-26980


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

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

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

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

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

                                 Yes [X] No [ ]

The number of outstanding shares of the Registrant's Common Stock, no par value,
as of August 10, 2000 was 17,459,689.


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

<PAGE>   2

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.

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

                                     ASSETS

<TABLE>
<CAPTION>
                                                            JUNE 30,       DECEMBER 31,
                                                              2000            1999
                                                            ---------      ------------
<S>                                                         <C>            <C>
Current assets:
  Cash and cash equivalents ..........................      $  14,392       $  14,570
  Accounts receivable and amounts due from affiliates           1,652           2,165
  Prepaids and other current assets ..................          3,304           2,772
  Properties held for sale, net ......................          5,311           4,301
                                                            ---------       ---------
          Total current assets .......................         24,659          23,808
Property, furniture and equipment, net ...............        101,234         102,185
Goodwill, net ........................................         19,138          19,430
Operating lease security deposits ....................          9,242          12,164
Other non-current assets .............................         16,998          16,704
                                                            ---------       ---------
                                                            $ 171,271       $ 174,291
                                                            =========       =========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable ...................................      $   1,560       $   1,503
  Accrued liabilities ................................          8,917          10,270
  Notes payable, current portion .....................         42,161           1,363
  Accrued interest payable ...........................            736           1,292
  Net current liabilities from discontinued operations          2,842           2,510
                                                            ---------       ---------
          Total current liabilities ..................         56,216          16,938
Notes payable, less current portion ..................         54,767         114,369
Lease liabilities ....................................          1,945           1,922
Other non-current liabilities ........................            861             934
                                                            ---------       ---------
                                                              113,789         134,163
                                                            ---------       ---------

Minority interest in majority owned entities .........          1,109           1,004
Shareholders' equity:
  Preferred stock, no par value. Authorized
    8,000 shares, none issued and outstanding ........             --              --
  Common stock, no par value. Authorized
     100,000 shares; issued and outstanding
     17,460 and 16,679 shares at June 30, 2000
     and December 31, 1999, respectively .............        145,512         144,280
  Accumulated deficit ................................        (89,139)       (105,156)
                                                            ---------       ---------
          Total shareholders' equity .................         56,373          39,124
                                                            ---------       ---------
Commitments and contingent liabilities
                                                            $ 171,271       $ 174,291
                                                            =========       =========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.


                                       2
<PAGE>   3

                   ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
            THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
                                   (UNAUDITED)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED             SIX MONTHS ENDED
                                                              JUNE 30,                     JUNE 30,
                                                      -----------------------       -----------------------
                                                        2000           1999           2000           1999
                                                      --------       --------       --------       --------
<S>                                                   <C>            <C>            <C>            <C>
Revenue:
  Assisted living community revenue:
    Rental revenue                                    $ 28,007       $ 27,271       $ 56,296       $ 55,894
    Assisted living and other services                   6,200          6,759         12,589         13,635
  Management fees from others                               --            101             --            244
  Management fees from affiliates                          178            213            393            450
                                                      --------       --------       --------       --------
         Total revenue                                  34,385         34,344         69,278         70,223
                                                      --------       --------       --------       --------
Operating expenses:
 Assisted living community
  operating expense                                     21,912         21,242         44,598         43,064
 Assisted living community lease
   Expense                                               7,893          7,917         16,281         15,992
 General and administrative                              2,874          3,407          5,737          7,626
 Impairment of long lived assets                            --          7,722             --          7,722
 Depreciation and amortization                           2,145          2,097          4,254          4,354
                                                      --------       --------       --------       --------
         Total operating expenses                       34,824         42,385         70,870         78,758
                                                      --------       --------       --------       --------
Loss from operations                                      (439)        (8,041)        (1,592)        (8,535)
                                                      --------       --------       --------       --------

Other income(expense):
  Interest income                                          444            190            758            335
  Other income(expense), net                              (320)           152           (316)           207
  Interest expense                                      (1,668)        (2,078)        (3,880)        (4,086)
  Litigation judgment                                       --         (5,600)            --         (5,600)
                                                      --------       --------       --------       --------
       Total other expense                              (1,544)        (7,336)        (3,438)        (9,144)
                                                      --------       --------       --------       --------
Loss from operations before income tax
 expense, minority interest in income of
 majority owned entities, extraordinary
 item and change in accounting principle                (1,983)       (15,377)        (5,030)       (17,679)
Income tax expense                                          17             --             25             --
                                                      --------       --------       --------       --------
Loss from operations before minority
 interest in income of majority owned
 entities, extraordinary item and change in
 accounting principle                                   (2,000)       (15,377)        (5,055)       (17,679)

Minority interest in income of majority
 owned entities                                           (154)          (316)           (88)          (731)
                                                      --------       --------       --------       --------
Loss from operations  before  extraordinary
 item and change in accounting principle                (2,154)       (15,693)        (5,143)       (18,410)
Extraordinary gain from early extinguishment
 of debt, net of income tax                             15,546             --         21,159             --
                                                      --------       --------       --------       --------
Income (loss) before change in accounting
 principle                                              13,392        (15,693)        16,016        (18,410)

Cumulative effect of change in accounting
 principle, net of  tax                                     --             --             --         (1,259)
                                                      --------       --------       --------       --------
Net income (loss)                                     $ 13,392       $(15,693)      $ 16,016       $(19,669)
                                                      ========       ========       ========       ========

Basic and diluted income(loss) per common share:
 Loss from operations before extraordinary
  item and change in accounting principle             $   (.12)      $   (.99)      $   (.30)      $  (1.16)
 Extraordinary gain from early extinguishment
  of debt, net of income tax                               .89                          1.23
 Cumulative effect of change in accounting
  principle, net of tax                                     --             --             --           (.08)
                                                      --------       --------       --------       --------
       Net income (loss)                              $    .77       $   (.99)      $    .93       $  (1.24)
                                                      ========       ========       ========       ========
Weighted average common shares
 Outstanding                                            17,460         15,873         17,254         15,873
                                                      ========       ========       ========       ========
</TABLE>


See accompanying notes to unaudited condensed consolidated financial statements.


                                       3
<PAGE>   4

                   ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                     SIX MONTHS ENDED JUNE 30, 2000 AND 1999
                                   (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                          SIX MONTHS ENDED
                                                                              JUNE 30,
                                                                      -----------------------
                                                                        2000           1999
                                                                      --------       --------
<S>                                                                   <C>            <C>
Net cash used in operating activities of continuing operations .      $ (2,462)      $ (1,639)
Net cash provided by operating activities of discontinued
 operations ....................................................           332          1,050
                                                                      --------       --------
         Net cash used in operating activities .................        (2,130)          (589)
                                                                      --------       --------
Cash flows used in investing activities:
  Proceeds from the sale of communities, net of cost ...........           713         22,809
  Purchase of previously leased communities ....................            --        (14,636)
  Additions to property, furniture and equipment ...............        (2,825)        (6,056)
  (Increase) decrease in leased property security deposits .....         1,298         (6,204)
  Cash contributed to joint venture ............................            --         (1,248)
  Other ........................................................            --            159
                                                                      --------       --------
         Net cash used in investing activities .................          (814)        (5,176)
                                                                      --------       --------
Cash flows provided by financing activities:
  Borrowings under notes payable for purchase of previously
   leased communities ..........................................            --         14,678
  Borrowing under refinancing for owned communities ............            --         41,817
  Borrowing under non-secured credit line ......................         7,000             --
  Proceeds from note payable ...................................        11,209             --
  Repayments of notes payable ..................................        (5,577)       (35,716)
  Repayments of subordinated debt ..............................        (9,013)            --
  Distributions from majority owned entities ...................          (152)          (533)
  Loan fees ....................................................          (701)            --
  Other ........................................................            --            (76)
                                                                      --------       --------
         Net cash provided by financing activities .............         2,766         20,170
                                                                      --------       --------
         Net (decrease) increase in cash and cash equivalents ..          (178)        14,405
Cash and cash equivalents at beginning of period ...............        14,570         11,884
                                                                      --------       --------
Cash and cash equivalents at end of period .....................      $ 14,392       $ 26,289
                                                                      ========       ========

Supplemental schedule of cash flow information:
 Cash paid during the period for:
  Interest .....................................................      $  4,436       $  4,657
                                                                      ========       ========
  Income taxes .................................................      $     --       $     --
                                                                      ========       ========
Supplemental schedule of non-cash investing activities:
  Conversion of subordinated notes to common stock .............      $  1,232
  Financing of leased property security deposits ...............                     $  2,033
</TABLE>


See accompanying notes to unaudited condensed consolidated financial statements.


                                       4

<PAGE>   5

                   ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

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

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

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

PRINCIPLES OF CONSOLIDATION

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

USE OF ESTIMATES

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

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

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

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

Actual results could differ from those estimates.

RECLASSIFICATIONS

We have reclassified certain prior period amounts to conform to the June 30,
2000 presentation.

RECENT ACCOUNTING DEVELOPMENTS

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


                                       5
<PAGE>   6

GAIN (LOSS) PER SHARE

Basic earnings (loss) per share ("EPS") excludes all dilution and is based upon
the weighted average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that would occur if securities or
other contracts to issue common stock were exercised, or converted into common
stock. The effect of potentially dilutive securities was not included for any of
the periods presented as the effect was antidilutive. Potentially dilutive
securities include convertible notes and stock options, which convert to
17,710,000 and 12,778,000 shares of common stock for the six-month period ended
June 30, 2000 and 1999, respectively.

(2) COMMITMENTS AND CONTINGENT LIABILITIES

COMMITMENTS

The Company has guaranteed indebtedness of certain affiliated partnerships as
follows:

                                                    (IN THOUSANDS)
       Notes secured by real estate                     $75,262
       Construction loans associated with the
         Development and construction of
         Affordable housing apartments                  $14,651

The Company has guaranteed $89.9 million of loans in the event of fraud,
material misrepresentations, environmental impairment and certain loan
covenants. The Company has guaranteed tax credits for certain partnerships in
the aggregate amount of $65.3 million, excluding interest, penalties or other
charges which might be assessed against the partners. We have provided
development and operating deficit guarantees for certain affiliated
partnerships. In our opinion, no claims may be currently asserted under any of
the aforementioned guarantees based on the terms of the respective agreements
other than those accrued nor are any additional accruals anticipated.

LITIGATION

    On June 15, 1999 six California limited partnerships of which the Company is
the managing general partner and a majority limited partner - American
Retirement Villas Properties II, American Retirement Villas Properties III,
Bradford Square, LP, Casa Bonita Fullerton, Ltd., Collwood Knolls, L.P., and San
Gabriel Retirement Villa, L.P. (the "ARV Partnerships")-filed an action in the
Superior Court for the State of California, County of Orange, seeking a
declaratory judgment and damages for breach of contract, promissory estoppel,
fraud and negligent misrepresentation against PRN Mortgage Capital, L.L.C. and
Red Mountain Funding, L.L. C. (the "Defendants"). Defendants filed a
counter-claim seeking payment by the ARV Partnerships of certain loan commitment
fees allegedly owed to Defendants. On June 29, 2000 all parties submitted the
matter to arbitration and hereafter agreed to dismiss all actions in
consideration of Defendants payment to the ARV Partnerships of the settlement
sum of $400,000. The settlement agreement has been executed and the payment was
received on August 3, 2000.

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


                                       6
<PAGE>   7

(3) SALES OF ASSISTED LIVING COMMUNITIES

On May 26, 2000, we entered into a leasehold interest purchase and sale
agreement for the sale of three ALCs located outside of California for $10.00.
In addition we received a non-interest bearing note for $500,000 in exchange for
security deposits on one of those properties. The note is due on April 1, 2010
and has been discounted at a 7% rate to a value of $245,000. On June 1, 2000, we
completed the sale of these three ALCs. As of December 31, 1999, these ALCs were
included in assets held for sale at their sales price. The resulting gain or
loss was insignificant during 2000.

(4) RELATED PARTY TRANSACTIONS

On April 24, 2000, the Company entered into a Term Loan Agreement with LFSRI II
Assisted Living LLC ("LFSRI"), an affiliate of Prometheus. As of April 27, 2000,
Prometheus beneficially owned approximately 43.5% of the Company's outstanding
Common Stock. Pursuant to the Term Loan Agreement, the Company may borrow up to
$10,000,000 from LFSRI with a maturity date of April 24, 2002, which, subject to
certain conditions, may be extended by one year if no default has occurred. The
outstanding amount under the loan will bear interest at the annual rate equal to
the LIBOR rate for each interest period plus a 10% margin. At June 30, 2000,
there was $7,000,000 outstanding. In connection with the Term Loan Agreement,
the Company issued to LFSRI a warrant to purchase up to 750,000 shares of the
company's Common Stock at a price of $3.00 per share, subject to various
adjustments exercisable until April 24, 2005. The Company also amended its
stockholder rights agreement to prevent shares that Prometheus may be deemed to
beneficially own by reason of LFSRI's rights under the warrant from causing
Prometheus to become an "Acquiring Person" and thus causing a triggering event
under the rights agreement. As a part of the Term Loan Agreement the company had
until August 24, 2000 to exercise the remaining $3,000,000. On August 4, 2000,
the Company extended this option to November 22, 2000 for a 0.5% fee on the
unutilized portion.


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

FACTORS AFFECTING FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS

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

     o    our business strategy;

     o    our liquidity requirements and ability to obtain financing;

     o    the impact of future acquisitions and developments;

     o    the anticipated sale of 15 ALCs and other properties during the third
          and fourth quarters of 2000;

     o    the level of future capital expenditures;

     o    the impact of inflation and changing prices; and

     o    the outcome of certain litigation matters.

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

     o    access to capital necessary for acquisitions and development;

     o    our ability to manage growth;

     o    the successful integration of ALCs into our portfolio;

     o    governmental regulations;

     o    competition; and

     o    other risks associated with the assisted living industry.

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


                                       7
<PAGE>   8

OVERVIEW

As of June 30, 2000, we operated 55 assisted living communities ("ALCs")
containing 6,623 units, including 33 ALCs that are leased pursuant to long-term
operating leases ("Leased ALCs"); 15 communities that we own for our own account
("Owned ALCs"); and 7 communities that are managed for related parties ("Managed
ALCs"). In April 2000 we opened Lynnbrooke, a 140- unit ALC in Irvine, CA, under
a joint venture agreement. Lynnbrooke is ARV's first community in Southern
California to offer a distinct unit for the treatment of Alzheimer's disease and
other memory disorders. In June 2000 we opened Bay Spring Village, a 127-unit
facility in Barrington, RI. This facility was started before the decision was
made to focus our growth efforts in the western United States. As of June 30,
2000, we were in construction on a remaining 137 unit ALC in Colorado.

Since commencing operation of ALCs for our own account in April 1994, we have
focused our growth efforts on the acquisition and development of additional ALCs
and expansion of services to our residents as they "age in place." As of June
30, 2000, a substantial portion of our business and operations was conducted in
California, where 38 of the 55 ALCs we operate are located. We intend to
continue to make California the primary focus of our geographic clustering
strategy. However, we intend to reduce our prior growth rate in order to focus
greater attention on enhancing the profitability of our existing core operations
and on leasing up new developments at an increased rate. In addition, we plan to
divest ALCs that do not expand or enhance one of our geographic clusters or do
not meet our financial objectives. In June 1999 we booked a $7.7 million
impairment for ALC's located outside the western United States. In December 1999
we decided to sell twelve ALCs outside of the western United States; to date we
have sold three of these. This decision was in keeping with our strategy to
focus our efforts on occupancy gains and to lease up ALCs faster.

Newly opened ALCs are expected to incur operating losses until sufficient
occupancy levels and operating efficiencies are achieved. Based upon historical
experience, we believe that a typical community will achieve its targeted
occupancy levels 18 - 24 months from the commencement of operations.
Accordingly, we will require substantial amounts of liquidity to maintain the
operations of newly opened ALCs. If sufficient occupancy levels are not achieved
within reasonable periods, our results of operations, financial position and
liquidity could be materially and adversely impacted.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999

         The following table sets forth a comparison of the three months ended
June 30, 2000 and the three months ended June 30, 1999.

                       Operating Results before Impairment
                For the Three Months Ended June 30, 2000 and 1999
                                   (Unaudited)
                                  (In millions)

<TABLE>
<CAPTION>
                                                             FOR THE THREE MONTHS
         (DOLLARS IN MILLIONS)                                  ENDED JUNE 30,      INCREASE/
                                                               2000        1999     (DECREASE)
                                                               -----       -----    ----------
<S>                                                            <C>         <C>      <C>
          Revenue:
            Assisted living community revenue .........        $34.2       $34.0        0.5%
            Management fees from affiliates and others           0.2         0.3      (43.3)%
                                                               -----       -----      -----
                    Total revenue .....................         34.4        34.3        0.1%
                                                               -----       -----      -----
          Operating expenses:
            Assisted living community operating expense         21.9        21.2        3.2%
            Assisted living community lease expense ...          7.9         7.9       (0.3)%
            General and administrative ................          2.9         3.4      (15.6)%
            Depreciation and amortization .............          2.1         2.1        2.3%
                                                               -----       -----      -----
                    Total operating expenses ..........         34.8        34.6      (17.8)%
                                                               -----       -----      -----
          Loss from operations before impairment ......        $(0.4)      $(0.3)     (37.8)%
                                                               =====       =====      =====
</TABLE>


                                       8
<PAGE>   9

Total revenue for the three months ended June 30, 2000 increased $0.1 million to
$34.4 million from $34.3 million for the three months ended June 30, 1999. This
increase was primarily due to an increase in assisted living community revenue
as described below.

Assisted living community revenue increased $0.2 million to $34.2 million for
the three months ended June 30, 2000 from $34.0 million for the three months
ended June 30, 1999.

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

o    An increase in average rate per occupied unit for ALCs, which we owned and
     leased in both periods to $2,139 for the 2000 quarter as compared to $2,059
     for the 1999 quarter; offset by

o    The sales of ALCs which were determined to be non-strategic. As of June 30,
     2000, we owned and leased 48 ALCs for our own account consisting of 33
     Leased ALCs and 15 Owned ALCs. As of June 30, 1999, we owned and leased a
     total of 51 ALCs for our own account consisting of 35 leased ALCs and 16
     Owned ALCs.

Management fees from affiliates and others for the 2000 quarter decreased by
$0.1 million due to the loss of management contracts.

Assisted living community operating expenses increased $0.7 million to $21.2
million for the three months ended June 30, 2000 from $21.2 million for the
three months ended June 30, 1999. These increases were due to the following:

o    Increase in overtime due to labor shortages and additional personnel needed
     to support the assisted living operations;

o    Increase in worker's compensation insurance expense; and

o    Increases in marketing expense to update collateral advertising materials
     and support.

Assisted living community lease expenses remained relatively constant at $7.9
million, as the decrease due to the reduction in the number of facilities lease
for the three months ended June 30, 2000 was offset by contracted rate
increases.

General and administrative expenses decreased $0.5 million to $2.9 million for
the three months ended June 30, 2000 from $3.4 million for the three months
ended June 30, 1999, as a result of:

o    Decrease in legal fees for lawsuits and proxy fight expenses in 1999; and

o    Management's continued efforts to reduce staff at our corporate offices.

Depreciation and amortization expenses remained relatively constant at $2.1
million when compared to June 30, 1999. The anticipated decrease in depreciation
and amortization as a result of the sale of communities was offset by a new
community and capital expenditures.

Interest income increased $0.2 million due to the higher average cash balances
carried during the three months ended June 30, 2000.

Interest expense decreased $0.5 million to $1.6 million for the three months
ended June 30, 2000 compared with $2.1 million for the three months ended June
30, 1999 due to our debt retirement program and settlement from arbitration in
June 2000 of the loan fees paid in 1998 to a potential lender. This was offset
by increases due to the refinancing in 1999. Interest expense consisted
primarily of interest incurred on our remaining $16.8 million of 6-3/4%,
convertible subordinated notes due 2006 and mortgage interest on owned ALCs.

Other income and expense increased $0.5 million primarily due to an operating
loss generated by a skilled nursing facility. We do not consider the skilled
nursing facility part of our operations, hence its loss is recorded in other
income and expense.

The litigation judgement in June 1999 was for the award on the Emeritus lawsuit
of $5.4 million and an accrual of $0.2 million in legal costs.

SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999


                                       9
<PAGE>   10

The following information concerning the operating results of the Company for
the six-month period ended June 30, 2000 is presented in order to provide the
reader with additional information concerning the Company's operations.

                       Operating Results before Impairment
                 For the Six Months Ended June 30, 2000 and 1999
                                   (Unaudited)
                                  (In millions)

<TABLE>
<CAPTION>
                                                                   JUNE 30,
                                                               -----------------    INCREASE/
                                                               2000        1999     (DECREASE)
                                                               -----       -----    ----------
<S>                                                            <C>         <C>      <C>
          Revenue:
            Assisted living community revenue .........        $68.9       $69.5       (0.9)%
            Management fees from affiliates and others           0.4         0.7      (43.4)%
                                                               -----       -----      -----
                    Total revenue .....................         69.3        70.2       (1.4)%
                                                               -----       -----      -----
          Operating expenses:
            Assisted living community operating expense         44.6        43.0        3.6%
            Assisted living community lease expense ...         16.3        16.0        1.8%
            General and administrative ................          5.7         7.6      (24.8)%
            Depreciation and amortization .............          4.3         4.4       (2.3)%
                                                               -----       -----      -----
                    Total operating expenses ..........         70.9        71.0       (0.2)%
                                                               -----       -----      -----
          Loss from operations before impairment ......        $(1.6)      $(0.8)      95.8%
                                                               =====       =====      =====
</TABLE>

Total revenue for the six months ended June 30, 2000 decreased $0.9 million to
$69.3 million from $70.2 million for the six months ended June 30, 1999. This
decrease was primarily due to:

o    a decrease in management fees from affiliates and others of $0.3 million
     from 1999 levels due to a decrease in management contracts; and

o    the sales of ALCs which were determined to be non-strategic; and

o    a decrease in assisted living penetration rate from 46.3% in 1999 to 46.1%
     for 2000; offset by

o    increases in the average rate per occupied unit which went from $2,036 for
     the six-months ended June 30, 1999 to $2,131 for the six-months ended June
     30, 2000; and

o    Higher occupancy rates of 85.3% for 2000 compared to 83.0% for 1999.


Assisted living expenses increased $1.9 million to $60.9 million for the six
months ended June 30, 2000, from $59.0 million for the six months ended June 30,
1999. Of these increases, $1.6 million of ALC operating expense and $0.3 million
lease expense can be explained as follows:

o    Increase in payroll and food costs due to tighter labor markets and higher
     food prices; and

o    the increase in assisted living community lease expense is primarily due to
     the opening of one leased ALC; offset by,

o    the sale of four communities in 1999.

General and administrative expenses decreased $1.9 million due to:

o    Continuing efforts to reduce staff at our corporate office; and

o    Reduction in legal expenses, recruiting, severance and consulting costs;
     and

o    Recovery from insurance of cost of proxy fight in the amount of $0.5
     million.

Depreciation and amortization expenses remained relatively constant when
compared to the six months ended June 30, 1999.

Interest income increased $0.5 million to $0.8 million for the six months ended
June 30, 2000 from $0.3 million for the six months ended June 30, 1999 due to
larger average invested cash balances.

Interest expense decreased $0.2 million to $3.9 million for the six months ended
June 30, 2000 compared with $4.1 million for the six months ended June 30, 1999
due to the bond retirement offset by the refinancing that was completed in June
1999. Interest expense


                                       10
<PAGE>   11

consisted primarily of interest incurred on our remaining $16.8 million of
6-3/4%, convertible subordinated notes due 2006 as well as mortgage interest on
Owned ALCs.

LIQUIDITY AND CAPITAL RESOURCES

Our unrestricted cash balances were $14.4 million and $14.6 million at June 30,
2000 and December 31, 1999, respectively. The small decrease was due primarily
to cash used in operations.

Working capital at June 30, 2000 was a negative $31.6 million due to the
reclassification to current liabilities of the loan on the properties refinanced
in June 1999. The loans are due June 2001 but are in the process of being
refinanced with 30-year loans. However, the company has not received final
approvals, therefore the $40.8 million of loans has been reclassified to current
liabilities. Without this reclassification the working capital would be $8.8
million compared to $6.9 million at December 31, 1999.

Cash used by operating activities was $2.1 million for the six months ended June
30, 2000, compared to $0.6 million used for the six month period ended June 30,
1999. The primary components of cash used by operating activities for the
quarter ended June 30, 2000 were:

o    Net loss before extraordinary items for the six months ended June 30, 2000
     of $5.1 million; and

o    Net decrease of $1.6 million in liabilities; offset by

o    Discontinued operations generating $0.3 million in cash; and

o    Non-cash charges of $4.3 million for depreciation and amortization.

Cash used in investing activities was $0.8 million for the six months ended June
30, 2000, compared to net cash used in investing activities of $5.2 million for
the six months ended June 30, 1999. The primary components of cash used in
investing activities for the six months ended June 30, 2000 were:

o    $2.8 million used for purchases of property, furniture and equipment;
     offset by

o    $1.3 million for decreases in Leased ALCs security deposits due to sale;
     and

o    $0.7 million of proceeds from the sale of our interest in a partnership.

Net cash provided by financing activities was $2.8 million for the six months
ended June 30, 2000, compared to net cash provided by financing activities of
$20.2 million for the six months ended June 30, 1999. The primary components of
cash provided by financing activities for the period ended June 30, 2000 were:

o    Debt proceeds of $11.2 million for the June 28, 2000 refinancing of an
     owned ALC; and

o    Debt proceeds of $7.0 million on the line of credit; offset by:

o    $5.6 million for repayments of notes payable; and

o    $9.0 million for repayment of subordinated debt; and

o    $0.7 million for payment of loan fees on refinancings and new debt.

The various debt and lease agreements contain restrictive covenants requiring us
to maintain certain financial ratios, including current ratio, working capital,
minimum net worth, and debt service coverage, among others. At June 30, 2000, we
were not in compliance with the current ratio and debt service coverage ratio
under certain debt and lease agreements. We have obtained waivers for those
covenants with which we were not in compliance. Had we not obtained waivers we
would have been in default on certain debt and lease agreements.

We believe that our existing liquidity, our ability to sell ALCs and land sites
which do not meet our financial objectives or geographic clustering strategy and
our ability to refinance certain owned ALCs and investments will provide us with
adequate resources to meet our current operating and investing needs. We do not
currently generate sufficient cash from operations to fund recurring working
capital requirements. And, we will be required from time to time to incur
additional indebtedness or issue additional debt or equity securities to finance
our strategy, including the development and rehabilitation of ALCs as well as
other capital expenditures. We anticipate that we will be able to obtain the
additional financing; however, we cannot assure you that we will be able to
obtain financing on favorable terms.


                                       11
<PAGE>   12

Pursuant to the terms of our development and property management agreements for
certain tax credit partnerships, we have provided certain guarantees for the
benefit of these partnerships. Among these guarantees are operating deficit, tax
credit and financing guarantees. To the extent that the operations of certain
tax credit partnerships do not improve prior to the maturity of the existing
construction financing, we may be required to fund additional amounts under the
terms of our financing guarantees. Management has established a provision for
the estimated funding of obligations under our financing guarantees. Actual
funding could differ from those estimates.

IMPACT OF INFLATION AND CHANGING PRICES

Operating revenue from ALCs we operate is the primary source of our revenue.
These ALCs are affected by rental rates which are highly dependent upon market
conditions and the competitive environments where the communities are located.
Employee compensation is the principal cost element of property operations.
Although we cannot assure you that we will be able to continue to do so, we have
been able historically to offset the effects of inflation on salaries and other
operating expenses by increasing rental and assisted living rates. However, the
labor markets in which we operate communities are generally tight and we expect
continued pressure on wage rates.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk related to fluctuations in interest rates on our
notes payable. Currently, we do not utilize interest rate swaps. The purpose of
the following analysis is to provide a framework to understand our sensitivity
to hypothetical changes in interest rates as of June 30, 2000. You should be
aware that many of the statements contained in this section are forward looking
and should be read in conjunction with our disclosures under the heading
"Forward-Looking Statements."

For fixed-rate debt, changes in interest rates generally affect the fair market
value of the debt instrument, but not our earnings or cash flows. Conversely,
for variable rate debt, changes in interest rates generally do not impact fair
market value of the debt instrument, but do affect our future earnings and cash
flows. We do not have an obligation to prepay fixed-rate debt prior to maturity,
and as a result, interest rate risk and changes in fair market value should not
have a significant impact on the fixed-rate debt until we would be required to
refinance such debt. Holding the variable rate debt balance constant, each one
percentage point increase in interest rates would result in an increase in
variable rate interest incurred for the coming year of approximately $273,000.

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

<TABLE>
<CAPTION>
                                                MATURITY DATE - JUNE 30,
                              --------------------------------------------------------                                   FAIR
                                2001         2002          2003        2004       2005     THEREAFTER       TOTAL        VALUE
                              -------       ------       -------       ----       ----     ----------      -------      -------
                                                                (DOLLARS IN THOUSANDS)
<S>                           <C>           <C>          <C>           <C>        <C>      <C>             <C>          <C>
   Fixed rate debt            $41,777          146       $   160       $174       $189       $27,157       $69,605      $69,605
   Average interest rate          7.5%         7.5%          7.5%       7.4%       7.4%          7.4%

   Variable rate debt         $   384       $1,620       $25,319       $ --       $ --       $    --       $27,323      $27,323
   Average interest rate         11.4%        11.4%          9.5%
</TABLE>

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

    On June 15, 1999 six California limited partnerships of which the Company is
the managing general partner and a majority limited partner - American
Retirement Villas Properties II, American Retirement Villas Properties III,
Bradford Square, LP, Casa Bonita Fullerton, Ltd., Collwood Knolls, L.P., and San
Gabriel Retirement Villa, L.P. (the "ARV Partnerships")-filed an action in the
Superior Court for the State of California, County of Orange, seeking a
declaratory judgment and damages for breach of contract,


                                       12
<PAGE>   13

promissory estoppel, fraud and negligent misrepresentation against PRN Mortgage
Capital, L.L.C. and Red Mountain Funding, L.L. C. (the "Defendants"). Defendants
filed a counter-claim seeking payment by the ARV Partnerships of certain loan
commitment fees allegedly owed to Defendants. On June 29, 2000 all parties
submitted the matter to arbitration and thereafter agreed to dismiss all actions
in consideration of Defendants' payment to the ARV Partnerships of the
settlement sum of $400,000. The settlement agreement has been executed and the
payment was received on August 3, 2000.

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

ITEM 2.  CHANGES IN SECURITIES

None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its annual meeting of stockholders on June 9, 2000. The
following is a brief description of each matter voted upon at the meeting and
the number of votes cast for or against, or withheld with respect to, each
matter.

(a)  The stockholders reelected the Class C Director, Maurice J. DeWald to serve
     until 2003. 15,032,841 votes were received for Mr. DeWald's election, and
     891,444 votes were withheld.

The term of office as director continued after the meeting for the following
Class A and Class B directors: Douglas M. Pasquale (A), David P. Collins (B),
John A. Moore (B), and Jeffrey D. Koblentz (A).

(b)  Votes were received for the appointment of KPMG, LLP as the Company's
     independent auditor as follows:

     For:           15,764,920
     Against:          126,613
     Abstain:           36,752

ITEM 5.  OTHER INFORMATION


None


                                       13
<PAGE>   14

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

(a)  EXHIBITS

     10.1             LLC Articles of Incorporation

     10.2             Multifamily Note

     10.3             Term Loan Agreement between ARV Assisted Living, Inc and
                      LFSRI II Assisted Living LLC

     10.4             Term Note between ARV Assisted Living, Inc and LFSRI II
                      Assisted Living LLC

     10.5             Warrant To Purchase Common Stock of ARV Assisted Living,
                      Inc.

     27               Financial Data Schedule

(b)  REPORTS ON FORM 8-K

     None


                                       14
<PAGE>   15

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


                                        ARV ASSISTED LIVING, INC.


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

                                        Date: August 10, 2000


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

                                        Date: August 10, 2000


                                       15

<PAGE>   16

                                 EXHIBIT INDEX

Exhibit Number                     Description
--------------                     -----------

     10.1             LLC Articles of Incorporation

     10.2             Multifamily Note

     10.3             Term Loan Agreement between ARV Assisted Living, Inc and
                      LFSRI II Assisted Living LLC

     10.4             Term Note between ARV Assisted Living, Inc and LFSRI II
                      Assisted Living LLC

     10.5             Warrant To Purchase Common Stock of ARV Assisted Living,
                      Inc.

     27               Financial Data Schedule