<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                   FORM 10-QSB

 [Mark One]

__X__Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 For the quarterly period ended September 30, 1997.

____Transition report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 For the transition period from __________to__________

Commission file number  333-1700
                       ----------

                          COMMUNITY CARE SERVICES, INC.
                          -----------------------------
        (Exact Name of Small Business Issuer as Specified in its Charter)

                  New York                                  13-3677548
        ----------------------------                     -----------------
        (State or other Jurisdiction                     (I.R.S. Employer)
        Incorporation or Organization).


                                18 Sargent Place
                          Mount Vernon, New York 10550
                          ----------------------------
                           (Issuer's Telephone Number)

                                (914) 665 - 9050
                                ----------------

                                      NONE
--------------------------------------------------------------------------------
              (Former Name, Former Address and Former Fiscal Year,
                          if Changed Since Last Report)

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report(s), and (2) has been
subject to such filing requirements for the past 90 days.

Yes__X__    No

    APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
                              PRECEDING FIVE YEARS

Check whether the registrant filed all documented and reports required to be
filed by Section 13 or 15 (d) of the Exchange Act after the distribution of
securities under a Plan confirmed by a court.

Yes______   No______

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 6,587,243

Transitional Small Business Disclosure Format (check one):

Yes _x__   No_______
<PAGE>   2

                          COMMUNITY CARE SERVICES, INC.
                      Second Quarter Report on Form 10-QSB
                    For The Quarter Ended September 30, 1997





                                TABLE OF CONTENTS


                                                                           Page
                                                                           ----

Part I.  Financial Information

         Item I.  Financial Statements

                  Condensed Consolidated Balance Sheets as at
                  September 30, 1997 (unaudited) and March 31, 1997         2

                  Condensed Consolidated Statements of Income for
                  Three and Six Months Ended September 30, 1997 and 1996
                  (unaudited)                                               3

                  Condensed Consolidated Statements of Cash Flows
                  for the Six Months Ended September 30, 1997 and 1996
                  (unaudited)                                               4-5

                  Notes to Condensed Consolidated Financial Statements      6-9

         Item 2.    Management's Discussion and Analysis of
                    Financial Condition and Results of Operations          10-14

Part II.   Other Information

         Item 1.   Legal Proceedings                                        15
         Item 2.   Changes in Securities                                    15
         Item 3.   Defaults Upon Senior Securities                          15
         Item 4.   Submission of Matters to a Vote of Security Holders      15
         Item 5.   Other Information                                        15
         Item 6.   Exhibits and Reports on Form 8-K                         15


Signatures                                                                  16
<PAGE>   3

                          Community Care Services, Inc.
                      Condensed Consolidated Balance Sheet

<TABLE>
<CAPTION>
                                                                                              As At            As At
                                                                                           September 30,      March 31,
                                                                                               1997             1997
                                                                                            -----------      -----------
                                                                                            (Unaudited)
<S>                                                                                         <C>              <C>        
                       ASSETS
CURRENT ASSETS:
    Cash and cash equivalents                                                                  $424,000       $4,648,000
    Accounts receivable,net of allowance for doubtful accounts of
        $ 1,884,000 and $ 398,000                                                             6,667,000        3,054,000
    Inventory                                                                                   881,000          641,000
    Prepaid expenses and other current assets                                                   649,000           72,000
                                                                                            -----------      -----------
                TOTAL CURRENT ASSETS                                                          8,621,000        8,415,000

Rental equipment, net                                                                         2,172,000        1,261,000
Property and equipment, net                                                                     792,000          322,000
Excess of purchase price over net assets acquired, net                                        6,896,000                0
Covenants not to compete, net                                                                   561,000          261,000
Accounts and customer list, net                                                                 322,000          120,000
Other assets                                                                                     65,000           81,000
Deferred income taxes                                                                           296,000                0
                                                                                            -----------      -----------
            TOTAL                                                                           $19,725,000      $10,460,000
                                                                                            ===========      ===========

                   LIABILITIES

CURRENT LIABILITIES:
    Accounts payable and accrued expenses                                                    $4,971,000       $1,767,000
    Note payable - Bank                                                                       2,223,000          243,000
    Current portion of long term debt                                                           396,000        1,163,000
    Current portion of capital lease obligations                                                557,000            4,000
    Income taxes payable                                                                        203,000          117,000
                                                                                            -----------      -----------
                TOTAL CURRENT LIABILITIES                                                     8,350,000        3,294,000

Long term debt                                                                                3,420,000          591,000
Long term portion of capital lease obligations                                                  229,000           17,000
Deferred income taxes                                                                             9,000            9,000
                                                                                            -----------      -----------
                TOTAL LIABILITIES                                                            12,008,000        3,911,000
                                                                                            -----------      -----------

Commitments and Contingencies

              STOCKHOLDERS' EQUITY

Common stock, $.01 par value; authorized 20,000,000 shares,
    issued and outstanding 6,587,243 shares at September 30, 1997                                66,000           62,000
    and 6,225,000 shares at March 31, 1997
Preferred stock, $.01 par value; 1,000,000 shares none issued
Additional paid in capital                                                                    7,737,000        6,428,000
Retained earnings                                                                               (86,000)          59,000
                                                                                            -----------      -----------
                TOTAL STOCKHOLDERS' EQUITY                                                    7,717,000        6,549,000
                                                                                            -----------      -----------
                TOTAL                                                                       $19,725,000      $10,460,000
                                                                                            ===========      ===========
</TABLE>


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


                                        2

<PAGE>   4

                          Community Care Services, Inc.
                 Condensed Consolidated Statement of Operations
                                  - Unaudited -

<TABLE>
<CAPTION>
                                                                 For The                          For The
                                                            Three Months Ended               Six Months Ended
                                                               September 30,                   September 30,
                                                        --------------------------      --------------------------
                                                           1997            1996            1997            1996
                                                        ----------      ----------      ----------      ----------
<S>                                                     <C>             <C>             <C>             <C>       
Net Revenues                                            $5,005,000      $2,566,000      $9,238,000      $5,054,000
                                                        ----------      ----------      ----------      ----------

Cost and expenses:
    Cost of net revenues
       Product and supply costs                          1,433,000       1,017,000       3,350,000       2,038,000
       Rental equipment depreciation                       373,000          83,000         465,000         165,000
                                                        ----------      ----------      ----------      ----------
                                                         1,806,000       1,100,000       3,815,000       2,203,000
    Selling, general and administrative expenses
    ( Includes Legal Expenses - Federal Investigation
        see Note C and Management's Discussion
        and Analysis )                                   2,787,000       1,026,000       5,021,000       2,035,000

    Provision for doubtful accounts                        101,000         137,000         278,000         180,000
    Amortization of intangible assets                      114,000          43,000         205,000          86,000
                                                        ----------      ----------      ----------      ----------
    Total cost and expenses                              4,808,000       2,306,000       9,319,000       4,504,000

        Operating income (loss)                            197,000         260,000        (81,000)         550,000

    Interest expense, net                                  147,000          57,000         179,000         122,000
                                                        ----------      ----------      ----------      ----------
    Income (loss) before provision for income taxes         50,000         203,000       (260,000)         428,000
    Provision (benefit) for income taxes                    22,000          89,000       (115,000)         188,000
                                                        ----------      ----------      ----------      ----------
NET INCOME (LOSS)                                       $   28,000      $  114,000      $(145,000)      $  240,000
                                                        ==========      ==========      ==========      ==========
Per share data :

    Net  income (loss) per common share                 $     0.00      $     0.02      $(   0.02)      $     0.05
                                                        ==========      ==========      ==========      ==========
    Weighted average number of shares outstanding        7,421,900       4,730,000       7,166,823       4,730,000
                                                        ==========      ==========      ==========      ==========
</TABLE>


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

                                        3
<PAGE>   5

                          Community Care Services, Inc.
                 Condensed Consolidated Statement of Cash Flows
                                  - Unaudited -

<TABLE>
<CAPTION>
                                                                        For The
                                                                     Six Months Ended
                                                                      September 30,
                                                                -----------------------
                                                                   1997         1996
                                                                -----------   ---------
<S>                                                             <C>           <C>      
Cash flows from operating activities:
  Net (loss) income                                             ($  145,000)  $ 240,000
  Adjustments to reconcile net (loss) income
    to net cash provided by operating activities:
    Depreciation and amortization expense                           670,000     235,000
    Amortization of deferred unit cost and
      debt discount                                                       0      30,000
    Write off of rental equipment                                    22,000      41,000
    Provision for doubtful accounts                                 278,000    (120,000)
    Changes in operating assets and liabilities net of effects
      from acquisition:
      (Increase) in accounts receivable - trade                  (1,009,000)   (180,000)
      (Increase) in inventory                                        (8,000)   (105,000)
      (Increase) in prepaid expenses and other current assets      (396,000)    (42,000)
      Decrease in other assets                                       51,000           0
       Increase in accounts payable and accrued expenses            859,000     306,000
       Increase in income taxes payable                             203,000     121,000
                                                                -----------   ---------
          Net cash provided by operating activities                 525,000     526,000
                                                                -----------   ---------

Cash flows from investing activities:
  Acquisition of rental equipment                                  (495,000)   (233,000)
  Acquisition of property and equipment                            (354,000)    (41,000)
  Acquisition, net of cash acquired                              (4,437,000)          0
                                                                -----------   ---------
          Net cash (used in) investing activities                (5,286,000)   (274,000)
                                                                -----------   ---------

Cash flows from financing activities:
  Proceeds from promissory notes                                          0     300,000
  Proceeds of bank borrowings                                     1,980,000           0
  Repayments of credit line and term loan                        (1,072,000)          0
  Principal repayments of notes payable to suppliers                (67,000)   (392,000)
  Principal repayments of notes payable to Adam
    Health Care Equipment Corp.                                    (118,000)          0
  Principal repayments of capital lease obligations                (186,000)          0
  Deferred offering costs                                                 0    (197,000)
                                                                -----------   ---------
          Net cash provided by (used in) financing activities       537,000    (289,000)
                                                                -----------   ---------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS                      (4,224,000)    (37,000)

Cash and cash equivalents at beginning of period                  4,648,000     191,000
                                                                -----------   ---------

CASH AT END OF PERIOD                                           $   424,000   $ 154,000
                                                                ===========   =========
</TABLE>


                                   (continued)
                                        4
<PAGE>   6

                          Community Care Services, Inc.
                 Condensed Consolidated Statement of Cash Flows
                                  - Unaudited -
                                   (continued)


<TABLE>
<CAPTION>
                                                                                For The
                                                                            Six Months Ended
                                                                         ------------------------
                                                                              September 30,
                                                                            1997         1996
                                                                         -----------  -----------
<S>                                                                      <C>           <C>    
Supplementary disclosures of cash flow information:
    Cash paid during the period
        Interest                                                         $   130,000   $56,000
                                                                         -----------   -------
        Taxes                                                            $    45,000   $65,000
                                                                         -----------   -------

Supplementary disclosures of non cash activities:
       Rental equipment acquired under capital lease                     $    24,000
       Property and equipment acquired under capital lease               $   103,000
       Conversion of trade payables into notes payable                   $   281,000
       The Company purchased Metropolitan Respirator Service, Inc. 
             for $4,100,000 of cash (including related costs of
             $337,000, less cash acquired).  The purchase price was
             allocated to the assets and liabilities assumed based on
             their fair value as follows:
             Current assets                                              $ 3,772,000
             Rental equipment                                                433,000
             Property, plant and equipment                                   182,000
             Other assets                                                    394,000
             Excess of purchase price over net assets acquired             6,900,000
             Customer List                                                   225,000
             Non Compete Covenant                                            360,000
             Current liabilities                                          (3,157,000)
             Long term liabilities                                          (292,000)
             Promissory notes issued                                      (3,067,000)
             Common stock issued                                          (1,313,000)
                                                                         -----------
             Cash paid to acquire Metropolitan Respirator Service, Inc.  $ 4,437,000
                                                                         -----------
</TABLE>


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

                                        5
<PAGE>   7

                          Community Care Services, Inc.
              Notes To Condensed Consolidated Financial Statements
                                   (Unaudited)


(Note A) - Basis of Presentation

         (1) Community Care Services (" the Company" ) is a provider of an
extensive variety of home health care products and services. The Company sells
and rents durable medical equipment and respiratory products, and sells
rehabilitation products and disposable medical supplies in the five boroughs of
New York City, Westchester, Rockland and Nassau counties of New York State, as
well as the northern region of New Jersey. The Company services the home health
care market by coordinating with various health care workers and payor case
managers to determine the home health needs of patients.

           The condensed consolidated financial statements of the Company for
the three and six months ended September 30, 1997 and 1996 included herein have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. 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. In the opinion of management of the Company, the
accompanying unaudited condensed consolidated financial statements reflect all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position at September 30, 1997, the results of
operations for the three and six months ended September 30, 1997, the cash flows
for the six months ended September 30, 1997 and 1996.

         The results of operations for the three and six months ended September
30, 1997 and 1996 are not necessarily indicative of the operating results for
the entire respective years. These condensed consolidated financial statements
should be read in conjunction with the audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
March 31, 1997 as filed with the Securities and Exchange Commission.

         (2) Net income per common share is computed based on the weighted
average number of shares and common equivalent shares outstanding that pertain
to each period.

(Note B)  -  Acquisition of Metropolitan Respirator Service, Inc.:

         On May 10, 1997, the Company acquired 68% of the outstanding shares of
Metropolitan Respirator Service, Inc. ("MRS"). The purchase price was
approximately $5,993,000, consisting of approximately $2,800,000 in cash, of
Promissory Notes with a face value of $2,967,000 accruing interest at a rate of
6% per annum, a portion of which was issued to certain MRS employees (including
a Promissory Note for approximately $444,000 issued to Wade Wilson, the
brother-in-law of Alan T. Sheinwald, the former President and Chief Executive
Officer of the Company, See Note D), and 62,243 shares of the Company's common
stock with a value of $226,000. The notes are payable in two payments. On
January 2, 1999, one-half of the principal and accrued interest is payable and
the remaining one half of the principal and accrued interest is payable January
2, 2000. In lieu of cash payment, the Promissory Note Holder ("Note Holder") may
elect to convert up to eighty percent (80%) of the outstanding principal balance
of the Promissory Note and the accrued interest thereon payable on the dates set
forth above into shares of common stock, par value $.01 per share based on a
valuation of $4.00 per share, irrespective of the actual market value of the
shares on the date of such conversion.


                                        6
<PAGE>   8

          If the Note Holder does not make such election, the Company may do so.
With respect to the remaining does not make such election, the Company may do so
with respect of the remaining twenty (20%) percent of the payment due, the Note
Holder may, but is not obligated to, require that such amount be converted into
shares of take such payment in cash. In the aggregate, the Promissory Notes may
be converted into 835,000 shares of common shares of the Company.

         At any time subsequent to the first anniversary of the execution of the
Promissory Note, if the Company conducts a secondary public offering of the
Company's common stock, the Note Holder shall have the opportunity to sell the
shares in such offering to the same extent and in proportion to the rights that
the other executive officers of the Company have.

         Also on May 10, 1997, the Company purchased the remaining 32% of the
outstanding shares of MRS in a separate transaction. The purchase price was
approximately $2,487,000 consisting of $1,300,000 in cash, 300,000 shares of
common shares of the Company with a value of $1,087,000 and a one year
Promissory Note with a face value of $100,000 accruing interest at a rate of 6%
payable quarterly.

         The Company also incurred direct transaction costs amounting to
approximately $337,000.

         As part of the acquisition, the Company made customary representations
to the sellers, including representations regarding government regulations.

         MRS was incorporated on April 15, 1974 and is engaged in the sale and
rental of medical supplies and durable medical equipment within the New York
metropolitan area.

         The Company intends to continue operating MRS's existing business and
will treat MRS as a wholly owned subsidiary.

         Upon the closing of the MRS acquisition, Donald Fargnoli was appointed
to the Company's Board of Directors. Mr. Fargnoli and Louis Rocco were appointed
as Vice Presidents of the Company; Saverio D. Burdi was appointed as Senior Vice
President of the Company and Wade Wilson was appointed as Senior Vice
President/Operations Systems of the Company. The Company entered into three-year
employment agreements with Messrs. Fargnoli, Rocco, Burdi and Wilson, providing
for annual base compensations of $110,000 for Messrs. Fargnoli and Rocco, and
$120,000 for Messrs. Burdi and Wilson. Messrs. Burdi and Wilson were granted
options to purchase 25,000 and 20,000 common shares, respectively, under the
Company's Incentive Stock Option Plan. Each of the agreements provides for
certain employee benefits and contains a non-competitive provision covering the
term of the agreement, plus one year, following termination. Messrs. Fargnoli,
Rocco, Burdi and Wilson also entered into Non-Competitive Agreements with the
Company which runs through May 10, 2001, or the length of their respective
Employment Agreement, plus one year, whichever is longer. Mr. Wilson is the
brother-in-law of Alan T. Sheinwald, the former President and Chief Executive
Officer of the Company.


                                        7
<PAGE>   9

         The purchase price has been preliminarily allocated to the assets and
liabilities assumed based on their fair values as follows:

<TABLE>
<CAPTION>
Purchase Price:
<S>                                                                 <C>        
    Cash                                                            $ 4,100,000
    Issuance of notes payable                                         3,067,000
    Common Stock                                                      1,313,000
    Cost of acquisition                                                 337,000
                                                                    -----------
        Total                                                       $ 8,817,000
                                                                    ===========

<CAPTION>
Allocation:
<S>                                                                 <C>        
    Current assets                                                  $ 3,772,000
    Rental Equipment                                                    433,000
    Property and Equipment                                              182,000
    Other assets                                                        394,000
    Excess of purchase price
      over net assets acquired                                        6,900,000
    Customer List                                                       225,000
    Non-Compete Covenant                                                360,000
    Current liabilities                                              (3,157,000)
    Long term liabilities                                              (292,000)
        Total                                                       $ 8,817,000
                                                                    ===========
</TABLE>

         The following unaudited pro forma condensed summary information
combines the consolidated results of operations of the Company and the MRS
acquisition, assuming this acquisition had occurred at the beginning of each of
the following periods:

<TABLE>
<CAPTION>
                                                          Six months Ended
                                                            September 30,
                                                       1997              1996
                                                   ------------       ----------
                                                            (unaudited)
<S>                                                <C>                <C>       
Net revenues                                       $ 10,236,000       $9,764,000
Net (loss) income                                  $   (893,000)      $  538,000
Net (loss) income per common share                 $      (0.12)      $     0.09
</TABLE>

(Note C) - Investigation by U.S. Department of Justice:

         On June 4, 1997, the Company was informed that its then Chief Executive
Officer and Chief Operating Officer and the Company itself are targets of a
Department of Justice Criminal investigation for allegedly improper payments
relating to a contract to provide healthcare services outside of New York State
involving Medicare. A search warrant was executed at the Company's executive
offices. If it is determined that the Company engaged in criminal wrongdoing,
the Company will be subject to criminal penalties which may include a fine up to
$1,000,000 and an order of restitution, would be terminated as a Medicaid and
Medicare services provider, and will be at risk of having its contracts with
private insurers and other non-governmental agencies terminated.


                                        8
<PAGE>   10

Additionally, if the Company is not found to have committed any criminal
wrongdoing itself, but it is determined that any of the Company's past or
present Officers or employees engaged in criminal wrongdoing during their
employment by the Company, the Company could be terminated as a Medicaid and
Medicare provider (but is not subject to automatic exclusion from the programs
under this circumstances), and could be at risk of having its contracts with
private insurers and other non-governmental agencies terminated. If such
occurred, it would have a material adverse effect on the Company's business,
results of operations, and financial condition and the Company may not be able
to continue as a going concern. The Company has offered its complete cooperation
and the cooperation of all of its employees in the federal probe.

(Note D) - Changes in Executive Officers and Directors, Including Termination of
Chief Executive Officer and Chief Operating Officer:

         On July 1, 1997, the Company terminated the services of Alan T.
Sheinwald, as the Company's President and Chief Executive Officer, and Allan
Goldfeder, as the Company's Chief Operating Officer. Dean L. Sloane and Bruce L.
Ansnes, directors of the Company assumed supervision of management operations of
the Company on an interim basis, pending further action by the Board of
Directors. As stated above, upon the closing of the MRS acquisition, Donald
Fargnoli was appointed to the Company's Board of Directors. Mr. Fargnoli and
Louis Rocco were appointed as Vice Presidents of the Company; Saverio D. Burdi
was appointed as Senior Vice President of the Company, and Wade Wilson was
appointed as Senior Vice President/Operations Systems of the Company.

         On July 17, 1997, Messrs. Sloane and Ansnes were appointed Chairman and
Vice Chairman of the Company respectively, and Mr. Fargnoli was appointed
Secretary of the Company. Mr. Sheinwald resigned as Chairman and a director of
the Company.

         On July 28, 1997, Saverio D. Burdi was appointed Chief Operating
Officer of the Company.

(Note E) - Settlement of Adam Litigation:

         On April 14, 1997, the Company entered into a Settlement Agreement and
Release discharging its lawsuit against Adam and its principals and all
counterclaims made by Adam against the Company. As part of the settlement, the
Company agreed to pay Adam the sum of $1,450,000 of which $725,000 was paid
immediately, with the balance payable over a 36-month period, bearing interest
at the rate of 9% per annum. Additionally, a new covenant not to compete,
covering a period of five years, was entered into with certain principals of
Adam In exchange for $250,000, of which $125,000 was paid immediately and the
balance is payable over three years

(Note F) - Initial Public Offering:

         In October, 1996, the Company completed an Initial Public Offering of
1,495,000 units at a price of $5.20 per unit, each unit consisting of one share
of common stock and one Class A Warrant pursuant to a registration statement
which was declared effective by the Securities and Exchange Commission on
October 18, 1996, resulting in net proceeds of $6,115,000. The Company used the
proceeds of the offering for the repayment of approximately $255,000 of loans
payable to a director and former stockholders; repayment of 8% promissory notes
in the aggregate principal amount of approximately $937,000 plus accrued
interest of approximately $39,000; repayment of a bank note of $200,000 and
accrued interest of approximately $1,000 and repayments of notes payable to
suppliers of approximately $649,000.

                                        9
<PAGE>   11

Part 1 - Item 2

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

Medical Reimbursement for Oxygen Therapy Services

         The Balanced Budget Act (the "Budget Act") was signed by President
Clinton on August 5, 1997. The Budget Act provides for reductions in Medicare
reimbursement rates for oxygen and certain oxygen equipment. Oxygen
reimbursement rates will be reduced to seventy five percent (75%) of their 1997
levels, beginning January 1, 1998 and to seventy percent (70%) of their 1997
levels beginning January 1, 1999. In addition, Consumer Price Index increases in
oxygen reimbursement rates will not resume until the year 2003.

         The Company is currently analyzing the impact of the Budget Act on its
operating plans, liquidity, cash flows and formulating plans to minimize the
Budget Act's negative impact. The Company's future operating results could
differ materially from those historically achieved or previously projected in
forward looking statements made by or on behalf of the Company.

Three Months Ended September 30, 1997 Versus Three Months Ended September 30,
1996.

         Net Revenues - Net revenues increased by approximately $ 2,439,00 or
95.1 % to $5,005,000 for the three months ended September 30, 1997 from
$2,566,000 for the three months ended September 30, 1996. This increase was
primarily due to the acquisition of MRS; offering new services to the existing
client base; and an increase in the rental of durable medical and respiratory
equipment.

         Cost of Net Revenues - Cost of net revenues increased by approximately
$706,000 or 64.2% to $1,806,000 for the three months ended September 30, 1997
from $1,100,000 for the three months ended September 30, 1996. Cost of net
revenues decreased as a percentage of net revenues to 36.1% for the three months
ended September 30, 1997 from 42.9 % for the three months ended September 30,
1996. This decrease in percentage of cost of net revenues is primarily
attributable to the acquisition of MRS, which resulted in a change in the mix of
sales; coupled with increased rental of durable medical equipment.

         Selling, General and Administrative - Selling, general and
administrative expenses increased by approximately $1,761,000 or 171.6% to
$2,787,000 for the three months ended September 30, 1997 from $1,026,000 for the
three months ended September 30, 1996, and also increased as a percentage of net
revenues to 55.7% from 40.0%. The increase in selling, general and
administrative expenses as a percentage of net revenues was primarily
attributable to hiring of additional personnel to support the Company's growth
and the acquisition of MRS.

         For the three months ended September 30, 1997, the Company incurred
approximately $ 95,000 of legal expenses related to the investigation by the U.
S. Department of Justice (See Note C of Notes to condensed consolidated
financial statements).

         Operating Income - The Company had operating income of approximately
$197,000 for the three months ended September 30, 1997 as compared to operating
income of $260,000 for the three months ended September 30, 1996.


                                       10
<PAGE>   12

         Also the amortization of intangibles increased by $71,000 or 165.1% to
$114,000 for the three months ended September 30, 1997 from $43,000 for the
three months ended September 30, 1996. The amortization of intangibles increased
as a percentage of net revenues to 2.3% for the three months ended September 30,
1997 from 1.7% for the three months ended September 30, 1996. This increase is
attributable to amortization expense relating to the excess of purchase price
over net assets acquired, customer list and non compete covenants.

         Interest Expense, net - Interest expense, net increased by
approximately $90,000 to $147,000 for the three months ended September 30, 1997
from $57,000 for the three months ended September 30, 1996. The increase in
interest expense is attributable to interest payments of approximately $48,000
related to additional borrowings from The Bank of New York and approximately
$46,000 related to the MRS promissory notes.

         Net Income - The Company had a net income of approximately $28,000 for
the three months ended September 30, 1997 as compared to net income of $114,000
for the three months ended September 30, 1996. The decrease of $86,000 is
attributable to the reasons described above.

         Management continues its efforts to reduce operating expenses,
primarily through the consolidation and centralization of MRS personnel and
operations to the Company's facility in August 1997. Management will continue to
pursue additional managed care provider contracts and service agreements, and is
continually negotiating and bidding for new agreements.

Six Months Ended September 30, 1997 Versus Six Months Ended September 30, 1996

         Net Revenue - Net revenues increased by approximately $4,184,000 or
82.8% to $ 9,238,000 for the six months ended September 30, 1997 from $5,054,000
for the six months ended September 30, 1996. This increase was primarily due to
the acquisition of MRS; offering new services to the existing client base; an
increase in the rental of respiratory and durable medical equipment; and the
sale of specialty rehabilitation products.

         Cost of Net Revenue - Cost of net revenues increased by approximately
$1,612,000 or 73.2% to $3,815,000 for the six months ended September 30,1997
from $ 2,203,000 for the six months ended September 30, 1996. Cost of net
revenues decreased as a percentage of net revenues to 41.3% for the six months
ended September 30, 1997 from 43.6% for the six months ended September 30, 1996.
This decrease in percentage of cost of net revenues is primarily attributable to
the acquisition of MRS, which resulted in a change in the mix of sales and cost
of net revenues.

         Selling, General and Administrative - Selling, general and
administrative expenses increased by approximately $2,986,000 or 146.7 % to $
5,021,000 for the six months ended September 30, 1997 from $2,035,000 for the
six months ended September 30, 1996, and also increased as a percentage of net
revenues to 54.4% from 40.3%. The increase in selling, general and
administrative expenses as a percentage was primarily attributable to hiring
additional personnel to support the Company's growth and the acquisition of MRS.

         For the six months ended September 30, 1997 the Company incurred
$273,000 of legal expenses related to the investigation by the U.S. Department
of Justice (See Note C of Notes to condensed consolidated financial statements).


                                       11
<PAGE>   13

         Operating (Loss) Income - The Company incurred an operating loss of
approximately $ 81,000 for the six months ended September 30, 1997 as compared
to operating income of $550,000 for the six months ended September 30, 1996. The
operating loss for the current period as compared to operating income for the
prior comparable period is attributable to additional legal costs of $273,000
and, additional personnel costs as stated above.

         Also the amortization of intangibles increased by $119,000 or 138.4% to
$205,000 for the six months ended September 30, 1997 from $86,000 for the six
months ended September 30, 1996. The amortization of intangibles increased as a
percentage of net revenues to 2.2% for the six months ended September 30, 1997
from 1.7% ended September 30, 1996. This increase is attributable to
amortization expense relating to the excess of purchase price over net assets
acquired, customer list and non complete covenants.

         Interest Expense, net - Interest expenses, net increased by
approximately $57,000 or 46.7% to $179,000 for the six months ended September
30, 1997 from $122,000 for the six months ended September 30, 1997. The overall
increase in interest expense is attributable to interest payments of
approximately $79,000 related to additional borrowings from the Bank of New York
and approximately $61,000 related to the MRS promissory notes.

         Net (Loss) Income - The Company had a net loss income of approximately
$145,000 for the six months ended September 30, 1997 as compared with net income
of $240,000 for the six months ended September 30, 1996. The decrease of
$385,000 is attributable to the reasons described above.

         Management continues its efforts to reduce operating expenses,
primarily through the consolidation and centralization of MRS personnel and
operations to the Company's facilities in August 1997. Management will continue
to pursue additional managed care provider contracts and service agreements, and
is continually negotiating and bidding for new agreements.

Liquidity and Capital Resources

         Prior to the initial public offering, the Company financed its
operations through stockholders loans, private placements, and vendor loans and
to a lesser extent, bank credit lines.

         In October 1996, the Company completed an initial public offering of
1,495,000 units at a price of $5.20 per unit, each consisting of one share of
common stock and one Class A Warrant pursuant to a registration statement which
was declared effective by the Securities and Exchange Commission on October 18,
1996, resulting in net proceeds of $6,115,000. The Company used the proceeds of
the offering for the repayment of approximately $255,000 of loans payable to a
director and former stockholders; repayment of 8% promissory notes in the
aggregate principal amount of approximately $937,000 plus accrued interest of
approximately $39,000; repayment of a bank note of $200,000 and accrued interest
of approximately $1,000 and repayments of notes payable to suppliers of
approximately $649,000.

         The Company currently has a $4,000,000 line of credit with the Bank of
New York with interest payable at the prime rate. As of June 30, 1997,
approximately $2,223,000 was drawn down under the line. In July 1997, The Bank
of New York notified the Company that it put a $2,500,000 cap on borrowings,
leaving approximately $277,000 available for future borrowings under the line,
until the uncertainty surrounding the investigation by the U.S. Department of
Justice of the Company is completed.


                                       12
<PAGE>   14

         Working capital decreased to approximately $271,000 at September 30,
1997 from working capital of $5,121,000 at March 31, 1997. The decrease of
$4,850,000 is primarily due to the acquisition of MRS for approximately
$4,437,000.

         Net cash provided by operating activities was $ 525,000 for the six
months ended September 30, 1997 and $ 526,000 of net cash was provided for the
six months ended September 30, 1996.

         Net cash used in investing activities was $ 5,286,000 and $ 274,000 for
the six months ended September 30, 1997 and 1996, respectively. For the six
months ended September 30, 1997 approximately $129,000 was expended for the
build out of new office space and warehouse facilities to accommodate the move
of MRS personnel and operations to the Company's facilities in August 1997.

         Net cash provided by financing activities was $ 537,000 for the six
months ended September 30, 1997 and $289,000 was used in financing activities
for the six months ended September 30, 1996. Approximately $1,980,000 was drawn
down under the Company's line of credit. Repayments of $1,443,000 were made to
payoff a MRS credit line and term loan; various notes and capital lease
obligations.

         The Company's future liquidity will continue to be dependent upon the
relative amounts of current assets (principally cash, accounts receivable and
inventories) and current liabilities (principally accounts payable and accrued
expenses). In that regard, accounts receivable can have a significant impact on
the Company's liquidity. The Company has various types of accounts receivable,
such as receivables from patients and contracts. Accounts receivable are
generally outstanding for longer periods of time in the health care industry
than many other industries because of requirements to provide third party payors
with additional information subsequent to billing and the time required by such
payors to process claims. Accounts receivable generally are outstanding for more
than 90 days.

         The Company believes that internally generated funds together with the
remaining amount available for borrowing under the line of credit will provide
sufficient liquidity and enable it to meets its currently foreseeable working
capital requirements for at least the next 12 months.

         However, the Company may need to obtain additional financing to
continue its operations. There can be no assurance that additional financing
will be available if and when needed by or on terms acceptable to the Company.
Potential sources for any such financings have not yet been identified.

Recent Accounting Pronouncements

         The Company believes that the adoption by the Financial Accounting
Standards Board of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share", will not have a material impact on the Company's financial
condition and results of operations.

         SFAS No. 128, "Earnings per Share" ("SFAS 128") has been issued
effective for fiscal periods ending after December 15, 1997. It will require the
Company to compute net income per share on a simplified basis. The Company is
required to adopt the provisions of SFAS No. 128 and does not expect adoption of
SFAS No. 128 to have a material effect on the Company's financial position or
results of operations. Basic per share calculations will exclude dilution
effective with the March 31, 1998 financial statements.


                                       13
<PAGE>   15

         In addition, SFAS Nos. 130 and 131 were issued, which established
reporting and disclosure of comprehensive income and segment information,
respectively. The adoption of these pronouncements will not have a significant
effect on the financial statements.


Seasonality

         The Company generally has not experienced seasonal fluctuation.

Inflation

         The Company has not experienced large increases in either the cost of
supplies or operating expenses due to inflation. Because of restrictions by
government and private medical insurance programs and the pressures to contain
the growth in the costs of such programs, the Company bears the risk that
reimbursement rates set by such programs will not keep pace with inflation.

Forward Looking Statements

         From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, new products and similar matters. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for forward looking statements. In
order to comply with the terms of the safe harbor, the Company notes that a
variety of factors could cause the Company's actual results and experience to
differ materially from the anticipated results or other expectations expressed
in any of the Company's performance, development and results of the Company's
business include, but are not limited to, the following: Current cash flow and
operating deficits, the Company's need to service short and long term debt;
adverse changes in federal and state laws; rules and regulations relating to the
home health care industry; to government reimbursement policies, to private
industry reimbursement policies and to other matter affecting the Company's
industry and business; and continued consolidation by the Company's local,
regional and national competitors resulting in increased competition. There may
be other risks that are outside the control of the Company that are mentioned
elsewhere in this report and in other published reports of the Company.


                                       14
<PAGE>   16

Part II-Other Information

         Item 1   - Legal Proceedings
         Information concerning legal matters in incorporated by reference from
Part I, Note C of Notes to the Condensed Consolidated Financial Statements.

         Item 2 - Changes in Securities
         None

         Item 3 - Defaults Upon Senior Securities
         None

         Item 4 - Submission of Matters to a Vote of Security Holders
         None

         Item 5 - Other Information
         None

         Item 6 -  Exhibits and Reports on Form 8K
         The Company filed a Current Report on Form 8-K on May 14, 1997 with
respect to the Company's acquisition of Metropolitan Respirator Service, Inc.
which was amended by a Current Report on Form 8-K/A dated August 6, 1997. The
following financial statements were filed with the 8-K:

         (i)  Financial Statements of Business Acquired.
                  The balance sheets of Metropolitan Respirator Service, Inc.,
                  as of March 31, 1996 and December 31, 1996 and the related
                  Statements of Operations and Retained Earnings and Cash Flows
                  for the years ended March 31, 1995 and
                  December 31, 1996.

         (ii)  Pro Forma Financial Information.
                  Unaudited condensed balance sheet as of December 31, 1996 of
                  Community Care Services, Inc. Unaudited condensed consolidated
                  statement of income of Community Care Services, Inc., for the
                  year ended March 31, 1996 and the nine months ended December
                  31, 1996.


                                       15
<PAGE>   17

                                   SIGNATURES


         In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on the 14th day of November 1997.


                                   COMMUNITY CARE SERVICES, INC.
                                                  (Registrant)


                                         /s/  Saverio D. Burdi
                                      ------------------------------
                                              Saverio D. Burdi,
                                          Chief Operatiing Officer

                                        /s/      Joel Quall
                                       ------------------------------
                                                 Joel Quall,
                                           Chief Financial Officer
                                     Principal Financial & Accounting Officer


                                       16