<PAGE>

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

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                       
                                       
                                   FORM 10-Q


[x]         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                 OF THE SECURITIES EXCHANGE ACT OF 1934
                                       
               For the quarterly period ended September 30, 1997
                                       
                                      OR
                                       
[  ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                                       
              For the Transition period from         to        .
                                             -------     ------

                        Commission file number 0-28656
                                       
                            KARRINGTON HEALTH, INC.
            (Exact name of registrant as specified in its charter)
                                       
                  OHIO                              31-1461482
     (State or other jurisdiction of              (IRS Employer
     incorporation or organization)             Identification No.)
                                       
                            919 Old Henderson Road
                             Columbus, Ohio  43220
                   (Address of principle executive offices)
                                       
                                (614) 451-5151
             (Registrant's telephone number, including area code)

     Indicated by check mark whether registrant (1) has filed all reports 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 registrant was 
required to file such reports), and (2) has been subject to such filing 
requirements for the past 90 days.

                                Yes    X      No
                                     -----       ------

     Shares of Registrant's common shares, without par value, outstanding at 
November 11, 1997 was 6,837,363.

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

<PAGE>

                            KARRINGTON HEALTH, INC.
                               AND SUBSIDIARIES
                                     INDEX
                                       
                                       



PART I.  FINANCIAL INFORMATION


         Item 1.  Financial Statements

                  Consolidated Balance Sheets.................................1

                  Consolidated Statements of Operations
                  Three and Nine Months Ended September 30, 1997 and 1996.....2

                  Consolidated Statements of Cash Flows
                  Nine Months Ended September 30, 1997 and 1996...............3

                  Notes to Consolidated Financial Statements................4-7
               

         Item 2.  Management's Discussion and Analysis of Financial 
                  Condition and Results of Operations......................8-12


PART II.  OTHER INFORMATION

         Item 2.  Changes in Securities and Use of Proceeds..................13

         Item 6.  Exhibits...................................................13

                  Signature Page.............................................14


Note:    Items 1 and 3 through 5 of Part II are omitted because they are not 
         applicable.

<PAGE>

PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
                                       
                                       
                            KARRINGTON HEALTH, INC.
                               AND SUBSIDIARIES
                                       
                          CONSOLIDATED BALANCE SHEETS


                                     ASSETS

<TABLE>
<CAPTION>


                                                                 SEPTEMBER 30,  DECEMBER 31,
                                                                     1997          1996
                                                               --------------- --------------
                                                                  (UNAUDITED)
<S>                                                             <C>           <C>
Current assets:
 Cash and cash equivalents...............................       $  4,437,223  $ 12,283,185
 Accounts receivable.....................................            495,844       105,315
 Amounts due from affiliates.............................            899,500       678,893
 Prepaid expenses........................................            308,687       170,254
                                                               --------------- --------------
   Total current assets..................................          6,141,254    13,237,647
Property and equipment -- net............................         97,382,962    52,011,748
Other assets -- net......................................         14,056,031     4,300,546
                                                               --------------- --------------
   Total assets..........................................       $117,580,247  $ 69,549,941
                                                               --------------- --------------
                                                               --------------- --------------

                          LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
 Accounts payable and accrued liabilities................       $  2,399,578  $    788,981
 Construction payables...................................          3,396,673     3,181,560
 Notes payable used to finance construction in progress..          8,000,000           ---
 Payroll and related taxes...............................          1,169,958       735,337
 Unearned resident fees..................................            536,448       325,111
 Interest payable........................................            749,250       158,103
 Current portion of long-term obligations................            304,762       242,211
                                                               --------------- --------------
   Total current liabilities.............................         16,556,669     5,431,303
Long-term obligations....................................         71,599,495    32,758,692
Deferred income taxes....................................            973,000       683,000
Shareholders' equity:
 Common shares...........................................         33,484,712    31,984,712
 Accumulated deficit.....................................         (5,033,629)   (1,307,766)
                                                               --------------- --------------
 Total shareholders' equity..............................         28,451,083    30,676,946
                                                               --------------- --------------
Total liabilities and shareholders' equity...............       $117,580,247  $ 69,549,941
                                                               --------------- --------------
                                                               --------------- --------------

</TABLE>

                            SEE ACCOMPANYING NOTES.

                                       1

<PAGE>
                            KARRINGTON HEALTH, INC.
                               AND SUBSIDIARIES
                                       
                     CONSOLIDATED STATEMENTS OF OPERATIONS
            THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
                                       
                                  (UNAUDITED)
                                       

<TABLE>
<CAPTION>
  
                                                          THREE MONTHS ENDED           NINE MONTHS ENDED
                                                             SEPTEMBER 30,               SEPTEMBER 30,
                                                          1997          1996          1997          1996
                                                    -------------- ------------- -------------- ---------------
<S>                                                  <C>            <C>           <C>            <C>
Revenues:
 Residence operations...........................     $  5,447,800   $  2,403,331  $  12,617,902  $  6,242,125
 Development and management fees................           77,446         67,321        613,252       493,308
                                                    -------------- ------------- -------------- ---------------
    Total revenues..............................        5,525,246      2,470,652     13,231,154     6,735,433

Expenses:
 Residence operations...........................        4,190,287      1,675,611      9,364,082     4,435,703
 General and administrative.....................        1,174,817        669,387      2,989,700     1,927,484
 Rent expense...................................           93,548         20,425        193,079        52,385
 Depreciation and amortization..................          783,753        468,374      1,765,233     1,055,243
 Unusual charges................................        1,380,000                     1,380,000
                                                    -------------- ------------- -------------- ---------------
    Total expenses..............................        7,622,405      2,833,797     15,692,094     7,470,815
                                                    -------------- ------------- -------------- ---------------

Operating loss..................................       (2,097,159)      (363,145)    (2,460,940)     (735,382)

Interest expense................................         (855,579)      (213,422)    (1,593,073)   (1,047,356)
Interest income.................................           28,397        239,846        301,746       239,846
Equity in net earnings
  (loss) of unconsolidated entities.............         (120,422)        15,756       (163,596)       32,379
                                                    -------------- ------------- -------------- ---------------
Loss before income taxes........................       (3,044,763)      (320,965)    (3,915,863)   (1,510,513)
Deferred income taxes...........................           46,000     (1,100,000)       190,000    (1,100,000)
                                                    -------------- ------------- -------------- ---------------
Net loss........................................     $ (2,998,763)  $ (1,420,965) $  (3,725,863) $ (2,610,513)
                                                    -------------- ------------- -------------- ---------------
                                                    -------------- ------------- -------------- ---------------

Proforma information:
Net loss per share..............................          $  (.44)       $  (.23)       $  (.55)      $  (.52)
Weighted average common shares outstanding......        6,837,400      6,240,200      6,777,000     4,984,700

</TABLE>

                            SEE ACCOMPANYING NOTES.

                                        2

<PAGE>
                            KARRINGTON HEALTH, INC.
                               AND SUBSIDIARIES
                                       
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
                                  (UNAUDITED)

<TABLE>
<CAPTION>

                                                                               NINE MONTHS ENDED
                                                                                 SEPTEMBER 30,
                                                               ----------------------------------------------
                                                                      1997                          1996
                                                               ----------------              ----------------
<S>                                                             <C>                           <C>
OPERATING ACTIVITIES
Net loss...................................................     $  (3,725,863)                $  (2,610,513)
Adjustments to reconcile net loss to net cash 
provided by (used in) operating activities:
 Depreciation and amortization.............................         1,765,233                     1,055,243
 Unusual charges...........................................         1,380,000
 Deferred income taxes.....................................          (190,000)                    1,100,000
 Equity in net (earnings) loss of unconsolidated entities..           163,596                       (32,379)
 Change in operating assets and liabilities:
     Accounts receivable...................................          (611,136)                     (244,551)
     Prepaid expenses......................................          (121,408)                     (111,698)
     Accounts payable and accrued liabilities..............         1,610,596                       380,340
     Other liabilities.....................................           332,870                      (221,340)
                                                               ----------------              ----------------
 Net cash provided by (used in) operating activities.......           603,888                      (684,898)

INVESTING ACTIVITIES
Purchases of property and equipment........................       (28,788,179)                  (13,317,550)
Decrease (increase) in restricted cash balances............           749,372                    (1,132,314)
Acquisition of Kensington - net of cash acquired...........        (4,008,123)                          ---
Equity contribution to unconsolidated entities.............               ---                    (1,171,039)
Payments of pre-opening costs..............................          (921,898)                     (517,742)
Payments for organization costs and other..................          (710,312)                     (125,902)
                                                               ----------------              ----------------
 Net cash used in investing activities.....................       (33,679,140)                  (16,264,547)

FINANCING ACTIVITIES
Net proceeds from public offering..........................               ---                    27,499,521
Proceeds from notes payable................................        15,500,000                           ---
Proceeds from mortgages....................................         9,783,424                    12,975,079
Repayment of mortgages.....................................          (199,662)                   (4,820,119)
Proceeds from debentures due partner.......................               ---                     5,501,535
Repayment of debentures due partner........................               ---                    (5,535,375)
Payment for financing fees.................................           (79,472)                     (758,119)
Distributions from unconsolidated entity...................           225,000                       339,766
                                                               ----------------              ----------------
 Net cash provided by financing activities.................        25,229,290                    35,202,289
                                                               ----------------              ----------------
Increase (decrease) in cash and cash equivalents...........        (7,845,962)                   18,252,844
Cash and cash equivalents at beginning of period...........        12,283,185                       144,833
                                                               ----------------              ----------------
Cash and cash equivalents at end of period.................     $   4,437,223                 $  18,397,677
                                                               ----------------              ----------------
                                                               ----------------              ----------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest.....................................     $   2,702,050                 $   1,623,938
                                                               ----------------              ----------------
                                                               ----------------              ----------------

</TABLE>

                            SEE ACCOMPANYING NOTES.

                                       3

<PAGE>
                                       
                            KARRINGTON HEALTH, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   FOR THE UNAUDITED THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
                                       



1.   BASIS OF PRESENTATION

     The consolidated financial statements as of September 30, 1997 and for 
the three and nine months ended September 30, 1997 and 1996 are unaudited; 
however, in the opinion of management, all adjustments (consisting of only 
normal recurring items) necessary for a fair presentation of the consolidated 
financial statements for these interim periods have been included.  The 
results for the interim period ended September 30, 1997 are not necessarily 
indicative of the results to be obtained for the full fiscal year ending 
December 31, 1997.  Certain information and note disclosures which would 
duplicate the disclosures normally included in annual financial statements 
have been condensed or omitted pursuant to the rules and regulations of the 
Securities and Exchange Commission.

2.   PER SHARE INFORMATION

     The net loss per share for the three and nine months ended September 30, 
1997 is computed based on the weighted average number of shares outstanding 
during each period.  For the three and nine months ended September 30, 1996, 
a proforma net loss per share calculation is presented.  The proforma net 
loss per share is computed based on the weighted average number of shares 
outstanding during the period based on 4,350,000 common shares outstanding 
following the July 1996 reorganization.

     In February 1997, the FASB issued Statement No. 128, "Earnings Per 
Share," which eliminates the presentation of primary earnings per share (EPS) 
and requires the presentation of basic EPS (the principal difference being 
that common stock equivalents are not considered in the computation of basic 
EPS). It also requires dual presentation of basic and diluted EPS on the face 
of the income statement for all entities with complex capital structures.  
The Company is required to adopt Statement No. 128 for its year ending 
December 31, 1997, but is not permitted to apply its provisions to 1997 
interim financial statements.  Basic EPS calculated under the provisions of 
Statement No. 128 would not differ from the net loss per share as disclosed 
in the accompanying statements of operations.

3.   KENSINGTON ACQUISITION

     On April 30, 1997, the Company completed the acquisition, except for one 
entity which was completed on July 1, 1997, of Kensington Management Group, 
Inc. and affiliates (Kensington) of Golden Valley, Minnesota. Kensington 
operates innovative Alzheimer's care communities under the name Kensington 
Cottages which provide Alzheimer's care programs using medical directors with 
geriatric and dementia specialties.  As of November 11, 1997, Kensington had 
11 residences open and five residences under construction for a total of 491 
beds in three states.

     The aggregate purchase price approximated $28 million, including cash, 
the issuance of  137,363 of the Company's common shares, and approximately 
$23 million in new and assumed bank debt financing. The transaction was 
accounted for using the purchase method of accounting.  Accordingly, the 
Company began including the operating results of Kensington in its 
consolidated statement of operations subsequent to April 30, 1997 for seven 
of the entities and after July 1, 1997 for the remaining entity.

                                  4

<PAGE>

     As a result of the Kensington acquisition, certain accounts in the 
September 30, 1997 consolidated balance sheet increased significantly.  These 
increases included approximately  $17 million in property and equipment, 
other asset increases of approximately $8 million related to costs in excess 
of net assets acquired and deferring financing costs, increases in long-term 
obligations of approximately $20 million and the issuance of $1.5 million of 
common shares of the Company.  On July 1, 1997, the Company completed the 
acquisition of the remaining entity for $1.3 million in cash and the 
assumption of $1.7 million in long-term debt.

     The following unaudited proforma consolidated results of operations for 
the nine months ended September 30, 1997 and 1996 reflect the proforma 
effects of the Kensington acquisition as if such transaction had occurred at 
the beginning of the periods presented below.  The unaudited proforma 
information does not purport to be indicative of the Company's results of 
operations that actually would have occurred had the acquisition of 
Kensington taken place at the beginning of the periods presented below, or 
that may be expected to occur in the future.

                                    Nine Months Ended
                                      September 30,
                             ------------------------------
                                   1997           1996
                             --------------  --------------

     Revenues                 $  15,925,000   $11,410,000
                             --------------  --------------
                             --------------  --------------

     Net loss                 $  (4,500,000)  $(3,366,000)
                             --------------  --------------
                             --------------  --------------

     Net loss per share       $        (.66)  $      (.61)
                             --------------  --------------
                             --------------  --------------



4.   INVESTMENTS IN UNCONSOLIDATED ENTITIES

     The Company and Catholic Health  Initiatives ("CHI"), have entered into 
joint venture agreements to develop, own and operate assisted living 
residences in Ohio, New Mexico and Colorado.  Each project is owned jointly 
by the Company and CHI, with the Company typically owning approximately 20% 
of the equity of each venture.  As of September 30, 1997, the Company has 
guaranteed $1 million of joint venture debt financing.

     As of September 30, 1997, five residences were open (one stabilized 
residence and four residences in the fill-up phase), one residence was under 
construction, and two other sites were under development.  One residence was 
open at September 30, 1996.  Summarized income statement information of these 
joint ventures is presented below.


<TABLE>
<CAPTION>
 
                                                          Three months ended             Nine months ended
                                                             September 30,                 September 30, 
                                                    ---------------------------- ------------------------------
                                                         1997            1996         1997            1996
                                                    --------------  ------------ --------------  --------------
<S>                                                  <C>             <C>         <C>              <C>
Statements of Operations

Residence revenues...............................    $ 1,409,638     $  538,212   $  3,591,788    $ 1,532,217

Operating expenses...............................      1,313,533        367,578      3,103,814      1,049,691
Depreciation and amortization expense............        285,664         43,031        675,798        131,663
Interest expense.................................        290,409         79,856        651,509        269,870
                                                    --------------  ------------ --------------  --------------
   Total expenses................................      1,889,606        490,465      4,431,121      1,451,224
                                                    --------------  ------------ --------------  --------------
Net income (loss)................................    $  (479,968)    $   47,747   $   (839,333)   $    80,993
                                                    --------------  ------------ --------------  --------------
                                                    --------------  ------------ --------------  --------------

</TABLE>

                                                     5

<PAGE>


5.   NOTES PAYABLE AND LONG-TERM OBLIGATIONS

     In February 1997, the Company entered into a $3,000,000 revolving credit 
agreement expiring on March 31, 1998.  Interest is payable monthly and 
accrues at the bank's prime rate or LIBOR plus 2% if certain financial ratios 
are met.  The company is required to pay a commitment fee of .25% on the 
unused portion of the total credit allowed under the agreement and is 
required to maintain minimum net worth and current ratio amounts.  In March 
1997, the Company entered into a $5,000,000 line of credit expiring February 
25, 1998. Interest is payable monthly and, at the Company's option, accrues 
at the bank's prime rate or LIBOR rate plus .75%.  At September 30, 1997, 
there was $8,000,000 outstanding under these agreements.

     The Company entered into non-binding financing commitment letters with 
Meditrust Mortgage Investments, Inc. ("MMI"), an affiliate of Meditrust (a 
large health care REIT).  Under the letters, MMI is to provide up to 
approximately $100 million in financing for one existing and approximately 13 
new residences, subject to various terms and conditions.  The financings, 
which may be mortgage or lease financings, are to be entered into on a 
residence-by-residence basis, and are to be for terms of up to 14 years (with 
two additional five-year extension periods for the lease transactions).  
Interest during construction accrues at 2% above the prime rate.  On 
completion of each residence, payments are to be set at an amount equal to 
3.25% over the yield at that time on ten-year U.S. Treasury notes.  
Additional interest or lease payments are contingent on increased revenues of 
a financed residence during specified periods.  As of September 30, 1997, the 
Company has completed mortgage agreements for one existing and three new 
residences and four lease transactions totaling $50.6 million.  Subsequent to 
September 30, 1997, the Company completed two lease transactions totaling 
$18.0 million.

     On April 30, 1997, the Company entered into a $27.6 million promissory 
note in conjunction with its acquisition of Kensington (see Note 3) and the 
build out of nine Kensington cottages on the Rochester, Minnesota campus. 
Interest accrues at 10% and is payable monthly.   Principal and interest 
installments are payable monthly (based on a 25-year amortization period) 
beginning in September 1999 through April 2007 at which time the entire 
outstanding principal balance becomes due.  The amount outstanding under the 
agreement was approximately $19.9 million as of September 30, 1997.  The 
remaining funds will be disbursed in two phases at such time that the nine 
cottages achieve certain debt service coverage ratios.

      In September 1997, the Company entered into a $7,500,000 promissory 
note with JMAC, Inc., a 34% shareholder of the Company.  Interest is payable 
monthly and accrues at a bank's prime rate.  The note expires on January 2, 
2000.  At September 30, 1997, $7,500,000 was outstanding under this agreement.

     On October 17, 1997, the Company entered a $14 million construction loan 
agreement for the development and construction of four assisted living 
residences in the State of Ohio. Interest is payable monthly and accrues at 
the bank's prime rate plus 1 1/2% during construction.  In October 1999, the 
Company may elect, at its option, to convert the construction loan into a 
term loan maturing in October 2004.  Principal and interest payments under 
the term loan would be based on a 25-year amortization schedule with interest 
accruing at either prime plus 1 1/2% or an amount equal to 3.0% over the 
yield at the time on five-year U.S. Treasury notes.  The Company is required 
to maintain minimum net worth and current ratio amounts and, if the term loan 
is elected, to maintain debt service coverage ratios with respect to 
individual residences.

6.   UNUSUAL CHARGES

     During the third quarter of 1997, the Company recorded an unusual charge 
of approximately $1.4 million which primarily related to a $1.2 million 
charge as a result of a decision to abandon certain projects. The Company's 
property and equipment includes costs related to acquisition and development 
of projects in process, including capitalized costs associated with the 
Company's development department.  At the time a project is abandoned, all 

                                        6

<PAGE>

previously capitalized costs are expensed.  The remaining charges primarily 
relate to severance costs associated with third quarter resignations.

7.   TAX STATUS

     As a result of the reorganization in July 1996, the Company applied the 
provisions of Statement of Financial Accounting Standards No. 109, Accounting 
for Income Taxes.  Prior to July 1996, the Company was a partnership and 
taxable income and losses were allocated to the partners for inclusion in 
their respective income tax returns.  Deferred income taxes are provided for 
differences in the basis for tax purposes and for financial accounting 
purposes of recorded assets and liabilities.  A net deferred income tax 
provision and liability of $1,100,000 was recorded in the third quarter of 
1996 primarily as a result of the reorganization.

     The $190,000 deferred tax benefit recorded for the nine months ended 
September 30, 1997 represents an effective tax rate of 5% resulting from 
limitations associated with the recognition of operating loss carryforwards. 
Deferred tax assets, including operating loss carryforwards, can be realized 
by offset to existing taxable temporary differences that will reverse in the 
carryforward period.

                                      7

<PAGE>

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

     The following discussion of results of operations and financial 
condition contains forward-looking information that involves risks and 
uncertainties. The Company's actual results could differ materially from 
those anticipated. Factors that could cause or contribute to such differences 
include, but are not limited to, development activity and construction 
process risks, availability of financing for development, government 
regulations, competition, and the challenge to manage rapid growth and 
business expansion.

OVERVIEW

     The Company derives its revenues from two primary sources: (i) resident 
fees for the delivery of assisted living services and (ii) development fees 
and management services income for development and management of residences 
in which the Company does not own a controlling interest.  Resident fees 
include revenue derived from basic care, community fees, extended care, 
Alzheimer's care and other sources.  Community fees are one-time fees 
generally payable by a resident upon admission, and extended care and 
Alzheimer's care fees are paid by residents who require personal care in 
excess of services provided under the basic care program.  Development fees 
and management services income consist of development fees recognized over 
the development and construction period and management fees which are a 
percentage of the managed residence's total operating revenues.

     The following table sets forth certain information regarding Karrington 
residences as of September 30, 1997:

                                    Company         Jointly      Total
                                   Residences        Owned       System
                                ---------------  ------------ ------------

Open                                   20              5          25

Under Construction                     20              1          21

In Development:
    Under Contract & Zoned              3              3           6
    Under Contract & In Zoning          7              2           9
    In Negotiation                      6              -           6
    

     The open residences represent 1,012 units (1,265 beds), of which 755 
units (959 beds) are Company owned.  Residences under construction represent 
1,122 units (1,371 beds), of which 1,058 units (1,297) beds) are Company 
owned. 

                                     8

<PAGE>

RESULTS OF OPERATIONS

     The following table sets forth certain data from the respective 
consolidated statements of operations as a percentage of total revenues:

<TABLE>
<CAPTION>

                                                THREE MONTHS ENDED              NINE MONTHS ENDED
                                                   SEPTEMBER 30,                  SEPTEMBER 30,
                                             -------------------------      ------------------------
                                                1997            1996           1997           1996
                                             ----------      ---------      ---------      ---------
<S>                                            <C>             <C>            <C>            <C>
Total revenues.....................            100.0%          100.0%         100.0%         100.0%
Expenses:
  Residence operations.............             75.8            67.8           70.8           65.9
  General and administrative.......             21.3            27.1           22.6           28.6
  Rent expense.....................              1.7              .8            1.5             .7
  Depreciation and amortization....             14.2            19.0           13.3           15.7
  Unusual charges..................             25.0             ---           10.4            ---
                                             ----------      ---------      ---------      ---------

Total expenses.....................            138.0           114.7          118.6          110.9
                                             ----------      ---------      ---------      ---------

Operating income (loss)............            (38.0) %        (14.7)%%       (18.6)%        (10.9)%
                                             ----------      ---------      ---------      ---------
                                             ----------      ---------      ---------      ---------

Average stabilized occupancy percentage         88.0% (a)       93.9%          89.4% (a)      93.3%
End of period:
Company owned:
  Number of residences.............               20               6             20              6
  Number of units..................              755             312            755            312

Total system, including joint ventures:
     Number of residences..........               25               7             25              7
     Number of units...............            1,012             365          1,012            365

</TABLE>

     (a) Includes Kensington acquisition after April 30, 1997.

THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED 
SEPTEMBER 30, 1996

     Total revenue increased $3.0 million, or 124%, to $5.5 million in the 
third quarter of 1997 from $2.5 million in the third quarter of 1996 
primarily due to the acquisition of Kensington Management Group, Inc. and 
affiliates ("Kensington") on April 30, 1997 ($2.0 million), the opening of 
new residences (total of $.4 million), the increased occupancy of residences 
in the fill-up phase in 1996 ($.6 million) and an increase in revenues in 
stable residences resulting from higher average daily resident rates, offset 
by a decline in occupancy percentages.

     Residence operating expenses increased $2.5 million, or 150%, to $4.2 
million in the third quarter of 1997 from $1.7 million in the third quarter 
of 1996. As a percentage of residence operating revenues, residence operating 
expenses increased from 70% in the third quarter of 1996 to 77% in the third 
quarter of 1997.  The increase in operating expenses as a percentage of 
operating revenues resulted from additional start up losses associated with 
residences open less than one year and a decline in occupancy percentages of  
stable residences.

     General and administrative expenses increased $506,000, or 76%, to 
$1,175,000 in the third quarter of 1997 from $669,000 in the third quarter of 
1996 primarily due to increased compensation, payroll taxes and related 
benefits as a result of hiring additional management and staff at the 
Company's headquarters and the 

                                   9

<PAGE>

acquisition of Kensington.  The Company expects the rate of increase in its 
general and administrative expenses will continue to decrease as new staff 
needs have been reduced by recent hires.  In addition, the Company expects 
general and administrative expenses will continue to decrease as a percentage 
of total operating revenues due to anticipated economies of scale resulting 
from the Company's development program.

     Depreciation and amortization increased $316,000, or 67%, to $784,000 in 
the third quarter of 1997 from $468,000 in the third quarter of 1996 
primarily due to the opening of  new residences (total of $224,000) and the 
acquisition of Kensington, offset by lower amortization of preopening costs.

     See Note 6 of Notes to Consolidated Financial Statements for a 
description of unusual charges.

     Interest expense increased $642,000, or 301%, to $856,000 in the third 
quarter of 1997 from $214,000 in the third quarter of 1996 primarily due to 
the opening of new residences (total of $295,000) and the acquisition of 
Kensington ($515,000), offset by increased capitalization of interest related 
to the Company's increased level of construction activity.

     Interest income resulted primarily from the investment of the Company's 
net proceeds from its initial public offering in July 1996.

     The equity in net earnings (loss) of unconsolidated entities decreased 
due to four residences in the fill-up phase during the third quarter of 1997. 
There were no residences in the fill-up phase during the third quarter of 
1996.

     The deferred tax benefit recorded in the third quarter of 1997 
represents a year-do-date effective tax rate of 5% resulting from limitations 
associated with the recognition of operating loss carryforwards.

     See Note 7 to Consolidated Financial Statements for a description of the 
nonrecurring tax charge of $1,100,000 recorded in the third quarter of 1996.

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 
30, 1996

     Total revenue increased $6.5 million, or 96%, to $13.2 million in the 
first nine months of 1997 from $6.7 million in the first nine months of 1996 
primarily due to the acquisition of Kensington ($3.1 million), the opening of 
new residences (total of $.6 million), the increased occupancy of residences 
in the fill-up phase in 1996 ($2.4 million) and an increase in revenues in 
stable residences resulting from higher average daily resident rates, offset 
by a decline in occupancy percentages.

     Development and project management fees increased $120,000, or 24%, to 
$613,000 in the first nine months of 1997 from $493,000 in the first nine 
months of 1996 primarily due to consulting fees associated with third party 
assisted living providers.

     Residence operating expenses increased $5.0 million, or 90%, to $9.4 
million in the first nine months of 1997 from $4.4 million in the first nine 
months of 1996.   As a percentage of residence operating revenues, residence 
operating expenses increased from 71% in the first nine months of 1996 to 74% 
in the same period of 1997.  The increase in operating expenses as a 
percentage of operating revenues resulted primarily from  additional start up 
losses associated with residences open less than one year.

     General and administrative expenses increased $1.1 million, or 55%, to 
$3.0 million in the first  nine months of 1997 from $1.9 million in the first 
nine months of 1996 primarily due to increased compensation, payroll taxes 
and related benefits as a result of hiring additional management and staff at 
the Company's headquarters and the acquisition of Kensington.

                                         10

<PAGE>

     See Note 6 of Notes to Consolidated Financial Statements for a 
description of unusual charges.

     Depreciation and amortization increased $.7 million, or 67%, to $1.8 
million in the first nine months of 1997 from $1.1 million in the first nine 
months of 1996 primarily due to the opening of new residences (total of $.4 
million) and the acquisition of Kensington, offset by lower amortization of 
preopening costs.

     Interest expense increased $546,000, or 52%, to $1.6 million in the 
first nine months of 1997 from $1.1 million in the first nine months of 1996 
primarily due to the opening of  new residences (total of $375,000) and the 
acquisition of Kensington (798,000), offset by capitalization of interest 
related to the Company's increased level of construction activity.

     Interest income resulted primarily from the investment of the Company's 
net proceeds from its initial public offering in July 1996.

     The $190,000 deferred tax benefit recorded for the nine months ended 
September 30, 1997 represents an effective tax rate of 5% resulting from 
limitations associated with the recognition of operating loss carryforwards. 
Deferred tax assets, including operating loss carryforwards, can be realized 
by offset to existing taxable temporary differences that will reverse in the 
carryforward period.

     See Note 7 to Consolidated Financial Statements for a description of the 
nonrecurring tax charge of  $1,100,000 recorded in the third quarter of 1996.

LIQUIDITY AND CAPITAL RESOURCES

     In July 1996, the Company completed its initial public offering for the 
sale of 2,350,000 common shares. The net proceeds to the Company were 
approximately $27.8 million.  Approximately $5.7 million of the net proceeds 
were used to pay the outstanding principal and accrued interest of 
subordinated debentures payable to a partner.  The balance of the net 
proceeds were used to finance the development and acquisition of 
additional assisted living residences and for working capital and general 
corporate purposes.  See Part II-Item2.

     The Company has entered into non-binding financing commitment letters 
with Meditrust Mortgage Investments, Inc. ("MMI"), an affiliate of Meditrust 
(a large health care REIT).  Under the letters, MMI is to provide up to 
approximately $100 million in financing for one existing and approximately 13 
new residences, subject to various terms and conditions.  The financings, 
which may be mortgage or lease financings, are to be entered into on a 
residence-by-residence basis, and are to be for terms of up to 14 years (with 
two additional five-year extension periods for the lease transactions).  
Interest during construction accrues at 2% above the prime rate.  On 
completion of each residence, payments are to be set at an amount equal to 
3.25% over the yield at that time on the ten-year U.S. Treasury notes.  
Additional interest or lease payments are contingent on increased revenues of 
a financed residence during specified periods.  As of September 30, 1997, the 
Company has completed mortgage agreements for one existing and three new 
residences and four lease transaction totaling $50.6 million.  Subsequent to 
September 30, 1997, the Company completed two lease transactions totaling 
$18.0 million.

     On April 30, 1997, the Company entered into a $27.6 million promissory 
note in conjunction with its acquisition of Kensington and the build out of 
nine Kensington cottages on the Rochester, Minnesota campus.  Interest 
accrues at 10% and is payable monthly.  Principal and interest installments 
are payable monthly (based on a 25-year amortization period) beginning in 
September 1999 through April 2007 at which time the 

                                  11

<PAGE>

entire outstanding principal balance becomes due.  The amount outstanding 
under the agreement was approximately $19.9 million as of September 30, 1997. 
The remaining funds will be disbursed in two phases at such time that the 
nine cottages achieve certain debt service coverage ratios.

     On October 17, 1997, the Company entered a $14 million construction loan 
agreement for the development and construction of four assisted living 
residences in the State of Ohio. Interest is payable monthly and accrues at 
the bank's prime rate plus 1 1/2% during construction.  In October 1999, the 
Company may elect, at its option, to convert the construction loan into a 
term loan maturing in October 2004.  Principal and interest payments under 
the term loan would be based on a 25-year amortization schedule with interest 
accruing at either prime plus 1 1/2% or an amount equal to 3.0% over the 
yield at the time on five-year U.S. Treasury notes.  The Company is required 
to maintain minimum net worth and current ratio amounts and, if the term loan 
is elected, to maintain debt service coverage ratios with respect to 
individual residences.

     The Company has available lines of credit totaling $15.5 million. See 
Note 5 of Notes to Financial Statements for a description of lines of credit.

     For the nine months ended September 30, 1997, cash flows provided by 
operating activities were $604,000 compared to cash flows used by operating 
activities of $685,000 for the nine months ended September 30, 1996.  The 
Company used $33.7 million and $16.2 million, respectively, to primarily fund 
residence development and acquire Kensington, and received $25.2  million and 
$35.2 million, respectively, in cash from financing activities.  At September 
30, 1997, the Company had restricted cash of approximately $800,000 recorded 
in other assets on the consolidated balance sheet.

     The Company estimates that newly developed residences will generally 
range in cost from $6.5 to $8.0 million, with the development cycle taking up 
to 24 months, from site identification to residence opening.  There can be no 
assurance that financing for the Company's development program will be 
available to the Company on acceptable terms, if at all.  Moreover, to the 
extent the Company acquires properties that do not generate positive cash 
flow, the Company may be required to seek additional capital for working 
capital and liquidity purposes.  The Company has been, and will continue to 
be, dependent on third-party financing for its development program.

     The Company expects that its existing financing commitments and 
additional financing the Company anticipates will be available, will be 
sufficient to fund its development programs through December 31, 1997.  
Additional financing will be required to complete the Company's growth plans 
and to refinance certain existing indebtedness.

     The Company's capital requirements include seven projects on which 
construction financing has not been closed; however five of the projects have 
financing commitments in place and are in the process of closing while two 
projects do not presently have a financing commitment.

     The Company depends on outside mortgage or lease financing to fund the 
majority of new residence construction costs.  On the two ongoing projects 
for which the Company does not have a current commitment, a total of 
$4,800,000 out of total project costs of $12,650,000 has been invested 
to-date.  The Company expects to secure  construction financing to fund the 
additional $7,850,000 needed to complete these projects.  The Company has 
financing commitments in place for the five remaining projects now under 
construction, and will need to close the associated financing or raise 
additional capital in order to fund completion of these projects.  All 
closings of existing financing commitments are expected to occur before 
year-end 1997.  The Company will realize a net cash infusion of over 
$8,500,000 from the closing of financing associated with the five projects as 
the Company's equity in construction-in-progress exceeds the financing equity 
requirement.

                                    12

<PAGE>

II.  OTHER INFORMATION


Items 1 and 3 through 5 are not applicable.

Item 2.  Changes in Securities and Use of Proceeds

     The information provided below represents only the information that has 
changed since the Company's last report filed on Form SR for the six month 
period ended April 18, 1997 as permitted under Item 701 (f) of Regulation S-K 
(Use of Proceeds).

ITEM 701(f)(4)(vii)
--------------------

<TABLE>
<CAPTION>

                                                     Direct or indirect        
                                                    payments to directors,    
                                                      officers, general         
                                                    partners of the issuer    
                                                    or their associates; to   
                                                      persons owning ten        
                                                      percent or more of        
                                                      any class of equity       
                                                    securities of the issue;       Direct or indirect 
                                                    and to affiliates of the          payments to
                                                            issuer                      others
                                                   --------------------------     --------------------
<S>                                                 <C>                            <C>
Construction of plant, 
 building and facilities                                      ---                      $1,511,285

Purchase of real estate                                       ---                       2,880,592

Acquisition of 
 Kensington 
 Management Group, 
 Inc. and affiliates                                          ---                       4,008,123
                                                   --------------------------     --------------------
                                                             $-0-                      $8,400,000
                                                   --------------------------     --------------------
                                                   --------------------------     --------------------
</TABLE>

     The above disclosures represent a final report with respect to the use 
of proceeds from the Company's initial public offering in July 1996.  The use 
of proceeds above do not represent a material change from the use of proceeds 
described in the Company's July 1996 prospectus.

Item 6.  Exhibits

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

27.1                   Financial Data Schedule, which is submitted 
                       electronically to the Securities and Exchange 
                       Commission for information only and not filed.
               

                                   13

<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.

Dated November 14, 1997


                                     KARRINGTON HEALTH, INC.
                                                    (Registrant)


                                     /s/  RICHARD R. SLAGER
                                     ---------------------------------
                                     Richard R. Slager
                                     Chief Executive Officer


                                     /s/ MARK N. MACE
                                     ---------------------------------
                                     Principal Accounting Officer

                                    14

<PAGE>

                          INDEX TO EXHIBITS


Exhibit Number      Description

27.1                  Financial Data Schedule, which is submitted
                      electronically to the Securities and Exchange 
                      Commission for information only.
                    
                                   15