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      September 30, 1999
                              ------------------------
                                       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 333-64679
                                              ----------

                        Harborside Healthcare Corporation


                  Delaware                               04-3307188
--------------------------------------------------------------------------------
(State or other  jurisdiction of              (IRS employer identification no.)
 incorporation  or  organization)



    One Beacon Street, Boston, Massachusetts               02108
--------------------------------------------------------------------------------
   (Address of principal executive offices)              (Zip Code)


                          (617) 646-5400
--------------------------------------------------------------------------------
       (Registrant's telephone number, including area code)



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

Number of shares of common stock,  par value $0.01 per share  outstanding  as of
November 12, 1999: 7,261,332.


<PAGE>



               HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES

                                Table of Contents

<TABLE>
<CAPTION>
<S>                                                                        <C>

                                                                            Page

Part I.           Financial Information

                  Condensed Consolidated Balance Sheets
                     December 31, 1998 and September 30, 1999                  3

                  Condensed Consolidated Statements of Operations
                     For the Three Months and the Nine Months Ended
                     September 30, 1998 and 1999                               4

                  Condensed Consolidated Statement of Changes
                     in Stockholders' Equity (Deficit) for the Nine Months
                     Ended September 30, 1999                                  5

                  Condensed Consolidated Statements of Cash Flows
                     For the Nine Months Ended September 30, 1998 and 1999     6

                  Notes to Condensed Consolidated Financial Statements         7

                  Management's Discussion and Analysis of Financial           15
                     Condition and Results of Operations

Part II           Other Information                                           22

                  Signatures                                                  23

</TABLE>



                                      -2-
<PAGE>



PART I.  FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

               HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                (dollars in thousands, except per share amounts)



<TABLE>
<CAPTION>

                                                                                 December 31, September 30,
                                                                                        1998         1999
                    ASSETS                                                         ---------    ---------
                                                                                              (Unaudited)
<S>                                                                                <C>          <C>
Current assets:

  Cash and cash equivalents ....................................................   $     896    $   2,994
  Accounts receivable, net of allowances for doubtful
     accounts of $2,864 and $4,135,  respectively ..............................      49,946       47,774
  Prepaid expenses and other ...................................................      10,934       15,980
  Prepaid income taxes .........................................................       3,873       12,828
  Deferred income taxes ........................................................       4,084        4,084
                                                                                   ---------    ---------
     Total current assets ......................................................      69,733       83,660

 Restricted cash ...............................................................       2,110        2,142
 Property and equipment, net ...................................................     160,504      165,920
 Deferred financing and other non-current assets, net ..........................      18,173       16,235
 Other assets, net .............................................................       4,300        3,400
 Note receivable................................................................       7,487        7,487
 Deferred income taxes .........................................................       2,229        2,229
                                                                                   ---------    ---------
   Total assets ................................................................   $ 264,536    $ 281,073
                                                                                   =========    =========

                    LIABILITIES
Current liabilities:
  Current maturities of long-term debt .........................................   $     207    $     218
  Current portion of capital lease obligation ..................................       4,278        4,542
  Accounts payable .............................................................       7,401       11,820
  Employee compensation and benefits ...........................................      13,220       11,930
  Other accrued liabilities ....................................................       7,485        7,805
  Accrued interest .............................................................          62          238
  Current portion of deferred income ...........................................         677          677
                                                                                   ---------    ---------
    Total current liabilities ..................................................      33,330       37,230

 Long-term portion of deferred income ..........................................       3,104        2,597
 Long-term debt ................................................................     134,473      163,035
 Long-term portion of capital lease obligation .................................      51,253       50,257
                                                                                   ---------    ---------
    Total liabilities ..........................................................     222,160      253,119
                                                                                   ---------    ---------

Exchangeable  preferred  stock,  redeemable,  $.01 par value with a  liquidation
  value of $1,000 per share; 500,000 shares authorized;
  42,293 and 46,707 issued and outstanding .....................................      42,293       46,707
                                                                                   ---------    ---------

        STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value, 19,000,000 shares
  authorized, 7,261,332 shares issued and outstanding ..........................         146          146
Additional paid-in capital .....................................................     204,607      200,180
Less common stock in treasury, at cost, 7,349,832 shares .......................    (183,746)    (183,746)
Accumulated deficit ............................................................     (20,924)     (35,333)
                                                                                   ---------    ---------
    Total stockholders' equity (deficit) .......................................          83      (18,753)
                                                                                   ---------    ---------
    Total liabilities and stockholders' equity (deficit) .......................   $ 264,536    $ 281,073
                                                                                   =========    =========

</TABLE>


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

                                      -3-
<PAGE>



               HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                (dollars in thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                          For the three months      For the nine months
                                                           ended September 30,       ended September 30,
                                                            1998         1999         1998         1999
                                                         ---------    ---------    ---------    ---------

<S>                                                      <C>          <C>          <C>          <C>
Total net revenues ...................................   $  78,697    $  77,590    $ 227,337    $ 224,310
                                                         ---------    ---------    ---------    ---------

Expenses:
  Facility operating .................................      62,887       63,014      179,917      187,066
  General and administrative .........................       3,625        4,204       11,100       13,585
  Service charges paid to former affiliate ...........         313          307          941          880
  Amortization of prepaid management fee .............         200          300          200          900
  Depreciation and amortization ......................       1,821        2,347        4,084        7,451
  Facility rent ......................................       5,465        5,645       17,086       16,849
  Merger Costs .......................................      37,172         --         37,172         --
  Restructuring costs ................................        --          5,745         --          5,745
                                                         ---------    ---------    ---------    ---------
    Total expenses ...................................     111,483       81,562      250,500      232,476
                                                         ---------    ---------    ---------    ---------

Loss from operations .................................     (32,786)      (3,972)     (23,163)      (8,166)

Other:
  Interest expense, net ..............................       3,591        5,410        6,793       15,266
  Other expense (income) .............................         (17)        (141)          55          189
                                                         ---------    ---------    ---------    ---------

Loss before income taxes .............................     (36,360)      (9,241)     (30,011)     (23,621)
Income tax benefit ...................................      (7,460)      (3,604)      (4,984)      (9,212)
                                                         ---------    ---------    ---------    ---------

Net loss .............................................   $ (28,900)   $  (5,637)   $ (25,027)   $ (14,409)
                                                          =========    =========   =========    =========
Loss per common share:
       Basic .........................................   $   (3.93)   $   (0.99)   $   (3.28)   $   (2.59)
                                                         =========    =========    =========    =========
       Diluted .......................................   $   (3.93)   $   (0.99)   $   (3.28)   $   (2.59)
                                                         =========    =========    =========    =========



</TABLE>

























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



                                      -4-
<PAGE>



               HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES

  CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                                   (Unaudited)
                             (dollars in thousands)



<TABLE>
<CAPTION>


                                                                    Additional
                                                           Common   Paid-In      Treasury     Retained     Total
                                                           Stock    Capital       Stock       Deficit

<S>                                                     <C>        <C>         <C>         <C>         <C>
Stockholders' equity (deficit), December 31, 1998 ....   $    146   $ 204,607   $ (183,746) $  (20,924) $      83

Preferred stock dividends ............................       --        (4,427)        --           --      (4,427)

Net loss for the nine months ended
  September 30, 1999 .................................       --         --            --       (14,409)   (14,409)
                                                         --------    --------   ----------  ----------  ---------
Stockholders' equity (deficit), September 30, 1999....   $    146   $ 200,180   $ (183,746) $  (35,333) $ (18,753)
                                                         ========   =========   ==========  ==========  =========





</TABLE>






































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



                                      -5-
<PAGE>



               HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                             (dollars in thousands)
<TABLE>
<CAPTION>

                                                                          For the nine months ended
                                                                                 September 30,
                                                                               1998         1999
                                                                            ---------     ---------
<S>                                                                         <C>          <C>
Operating activities:
 Net loss ................................................................  $ (25,027)   $ (14,409)
 Adjustments to reconcile net loss
  to net cash used by operating activities:
  Depreciation of property and equipment .................................      3,238        5,053
  Amortization of deferred financing and
     other non-current assets ............................................        846        2,398
  Amortization of prepaid management fee .................................        200          900
  Amortization of deferred income ........................................       (453)        (507)
  Accretion of senior subordinated discount notes ........................      1,847        8,725
  Amortization of loan costs and fees (included in interest expense) .....         33          108
  Accretion of interest on capital lease obligation ......................      2,403        2,549
  Other non-cash items, net ..............................................       (350)        --
  Write-off of goodwill and other assets related to restructuring.........       --          1,852
                                                                            ---------    ---------
                                                                              (17,263)       6,669
Changes in operating assets and liabilities:
  (Increase) decrease in accounts receivable .............................    (12,340)       2,172
  Increase in prepaid expenses and other .................................     (1,343)      (5,046)
  Increase (decrease) in accounts payable ................................       (140)       4,419
  Increase (decrease) in employee compensation and benefits ..............      3,643       (1,290)
  Increase in accrued interest ...........................................        211          176
  Increase in other accrued liabilities ..................................      5,967          320
  Increase in prepaid income taxes .......................................     (7,681)      (8,955)
                                                                            ---------    ---------
Net cash used by operating activities ....................................    (28,946)      (1,535)
                                                                            ---------    ---------

Investing activities:
  Additions to property and equipment ....................................    (65,936)     (10,672)
  Additions to deferred financing and other non-current assets ...........    (18,794)      (2,217)
  Transfers to restricted cash, net ......................................        514          (32)
                                                                            ---------    ---------
 Net cash used by investing activities ...................................    (84,216)     (12,921)
                                                                            ---------    ---------

Financing activities:
  Borrowings under revolving line of credit ..............................     17,150       20,000
  Repaid on revolving line of credit .....................................    (20,000)        --
  Payment of long-term debt ..............................................       (141)        (152)
  Proceeds from the issuance of bonds payable ............................     99,493         --
  Proceeds from the issuance of preferred stock ..........................     40,000         --
  Purchase of treasury stock .............................................   (183,746)        --
  Proceeds from sale of common stock .....................................    158,500         --
  Principal payments of capital lease obligation .........................     (3,019)      (3,281)
  Cash receipt in connection with lease ..................................      1,935         --
  Exercise of stock options ..............................................         29         --
  Dividends paid on exchangeable preferred stock .........................       --            (13)
                                                                            ---------    ---------
Net cash provided by financing activities ................................    110,201       16,554
                                                                            ---------    ---------

Net increase (decrease) in cash and cash equivalents .....................     (2,961)       2,098
Cash and cash equivalents, beginning of period ...........................      8,747          896
                                                                            ---------    ---------
Cash and cash equivalents, end of period .................................  $   5,786    $   2,994
                                                                            =========    =========

Supplemental Disclosure:
  Interest paid ..........................................................  $   3,217    $   4,370
                                                                            =========    =========
  Income taxes paid ......................................................  $   2,977    $     155
                                                                            =========    =========
</TABLE>






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


                                      -6-
<PAGE>



               HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


A.  General

  Harborside Healthcare Corporation and its subsidiaries (the "Company") operate
long-term  care  facilities and through  September 1999 provided  rehabilitation
therapy services to non-affiliated  facilities (See Note D). As of September 30,
1999, the Company owned twenty-two facilities,  operated twenty-seven additional
facilities  under various leases and managed one facility.  The Company accounts
for its investment in one 75% owned facility using the equity method.

B.  Basis of Presentation

  The accompanying  unaudited condensed consolidated financial statements should
be read in  conjunction  with the  consolidated  financial  statements and notes
thereto  included in the  Company's  Form 10-K for the year ended  December  31,
1998.  In the  opinion  of  management,  the  accompanying  unaudited  financial
statements  reflect  all  adjustments   (consisting  of  only  normal  recurring
accruals)  necessary to present  fairly the Company's  financial  position as of
September  30,  1999,  the results of its  operations  for the  three-month  and
nine-month  periods ended September 30, 1998 and 1999 and its cash flows for the
nine-month  periods ended September 30, 1998 and 1999. The results of operations
for the  three-month  and  nine-month  period ended  September  30, 1999 are not
necessarily  indicative  of the results which may be expected for the full year.
See "Management's  Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this report.

C.  Loss Per Common Share

  The following  table sets forth the  computation of basic and diluted loss per
Common Share for the periods ended September 30, 1998 and 1999:
<TABLE>
<CAPTION>

                                                                Three Months Ended               Nine Months Ended
                                                                   September 30,                   September 30,
                                                               1998             1999             1998             1999
                                                              ------           ------           ------           -------
<S>                                                       <C>              <C>              <C>              <C>
Numerator:
    Net income loss ....................................  $ (28,900,000)   $  (5,637,000)   $ (25,027,000)   $ (14,409,000)
    Preferred Stock dividends ..........................       (931,000)      (1,525,000)        (931,000)      (4,427,000)
                                                          -------------    -------------    -------------    -------------
Loss available for Common Shares .......................  $ (29,831,000)   $  (7,162,000)   $ (25,958,000)   $ (18,836,000)
                                                          =============    =============    =============    =============

Denominator for basic and diluted loss per Common
        Share - adjusted weighted average shares and
      assumed conversions ..............................      7,595,000        7,261,000        7,904,000        7,261,000
                                                          =============    =============    =============    =============


Basic loss per Common Share ............................  $       (3.93)   $       (0.99)   $       (3.28)   $       (2.59)
                                                          =============    =============    =============    =============
Diluted loss per Common Share ..........................  $       (3.93)   $       (0.99)   $       (3.28)   $       (2.59)
                                                          =============    =============    =============    =============
</TABLE>


D.  Restructuring Costs

 During the third quarter of 1999,  the Company  terminated  its contracts  with
non-affiliated   facilities   and   ceased   providing   therapy   services   to
non-affiliated  facilities.  The Company,  through its subsidiary Theracor,  had
provided physical,  speech and occupational  services to non-affiliated  skilled
nursing  facilities  since 1995.  Significant  changes in the  contract  therapy
business,  primarily related to reductions in Medicare reimbursement for therapy
services  caused by the Balanced  Budget Act of 1997 led to this  decision.  The
Company  will  continue to provide  rehabilitation  therapy  services to nursing
facilities which it owns.

 The Company's therapy services  restructuring  plan required the termination of
approximately 60  rehabilitation  therapy services  employees and the closure of
two regional  offices.  During the third quarter of 1999,  the Company  recorded
restructuring  charges of  approximately  $5.7 million under this plan,  most of
which were  non-cash  in nature.  The  restructuring  charge  consisted  of $2.5
million of  uncollectible  accounts  receivable,  $1.5  million  of  unamortized
goodwill,  $0.7 million of employee costs and approximately  $1.0 million due to
the  write-off  of  other  assets.  As of  September  30,  1999,  the  Company's
restructuring reserve was approximately $1.2 million.

                                      -7-
<PAGE>


E. Condensed Consolidating Financial Information

 Certain of the Company's  subsidiaries are precluded from guaranteeing the debt
of the parent  company (the  "Non-Guarantors"),  based on current  agreements in
effect.  The  Company's  remaining   subsidiaries  (the  "Guarantors")  are  not
restricted from serving as guarantors of the parent company debt. The Guarantors
are comprised of Harborside  Healthcare  Limited  Partnership,  Belmont  Nursing
Center Corp., Orchard Ridge Nursing Center Corp.,  Oakhurst Manor Nursing Center
Corp.,  Riverside  Retirement  Limited  Partnership,  Harborside  Toledo Limited
Partnership,  Harborside Connecticut Limited Partnership,  Harborside of Florida
Limited  Partnership,   Harborside  of  Ohio  Limited  Partnership,   Harborside
Healthcare  Baltimore  Limited  Partnership,  Harborside  of  Cleveland  Limited
Partnership,  Harborside of Dayton Limited Partnership, Harborside Massachusetts
Limited Partnership,  Harborside of Rhode Island Limited Partnership, Harborside
North  Toledo  Limited  Partnership,   Harborside  Healthcare  Advisors  Limited
Partnership,  Harborside  Toledo  Corp.,  KHI  Corporation,  Harborside  Danbury
Limited  Partnership,  Harborside  Acquisition Limited Partnership V, Harborside
Acquisition Limited  Partnership VI, Harborside  Acquisition Limited Partnership
VII, Harborside  Acquisition Limited  Partnership VIII,  Harborside  Acquisition
Limited  Partnership IX, Harborside  Acquisition Limited Partnership X, Sailors,
Inc.,  New  Jersey  Harborside  Corp.,   Bridgewater   Assisted  Living  Limited
Partnership, Maryland Harborside Corp., Harborside Homecare Limited Partnership,
Harborside  Rehabilitation  Limited Partnership,  Harborside  Healthcare Network
Limited Partnership and Harborside Health I Corporation.

 The information  which follows presents the condensed  consolidating  financial
position  as of  December  31,  1998  and  September  30,  1999;  the  condensed
consolidating  results of operations for the three-month and nine-month  periods
ended  September  30, 1998 and 1999;  and the  consolidating  cash flows for the
nine-months  ended  September  30, 1998 and 1999 of (a) the parent  company only
("the Parent"),  (b) the combined Guarantors,  (c) the combined  Non-Guarantors,
(d) eliminating entries and (e) the Company on a consolidated basis.


                                      -8-
<PAGE>


E. Condensed Consolidating Financial Information (Continued)

               HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
                      Condensed Consolidating Balance Sheet
                             As of December 31, 1998
                                   (Unaudited)
                (dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                                   Parent    Guarantors  Non-Guarantor Elimination  Consolidated
                                                                 ----------  ----------  ------------- -----------  ------------

<S>                                                               <C>          <C>          <C>         <C>           <C>
ASSETS
Current assets:
   Cash and cash equivalents ..................................   $      51    $      99    $    746    $    -        $    896
   Accounts receivable, net of allowance ......................        --         36,485      15,733       (2,272)      49,946
   Intercompany receivable ....................................     116,555         --          --       (116,555)        --
   Prepaid expenses and other .................................       1,268        7,291       2,804         (429)      10,934
   Prepaid income taxes .......................................       3,873         --          --           --          3,873
   Deferred income taxes ......................................       2,150        1,934        --           --          4,084
                                                                  ---------    ---------   ---------    ---------     --------
Total current assets ..........................................     123,897       45,809      19,283     (119,256)      69,733

Restricted cash ...............................................        --          2,162         472         (524)       2,110
Investment in limited partnership .............................      15,584         --         4,044      (19,628)        --
Property and equipment, net ...................................        --        142,383      18,595         (474)     160,504
Deferred financing and other
  non-current assets, net .....................................      10,532        6,176       1,642         (177)      18,173
Other assets, net .............................................       4,300         --          --           --          4,300
Note receivable ...............................................        --          7,487        --           --          7,487
Deferred income taxes .........................................          71        2,158        --           --          2,229
                                                                  ---------    ---------   ---------    ---------     --------
Total assets ..................................................   $ 154,384    $ 206,175   $  44,036    $(140,059)    $264,536
                                                                  =========    =========   =========    =========     ========

LIABILITIES
Current liabilities:
   Current maturities of long-term debt........................   $    --      $      22   $     185    $    --      $     207
   Current portion of capital lease
     obligation ...............................................        --          4,278        --           --          4,278
   Accounts payable ...........................................        --          5,010       3,159         (768)       7,401
   Intercompany payable .......................................        --         90,284       8,923      (99,207)        --
   Employee compensation and benefits .........................        --          9,853       3,367         --         13,220
   Other accrued liabilities ..................................       3,254        3,306         925         --          7,485
   Accrued interest ...........................................       1,385        3,260        --         (4,583)          62
   Current portion of deferred income .........................        --           --          --            677          677
                                                                  ---------    ---------   ---------    ---------     --------
Total current liabilities .....................................       4,639      116,013      16,559     (103,881)      33,330

Long-term portion of deferred income ..........................        --          1,202       2,579         (677)       3,104
Long-term debt ................................................     112,243        2,721      16,109        3,400      134,473
Long-term  portion of capital lease obligation ................        --         54,348        --         (3,095)      51,253
                                                                  ---------    ---------   ---------    ---------     --------
Total liabilities .............................................     116,882      174,284      35,247     (104,253)     222,160
                                                                  ---------    ---------   ---------    ---------     --------

Exchangeable  preferred  stock,  redeemable,  $.01 par value
 with a  liquidation value of $1,000 per share;
 500,000 shares authorized;
 42,293 shares issued and outstanding    ......................      42,293         --          --           --         42,293
                                                                   ---------   ---------   ---------    ---------     --------

STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value; 19,000,000
   shares authorized; 7,261,332 shares issued
   and outstanding ............................................         146        2,569       3,885       (6,454)         146
Additional paid-in capital ....................................     204,381         --          --            226      204,607
Less common stock in  treasury, at
   cost, 7,349,832 shares .....................................    (183,746)        --          --           --       (183,746)
Retained earnings (deficit) ...................................     (25,572)       4,567      (2,170)       2,251      (20,924)
Partners' equity ..............................................        --         24,755       7,074      (31,829)        --
                                                                   --------    ---------   ---------    ---------    ---------
Total stockholders' equity (deficit) ..........................      (4,791)      31,891       8,789      (35,806)          83
                                                                   --------    ---------   ---------    ---------    ---------
Total liabilities and stockholders' equity ....................    $154,384    $ 206,175   $  44,036    $(140,059)   $ 264,536
                                                                   ========    =========   =========    =========    =========
</TABLE>


                                      -9-
<PAGE>


E. Condensed Consolidating Financial Information (Continued)

               HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
                      Condensed Consolidating Balance Sheet
                            As of September 30, 1999
                                   (Unaudited)
                (dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                                     Parent     Guarantors  Non-Guarantor  Elimination  Consolidated
                                                                    ---------   ----------  -------------  -----------  ------------
<S>                                                                 <C>          <C>          <C>         <C>           <C>
ASSETS
Current assets:
   Cash and cash equivalents ....................................   $    --      $   1,930    $   1,064   $     --      $   2,994
   Accounts receivable, net of allowance ........................        --         33,094       14,680         --         47,774
   Intercompany receivable ......................................     120,781       11,878         --       (132,659)        --
   Prepaid expenses and other ...................................       4,622        9,240        2,118         --         15,980
   Prepaid income taxes .........................................      12,828         --           --           --         12,828
   Deferred income taxes ........................................       2,150        1,934         --           --          4,084
                                                                    ---------    ---------    ---------    ---------    ---------
Total current assets ............................................     140,381       58,076       17,862     (132,659)      83,660

Restricted cash .................................................        --          1,566          576         --          2,142
Investment in limited partnership ...............................      15,584         --          4,044      (19,628)        --
Property and equipment, net .....................................        --        146,601       19,319         --        165,920
Deferred financing and other
  non-current assets, net .......................................      11,249        3,543        1,443         --         16,235
Other assets, net ...............................................       3,400         --           --           --          3,400
Note receivable .................................................        --          7,487         --           --          7,487
Deferred income taxes ...........................................          71        2,158         --           --          2,229
                                                                    ---------    ---------    --------     ---------    ---------
Total assets ....................................................   $ 170,685    $ 219,431    $  43,244    $(152,287)   $ 281,073
                                                                    =========    =========    =========    =========    =========

LIABILITIES
Current liabilities:
   Current maturities of long-term debt .........................   $    --      $      17    $     201    $    --      $     218
   Current portion of capital lease
     obligation .................................................        --          4,542         --           --          4,542
   Accounts payable .............................................        --          9,396        2,424         --         11,820
   Intercompany payable .........................................        --        104,464       11,226     (115,690)        --
   Employee compensation and benefits ...........................        --          9,046        2,884         --         11,930
   Other accrued liabilities ....................................        --          6,911          894         --          7,805
   Accrued interest .............................................       3,575        9,971         --        (13,308)         238
   Current portion of deferred income ...........................        --            677         --           --            677
                                                                    ---------    ---------    ---------    ---------    ---------
Total current liabilities .......................................       3,575      145,024       17,629     (128,998)      37,230

Long-term portion of deferred income ............................        --            971        2,303         (677)       2,597
Long-term debt ..................................................     132,243        1,527       15,957       13,308      163,035
Long-term portion of capital lease obligation ...................        --         50,257         --           --         50,257
                                                                    ---------    ---------    ---------    ---------    ---------
Total liabilities ...............................................     135,818      197,779       35,889     (116,367)     253,119
                                                                    ---------    ---------    ---------    ---------    ---------

Exchangeable  preferred  stock,  redeemable,  $.01 par value
 with a  liquidation value of $1,000 per share;
 500,000 shares authorized;
 46,707 shares issued and outstanding ...........................      46,707         --           --           --         46,707
                                                                    ---------    ---------    ---------    ---------    ---------

STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value; 19,000,000
    shares authorized; 7,261,332 shares issued
    and outstanding .............................................         146        2,569        3,885       (6,454)         146
Additional paid-in capital ......................................     199,953         --           --            227      200,180
Less common stock in treasury, at
   cost, 7,349,832 shares .......................................    (183,746)        --           --           --       (183,746)
Partners' equity ................................................        --         24,755        7,074      (31,829)        --
Accumulated deficit .............................................     (28,193)      (5,672)      (3,604)       2,136      (35,333)
                                                                    ---------    ---------    ---------    ---------    ---------
Total stockholders' equity (deficit) ............................     (11,840)      21,652        7,355      (35,920)     (18,753)
                                                                    ---------    ---------    ---------    ---------    ---------
Total liabilities and stockholders' equity (deficit)                $ 170,685    $ 219,431    $  43,244    $(152,287)   $ 281,073
                                                                    =========    =========    =========    =========    =========
</TABLE>


                                      -10-
<PAGE>


E. Condensed Consolidating Financial Information (Continued)

               HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
                Condensed Consolidating Statements of Operations
                           For the three months ended
                           September 30, 1998 and 1999
                                   (Unaudited)
                             (dollars in thousands)


For the three months ended September 30, 1998:
<TABLE>
<CAPTION>
                                             Parent          Guarantors    Non-Guarantors      Elimination      Consolidated
                                          -----------        ----------    -------------       -----------      ------------
<S>                                       <C>                <C>              <C>              <C>                <C>
Total net revenues                        $         -        $   60,586       $   25,541       $    (7,430)       $  78,697
                                          -----------        ----------       ----------       -----------        ---------

Expenses:
  Facility operating                                -            48,760           21,557            (7,430)          62,887
  General and administrative                      (63)            3,632               56                 -            3,625
  Service charges paid to affiliate                 -               313                -                 -              313
  Amortization of prepaid management fee          200                 -                -                 -              200
  Depreciation and amortization                   248             1,155              418                 -            1,821
  Facility rent                                     -             3,414            2,051                 -            5,465
  Merger costs                                 23,486            13,435              251                 -           37,172
  Management fees paid to affiliates                -           (1,601)            1,601                -                 -
                                          -----------        ----------       ----------       -----------       ----------
Total expenses                                 23,871            69,108           25,934            (7,430)         111,483
                                          -----------        ----------       ----------       -----------       ----------

Loss from operations                          (23,871)           (8,522)            (393)                 -         (32,786)

Other:
  Interest expense, net                           771             2,645              175                 -            3,591
  Other income                                      -               (17)               -                 -              (17)
                                          -----------        ----------       ----------       -----------       ----------

Loss before income taxes                      (24,642)          (11,150)            (568)                -          (36,360)
Income tax benefit                             (3,224)           (4,122)            (114)                -           (7,460)
                                          -----------        ----------       ----------       -----------       ----------
Net loss                                  $   (21,418)        $  (7,028)       $    (454)       $        -        $ (28,900)
                                          ===========        ==========       ==========       ===========       ==========


For the three months ended September 30, 1999:

                                              Parent         Guarantors     Non-Guarantors     Elimination     Consolidated
                                          -----------        ----------     -------------      -----------     ------------

Total net revenues                        $         -        $   57,049       $   24,579       $    (4,038)      $   77,590
                                          -----------        ----------       ----------       -----------       ----------


Expenses:
  Facility operating                                -            46,712           20,340            (4,038)          63,014
  General and administrative                       17             4,187                -                 -            4,204
  Service charges paid to affiliate                 -               307                -                 -              307
  Amortization of prepaid management fee          300                 -                -                 -              300
  Depreciation and amortization                   420             1,473              454                 -            2,347
  Facility rent                                     -             3,533            2,112                 -            5,645
  Restructuring costs                               -             5,745                                               5,745
  Management fees paid to affiliates                -            (1,609)           1,609                -                -
                                         ------------        ----------       ----------       -----------       ----------
Total expenses                                    737            60,348           24,515            (4,038)          81,562
                                         ------------        ----------       ----------       -----------       ----------

Income (loss) from operations                    (737)           (3,299)              64                 -           (3,972)

Other:
  Interest expense, net                           755             4,224              431                 -            5,410
  Other income                                      -                 -                -              (141)            (141)
                                         ------------        ----------       ----------       -----------       ----------

Income (loss) before income taxes              (1,492)           (7,523)            (367)              141           (9,241)
Income taxes (benefit)                           (582)           (2,934)            (143)               55           (3,604)
                                         ------------        ----------       ----------       -----------     ------------
Net income (loss)                        $       (910)        $  (4,589)       $    (224)       $       86      $    (5,637)
                                         ============        ==========       ==========       ===========      ===========
</TABLE>


                                      -11-
<PAGE>

E. Condensed Consolidating Financial Information (Continued)

               HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
                Condensed Consolidating Statements of Operations
                       For the nine months ended September
                                30, 1998 and 1999
                                   (Unaudited)
                             (dollars in thousands)

<TABLE>
<CAPTION>

For the nine months ended September 30, 1998:

                                              Parent         Guarantors       Non-Guarantors   Elimination      Consolidated
                                           -----------       ----------        -------------   -----------      ------------
<S>                                        <C>               <C>               <C>             <C>                <C>
Total net revenues                         $        -        $  171,957        $  76,408       $   (21,028)       $ 227,337
                                           ----------        ----------        ---------       -----------        ---------

Expenses:
  Facility operating                                -           136,985           63,960           (21,028)         179,917
  General and administrative                      153            10,720              227                 -           11,100
  Service charges paid to affiliate                 -               941                -                 -              941
  Amortization of prepaid management fee          200                 -                -                 -              200
  Depreciation and amortization                   262             2,664            1,158                 -            4,084
  Facility rent                                     -            10,868            6,218                 -           17,086
  Merger costs                                 23,486            13,435              251                 -           37,172
  Management fees paid to affiliates                -            (4,670)           4,670                -                 -
                                           ----------        ----------        ---------       -----------         --------
Total expenses                                 24,101           170,943           76,484           (21,028)         250,500
                                           ----------        ----------        ---------       -----------         --------

Income (loss) from operations                 (24,101)            1,014              (76)                -          (23,163)

Other:
  Interest expense, net                           771             5,554              468                 -            6,793
  Other expense                                     -                55                -                 -               55
                                          -----------        ----------        ---------       -----------       ----------

Loss before income taxes                      (24,872)           (4,595)            (544)                -          (30,011)
Income tax benefit                             (3,134)           (1,654)            (196)                -           (4,984)
                                          -----------        ----------        ---------       -----------       ----------
Net loss                                  $   (21,738)       $   (2,941)       $    (348)      $         -       $  (25,027)
                                          ===========        ==========        =========       ===========       ==========


For the nine months ended September 30, 1999:

                                            Parent           Guarantors     Non-Guarantors     Elimination     Consolidated
                                          -----------        ----------     -------------      -----------     ------------

Total net revenues                        $        24        $  165,777        $  71,796       $   (13,287)      $  224,310
                                          -----------        ----------        ---------       -----------       ----------


Expenses:
  Facility operating                                -           139,598           60,755           (13,287)         187,066
  General and administrative                       43            13,542                -                 -           13,585
  Service charges paid to affiliate                 -               880                -                 -              880
  Amortization of prepaid management fee          900                 -                -                 -              900
  Depreciation and amortization                 1,200             4,960            1,291                 -            7,451
  Facility rent                                     -            10,480            6,369                 -           16,849
  Restructuring costs                               -             5,745                -                 -            5,745
  Management fees paid to affiliates                -            (4,434)           4,434                 -                -
                                          -----------        ----------        ---------       -----------        ---------
Total expenses                                  2,143           170,771           72,849           (13,287)         232,476
                                          -----------        ----------        ---------       -----------        ---------

Loss from operations                           (2,119)           (4,994)          (1,053)                 -          (8,166)


Other:
  Interest expense, net                         2,178            11,791            1,297                 -           15,266
  Other expense                                     -                 -                -               189              189
                                          -----------        ----------        ---------       -----------        ---------

Loss before income taxes                       (4,297)          (16,785)          (2,350)             (189)         (23,621)
Income tax benefit                             (1,676)           (6,546)            (916)              (74)          (9,212)
                                          -----------        ----------        ---------       -----------        ---------
Net loss                                  $    (2,621)       $  (10,239)       $  (1,434)      $      (115)       $ (14,409)
                                          ===========        ==========        =========       ===========        =========

</TABLE>


                                      -12-
<PAGE>


  E. Condensed Consolidating Financial Information (Continued)


               HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
                 Condensed Consolidating Statement of Cash Flows
                     For the nine months ended September 30,
                                      1998
                                   (Unaudited)
                             (dollars in thousands)
<TABLE>
<CAPTION>


                                                             Parent    Guarantors  Non-Guarantor Elimination  Consolidated
                                                           ---------   ----------  ------------- -----------  ------------

<S>                                                        <C>          <C>          <C>          <C>          <C>
Operating activities:
Net cash provided (used) by operating activities:  .....   $ (98,039)   $  71,446    $   3,682    $  (6,035)   $ (28,946)
                                                           ---------    ---------    ---------    ---------    ---------

Investing activities:
     Additions to property and equipment ...............        --        (66,530)      (2,209)       2,803      (65,936)
     Additions to deferred financing and other
       non-current assets ..............................     (16,885)      (1,909)        --           --        (18,794)
     Transfers (to) from restricted cash, net ..........        --         (1,654)      (1,064)       3,232          514
                                                           ---------    ---------    ---------    ---------    ---------
Net cash provided (used) by investing activities .......     (16,885)     (70,093)      (3,273)       6,035      (84,216)
                                                           ---------    ---------    ---------    ---------    ---------

Financing activities:
     Borrowings under revolving line of credit .........        --         17,150         --           --         17,150
     Repaid on revolving line of credit ................        --        (20,000)        --           --        (20,000)
     Payment of long-term debt .........................        --            (72)         (69)        --           (141)
     Issuance of bonds payable .........................      99,493         --           --           --         99,493
     Issuance of preferred stock .......................      40,000         --           --           --         40,000
     Purchase of treasury stock ........................    (183,746)        --           --           --       (183,746)
     Proceeds from sale of common stock ................     158,500         --           --           --        158,500
     Principal payments of capital lease obligation ....        --         (3,019)        --           --         (3,019)
     Receipt of cash in connection with lease ..........        --          1,935         --           --          1,935
     Redemption of stock options .......................          29         --           --           --             29
                                                           ---------    ---------    ---------    ---------    ---------
Net cash provided (used) by financing activities             114,276       (4,006)         (69)        --        110,201
                                                           ---------    ---------    ---------    ---------    ---------

Net increase (decrease) in cash and cash equivalents ...        (648)      (2,653)         340         --         (2,961)

Cash and cash equivalents, beginning of period .........         698        4,383        3,666         --          8,747
                                                           ---------    ---------    ---------    ---------    ---------
Cash and cash equivalents, end of period ...............   $      50    $   1,730    $   4,006    $    --      $   5,786
                                                           =========    =========    =========    =========    =========

Supplemental Disclosure:
Interest paid ..........................................   $     268    $   2,353    $     596    $    --      $   3,217
                                                           =========    =========    =========    =========    =========
Income taxes paid ......................................   $   2,977    $    --      $    --      $    --      $   2,977
                                                           =========    =========    =========    =========    =========


</TABLE>



                                      -13-
<PAGE>



E. Condensed Consolidating Financial Information (Continued)


               HARBORSIDE HEALTHCARE CORPORATION AND SUBSIDIARIES
                    Condensed Consolidating Statement of Cash Flows
                  For the nine months ended September 30,
                                      1999
                                   (Unaudited)
                             (dollars in thousands)

<TABLE>
<CAPTION>

                                                         Parent   Guarantors Non-Guarantor Elimination Consolidated
                                                        --------  ---------- ------------- ----------- ------------

<S>                                                     <C>        <C>          <C>         <C>         <C>
Operating activities:
Net cash provided (used) by operating activities:       $(17,516)  $  12,855    $  2,128    $    998    $ (1,535)
                                                        --------   ---------    --------    --------    --------

Investing activities:
     Additions to property and equipment ............       --        (8,364)     (1,834)       (474)    (10,672)
     Additions to deferred financing and other
      non-current assets ............................     (2,522)        311          (6)       --        (2,217)
     Transfers (to) from restricted cash, net .......       --           596        (104)       (524)        (32)
                                                        --------    --------    --------    --------    --------
Net cash used by investing activities ...............     (2,522)     (7,457)     (1,944)       (998)    (12,921)
                                                        --------    --------    --------    --------    --------

Financing activities:
     Borrowings under revolving line of credit            20,000        --          --          --        20,000
     Payment of long-term debt ......................       --          (286)        134        --          (152)
     Principal payments of capital lease obligation..     (3,281)       --          --        (3,281)
     Dividends paid on exchangeable preferred stock .        (13)       --          --          --           (13)
                                                        --------    --------    --------    --------    --------
Net cash provided (used) by financing activities ....     19,987      (3,567)        134        --        16,554
                                                        --------    --------    --------    --------    --------

Net increase (decrease) in cash and cash equivalents         (51)      1,831         318        --         2,098

Cash and cash equivalents, beginning of period ......         51          99         746        --           896
                                                        --------    --------    --------    --------    --------
Cash and cash equivalents, end of period $ ..........       --      $  1,930    $  1,064    $   --      $  2,994
                                                        ========    ========    ========    ========    ========

Supplemental Disclosure:
Interest paid .......................................   $    623    $  3,376    $    371    $   --      $  4,370
                                                        ========    ========    ========    ========    ========
Income taxes paid ...................................   $    155    $   --      $   --      $   --      $    155
                                                        ========    ========    ========    ========    ========




</TABLE>


                                      -14-
<PAGE>

Item 2.

                                            MANAGEMENT'S DISCUSSION AND
                                        ANALYSIS OF FINANCIAL CONDITION AND
                                               RESULTS OF OPERATIONS

  This Management's  Discussion and Analysis of Financial  Condition and Results
of Operations  contains  forward-looking  statements  including those concerning
Management's  expectations  regarding  future  financial  performance and future
events.   These   forward-looking   statements  involve   significant  risk  and
uncertainties, including those described herein and included under "Special Note
Regarding   Forward-Looking   Statements"  below.   Actual  results  may  differ
materially from those anticipated by such forward-looking statements.

OVERVIEW

  Harborside  Healthcare  Corporation,  ("Harborside"  or  the  "Company")  is a
leading provider of high-quality  long-term care and specialty  medical services
in the eastern United  States.  The Company has focused on  establishing  strong
local market positions with high-quality  facilities in five principal  regions:
the  Southeast   (Florida),   the  Midwest  (Ohio  and  Indiana),   New  England
(Massachusetts,  New Hampshire and Rhode Island),  the Northeast  (Connecticut),
and the  Mid-Atlantic  (New Jersey and Maryland).  As of September 30, 1999, the
Company  operated 50  facilities  (22 owned,  27 leased and one managed)  with a
total of 6,124 licensed beds. The Company  provides a broad continuum of medical
services  including:  (i)  traditional  skilled  nursing care and (ii) specialty
medical  services,  including  a  variety  of  subacute  care  programs  such as
orthopedic   rehabilitation,   CVA/stroke  care,  cardiac  recovery,   pulmonary
rehabilitation and wound care, as well as distinct programs for the provision of
care to Alzheimer's and hospice patients. As part of its subacute services,  the
Company  provides  physical,  occupational  and  speech  rehabilitation  therapy
services  at  Company-operated  facilities.  Beginning  in 1995  and  continuing
through September 15, 1999, the Company provided rehabilitation therapy services
at  non-affiliated  facilities.  During the third  quarter of 1999,  the Company
recorded a $5.7 million charge in connection  with the termination of all of the
Company's  rehabilitation therapy contracts with non-affiliated  facilities (See
Note D to the Company's  condensed  consolidated  financial  statements included
elsewhere in this report).

The  following  table  sets  forth the  number of  facilities  and the number of
licensed beds operated by the Company:

<TABLE>
<CAPTION>

                                              As of September 30,
                                         1998                 1999
                                         ----                 ----

<S>                                    <C>                  <C>
Facilities operated (1)                    49                   50
Licensed beds (1)                       6,043                6,124
</TABLE>

The following table sets forth certain operating data for the periods indicated:
<TABLE>
<CAPTION>

                                                                      For the three months ended    For the nine months ended
                                                                             September 30,                 September 30,

                                                                             1998           1999           1998           1999
                                                                      -----------    -----------    -----------    -----------
<S>                                                                       <C>            <C>            <C>            <C>
Patient days (2):
  Private and other ...............................................       129,699        122,245        375,831        368,292
  Medicare ........................................................        47,810         55,494        147,008        162,338
  Medicaid ........................................................       306,767        316,164        862,540        925,022
                                                                      -----------    -----------    -----------    -----------
Total                                                                     484,276        493,903      1,385,379      1,455,652
                                                                      ===========    ===========    ===========    ===========


Total net revenues:
  Private and other ...............................................         30.0%          28.2%          31.2%          29.5%
  Medicare ........................................................         26.4%          21.6%          26.3%          21.5%
  Medicaid ........................................................         43.6%          50.2%          42.5%          49.0%
                                                                      -----------    -----------    -----------    -----------
Total .............................................................        100.0%         100.0%         100.0%         100.0%
                                                                      ===========    ===========    ===========    ===========

Average Occupancy rate (3) ........................................         92.4%          91.4%          92.6%          90.9%
Quality Mix (4) ...................................................         56.4%          49.8%          57.5%          51.0%
</TABLE>

(1)  Includes two managed  facilities  with 178 licensed  beds on September  30,
     1998 and one managed facility with 106 licensed beds on September 30, 1999.
(2)  "Patient  Days"  includes  billed bed days for  facilities  operated by the
     Company  excluding  billed  bed  days  of  managed  facilities  and the one
     facility accounted for using the equity method.
(3)  "Average  Occupancy  Rate" is computed by dividing the number of billed bed
     days by the total number of available  licensed bed days during each of the
     periods indicated. This calculation includes all facilities operated by the
     Company excluding managed facilities.
(4)  "Quality Mix" consists of the percentage of revenues derived from Medicare,
     commercial insurers and other private payors.

                                      -15-
<PAGE>

RESULTS OF OPERATIONS

 The  Company's  total net  revenues  include net patient  service  revenues and
rehabilitation  therapy  service  revenues from  contracts  with  non-affiliated
long-term care facilities.  Private net patient service revenues are recorded at
established  per  diem  billing  rates.  Net  patient  service  revenues  to  be
reimbursed under contracts with third-party  payers,  primarily the Medicare and
Medicaid programs,  are recorded at amounts estimated to be realized under these
contractual arrangements.

The  Company's  facility  operating  expenses  consist  primarily of payroll and
employee benefits related to nursing, housekeeping and dietary services provided
to patients, as well as maintenance and administration of the facilities.  Other
significant  facility  operating  expenses  include  the cost of  rehabilitation
therapy services, medical and pharmacy supplies, food, utilities,  insurance and
taxes. The Company's  facility  operating  expenses also include the general and
administrative   costs   associated   with  the   operation  of  the   Company's
rehabilitation  therapy  business.  The  Company's  general  and  administrative
expenses   include  all  costs   associated  with  its  regional  and  corporate
operations.

Three Months Ended  September 30, 1998 Compared to Three Months Ended
September 30, 1999

  Total Net Revenues.  Total net revenues  decreased by $1,107,000 or 1.4%, from
$78,697,000  in the third quarter of 1998 to $77,590,000 in the third quarter of
1999. The reduction in total revenues from 1998 to 1999 was primarily the result
of lower  occupancy and lower average  revenues per patient day. This  reduction
was offset by an increase of  $2,074,000  from the  acquisition  of two Danbury,
Connecticut  facilities  (the  "Danbury  Facilities")  on December 1, 1998.  The
average occupancy rate at all of the Company's  facilities  decreased from 92.4%
during  the third  quarter of 1998 to 91.4%  during  the third  quarter of 1999.
Average net patient service revenues per patient day at "same store"  facilities
decreased  from  $158.33  in the third  quarter  of 1998 to $155.33 in the third
quarter of 1999.  This  decrease  in average net patient  service  revenues  per
patient day was a result of the  implementation of the new Medicare  Prospective
Payment System ("PPS") which became effective at all of the Company's facilities
on January 1, 1999.  Implementation of PPS caused the Company's average Medicare
Part A per diem rate to decrease from $394 per Medicare patient day in the third
quarter of 1998 to $284 per Medicare  patient day in the third  quarter of 1999.
During the third quarter of 1999, the Company also experienced  reduced revenues
generated  through the provision of Medicare Part B services to residents at its
facilities. PPS established certain annual per patient limitations on the amount
of Part B therapy that is reimbursable through the Medicare program.  Management
believes  that the  introduction  of these  annual  limits  resulted  in reduced
revenues  during  1999  as  affected  parties  adapted  to  the  new  regulatory
environment.  Additionally,  during  the  third  quarter  of 1999,  the  Company
terminated  its  contracts  to  provide   rehabilitation   therapy  services  at
non-affiliated  facilities.  The Company's quality mix of private,  Medicare and
insurance  revenues was 56.4% for the three months ended  September  30, 1998 as
compared to 49.8% during the same period of 1999.  This  decrease in quality mix
of revenues  was the result of the decrease in Medicare  revenues  caused by the
implementation of PPS.

  Facility  Operating   Expenses.   Facility  operating  expenses  increased  by
$127,000,  or 0.2%, from $62,887,000 in the third quarter of 1998 to $63,014,000
in the  third  quarter  of 1999.  Of this  increase,  $1,690,000  was due to the
operations of the Danbury Facilities.

  General and Administrative;  Service Charges Paid to Former Affiliate. General
and administrative  expenses increased by $579,000,  or 16.0% from $3,625,000 in
the third  quarter of 1998 to  $4,204,000  in the third  quarter  of 1999.  This
increase  resulted  from the expansion of regional and  corporate  support,  and
additional travel,  consulting and systems development  expenses associated with
the Company's growth. The Company reimburses a former affiliate for certain data
processing and administrative services provided to the Company. During the third
quarter of 1998,  such  reimbursements  totaled  $313,000  compared  to $307,000
during the third quarter of 1999.

  Depreciation and  Amortization.  Depreciation and amortization  increased from
$1,821,000  in the third  quarter of 1998 to  $2,347,000 in the third quarter of
1999  primarily  due to the  amortization  of  costs  related  to the  leveraged
recapitalization and the exercise of purchase options for seven facilities which
were financed through synthetic leases prior to the leveraged  recapitalization.
The exercise of these purchase options was funded through financing  arranged in
connection with the leveraged recapitalization.

  Amortization of Prepaid  Management Fees.  Amortization of prepaid  management
fees was  $200,000  during the third  quarter of 1998 as compared to $300,000 in
the third quarter of 1999.

  Facility  Rent.  Facility  rent  expense for the third  quarter  increased  by
$180,000 from $5,465,000 in 1998 to $5,645,000 in 1999.

  Interest Expense, net. Interest expense, net, increased from $3,591,000 in the
third  quarter of 1998 to  $5,410,000  in the third  quarter  of 1999.  This net
increase  is  primarily  due to  the  issuance  of  $99,500,000  of  11%  Senior
Subordinated  Discount Notes during the third quarter of 1998 in connection with
the  leveraged  recapitalization.  The  interest  associated  with  these  notes
accretes until cash payments begin on August 1, 2003.

  Restructuring   cost:  In  connection  with  the  Company's  therapy  services
restructuring  plan,  the Company  incurred  restructuring  costs of  $5,745,000
during the third quarter of 1999. The most significant components of this charge
were the write-off of approximately  $1.5 million of unamortized  goodwill and a
$2.5 million increase to the reserve for  uncollectible  receivables as a result
of the Company's  termination  of  non-affiliated  contracts  (See Note D to the
Company's condensed consolidated financial statements included elsewhere in this
report).

  Income Tax Benefit.  As a result of losses incurred,  an income tax benefit of
$7,460,000 was recognized during the third quarter of 1998 compared to an income
tax benefit of $3,604,000 for the same period of 1999.

  Net Loss. Net loss was $28,900,000 in the third quarter of 1998 as compared to
a loss of $5,637,000 in the third quarter of 1999.


                                      -16-
<PAGE>


Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1999

  Total Net Revenues.  Total net revenues  decreased by $3,027,000 or 1.3%, from
$227,337,000  in the first nine months of 1998 to $224,310,000 in the first nine
months of 1999.  The reduction in total revenues from 1998 to 1999 was primarily
the result of lower  occupancy and lower average  revenues per patient day. This
reduction was partially offset by the following  revenue increases at facilities
acquired in 1998:  $2,226,000  from the  acquisition  of two North Toledo,  Ohio
facilities (the "North Toledo Facilities") on April 1, 1998; $4,777,000 from the
acquisition of two Rhode Island  facilities  (the "Rhode Island  Facilities") on
May 8, 1998, and  $6,136,000  from the  acquisition of two Danbury,  Connecticut
facilities (the "Danbury Facilities") on December 1, 1998. The average occupancy
rate at all of the Company's  facilities  decreased  from 92.6% during the first
nine months of 1998 to 90.9%  during the first nine months of 1999.  Average net
patient service  revenues per patient day at "same store"  facilities  decreased
from  $156.32  in the first  nine  months of 1998 to  $151.66  in the first nine
months of 1999.  This  decrease  in average  net patient  service  revenues  per
patient day was a result of the  implementation of the new Medicare  Prospective
Payment System ("PPS") which became effective at all of the Company's facilities
on January 1, 1999.  Implementation of PPS caused the Company's average Medicare
Part A per diem rate to decrease from $373 per Medicare patient day in the first
nine months of 1998 to $284 per Medicare patient day in the first nine months of
1999. During the first nine months of 1999, the Company also experienced reduced
revenues  generated  through  the  provision  of  Medicare  Part B  services  to
residents  at  its  facilities.  This  reduction  was  due  partially  to  lower
productivity by Company  therapists during the first quarter as they adjusted to
the  newly  implemented  Medicare   reimbursement  system.   Additionally,   PPS
established  certain  annual  per  patient  limitations  on the amount of Part B
therapy that is reimbursable  through the Medicare program.  Management believes
that the introduction of these annual limits resulted in reduced revenues during
the first nine months of 1999 as affected  parties adapted to the new regulatory
environment.  Implementation of PPS also caused a decrease in revenues generated
by providing  rehabilitation  therapy services to non-affiliated  long-term care
facilities.  In response to reduced  reimbursement  from the  Medicare  program,
non-affiliated  facilities  reduced the amount of therapy  services  provided at
their  facilities.  Additionally,  during the third quarter of 1999, the Company
terminated  its  contracts  to  provide   rehabilitation   therapy  services  at
non-affiliated  facilities.  The Company's quality mix of private,  Medicare and
insurance  revenues  was 57.5% for the nine months ended  September  30, 1998 as
compared to 51.0% during the same period of 1999.  This  decrease in quality mix
of revenues  was the result of the decrease in Medicare  revenues  caused by the
implementation of PPS.

  Facility  Operating   Expenses.   Facility  operating  expenses  increased  by
$7,149,000,  or 4.0%,  from  $179,917,000  for the first nine  months of 1998 to
$187,066,000  for the  first  nine  months  of 1999 as the  result  of  acquired
facilities. Of this increase,  $2,040,000 was due to the operations of the North
Toledo  Facilities,  $4,387,000  was due to the  operations  of the Rhode Island
Facilities, and $4,942,000 was due to the operations of the Danbury Facilities.

  General and Administrative;  Service Charges Paid to Former Affiliate. General
and administrative expenses increased by $2,485,000,  or 22.4%, from $11,100,000
for the first nine  months of 1998 to  $13,585,000  for the first nine months of
1999.  This  increase  resulted  from the  expansion of regional  and  corporate
support,  and additional  travel,  consulting and systems  development  expenses
associated with the Company's growth.  The Company reimburses a former affiliate
for certain data processing and administrative services provided to the Company.
During the first  nine  months of 1998,  such  reimbursements  totaled  $941,000
compared to $880,000 in 1999.

  Depreciation and  Amortization.  Depreciation and amortization  increased from
$4,084,000  for the first nine months of 1998 to  $7,451,000  for the first nine
months  of 1999  primarily  due to the  amortization  of  costs  related  to the
leveraged  recapitalization  and the  exercise  of  purchase  options  for seven
facilities which were financed  through  synthetic leases prior to the leveraged
recapitalization.  The  exercise of these  purchase  options was funded  through
financing arranged in connection with the leveraged recapitalization.

  Amortization of Prepaid  Management Fees.  Amortization of prepaid  management
fees was  $200,000  during the first nine months of 1998 as compared to $900,000
during the first nine months of 1999.

  Facility  Rent.  Facility rent expense for the first nine months  decreased by
$237,000 from  $17,086,000  in 1998 to $16,849,000 in 1999. The decrease in rent
expense is the result of a reduction in rent expense  related to the exercise of
purchase  options  on  previously  leased  facilities  partially  offset  by the
acquisition of the Danbury Facilities by means of a synthetic lease.

  Interest Expense,  net. Interest expense,  net,  increased from $6,793,000 for
the first nine months of 1998 to $15,266,000  for the first nine months of 1999.
This net increase is primarily due to the issuance of  $99,500,000 of 11% Senior
Subordinated  Discount Notes during the third quarter of 1998 in connection with
the  leveraged  recapitalization.  The  interest  associated  with  these  notes
accretes until cash payments begin on August 1, 2003.

  Restructuring  costs:  In  connection  with  the  Company's  therapy  services
restructuring  plan,  the Company  incurred  restructuring  costs of  $5,745,000
during the third quarter of 1999. The most significant components of this charge
were the write-off of approximately  $1.5 million of unamortized  goodwill and a
$2.5 million increase to the reserve for  uncollectible  receivables as a result
of the Company's  termination  of  non-affiliated  contracts  (See Note D to the
Company's condensed consolidated financial statements included elsewhere in this
report).

  Income Tax Benefit.  As a result of losses incurred,  an income tax benefit of
$4,984,000 was recognized during the first nine months of 1998 as compared to an
income tax benefit of $9,212,000 for the same period of 1999.

   Net Loss.   The net loss was $25,027,000 for the first nine months of 1998 as
compared to a loss of $14,409,000 for the first nine months of 1999.

                                      -17-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

  The Company's primary cash needs are for acquisitions,  capital  expenditures,
working capital,  debt service and general corporate  purposes.  The Company has
historically  financed  these  requirements  primarily  through a combination of
internally  generated cash flow,  mortgage  financing and operating  leases,  in
addition to funds borrowed  under a credit  facility.  In addition,  in 1996 the
Company financed the acquisition of four facilities  located in Ohio by means of
a lease  which is  accounted  for as a  capital  lease for  financial  reporting
purposes.  The Company's  existing leased  facilities are leased from either the
owner of the facilities, from a real estate investment trust which has purchased
the  facilities  from the owner,  or through  synthetic  lease  borrowings.  The
Company's  existing  facility leases generally  require it to make monthly lease
payments and pay all property operating costs. The Company generally  negotiates
leases which provide for extensions  beyond the initial lease term and an option
to  purchase  the leased  facility.  In some cases,  the option to purchase  the
leased  facility is at a price based on the fair market value of the facility at
the time the option is  exercised.  In other  cases,  the lease for the facility
sets forth a fixed purchase option price which the Company  believes is equal to
the fair market value of the facility at the inception date of such lease,  thus
allowing the Company to realize the value  appreciation  of the  facility  while
maintaining   financial   flexibility.   In   connection   with  the   leveraged
recapitalization  completed  on August 11,  1998,  the  Company  obtained  gross
proceeds  of $99.5  million  through  the  issuance  of 11% Senior  Subordinated
Discount  Notes (the  "Discount  Notes")  due 2008 and $40  million  through the
issuance  of  13.5%   Exchangeable   Preferred  Stock  (the  "Preferred  Stock")
mandatorily  redeemable in 2010.  Interest on the Discount Notes accretes at 11%
per annum with cash  interest on the Discount  Notes not payable until August 1,
2003.  Dividends  on the  Preferred  Stock  are  payable,  at the  option of the
Company, in additional shares of the Preferred Stock until August 1, 2003. After
that date  dividends  may only be paid in cash.  The Company also entered into a
new $250 million collateralized credit facility (the "New Credit Facility"). The
terms of the New Credit Facility provide up to $75 million on a revolving credit
basis plus an additional $175 million initially funded on a revolving basis that
converts to a term loan on an annual basis on each  anniversary  of the closing.
During the first four years of the facility, any or all of the full $250 million
of availability  under the facility may be used for synthetic lease  financings.
Proceeds  of loans  under the  facility  may be used for  acquisitions,  working
capital purposes, capital expenditures and general corporate purposes.  Interest
is based on either  LIBOR or prime rates of interest  (plus  applicable  margins
determined by the Company's leverage ratio) at the election of the Company.  The
New Credit Facility contains various  financial and other restrictive  covenants
and limits aggregate borrowings under the New Credit Facility to a predetermined
multiple of EBITDA.

  During the first quarter of 1999, the Company  determined that its anticipated
financial  results  for  that  quarter  would  cause  the  Company  to be out of
compliance  with certain  financial  covenants of the New Credit  Facility.  The
Company's expected lower first quarter results were attributable to transitional
difficulties  associated with the implementation of the new Medicare prospective
payment  system which became  effective at all of the  Company's  facilities  on
January 1, 1999. Such transitional  difficulties resulted in lower than expected
revenues,  primarily due to fewer than  expected  Medicare  patient days,  lower
Medicare  Part A rates,  reduced  revenues  from  therapy  services  provided to
non-affiliated  long-term  care  centers  and a reduction  in revenues  from the
provision of Medicare Part B services. In response, during the first quarter the
Company  initiated  additional  facility-based  training  directed  towards  the
documentation  requirements of the revised Medicare  reimbursement  system.  The
Company also continued to refine its admission and assessment protocols in order
to increase patient  admissions and introduced a series of targeted  initiatives
to lower  operating  expenses.  Such  initiatives  included  wage  and  staffing
reductions (primarily related to the delivery of rehabilitative therapy services
and indirect  nursing  support),  renegotiation  of vendor contracts and ongoing
efforts to reduce the Company's reliance on outside nurse agency personnel.  All
of the  staffing  reductions  were  implemented,  on or prior to, April 1, 1999.
Effective  March 30, 1999,  the Company  obtained an amendment to the New Credit
Facility which limits  borrowings  under the New Credit Facility to an aggregate
of $58,500,000  (exclusive of undrawn letters of credit  outstanding as of March
30, 1999) and which modified certain financial  covenants.  Access to additional
borrowings for acquisitions and general corporate  purposes under the New Credit
Facility are  permitted  to the extent the Company  achieves  certain  financial
targets.  The  amendment  allows the Company  access to the entire $250  million
facility  if  the  Company's  operating  performance  returns  to the  level  of
compliance contemplated by the original financial covenants. As of September 30,
1999,  total  borrowings  under the New Credit  Facility  (exclusive  of undrawn
letters  of  credit  outstanding  as  of  March  30,  1999)  were  approximately
$49,024,000  and consisted of  $32,750,000  of revolver  loans,  $13,700,000  of
synthetic leasing loans and $2,574,000 of undrawn letters of credit issued after
March 30, 1999. As of September 30, 1999 the Company was in compliance  with the
financial covenants of the New Credit Facility.

  The Company's  operating  activities during the first nine months of 1999 used
net cash of $1.5  million as compared to net cash of $28.9  million  used during
the same period in 1998. The decrease in net cash used by operations  during the
first nine months of 1999 was  primarily  due to a lower net loss an increase in
non-cash interest expense and a decrease in accounts receivable.

  Net cash used by investing  activities was $12.9 million during the first nine
months of 1999 as compared to $84.2 million used during the same period in 1998.
Net cash  invested  in each  period  was used  primarily  to fund  additions  to
property and equipment at the facilities. Additionally, during the first quarter
of 1999,  approximately $1,000,000 was expended in connection with obtaining the
amendment of the Company's New Credit Facility.

  Net cash provided by financing activities during the first nine months of 1999
was $16.6 million as compared to $110.2  million during the first nine months of
1998.  During the first nine months of 1999 the Company  borrowed  $20.0 million
under the New Credit Facility.

  In addition to the Discount  Notes,  as of September 30, 1999, the Company had
two mortgage  loans  outstanding in the aggregate  amount of $17.7  million,  in
addition to advances  outstanding  under its revolving credit facility and $54.8
million of capital lease obligations. One of the Company's mortgage loans had an
outstanding  balance of $16.2 million, of which $15.1 million is due at maturity
in 2004.  This loans bears interest at an annual rate of 10.65% plus  additional
interest equal to 0.3% of the difference  between the annual operating  revenues
of four mortgaged  facilities and the actual revenues of these facilities during
a twelve month base period. The Company's other mortgage loan, which encumbers a
single facility,  had an outstanding principal balance of $1.5 million, of which
$1.3 million is due in 2010.

                                      -18-
<PAGE>

  The Company had expected  that its capital  expenditures  for 1999,  excluding
acquisitions of new long-term care  facilities,  would  aggregate  approximately
$12,000,000.  The Company expects that capital  additions for the fourth quarter
of 1999 will not exceed $3,000,000.  The Company's expected capital expenditures
relate  to  maintenance  capital  expenditures,  systems  enhancements,  special
construction projects and other capital  improvements.  The Company expects that
its future  facility  acquisitions  will be financed with  borrowings  under the
Company's  revolving credit  facility,  direct operating leases or assumed debt.
The Company may be required to obtain additional equity financing to finance any
significant acquisitions in the future.

  The Company's  principal  sources of funds are cash flow from  operations  and
borrowings under the New Credit Facility.  These funds are being used to finance
working capital, meet debt service and capital expenditure requirements, finance
acquisitions and for general  corporate  purposes.  The Company's  believes that
operating  cash flow and  availability  under the New  Credit  Facility  will be
adequate to meet its liquidity  needs for the  foreseeable  future,  although no
assurance can be given in this regard.

  The Company,  through a wholly-owned limited partnership,  leases and operates
four  facilities  acquired in 1996 which are accounted for as capital leases for
financial  reporting  purposes.  Each lease is  guaranteed  by the Company.  The
guaranty  provides  that  failure  by the  Company to have a  specified  minimum
consolidated net worth at the end of any two consecutive quarters is an event of
default  under the  guaranty,  which in turn would be an event of default  under
each lease. As a result of the restructuring  charge taken by the Company during
the third quarter of 1999, the Company's  consolidated net worth as of September
30, 1999 (as calculated for purposes of this  requirement)  has fallen below the
required level.  The Company  anticipates that its net worth will continue to be
below the required  level at December 31, 1999, as a result of which the Company
would be in default  under each of these leases and could  potentially  face the
loss of these operations.  Such a default may also trigger  cross-defaults under
the Company's other lease and debt obligations. The Company is exploring various
alternatives to address this potential default,  including  discussions with the
landlord of these properties  concerning  relief from the net worth  requirement
and a possible  buyout or refinancing of the  facilities.  The Company  believes
that an  acceptable  arrangement  can be worked out prior to  December  31, 1999
which would avoid any material disruption of its business.

SEASONALITY

  The  Company's earnings generally  fluctuate  from  quarter to  quarter.  This
seasonality  is related to a combination of factors which include the timing and
amount of Medicaid rate  increases,  seasonal  census cycles,  and the number of
days in a given fiscal quarter.

INFLATION

 The healthcare industry is labor intensive. Wages and other labor related costs
are especially  sensitive to inflation.  Certain of the Company's  other expense
items, such as supplies and real estate costs are also sensitive to inflationary
pressures.  Shortages in the labor market or general inflationary pressure could
have a  significant  effect on the Company.  In addition,  suppliers  pass along
rising  costs to the  Company  in the form of higher  prices.  When  faced  with
increases in operating costs, the Company has sought to increase its charges for
services  and its requests  for  reimbursement  from  government  programs.  The
Company's  private pay  customers and third party  reimbursement  sources may be
less able to absorb increased prices for the Company's  services.  The Company's
operations  could be adversely  affected if it is unable to recover  future cost
increases or experiences significant delays in increasing rates of reimbursement
of its labor or other costs from Medicare and Medicaid revenue sources.

The Year 2000 Issue

  The  Company  continues  to  evaluate  and  address  risks that could arise in
connection with the potential  inability of computer programs to recognize dates
that follow  December 31, 1999 (the "Year 2000 Issue").  The Company's focus has
been on  evaluating  the impact that the Year 2000 Issue might have on essential
equipment and systems of the Company as well as major  suppliers,  customers and
other third parties.  The Company has  formulated and  implemented a remediation
plan in connection with those systems that will not be Year 2000  compliant.  As
of September 30, 1999 the Company has tested and evaluated  substantially all of
its  information  technology  ("IT") systems and equipment.  The Company is also
evaluating the compliance of its major suppliers and their  respective  products
with the Year 2000 Issue.

  With  respect to the Year 2000  compliance  of  critical  third  parties,  the
Company  derives a  significant  portion of its  revenues  from the Medicare and
Medicaid  programs.  The  Health  Care  Finance  Administration   ("HCFA"),  the
governmental agency that administers the Medicare program,  publicly stated that
it would be Year 2000 compliant by December 31, 1998.  HCFA has imposed the same
December  31,  1998  deadline  on its fiscal  intermediaries  and stated that it
expected  state  Medicaid  agencies to be compliant  by March 1999.  The General
Accounting Office cannot make any assurances that the government payment systems
will be Year 2000  compliant  on time.  The  Company  derives  its  governmental
payments through fiscal intermediaries,  however, there can be no assurance that
the payments from the fiscal  intermediaries  will not be negatively impacted by
any Year 2000 issues not corrected in a timely  manner.  The Company  intends to
actively  pursue  assurances of the status of the  remediation  efforts and Year
2000 compliance by the government and its fiscal intermediaries.

  The  Company  began  replacing  critical  IT systems  for Year 2000  issues in
connection  with a  comprehensive  evaluation  of  system  wide  operational  IT
efficiencies  in 1996.  The Company has recently  completed  the  conversion  of
certain  of its  financial  reporting  systems  to new  software  that  has been
certified as Year 2000  compliant.  Additionally,  the Company has received Year
2000 compliance certification from its remaining software suppliers with respect
to operating systems that will not be upgraded.  The Company's Year 2000 systems
conversions  and  upgrades  have been  funded from  operating  cash flow and its
credit facility.

 The  Company,  as part of its  comprehensive  ongoing  evaluation  process,  is
testing  and  upgrading  where  necessary,  all local  area  networks  ("LANS"),
personal  computers and related operating software for compliance with Year 2000
Issues.  The Company plans to remediate  any Year 2000 issues  discovered in its
review of LANS through the installation of upgraded  hardware and software.  The
Company on a going forward basis is  endeavoring to ensure that all software and
hardware purchased is Year 2000 compliant.

                                      -19-
<PAGE>

  The Company has  undertaken an evaluation  of facility  operating  systems for
potential  problems  associated with Year 2000 Issues. The Company has evaluated
and tested  virtually  all of its  facility  heating,  cooling  and  ventilation
("HVAC") systems,  life safety and security systems,  and mechanical systems for
Year 2000 compliance. In connection with the review and testing procedures,  the
Company has contacted the  manufacturer  of the  respective  systems for further
assurance  of potential  exposure to Year 2000  Issues.  Based on the results of
testing to date,  the Company  does not believe that above  referenced  facility
operating  systems will have any significant  risk associated with the Year 2000
Issue.


                                      -20-
<PAGE>


                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 Certain statements in this Form 10-Q, including information set forth under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations",  constitute  "Forward-Looking  Statements" within the meaning of
the Private  Securities  Litigation  Reform Act of 1995 (the "Reform Act").  The
Company  desires to take  advantage of certain "safe  harbor"  provisions of the
Reform Act and is  including  this  special note to enable the Company to do so.
Forward-looking  statements included in this Form 10-Q, or hereafter included in
other  publicly  available  documents  filed with the  Securities  and  Exchange
Commission,  reports to the Company's  stockholders and other publicly available
statements  issued or released by the Company  involve known and unknown  risks,
uncertainties, and other factors which could cause the Company's actual results,
performance  (financial or operating) or achievements to differ  materially from
the  future  results,  performance  (financial  or  operating)  or  achievements
expressed or implied by such  forward-looking  statements.  The Company believes
the following important factors could cause such a material difference to occur:

  1.     The Company's  ability to grow through the  acquisition and development
         of  long-term   care   facilities  or  the   acquisition  of  ancillary
         businesses.

  2.     The Company's ability to identify suitable acquisition  candidates,  to
         consummate or complete construction  projects, or to profitably operate
         or  successfully   integrate   enterprises  into  the  Company's  other
         operations.

  3.     The occurrence of changes in the mix of payment sources utilized by the
         Company's patients to pay for the Company's services.

  4.     The adoption of cost  containment  measures by private pay sources such
         as  commercial  insurers  and managed  care  organizations,  as well as
         efforts  by   governmental   reimbursement   sources  to  impose   cost
         containment measures.

  5.     Changes in the United States  healthcare  system,  including changes in
         reimbursement  levels and the method of  reimbursement,  under Medicaid
         and Medicare,  and other changes in applicable  government  regulations
         that might affect the profitability of the Company.

  6.     The  Company's  continued  ability to  operate  in a heavily  regulated
         environment and to satisfy regulatory  authorities,  thereby avoiding a
         number of potentially adverse  consequences,  such as the imposition of
         fines,  temporary suspension of admission of patients,  restrictions on
         the ability to acquire new  facilities,  suspension or  decertification
         from Medicaid or Medicare programs, and in extreme cases, revocation of
         a  facility's  license or the  closure of a  facility,  including  as a
         result of unauthorized activities by employees.

  7.     The  Company's  ability to secure the capital  and the related  cost of
         such capital  necessary to fund its future growth  through  acquisition
         and development, as well as internal growth.

  8.     Changes in certificate of need laws that might increase  competition in
         the Company's industry, including, particularly, in the states in which
         the Company currently operates or anticipates operating in the future.

  9.     The  Company's  ability  to staff  its  facilities  appropriately  with
         qualified healthcare personnel, including in times of shortages of such
         personnel  and to  maintain  a  satisfactory  relationship  with  labor
         unions.

 10.     The level of competition in the Company's  industry,  including without
         limitation,  increased competition from acute care hospitals, providers
         of assisted and independent living and providers of home healthcare and
         changes  in the  regulatory  system in the  state in which the  Company
         operates that facilitate such competition.

 11.     The  continued  availability  of  insurance  for  the  inherent  risks
         of liability in the healthcare industry.

 12.      Price increases in  pharmaceuticals,  durable  medical  equipment and
         other items.

 13.     The  Company's  reputation  for  delivering  high-quality  care and its
         ability  to  attract  and  retain  patients,  including  patients  with
         relatively high acuity levels.

 14.     Changes in general economic conditions, including changes that pressure
         governmental  reimbursement  sources  to reduce the amount and scope of
         healthcare coverage.

 15.     The  Company's,  its  vendors,  banks and  payors  ability  to  address
         computer system concerns related to the Year 2000 issue.

  The  foregoing  review of  significant  factors  should  not be  construed  as
exhaustive or as an admission  regarding the adequacy of disclosures  previously
made by the Company.
                                      -21-
<PAGE>

>


                           PART II - OTHER INFORMATION


Item 1.     Legal Proceedings
                 None

Item 2.     Changes 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.




                                      -22-
<PAGE>


                                                    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.



                                        Harborside Healthcare Corporation



                                        By:   /s/ Stephen L. Guillard
                                              -----------------------
                                              Stephen L. Guillard
                                              Chairman, President, and
                                              Chief Executive Officer


                                        By:   /s/ William H. Stephan
                                              ----------------------
                                              William H. Stephan
                                              Senior Vice President and
                                              Chief Financial Officer









DATE:   November 12, 1999

                                      -23-
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