<PAGE>   1

                                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 June 30, 1997


                                     OR

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

                       Commission file number 1-11999

                      ALTERNATIVE LIVING SERVICES, INC.

  DELAWARE                                                        39-1771281
  (State or other jurisdiction of        (I.R.S. Employer Identification No.)
  incorporation or organization)
  
                      450 N. SUNNYSLOPE ROAD, SUITE 300
                               BROOKFIELD, WI
                                    53005
                  (Address of principal executive offices)
                                 (Zip Code)

                               (414) 789-9565
            (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    [ ]

        AS OF AUGUST 11, 1997 THERE WERE 13,001,546 SHARES OF THE REGISTRANT'S
COMMON STOCK, PAR VALUE $0.01, OUTSTANDING.

(Number of shares outstanding of each class of the issuer's classes of common
stock, as of the latest practical date.)

<PAGE>   2


                       ALTERNATIVE LIVING SERVICES, INC.
                                     INDEX


                         Part I.  Financial Information


                                                                     PAGE NO.
Item 1.  Financial Statements:

         Condensed Consolidated Balance Sheets as of  June 30,
         1997 and December 31, 1996................................     1

         Condensed Consolidated Statements of Operations for the
         Three and Six months ended June 30, 1997 and 1996.........     2

         Condensed Consolidated Statements of Cash Flows for the
         Six months ended June 30, 1997 and 1996...................     3

         Notes to Condensed Consolidated Financial Statements......     4

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations.......................     5

Item 3.  Quantitative and Qualitative Disclosures About 
         Market Risk...............................................     9

                        Part II.  Other Information

Item 4.  Submissions of Matters to a Vote of Security Holders......     9

Item 6.  Exhibits and Reports on Form 8-K..........................     9

<PAGE>   3
                         PART 1 - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

               ALTERNATIVE LIVING SERVICES, INC. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                              June 30,         December 31, 
                                                               1997               1996      
                                                           -------------     --------------
                                                            (Unaudited)                     
                         ASSETS                                                             
<S>                                                         <C>                 <C>         
Current Assets:                                                                             
  Cash and cash equivalents..............................   $   15,440          $  25,796    
  Residence receivables, net.............................        1,365              1,614    
  Other current assets...................................        7,225              4,989    
                                                            ----------          ---------
     Total current assets................................       24,030             32,399    
                                                            ----------          ---------
Land.....................................................       26,556             10,005    
Buildings & improvements.................................      121,333             54,343    
Furniture, fixtures & equipment..........................       14,069              7,204    
Construction in progress.................................       32,648             12,744    
                                                            ----------          ---------
  Total property, plant and equipment....................      194,606             84,296    
  Less: accumulated depreciation.........................       (6,049)            (4,480)    
                                                            ----------          ---------
  Property, plant & equipment, net.......................      188,557             79,816    
                                                            ----------          ---------
Long-term investments....................................        1,165              1,171    
Investments in and advances to unconsolidated 
  affiliates.............................................        4,100              1,649    
Other assets.............................................       12,471             11,501    
                                                            ----------          ---------
     Total assets........................................   $  230,323          $ 126,536    
                                                            ==========          =========

          LIABILITIES AND STOCKHOLDERS' EQUITY                                              

Current liabilities:                                                                        
  Current installments of long-term debt.................   $      548          $     769    
  Short-term notes payable...............................       21,056              8,335    
  Accounts payable.......................................        3,476              1,985    
  Accrued expenses.......................................        8,561              8,130    
                                                            ----------          ---------
     Total current liabilities...........................       33,641             19,219            
                                                            ----------          ---------
Long-term debt, less current installments................       66,156             28,772    
Convertible debt.........................................       50,000                 --    
Deferred gain on sale....................................        6,781              6,763    
Minority interest........................................        8,615              5,888    
Stockholders' equity:                                                                       
  Common stock and additional paid-in capital............       76,108             76,108    
  Accumulated deficit....................................      (10,978)           (10,214)    
                                                            ----------          ---------
  Total stockholders' equity.............................       65,130             65,894    
                                                            ----------          ---------
     Total liabilities and stockholders' equity..........   $  230,323          $ 126,536    
                                                            ==========          =========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       1



<PAGE>   4



                          ALTERNATIVE LIVING SERVICES, INC. AND SUBSIDIARIES

                           CONDENSED CONSOLIDATED STATEMENTS OF  OPERATIONS
                                             (UNAUDITED)
                                            (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                          Three Months Ended       Six Months Ended
                                                               June 30,                June 30,
                                                         ---------------------    --------------------
                                                           1997         1996        1997        1996
                                                         ---------    --------    --------    --------
<S>                                                     <C>           <C>        <C>          <C>
Revenue:
  Resident service fees...............................   $  18,917    $  7,561    $ 34,795    $ 11,594
  Other...............................................         239         189         369         481
                                                         ---------    --------    --------    --------
       Total operating revenue........................      19,156       7,750      35,164      12,075
Operating expenses:
  Residence operations................................      12,158       4,720      22,540       7,961
  Lease expense.......................................       3,737       1,428       7,006       1,915
  General and administrative..........................       2,592       1,728       5,066       3,311
  Depreciation and amortization.......................       1,435         575       2,484         940
  Non-recurring charge................................          --         977          --         977
                                                         ---------    --------    --------    --------
       Total operating expenses.......................      19,922       9,428      37,096      15,104
                                                         ---------    --------    --------    --------
Operating loss........................................        (766)     (1,678)     (1,932)     (3,029)
                                                         ---------    --------    --------    --------
Other income (expense):
  Interest expense, net...............................        (769)       (934)       (994)     (1,325)
  Other, net..........................................          (5)         33          (8)         13
  Equity in (losses) income of unconsolidated 
    affiliates........................................         (49)         38        (137)        (47)
  Minority interest in losses (income) of consolidated
    subsidiaries......................................       1,404         (33)      2,307          12
                                                         ---------    --------    --------    --------
       Total other income (expense) net...............         581        (896)      1,168      (1,347)
                                                         ---------    --------    --------    --------

Net loss..............................................   $    (185)   $ (2,574)   $   (764)   $ (4,376)
                                                         =========    ========    ========    ========

Net loss per share....................................   $   (0.01)   $  (0.32)   $  (0.06)   $  (0.59)
                                                         =========    ========    ========    ========

Weighted average shares outstanding...................      12,996       8,003      12,996       7,458
                                                         =========    ========    ========    ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements




                                       2



<PAGE>   5


               ALTERNATIVE LIVING SERVICES, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF  CASH FLOWS
                                  (UNAUDITED)
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                      Six Months Ended June 30,
                                                                    -----------------------------
                                                                        1997              1996
                                                                    -----------       -----------
<S>                                                                 <C>               <C>
Cash flows from operating activities:
  Net loss..................................................        $     (764)        $  (4,376)
  Adjustments to reconcile net loss to net cash provided
  by (used in) operating activities:
    Depreciation and amortization...........................             2,484               940
    Minority interest in losses of consolidated 
      subsidiaries..........................................            (2,307)              (12)
    Equity in losses of unconsolidated affiliates...........               137                47
    Decrease (increase) in net resident receivables.........               248              (547)
    Increase in other current assets........................            (2,146)             (150)
    Increase in accounts payable............................             1,428             1,796
    (Decrease) increase in accrued expenses.................              (390)            1,284
    Changes in other assets and liabilities.................            (1,323)              730
                                                                    ----------         ---------
Net cash used in operating activities.......................            (2,633)             (288)
                                                                    ----------         ---------

Cash flows from investing activities:
    Investment in property, plant and equipment and 
      project development costs.............................           (60,002)          (15,702)
    Changes in investments in and advances to unconsolidated
      affiliates............................................            (2,582)             (258)
    Changes in long-term assets and liabilities.............                --            (1,071)
    Net cash for acquisitions...............................           (20,925)           (1,565)
                                                                    ----------         ---------
Net cash used in investing activities.......................           (83,509)          (18,596)
                                                                    ----------         ---------

Cash flows from financing activities:
    Repayments of short-term note payable...................            (8,304)             (350)
    Net proceeds from issuance of debt......................            81,823            12,965
    Contributions by minority partners......................               783                --
    Issuance of common stock and other capital contributions                --             2,249
    Sale of property under lease............................             1,484             7,058
                                                                    ----------         ---------
Net cash provided by financing activities                               75,786            21,922
                                                                    ----------         ---------

Net (decrease) increase in cash and cash equivalents........           (10,356)            3,038
Cash and cash equivalents:
    Beginning of period.....................................            25,796             2,948
                                                                    ----------         ---------
    End of period...........................................        $   15,440         $   5,986
                                                                    ==========         =========
Supplemental disclosure of cash flow information:
    Cash paid for interest, including amounts capitalized...        $    1,323         $     559
                                                                    ==========         =========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       3



<PAGE>   6


               ALTERNATIVE LIVING SERVICES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

(1)  BASIS OF PRESENTATION

     The condensed consolidated balance sheets as of June 30, 1997 and December
31, 1996, the condensed consolidated statements of operations for the three and
six months ended June 30, 1997 and 1996 and the condensed consolidated
statements of cash flows for the six months ended June 30, 1997 and 1996
contained herein include the accounts of Alternative Living Services, Inc. (the
"Company") and its affiliates which are under the common financial control of
the Company.  All significant intercompany accounts have been eliminated in
consolidation.  In the opinion of management, all adjustments (consisting only
of normal recurring items) necessary for a fair presentation of such condensed
consolidated financial statements have been included.  The results of
operations for the six months ended June 30, 1997, are not necessarily
indicative of the results to be expected for the full fiscal year.

     The condensed consolidated financial statements do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles.  The accompanying condensed consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K, as amended, for the year ended December 31, 1996.

(2)  ACQUISITIONS AND SALE/LEASEBACKS

     On May 1, 1997, the Company acquired an assisted living residence under
construction in Mesa, Arizona which is expected to have an aggregate capacity
of 61 residents.  The acquisition represents an investment by the Company of
approximately $2.7 million in cash.  This acquisition was accounted for as a
purchase.

     In May 1997, the Company completed a series of related transactions
resulting in the Company acquiring the operations of three recently
constructed, Wynwood-type assisted living residences located in upstate New
York with an aggregate capacity of 313 residents (the "New York Transaction").
The Company assumed operations of these residences effective as of March 31,
1997.  The Company is leasing one of these residences pursuant to an operating
lease and acquired a 51% majority interest in the two other residences for an
investment by the Company of $12.4 million, of which $3.1 million was paid in
cash, $867,000 was paid in the form of an 11% promissory note payable over a
two year term and the remainder was debt assumed.  As a result of this
transaction, the Company's consolidated long-term debt increased by $17.5
million. The acquisition of the majority interest in these two residences was
accounted for as a purchase.

     On June 19, 1997, the Company acquired the remaining 81% partnership
interests not already owned by it in four residences for an aggregate purchase
price of $1.1 million.  The four residences were simultaneously sold and leased
back pursuant to a 13-year sale and leaseback arrangement accounted for as an
operating lease.

     On June 25, 1997, the Company acquired two Crossings-type assisted living
residences in Nevada for an aggregate purchase price of $13.2 million, $6.1
million of which was paid in cash and the remainder was debt assumed by the
Company.  This transaction has been accounted for as a purchase.

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<PAGE>   7


     On June 30, 1997, a wholly owned affiliate of the Company acquired two
Crossings-type assisted living residences located in upstate New York for $7.2
million in cash.  This transaction was accounted for as a purchase.

(3)  DEBT FINANCING

     On April 28, 1997, to partially fund its acquisition activity, the Company
obtained a $15 million bridge loan from RDV Capital Management L.P., a limited
partnership affiliated with Jerry L. Tubergen, one of the Company's directors.
This loan is unsecured, bears interest at prime plus one percent and principal
is repayable in April 1998 with accrued interest payable monthly.

     On May 21, 1997, the Company sold at par $50,000,000 of 7.0% convertible
subordinated debentures due June 1, 2004. The debentures are convertible into
shares of common stock of the Company at the conversion price of $20.25 per
share,  which equates in aggregate to 2,469,136 shares.

(4)  SUBSEQUENT EVENT

     On July 31, 1997, the Company and Sterling House Corporation announced
that they had entered into a definitive merger agreement under which the
Company will issue 1.1 shares of its common stock in exchange for each
outstanding share of Sterling House common stock.  This business combination is
intended to qualify as a tax-free reorganization and is expected to be
accounted for as a pooling of interests.  The parties contemplate closing the
merger in the fourth quarter of 1997.

(5)  NEW ACCOUNTING PRONOUNCEMENTS

     Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings
per Share" is effective for financial statements issued for periods ending
after December 15, 1997.  SFAS No. 128 replaces Accounting Principles Board
Opinion ("APB") No. 15 and simplifies the computation of earnings per share
("EPS") by replacing the presentation of primary EPS with a presentation of
basic EPS.  Basic EPS includes no dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period.  Diluted EPS reflects the potential dilution
from securities that could share in the earnings of the company, similar to
fully diluted EPS under APB No. 15.  The Statement requires dual presentation
of basic and diluted EPS by entities with complex capital structures.  The
Company will adopt SFAS No. 128 for the financial statements for the year ended
December 31, 1997.

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

OVERVIEW

     The Company's rapid growth since 1993 has had a significant impact on the
Company's results of operations and accounts for most of the changes in results
between the first six months of 1997 and 1996.  As of June 30, 1997 and 1996,
the Company operated 98 and 57 residences with aggregate capacity of  4,427 and
2,512 residents, respectively.  The Company is also constructing or developing
approximately 85 residences as of June 30, 1997.  Since its organization in
December 1993, the Company has achieved significant growth in operating revenue
resulting from its aggressive development program and several strategic
acquisitions, but to date has not realized operating income or net income.  For
the six months ended June 30, 1997, the Company generated operating revenue of
$35.2 million and incurred an operating loss of $1.9 million and a net loss of
$764,000.  For the six months ended June 30, 1996, the

                                       5



<PAGE>   8

Company generated operating revenue of $12.1 million and incurred an operating
loss of $3.0 million and a net loss of $4.4 million.

     The Company intends to continue to pursue its growth strategy by
developing and constructing additional assisted living residences and, as
appropriate opportunities arise, acquiring assisted living operations.  Newly
opened assisted living residences typically operate at a loss during the first
six to 12 months of operation, primarily due to the incurrence of certain fixed
and variable expenses in advance of the achievement of targeted rent and
service fees from the lease-up of such residences (referred to as lease-up
expenses).  In addition, the development and construction of residences involve
the commitment of substantial capital over a typical six to 12 month
construction period, the consequence of which may be an adverse impact on the
Company's liquidity.  In the case of acquired residences, resident turnover and
increased marketing expenditures which may be required to reposition such
residences, together with the possible disruption of operations resulting from
required renovations, may adversely impact the financial performance of such
residences for a period of time after acquisition.  As a result, the Company
may continue to incur additional operating losses in the second half of 1997 as
the operating expenses associated with developing, renovating and operating
residences and supporting the corporate infrastructure necessary to manage the
Company's growth strategy will be only partially offset by operating profits
generated by stabilized residences.

THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1996

     Operating Revenue. Operating revenues for the three months ended June 30,
1997 were $19.2 million representing an increase of $11.4 million, or 147%,
from the $7.8 million for the comparable 1996 period.  Substantially all of
this increase resulted from the acquisition of New Crossings International
Corporation ("Crossings")  residences in May 1996, the addition of newly
constructed residences and other acquisitions.  The Company operated 98 and 57
residences at the end of the three month periods ended June 30, 1997 and 1996,
respectively.

     Residence Operations.  Residence operating expenses for the three months
ended June 30, 1997 increased to $12.2 million from $4.7 million in the three
month period ended June 30, 1996 due to the increased number of residences
operated during the 1997 period.

     Lease Expense.  Lease expense for the three months ended June 30, 1997 was
$3.7 million, compared to $1.4 million in the comparable period in 1996.  Such
increase was primarily attributable to the acquisition of Crossings residences
in May 1996, 13 of which are leased residences and the sale/leaseback of 12 of
the Company's residences completed at December 31, 1996.

     General and Administrative Expense.  General and administrative expenses
for the three months ended June 30, 1997 were $2.6 million compared to $1.7
million for the comparable 1996 period representing a decline as a percentage
of operating revenue from 22% in 1996 to 14% in 1997.  The increase in expenses
was primarily attributable to salaries, related payroll taxes and employee
benefits relating to additional corporate personnel retained to support the
Company's actual and anticipated growth.  The Company expects that its general
and administrative expenses will continue to decrease as a percentage of
operating revenue as the Company grows and achieves certain economies of scale.

     Depreciation and Amortization.  Depreciation and amortization for the
three months ended June 30, 1997 was $1.4 million, representing an increase of
$860,000 or 150%, from $575,000 for the comparable period  in 1996.  This
increase resulted primarily from depreciation and amortization of pre-opening
costs on new residences that opened during 1997 and 1996, offset by the
decrease in depreciation associated with the December 31, 1996 sale/leaseback
of 12 residences.

                                       6



<PAGE>   9



     Interest Expense, Net.  Interest expense, net, for the three months ended
June 30, 1997 was $769,000 representing a decrease of $165,000, or 18%, from
$934,000 for the comparable period in 1996.  Interest expense decreased as the
result of the repayment of mortgage debt on 12 residences refinanced under
sale/leaseback arrangements as of December 31, 1996, increased capitalization
of interest costs due to an increase in construction projects and increased
interest income due to the convertible debt financing proceeds.

     Minority Interest in Losses (Income) of Consolidated Subsidiaries.
Minority interest in losses (income) of consolidated subsidiaries for the three
months ended June 30, 1997 was $1.4 million, representing an increase of $1.4
million from $(32,579) for the comparable period in 1996.  The increase was
primarily attributable to the increase in the number of residences in lease-up
that are owned by the Company with joint venture partners.

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996

     Operating Revenue. Operating revenues for the six months ended June 30,
1997 were $35.2 million representing an increase of $23.1 million, or 191%,
from the $12.1 million for the comparable 1996 period.  Substantially all of
this increase resulted from the acquisition of Crossings residences in May
1996, the addition of newly constructed residences and other acquisitions.  The
Company operated 98 and 57 residences at the end of the six month periods ended
June 30, 1997 and 1996, respectively.

     Residence Operations.  Residence operating expenses for the six months
ended June 30, 1997 increased to $22.5 million from $8.0 million in the six
month period ended June 30, 1996 due to the increased number of residences
operated during the 1997 period.  As a percentage of total operating revenue,
residence operating expenses decreased to 64% for the six months ended June 30,
1997 from 66% for the comparable period in 1996.

     Lease Expense.  Lease expense for the six months ended June 30, 1997 was
$7.0 million, compared to $1.9 million in the comparable period in 1996.  Such
increase was primarily attributable to the acquisition of Crossings residences
in May 1996, 13 of which are leased, the sale/leaseback of  12 of the Company's
residences completed at December 31, 1996 and the lease of a residence acquired
in upstate New York in May 1997.

     General and Administrative Expense.  General and administrative expenses
for the six months ended June 30, 1997 were $5.1 million compared to $3.3
million for the comparable 1996 period representing a decline as a percentage
of operating revenue from 27% in 1996 to 14% in 1997.  The increase in expenses
was primarily attributable to salaries, related payroll taxes and employee
benefits relating to additional corporate personnel retained to support the
Company's actual and anticipated growth.  The Company expects that its general
and administrative expenses will continue to decrease as a percentage of
operating revenue as the Company grows and achieves certain economies of scale.

     Depreciation and Amortization.  Depreciation and amortization for the six
months ended June 30, 1997 was $2.5 million, representing an increase of $1.5
million or 164%, from $940,000 for the comparable period  in 1996.  This
increase resulted primarily from depreciation and amortization of pre-opening
costs on new residences that opened during 1997 and 1996, offset by the
decrease in depreciation associated with the December 31, 1996 sale/leaseback
of 12 residences.

     Interest Expense, Net.  Interest expense, net, for the six months ended
June 30, 1997 was $994,000 representing a decrease of $331,000, or 25%, from
$1.3 million for the comparable period in 1996.  Interest expense decreased as
the result of the repayment of mortgage debt on 12 residences refinanced under
sale/leaseback arrangements as of December 31, 1996, increased capitalization
of

                                       7



<PAGE>   10

interest costs due to an increase in construction projects and increased
interest income due to the convertible debt financing proceeds.

     Minority Interest in Losses of Consolidated Subsidiaries.  Minority
interest in losses of consolidated subsidiaries for the six months ended June
30, 1997 was $2.3 million, representing an increase of $2.3 million from
$12,000 for the comparable period in 1996.  The increase was primarily
attributable to the increase in the number of residences in lease-up that are
owned by the Company with joint venture partners.

LIQUIDITY AND CAPITAL RESOURCES

     For the six months ended June 30, 1997 and 1996 cash flow used in
operations was $2.6 million and $288,000, respectively.

     During the six months ended June 30, 1997, the Company required
approximately $84 million of financing for construction and acquisition
activity.  This financing was obtained through a $50.0 million convertible debt
offering, $10.0 million of construction financing, $1.1 million of
sale/leaseback financing, $6.0 million of short-term mortgage financing and
$15.0 million of unsecured short-term financing.  In addition, the Company
assumed existing debt of $23.7 million and $7.6 million of obligations under an
operating lease on four properties acquired during the six month period. Due to
the increase in short-term debt financing, the Company had a working capital
balance of approximately $(9.6) million, compared to working capital of $13.2
million at December 31, 1996.  The Company anticipates replacing the short-term
debt outstanding at June 30, 1997 with either long-term financing or through
sale/leaseback financing by December 31, 1997.

     To achieve its growth objectives, the Company will need to obtain
sufficient financing to fund its development, construction and acquisition
activities.  The Company has plans to develop approximately $150 million of
residences in both 1997 and 1998.  Historically, the Company has financed its
development program and acquisitions through a combination of various forms of
real estate financing (mortgage and sale/leaseback financing), capital
contributions from joint venture partners and the sale of Common Stock.  The
Company has executed non-binding letters of intent with a health care REIT for
financing commitments aggregating approximately $250 million, $70 million of
which was utilized by the Company through August 11, 1997.  The Company
believes that this financing and proceeds from the convertible debt offering,
together with traditional mortgage financing that the Company expects to be
available and its existing joint venture development partnerships currently in
place, will be sufficient to fund its growth strategy for the next 18 months.
The Company will from time to time seek additional funding through public or
private financing, including equity or debt financing.  In addition, the
Company will require sufficient financing resources to meet its operating and
working capital needs.  There can be no assurance that any newly constructed
residences will achieve a stabilized occupancy rate and attain a resident mix
that meet the Company's expectations or generate sufficient positive cash flow
to cover operating and financing costs associated with such residences.  There
can be no assurance that the Company will be successful in securing additional
financing or that adequate funding will be available and, if available, will be
on terms that are acceptable to the Company.  A lack of funds may require the
Company to delay or eliminate all or some of its development projects and
acquisition plans.  In addition, the Company may require additional financing
to enable it to acquire additional residences, to respond to changing economic
conditions, to expand the Company's development program or to account for
changes in assumptions related to its development program.

     In addition within the next 18 months, the Company will become subject to
purchase obligations with respect to equity interests held by joint venture
partners, at their election, in certain of the Company's residences.  At such
times the Company may also elect to exercise its rights to purchase such

                                       8



<PAGE>   11

interests.  Based on a number of assumptions, including assumptions as to the
number of residences to be developed with joint venture partners, the timing of
such development, the time at which such options will be exercised and the fair
market value of such residences at the date such purchases are exercised, the
Company estimates that it may require approximately $15 million to $20 million
to satisfy these purchase obligations.

FORWARD-LOOKING STATEMENTS

     Any statements contained in this Form 10-Q which are not historical facts
are forward-looking statements that involve risks and uncertainties.  The
Company cautions the reader that forward-looking statements, such as the future
impact of the Company's growth on profitability and liquidity and capital
resources may differ materially as a result of risks facing the Company.  These
risks include, but are not limited to, the history of operating losses, ability
to continue growth, ability to manage rapid expansion, development and
construction risks, risks associated with acquisitions, possible need for
additional financing, risk of rising interest rates and substantial debt and
operating lease payment obligations.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET VALUE

      Not applicable.


                          PART II - OTHER INFORMATION

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

      The annual meeting of stockholders of the Company was held on July 16,
1997. 

      At the annual meeting of stockholders of the Company held on July 16,
1997, action was taken to elect a board of seven directors of the Company.  The
results were as follows:


<TABLE>
<CAPTION>
                                                           AUTHORITY   
             SHAREOWNER                   FOR              WITHHELD    
        ---------------------          ---------         -----------
        <S>                            <C>                <C>         
        William G. Petty, Jr.          9,290,836            2,727     
        Richard W. Boehlke             9,291,336            2,227     
        Gene E. Burleson               9,291,336            2,227     
        Robert Haveman                 9,291,336            2,227     
        Ronald G. Kenny                9,291,336            2,227     
        William F. Lasky               9,291,336            2,227     
        Jerry L. Tubergen              9,291,336            2,227     
</TABLE>

      The proposal to elect directors was set forth and described in the Notice
of Annual Meeting and Proxy Statement of the Company dated June 17, 1997, filed
with the Commission pursuant to Rule 14b-3 under the Securities Exchange Act of
1934, as amended.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits:
      
         11.1 Statement Regarding Computation of Per Share Earnings

                                       9



<PAGE>   12


  
           27.1 Financial Data Schedule

      (b)  Reports on Form 8-K: The Registrant filed the following
           reports with the Securities and Exchange Commission on Form 8-K
           during the quarter ended June 30, 1997:

           The Company's current report on Form 8-K filed with the Securities
           and Exchange Commission on May 27, 1997 reported, under Item 2, the  
           sale at par of $50,000,000 of 7% convertible subordinated debentures
           due June 1, 2004.


                                   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.


                                        ALTERNATIVE LIVING SERVICES, INC




                                         Date:                        , 1997
                                               -----------------------
                                              /s/   Thomas E. Komula
                                              ----------------------
                                              Thomas E. Komula
                                              Chief Financial Officer
                                              (Principal Financial Officer)


                                       10