<PAGE>
 
________________________________________________________________________________
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20459

                                   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, 1996

                                      OR

[_]           TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                    For the Transition period from ___ to ___

                        Commission file number 1-83938

                        ASSISTED LIVING CONCEPTS, INC.
            (Exact name of registrant as specified in its charter)

              Nevada                                   93-1148702
    (State or other jurisdiction of                  (IRS Employer
    incorporation or organization)                Identification No.)


                         9955 SE Washington, Suite 201
                            Portland, Oregon 97216
                   (Address of principal executive offices)

                                (503) 252-6233
             (Registrant's telephone number, including area code)

     Indicate 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 stock, $.01 par value, outstanding at
November 12 - 5,515,250.

_______________________________________________________________________________

                                                                    Page 1 of 16
<PAGE>
 
                        ASSISTED LIVING CONCEPTS, INC.

                                   FORM 10-Q

                              September 30, 1996


                                     INDEX
                                     -----
<TABLE> 
<CAPTION> 
                                                                       Page
<S>                                                                    <C> 
PART I - FINANCIAL INFORMATION                                           

  Item 1. Financial Statements

  Consolidated Balance Sheets of Assisted Living Concepts, Inc.
  and Subsidiary as of December 31, 1995 and September 30, 1996......... 3

  Consolidated Statements of Operations of Assisted Living
  Concepts, Inc. and Subsidiary for the three and nine months
  ended September 30, 1995 and September 30, 1996....................... 4

  Consolidated Statements of Cash Flows of Assisted Living
  Concepts, Inc. and Subsidiary for the three and nine
  months ended September 30, 1995 and September 30, 1996................ 5

  Notes to Consolidated Financial Statements............................ 6

  Item 2. Management's Discussion and Analysis of Financial
          Condition and Results of Operations........................... 8
<CAPTION>
Exhibits:                                                             Exhibit
<S>                                                                    <C> 
  Computation of Earnings Per Share..................................... 1

  Computation of Earnings to Fixed Charges..............................12
</TABLE> 

                                                                    Page 2 of 16
<PAGE>
 
                                    PART 1

ITEM 1 -- FINANCIAL INFORMATION

                         ASSISTED LIVING CONCEPTS, INC.

                          CONSOLIDATED BALANCE SHEETS

                                (in thousands)

<TABLE> 
<CAPTION> 
                                                                                                   (Unaudited)
                                                                            December 31,          September 30,
                                                                                1995                  1996
                                                                            ------------          -------------
<S>                                                                         <C>                   <C> 
                                  ASSETS
Current assets:
  Cash and cash equivalents                                                    $ 7,335                $16,260
  Accounts receivable                                                              136                    720
  Other current assets                                                             558                  1,213
                                                                               -------                -------
     Total current assets                                                        8,029                 18,193
                                                                               -------                -------
Property and equipment                                                          28,446                 49,539
  Less accumulated depreciation                                                    163                    405
                                                                               -------                -------
  Property and equipment - net                                                  28,283                 49,134
                                                                               -------                -------
Construction in process (Note 2)                                                13,075                 22,974
Goodwill                                                                           393                    369
Other assets                                                                     3,766                  5,878
                                                                               -------                -------
                                                                                             
     Total assets                                                              $53,546                $96,548
                                                                               =======                =======
                                                                                             
                LIABILITIES AND SHAREHOLDERS' EQUITY 
                                                                                             
Current liabilities:                                                                         
  Accounts payable and accrued expenses                                        $13,149                $13,379
  Current portion of long-term debt                                                 47                    108
                                                                               -------                -------
     Total current liabilities                                                  13,196                 13,487
Other non-current liabilities                                                      153                    311
Mortgages payable                                                                4,553                 10,296
Convertible subordinated debt                                                   20,000                 13,915
                                                                               -------                -------
     Total liabilities                                                          37,902                 38,009
                                                                               -------                -------
Shareholders' equity:
  Preferred Stock, $.01 par value; 1,000,000 shares authorized;               
   none issued and outstanding
  Common Stock, $.01 par value; 40,000,000 shares authorized;
   3,000,000 and 5,515,250 shares issued and outstanding                            30                     55
  Additional paid-in capital                                                    16,492                 59,771
  Fair market value in excess of historical cost of acquired net assets                  
   attributable to related party transactions                                     (239)                  (239)
   Accumulated deficit                                                            (639)                (1,048)
                                                                               -------                -------
   Shareholders' equity                                                         15,644                 58,539
                                                                               -------                -------
     Total liabilities and shareholders' equity                                $53,546                $96,548
                                                                               =======                =======
</TABLE> 

The accompanying notes are an integral part of these Financial Statements.

                                                                    Page 3 of 16
<PAGE>
 
                        ASSISTED LIVING CONCEPTS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands except per share amounts)
<TABLE>
<CAPTION>
                                                               (Unaudited)
                                             Three Months Ended          Nine Months Ended
                                                September 30,              September 30,
                                               1995       1996            1995       1996
                                              ------     ------          ------     -------
<S>                                           <C>        <C>             <C>        <C>
Revenues                                      $  977     $5,171          $2,452     $11,663
                                              ------     ------          ------     -------
Operating expenses:
Residence operating expenses                     667      3,273           1,589       7,549
Corporate general and administrative             286        573             749       1,181
Building rentals                                   -        903               -       1,954
Building rentals - related party                 196        259             538         703
Depreciation and amortization                     77        204             157         588
                                              ------     ------          ------     ------- 

Total operating expenses                       1,226      5,212           3,033      11,975
                                              ------     ------          ------     -------  

Operating loss                                  (249)       (41)           (581)       (312)
                                              ------     ------          ------     -------

Interest expense                                 (39)      (426)            (86)       (477)
Interest income                                  128        229             435         298
Other income                                       -          -               -          82
                                              ------     ------          ------     -------

Interest and other income (expense) - net         89       (197)            349         (97)
                                              ------     ------          ------     -------

Net loss                                      $ (160)    $ (238)         $ (232)    $  (409)
                                              ======     ======          ======     =======
Net loss per common share                     $ (.05)    $ (.05)         $ (.08)    $  (.11)
                                              ======     ======          ======     =======
Weighted average common shares outstanding     3,000      5,265           3,000       3,766
</TABLE>

The accompanying notes are an integral part of these Financial Statements.

                                                                    Page 4 of 16
<PAGE>
 
                        ASSISTED LIVING CONCEPTS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)
<TABLE>
<CAPTION>
                                                                                       (Unaudited)
                                                                   Three Months Ended               Nine Months Ended   
                                                                      September 30,                    September 30,
                                                                   1995          1996              1995             1996
                                                                 -------       --------          --------         --------
<S>                                                             <C>            <C>               <C>              <C> 
Operating activities:                                                                                                   
Net loss                                                        $  (160)       $  (238)          $  (232)        $  (409)  
Adjustment to reconcile net loss to net                                                                                    
 cash provided by operating activities:                                                                                     
 Gain on sale of asset                                                -              -                 -             (82)  
 Depreciation and amortization                                       77            204               157             588   
Changes in other non-cash items:                                                                                           
 Accounts receivable                                                (33)          (268)              (45)           (584)  
 Other current assets                                               (76)          (362)               27            (597)  
 Other assets                                                      (193)          (839)             (301)         (2,122)  
 Accounts payable and accrued expenses                            2,489          2,273             5,361             205   
                                                                -------        -------           -------         -------  
Net cash provided by (used for) operating activities              2,104            770             4,967          (3,001)  
                                                                -------        -------           -------         -------  
Investing activities:                                                                                                      
Proceeds from sale of land and residences                             -         12,504                 -          50,794   
Purchases of property and equipment                             (14,786)       (36,226)          (25,378)        (81,891)  
                                                                -------        -------           -------         -------  
Net cash used for investing activities                          (14,786)       (23,722)          (25,378)        (31,097)  
                                                                -------        -------           -------         -------  
Financing activities:                                                                                                      
Proceeds from long-term debt                                     20,727              -            20,727           5,865   
Payments on long-term debt                                           (3)           (15)              (10)            (61)  
Proceeds from issuance of common stock                                -         37,096                 -          37,219   
                                                                -------        -------           -------         -------  
Net cash provided by financing activities                        20,724         37,081            20,717          43,023   
                                                                -------        -------           -------         -------  
Net increase in cash and cash equivalents                         8,042         14,129               306           8,925   
Cash and cash equivalents, beginning of period                    5,717          2,131            13,453           7,335   
                                                                -------        -------           -------         -------  
Cash and cash equivalents, end of period                        $13,759        $16,260           $13,759         $16,260   
                                                                =======        =======           =======         =======
Supplemental disclosure of cash flow information:                                                                          
  Cash payments for interest                                    $    39        $   893           $    86         $ 1,912    
                                                                =======        =======           =======         =======
</TABLE>

The accompanying notes are an integral part of these Financial Statements.

                                                                    Page 5 of 16
<PAGE>
 
                        ASSISTED LIVING CONCEPTS, INC.

                         Notes to Financial Statements

1.  Summary of Significant Accounting Policies

The Company

Assisted Living Concepts, Inc. ("the Company") owns, operates and develops
assisted living residences which provide housing to senior citizens who need
help with the activities of daily living such as bathing and dressing. The
Company provides personal care and support services and makes available routine
nursing services designed to meet the needs of its residents.

The Company was organized in July 1994, and was initially capitalized through 
the sale of 500,000 shares of $0.01 par value common stock for $100,000. From
July 19, 1994 to November 30, 1994, the date of its initial public offering, the
Company began to put into place the management organization to commence
operations and execute its strategy to expand the Company's business.

On November 22, 1994, the Company sold 2,000,000 shares of common stock at $9.25
per share in a public offering realizing net proceeds of $16,422,000. On
December 1, 1994, the Company purchased two and leased four assisted living
residences from Assisted Living Concepts Group ("the Predecessor") and commenced
operations. As of September 30, 1996, the Company had received certificates of
occupancy for 55 residences of which 40 had commenced operations.

On July 3, 1996, the Company sold 2,096,250 shares of common stock at $19.00 per
share in a public offering realizing net proceeds of $37,096,000 after deduction
of underwriters discounts, commissions and other offering expenses.

Basis of Presentation

These financial statements have been prepared without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. All significant intercompany accounts
and transactions have been eliminated in consolidation. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These condensed 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-
KA for the year ended December 31, 1995.

The financial information included herein reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results for interim periods. The result
of operations for the three and nine-month periods ended September 30, 1995 and
1996 are not necessarily indicative of the results to be expected for the full
year.

                                                                    Page 6 of 16
<PAGE>
 

                        ASSISTED LIVING CONCEPTS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2.  Property and Equipment

Construction In Process

As of September 30, 1996 the Company had begun construction or had purchased
land to begin construction on 30 parcels of land. The Company has also entered
into agreements pursuant to which it may purchase, subject to completion of due
diligence and various other conditions, 31 additional sites. The Company has
capitalized all costs incurred in connection with the development of these
properties, and accordingly, construction in process consisted of the following
(in thousands):
<TABLE> 
    <S>                                                               <C> 
    Land purchased                                                    $  3,794
    Construction costs and architectural fees                           12,645
    Other costs, including legal fees, building permits and
     other development costs                                             6,535
                                                                      --------
                                                                      $ 22,974
                                                                      ========
</TABLE> 
During the quarter ended September 30, 1996, the Company capitalized $518,000 of
interest cost relating to the financing of construction in process. Of the 55 
residences the Company had opened or had received certificates of occupancy, 31 
were leased (21 in Texas, 5 in Oregon and 5 in Washington) and 24 were owned (12
in Texas, 11 in Oregon and 1 in Washington).

3.  Leases

During the quarter ended September 30, 1996, the Company completed the sale of 6
Texas residences under sale and leaseback arrangements. The Company sold the
residences for $12,504,000 which approximates cost, and leased them back over
initial terms of 15 years. The residences were leased back at an initial annual
lease rate of approximately $1,342,000. In connection with signing a $49,000,000
sale-lease back commitment with a REIT, the Company was allowed to purchase back
four Texas residences for approximately $7,900,000 which was the original sales
price plus 2%. The Company purchased these residences in order to utilize the
proceeds from its secondary offering completed in July. The Company is pursuing
permanent mortgage financing on these residences and anticipates retaining them
as owned residences.



                                                                    Page 7 of 16




<PAGE>
 
ITEM 2 - Management's Discussions and Analysis of Financial Condition and
         Results of Operations

Overview

The Company

The Company reported a net loss of $238,000 or $.05 per share, on revenue of
$5,171,000 for the three months ended September 30, 1996. Included in the
results is a one-time conversion charge of $426,000 that the Company incurred in
connection with the exchange of 405,666 shares of common stock and approximately
$426,000 for $6,085,000 of the Company's 7% convertible subordinated debentures.
Prior to the conversion charge of $426,000, the Company generated net income of
$188,000 or $.04 per share.

Operating results for the three and nine month periods ended September 30, 1996
include the operating results of 40 residences and the Company's corporate
overhead, and are not necessarily indicative of future operating financial
performance, as the Company intends to significantly expand its operating base
of residences in 1996 and 1997.

Results of Operations

Revenues consist of rentals of units in assisted living residences and fees
associated with the provision of services to residents pursuant to contracts
with the residents. Operating expenses include (i) residence operating 
expenses, such as staff payroll, food, property taxes, utilities, insurance and
other direct residence operating expenses, (ii) general and administrative
expenses consisting of corporate and support functions such as legal, accounting
and other administrative expenses, (iii) building rentals and (iv) depreciation
and amortization expense.

The following table sets forth, for the periods presented, the number of 
residences and units operated, and the average occupancy rates and sources of 
revenue for the three months ended September 30, 1996. The portion of revenues 
received from state Medicaid agencies are labeled as "Medicaid State Portion" 
while the portion of the Company's revenues that a Medicaid-eligible resident 
must pay out of his or her own resources is labeled "Medicaid Resident Portion".

<TABLE> 
<CAPTION> 

                                       Three Months Ended September 30, 1996

                                       Stabilized        Start-up
                                      Residences(1)     Residences(2)   Total
                                      -------------     -------------   -----
<S>                                   <C>               <C>             <C> 

Residences operated (end of period)        20                20           40
Units operated                            632               724        1,356
Average occupancy rate                   97.4%             64.7%        83.5%
Sources of revenue:
   Private                               77.7%             76.0%        77.0%
   Medicaid Resident Portion              8.1%              8.1%         8.1%
   Medicaid State Portion                14.2%             15.9%        14.9%
                                        ------            ------       ------
Total                                   100.0%            100.0%       100.0%
                                        ======            ======       ======
</TABLE> 
-----------

(1) Stabilized residences are those residences that have been operating for nine
    months or have achieved a stabilized occupancy of 95% or more as of the
    beginning of the quarter.
(2) Start-up residences are those residences that have not been operating for
    nine months and have not achieved a stabilized occupancy of 95% or more as
    of the beginning of the quarter.
(3) The Company had received certificates of occupancy on 55 residences, of
    which 51 had received licensure and 40 were fully operational.

                                                                    Page 8 of 16
<PAGE>
 
               Compilation of Stabilized and Start-up Residences
                     Three Months Ended September 30, 1996

<TABLE> 
<CAPTION> 
                                        Stabilized           Start-up                              Combined
                                        Residences          Residences          Corporate            Total
                                        ----------          ----------          ---------          --------
<S>                                     <C>                 <C>                 <C>                <C> 
Revenue                                    $3,145             $2,026              $   -              $5,171
Residence Operating Expense                 1,843              1,430                  -               3,273
                                           ------             ------              -----              ------
 Residence Operating Income                 1,302                596                  -               1,898
Corporate Overhead                              -                  -                573                 573
Building Rentals                              621                541                  -               1,162
Depreciation and Amortization                 101                 86                 17                 204
                                           ------             ------              -----              ------
  Total Other Operating Expenses              722                627                590               1,939
                                           ------             ------              -----              ------
  Operating Income (Loss)                     580                (31)              (590)                (41)
Interest and Other Inc. (Expense), Net       (151)               (48)                 2                (197)
                                           ------             ------              -----              ------
 Net Income (Loss)                         $  429             $  (79)             $(588)             $ (238)
                                           ======             ======              =====              ======
Residences Operated                            20                 20                                     40
Units Operated                                632                724                                  1,356
Average Occupancy Rate                       97.4%              64.7%                                  83.5%
</TABLE> 

                          Results of Same Residences
                          Three and Nine Months Ended
                   September 30, 1995 and September 30, 1996

<TABLE> 
<CAPTION> 
                                                   Three              Three            Nine             Three
                                                Months Ended       Months Ended    Months Ended      Months Ended
                                                September 30,      September 30,   September 30,     September 30,
                                                    1995                1996            1995             1996
                                                -------------     --------------   -------------     -------------
<S>                                             <C>               <C>              <C>               <C> 
Revenue                                            $ 977              $1,347           $2,011            $2,137
Residence Operating Expense                          667                 770            1,232             1,222
                                                   -----              ------           ------            ------
 Residence Operating Income                          310                 577              779               915

Building Rentals                                     196                 274              375               375
Depreciation and Amortization                         51                  44               89                84
                                                   -----              ------           ------            ------
Other Operating Expenses                             247                 318              464               459
                                                   -----              ------           ------            ------
  Operating Income                                    63                 259              315               456

Interest Expense, Net                                (37)                (86)             (82)             (160)
                                                   -----              ------           ------            ------
 Net Income                                        $  26              $  173           $  233            $  296
                                                   =====              ======           ======            ======
Residences Operating                                   9                   9                5                 5
Units Operating                                      264                 264              137               137
Average Occupancy Rate                              90.5%               98.1%            99.5%             99.3%
</TABLE> 

                                                                    Page 9 of 16
<PAGE>
 
Three Months Ended September 30, 1995 Compared to Three Months Ended September 
30, 1996

Revenues.  For the three months ended September 30, 1996, revenues were 
$5,171,000 compared to $977,000 in the three months ended September 30, 1995, an
increase of $4,194,000 or 429%.  The Company had opened or received certificates
of occupancy on 55 residences as of September 30, 1996, of which 40 had 
operating results for the quarter period compared to nine in the corresponding 
1995 period.  For the nine residences which had operated for the entire quarter 
for both September 30, 1996 and September 30, 1995, revenue increased by 
$370,000, or 37.9% from the $977,000 in the third quarter of 1995.  This 
increase was primarily attributable to increases in rental rates and changes in 
service rates due to changes in tenant level of care as average occupancy was 
approximately 98.1% and 90.5% for September 30, 1996 and September 30, 1995.  
The remaining $3,824,000 of the increase was due to the 31 new residences which 
began operating subsequent to June 30, 1995.

Residence Operating Expenses.  Residence operating expenses were $3,273,000 in 
the three months ended September 30, 1996 compared to $667,000 in the 
corresponding 1995 period, an increase of $2,606,000 or 391%.  For the nine 
residences that operated the entire third quarter of 1995 and 1996, residence 
operating expenses were $770,000, an increase of $103,000, or 15.4%, from the 
$667,000 of residence operating expenses in the third quarter of 1995.  The 
increase in the operating expenses for these nine residences is directly related
to the increase in the average occupancy from 90.5% to 98.1% for the same 
corresponding period and other inflationary type items.  The remaining 
$2,503,000 of the increase was due to the 31 new residences which began 
operating subsequent to June 30, 1995.

Corporate, General and Administrative.  Corporate, general and administrative 
expenses were $573,000 in the three months ended September 30, 1996 compared to 
$286,000 in the corresponding 1995 period, an increase of $287,000, or 100%.  
Corporate, general and administrative expenses increased due to the expansion of
the corporate offices, the creation of regional-level management and increased 
activity due to the number of operating residences.

Building Rentals.  Building rentals increased to $1,162,000 in the three months 
ended September 30, 1996 from $196,000 during the corresponding 1995 period.  
This increase was due to the increased number of sale and leaseback transactions
completed by the Company from July of 1995 through September of 1996.  The 
Company had 31 operating leases as of September 30, 1996 compared to four at 
September 30, 1995.  Building rentals for the four residences that were leased 
for the entire third quarter of 1995 and 1996 were unchanged.  The following 
schedule presents the timing of leases entered into by the Company.

<TABLE> 
<CAPTION> 

     Number of Net Leases Completed                  Date
     ------------------------------                  ----
     <S>                                             <C> 
                 3                           Fourth Quarter, 1994
                 1                           First Quarter, 1995
                 5                           Fourth Quarter, 1995
                 9                           First Quarter, 1996
                11                           Second Quarter, 1996
                 2                           Third Quarter, 1996
                --
                31
</TABLE> 

Depreciation and Amortization.  Depreciation and amortization expense was 
$204,000 in the three month period ended September 30, 1996 compared to $77,000 
in 1995, an increase of $127,000 or 165%.  This increase in depreciation and 
amortization was directly related to the 31 new residences that opened

                                                                   Page 10 of 16
 
                 
<PAGE>
 
subsequent to June 30, 1995, most of which were subsequently leased.  
Depreciation and amortization expense for the nine residences, (two of which 
were owned) which operated for the entire third quarter of 1995 and 1996, was 
essentially flat.  

Interest and Other income/(expense) - net.  Interest and other income/(expense)-
net was ($197,000) for the three month period ended September 30, 1996 compared
to $89,000 in the corresponding 1995 period, a change of $286,000. Interest
income increased $101,000 in the 1996 period due to the Company's secondary
offering completed in July of 1996. Interest costs increased $730,000 in the
1996 period to $944,000. Included in the interest costs is a one-time conversion
charge of $426,000 that the Company incurred in connection with the exchange of
405,666 shares of common stock and approximately $426,000 for $6,085,000 of the
Company's 7% convertible subordinated debentures. In addition the Company
experienced an increase of approximately $160,000 on additional loans with the
State of Oregon and $144,000 of interest related to the 7% convertible
subordinated debentures. Total interest cost for the Company for the three month
period ended September 30, 1996 is $944,000 of which $518,000 has been
capitalized due to the Company's development schedule and construction in
process.

Net Loss.  The net loss during the third quarter of 1996 was $238,000 compared
to a net loss of $160,000 during the corresponding period in 1995. Taking into
consideration the effect of the conversion expense incurred during the third
quarter of 1996, the Company has generated income due to the increased number of
residences operating as compared to the corresponding period in 1995. This has
been partially offset by the increase in corporate overhead, including
additional staffing, necessary to accommodate the company's expansion plan.

Nine Months Ended September 30, 1995 Compared to Nine months ended September 30,
1996.

Revenues.  For the nine months ended September 30, 1996, revenues were 
$11,663,000 compared to $2,452,000 in the nine months ended September 30, 1995, 
an increase of $9,211,000 or 376%.  The Company operated 40 residences in the 
1996 period compared to 5 in the corresponding 1995 period.  The additional 
residences increased revenue by $9,085,000.  The 5 residences in operation in 
both the 1995 and 1996 periods reported an aggregate increase in revenues of
$126,000 or 6.3%. This increase was primarily attributable to increases in
rental rates as average occupancy in both 1995 and 1996 was approximately 99%.

Residence Operating Expenses.  Residence operating expenses were $7,549,000 in 
the nine months ended September 30, 1996 compared to $1,589,000 in the 
corresponding 1995 period, an increase of $5,960,000, or 375%.  The change in 
operating costs corresponds with the increased revenues relating to the 
buildings operating in 1996 but not operating in the 1995 period.  For the five 
residences that operated for 1995 and 1996, residence operating expenses were 
$1,222,000, a decrease of $10,000, or .8% from the $1,232,000 of residence 
operating expenses in the corresponding period in 1995.  Expenses were 
relatively flat for the five residences because the residences operated at 
approximately 99% occupancy for each of the periods.  The remaining $5,950,000 
of the increase was due to the 31 new residences that opened subsequent to March
1, 1995.  

Building Rentals.  Building rentals increased to $2,657,000 in the nine months 
ended September 30, 1996 from $538,000 in 1995.  The increase in building 
rentals is directly related to the increase in the number of

                                                                   Page 11 of 16
<PAGE>
 
leases entered into by the Company between July 1, 1995 and September 30, 1996.
The Company had 31 operating leases at September 30, 1996 compared to four at
September 30, 1995. Building rentals for the five residences which operated for
the entire period of 1995 and 1996 were unchanged.

Depreciation and Amortization. Depreciation and amortization expense was
$588,000 in the nine month period ended September 30, 1996 compared to $157,000
in 1995, an increase of $431,000, or 275%. The increase in depreciation and
amortization is directly related to the 31 new residences that opened subsequent
to March 1, 1995. Depreciation and amortization expense for the five residences,
(two of which were owned) which operated for the entire nine month period in
1995 and 1996, were essentially flat.

Interest and Other income/(expense) - net. Interest and other income/(expense)-
net was ($97,000) in the nine months ended September 30, 1996 compared to
$349,000 in the corresponding 1995 period, a change of $446,000. Interest income
decreased $137,000 to $298,000 in the 1996 period. The primary reason for the
decrease is due to the Company's decline in average cash balances arising from
the Company's active development schedule. Interest costs increased to
$2,025,000 in 1996 from $260,000 in 1995, an increase of $1,765,000, or 679%.
Included in interest costs is a one-time conversion charge of $426,000 that the
Company incurred in connection with the exchange of 405,666 shares of common
stock and approximately $426,000 for $6,085,000 of the Company's 7% convertible
subordinated debentures. In addition the Company incurred an increase due to
additional loans with the State of Oregon and the interest on the $20 million 7%
convertible subordinated debentures that closed on August 15, 1995. Total
interest cost for the Company for the nine months ended September 30, 1996 is
$2,025,000 of which $1,548,000 has been capitalized due to the Company's
development schedule and construction in process. The Company had an increase of
$82,000 in other income due to a gain on sale of a parcel of land in Washington.

Net Loss. The net loss was $409,000 in 1996 compared to $232,000 in 1995.
Included in the results is a one-time conversion charge of $426,000 that the
Company incurred in connection with the exchange of 405,666 shares of common
stock and approximately $426,000 for $6,085,000 of the Company's 7% convertible
subordinated debentures. Prior to the conversion charge of $426,000, the Company
generated net income of $17,000. Taking into consideration the one-time charge,
the Company has decreased the net loss from prior year due to the increase in
the number of stabilized operating facilities and on-going management of start-
up costs on new residences.

Liquidity and Capital Resources

At September 30, 1996, the Company had working capital of approximately $4.7
million. Included in this amount was approximately $7.9 million of accounts
payable which represents draw requests that the Company received for the
September development activity which was not payable until October 10.

Net cash used for operating activities was approximately $3.0 million during the
nine month period ended September 30, 1996. The primary use of cash was $2.1
million due to an increase in other assets related to pre-opening costs of $1.1
million and deferred financing fees of $1.0 million. In addition other current
assets increased by $0.6 million, primarily related to the posting of deposits
for leaseback transactions. The Company also experienced a $0.6 million increase
in accounts receivable and a $0.2 million increase in accrued expenses and
accounts payable due to the opening of new residences.

Net cash used for investing activities totaled $31.1 million during the nine
month period ended September 30, 1996. The primary use of cash was $74.0 million
related to the development of new assisted living residences in Oregon,
Washington, Texas, Ohio, Idaho and New Jersey and $7.9 million for the purchase
of four Texas residences. This was offset by proceeds of $50.8 million related
to the sale and leaseback of 21 residences in Texas and 5 residences in
Washington.

                                                                   Page 12 of 16
<PAGE>
 
Net cash provided by financing activities totaled $43.0 million during the nine 
month period ended September 30, 1996.  This is the result of three loans with 
the State of Oregon Housing and Community Services Department for $5.9 million, 
and $37.2 million in proceeds after deduction of underwriting discounts, 
commissions and other offering expenses from the public offering for 2,096,250 
shares of common stock at $19.00 per share.

The Company intends to utilize current working capital resources to develop 
additional residences in 1996 and 1997.  The Company intends to seek additional 
long-term financing through the Oregon Housing and Community Services Department
(the "OHCS") and to the extent available, additional low-cost bond financing and
sale and leaseback transactions in Washington, Texas, Idaho, New Jersey and 
Ohio.  As of September 30, 1996, the Company has started construction or had 
purchased land for development on 30 parcels of land in Oregon, Washington, 
Texas, Idaho, New Jersey and Ohio. The Company has also entered into agreements 
pursuant to which, it may purchase, subject to completion of due diligence and 
various other conditions, 31 undeveloped sites.  The Company expects these 
developments to open through the fourth quarter of 1996 and the first and second
quarters of 1997.

Capital expenditures for 1996 are estimated to approximate $95 million to $100
million, related primarily to the development of additional residences, of which
approximately $74.0 million had been spent through September 30, 1996. The
Company has entered into agreements with three real estate investment trusts for
the sale and leaseback of 28 additional residences. The Company expects these
sales to generate approximately $69.5 million in proceeds. Moreover, the Company
anticipates being able to continue to utilize the State of Oregon tax-exempt
bond program for its Oregon residences under development. The Company currently
has an outstanding commitment from the Oregon tax-exempt bond program to provide
approximately $1 million of financing for one residence and it has three
applications under review which, if approved, will generate approximately $6.6
million in proceeds.

As of September 30, 1996, the Company had invested excess cash balances in 
short-term certificates of deposit and U.S. Treasury securities. The Company
intends to satisfy future capital requirements for its development activities by
various means, including financing obtained from sale/leaseback transactions,
permanent mortgage financing and long-term state bond financing and to the
extent available, cash generated from operations.

Factors That May Affect Future Results

The Company operates in a rapidly changing environment that involves a number of
risks, some of which are beyond the Company's control. The following discussion
highlights some of these risks and others are discussed elsewhere herein or in
other documents filed by the Company with the Securities and Exchange
Commission.

Limited Operating History; Anticipated Operating Losses

The Company has a limited operating history and has reported substantial losses.
There can be no assurance that losses will not occur in the future. The Company
anticipates that each residence will have an operating loss (prior to
depreciation, rent or interest, if any) of $10,000 during the first three to
four months of operation. To the extent the Company sells a residence and leases
it back or otherwise finances it within four months of the commencement of
operations, the aggregate loss may increase by up to an additional $40,000. The
Company currently plans to open 50 to 60 residences in 1996, of which 30 were
opened during the first three quarters of 1996. The Company estimates that the
losses to be incurred during 1996

                                                                   Page 13 of 16
<PAGE>
 
due to opening residences could range from $1.0 million to $2.0 million. The
success of the Company's future operations is directly tied to the expansion of
its operational base. There can be no assurance that the Company will not
experience unforeseen expenses, difficulties, complications and delays in
connection with the expansion of its operational base which could have a
material adverse effect on the Company's financial condition and results of
operations.


No Assurance as to Ability to Develop or Acquire Additional Assisted Living 
Residences.

The Company's prospects for growth are directly affected by its ability to
develop and, to a lesser extent, acquire additional assisted living residences.
The successful development of additional assisted living residences will involve
a number of risks, including the possibility that the Company may be unable to
locate suitable sites at acceptable prices or may be unable to obtain, or may
experience delays in obtaining, necessary zoning, land use, building, occupancy,
and other required governmental permits and authorizations. The Company is
dependent upon these permits and authorizations to construct and operate its
residences and any delay or inability to obtain such permits could adversely
affect the results of operations. The Company may also incur construction costs
that exceed original estimates, may not complete construction projects on
schedule and may experience competition in the search for suitable development
sites. The Company relies on third-party general contractors to construct its
new assisted living facilities. There can be no assurance that the Company will
not experience difficulties in working with general contractors and
subcontractors, which could result in increased construction costs and delays.
Further, facility development is subject to a number of contingencies over which
the Company will have little control and that may adversely affect project cost
and completion time, including shortages of, or the inability to obtain, labor
or materials, the inability of the general contractor or subcontractors to
perform under their contracts, strikes, adverse weather conditions and changes
in applicable laws or regulations or in the method of applying such laws and
regulations. Accordingly, if the Company is unable to achieve its development
plans, its business, financial condition and results of operations could be
adversely affected. There can be no assurance that the Company will be
successful in developing or acquiring any particular residence, that the
Company's rapid expansion will not adversely affect its operations or that any
residence developed or acquired by the Company will be successful. The various
risks associated with the Company's development or acquisition of assisted
living residences and uncertainties regarding the profitability of such
operations could have a material adverse effect on the Company's financial
condition and results of operations.

Need for Additional Financing to Fund Future Development and Acquisitions.

To achieve its growth objectives, the Company will need to obtain sufficient 
financial resources to fund its development, construction and acquisition 
activities.  There can be no assurance that adequate funding will be available 
as needed or on terms acceptable to the Company.  A lack of available funds may 
require the Company to delay or eliminate all or some of its development 
projects and acquisition plans.

Government Regulation

Health care is an area of extensive and frequent regulatory change. Changes in 
the laws or new interpretations of existing laws can have a significant 
effect on methods of doing business, costs of doing business and amounts of 
reimbursement from governmental and other payors.  The Company at all times 
attempts to comply with all applicable fraud and abuse laws; however, there 
can be no assurance that administrative or judicial interpretation of existing 
laws or regulations will not have a material adverse effect on the Company's 
operations or financial condition.  The success of the Company will be dependent
in part upon its ability to satisfy the applicable regulations and requirements 
and to procure

                                                                   Page 14 of 16
<PAGE>
 
and maintain required licenses.  The Company's operations could also be 
adversely affected by, among other things, regulatory developments such as 
mandatory increases in the scope and quality of care to be afforded residents 
and revision in licensing and certification standards.  There can be no 
assurance that federal, state or local laws or regulatory procedures which might
adversely affect the Company's business, financial condition, results of 
operations or prospects will not be expanded or imposed.


Difficulties of Managing Rapid Growth 

The Company expects that the number of residences which it owns, leases or 
otherwise operates will increase substantially as it pursues its growth 
strategy.  This rapid growth will place significant demands on the Company's 
management resources.  The Company's ability to manage its growth effectively 
will require it to continue to expand its operational, financial and management 
information systems and to continue to attract, train, motivate, manage and 
retain key employees.  If the Company is unable to manage its growth 
effectively, its business, financial condition and results of operations could 
be adversely affected.


PART II.  Other Information

ITEM 6.   Exhibits and Reports on Form 8-K

(a)       The following documents are filed as part of this report:

          Exhibit
          Number
          -------
           12       Computation of Fixed Charge to Earnings
           27       Financial Data Schedule

(b)       Reports on Form 8-K.  There were no reports on Form 8-K filed during 
          the quarter ended September 30, 1996.

                                                                   Page 15 of 16
<PAGE>
 
                                  SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.


                                     ASSISTED LIVING CONCEPTS, INC.
                                     Registrant

November 12, 1996                     By: /s/ STEPHEN GORDON
                                        ----------------------------------
                                     Name: Stephen Gordon
                                     Title: Chief Financial Officer

                                                                   Page 16 of 16