<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, 1999

____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                      (I.R.S. Employer
             Jurisdiction Incorporation          Identification No.)
             or Organization).

                                18 Sargent Place
                          Mount Vernon, New York 10550
             ------------------------------------------------------
                    (Address of Principal Executive Offices)

                                 (914) 665-9050
                               -------------------
                           (Issuer's Telephone Number)

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




                     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: 7,217,851

Transitional Small Business Disclosure Format (check one):

Yes  x     No
   -----      -----
<PAGE>   2
                  COMMUNITY CARE SERVICES, INC. AND SUBSIDIARY
                      SECOND QUARTER REPORT ON FORM 10-QSB
                    FOR THE QUARTER ENDED SEPTEMBER 30, 1999


                                TABLE OF CONTENTS


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

         Item 1.    Financial Statements

                    Condensed Consolidated Balance Sheets at
                    September 30, 1999 (unaudited) and March 31, 1999                                      2

                    Condensed Consolidated Statements of Operations for the
                    Three and Six Months Ended September 30, 1999 and 1998
                    (unaudited)                                                                            3

                    Condensed Consolidated Statements of Cash Flows for the Six
                    Months Ended September 30, 1999 (unaudited) and 1998
                    (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                                                             10-16

PART II. OTHER INFORMATION

         Item 1.    Legal Proceedings                                                                     17
         Item 2.    Changes in Securities                                                                 17
         Item 3.    Defaults Upon Senior Securities                                                       17
         Item 4.    Submission of Matters to a Vote of Security Holders                                   17
         Item 5.    Other Information                                                                     17
         Item 6.    Exhibits and Reports on Form 8-K                                                      17

Signatures                                                                                                18
</TABLE>
<PAGE>   3
                COMMUNITY CARE SERVICES, INC. AND SUBSIDIARY
                    CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                               AS AT              AS AT
                                                                            SEPTEMBER 30,        MARCH 31,
                                                                                1999               1999
                                                                            ------------        ------------
                                                                            (UNAUDITED)
<S>                                                                         <C>                 <C>
                      ASSETS
CURRENT ASSETS:
    Cash and cash equivalents                                               $    135,000        $     84,000
    Accounts receivable,net of allowance for doubtful
       accounts of  $1,655,000 and $1,852,000                                  4,229,000           4,662,000
    Inventory, net                                                               575,000             459,000
    Prepaid expenses and other current assets                                    140,000             116,000
    Deferred tax asset, net                                                      402,000             453,000
                                                                            ------------        ------------
                TOTAL CURRENT ASSETS                                           5,481,000           5,774,000

Rental equipment, net                                                          1,866,000           2,256,000
Property and equipment, net                                                    1,587,000           1,474,000
Excess of purchase price over fair value of  net assets acquired, net          2,090,000           2,151,000
Covenants not to compete, net                                                    274,000             345,000
Accounts and customer list, net                                                  241,000             262,000
Other assets                                                                      35,000              32,000
                                                                            ------------        ------------

              TOTAL  ASSETS                                                 $ 11,574,000        $ 12,294,000
                                                                            ============        ============

                    LIABILITIES AND STOCKHOLDERS' EQUITY

                                 LIABILITIES
CURRENT LIABILITIES:
    Accounts payable                                                        $  2,625,000        $  2,611,000
    Accrued expenses                                                             299,000             738,000
    Note payable - Bank                                                        2,500,000           2,500,000
    Current portion of long term debt                                            823,000           1,372,000
    Current portion of capital lease obligations                                  97,000             115,000
                                                                            ------------        ------------
                TOTAL CURRENT LIABILITIES                                      6,344,000           7,336,000

Long term portion of debt                                                        341,000              99,000
Long term portion of capital lease obligations                                   105,000             140,000
                                                                            ------------        ------------
                TOTAL LIABILITIES                                              6,790,000           7,575,000
                                                                            ------------        ------------

COMMITMENTS AND CONTINGENCIES

                            STOCKHOLDERS' EQUITY

Preferred stock, $.01 par value; 1,000,000 shares none issued
Common stock, $.01 par value; authorized 20,000,000 shares,
    issued and outstanding  7,200,009 shares                                      72,000              72,000
Additional paid in capital                                                    10,213,000          10,206,000
Accumulated deficit                                                           (5,501,000)         (5,559,000)
                                                                            ------------        ------------
                TOTAL STOCKHOLDERS' EQUITY                                     4,784,000           4,719,000
                                                                            ------------        ------------

                TOTAL  LIABILITIES AND STOCKHOLDERS' EQUITY                 $ 11,574,000        $ 12,294,000
                                                                            ============        ============
</TABLE>


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


                                        2
<PAGE>   4
                  COMMUNITY CARE SERVICES, INC. AND SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  - UNAUDITED -

<TABLE>
<CAPTION>
                                                               FOR THE                          FOR THE
                                                          THREE MONTHS ENDED               SIX MONTHS ENDED
                                                              SEPTEMBER 30,                  SEPTEMBER 30,
                                                       -------------------------     -------------------------
                                                          1999           1998           1999           1998
                                                       ----------     ----------     ----------     ----------
<S>                                                    <C>            <C>            <C>            <C>
NET REVENUES                                           $4,320,000     $4,433,000     $8,671,000     $8,865,000
                                                       ----------     ----------     ----------     ----------

COST AND EXPENSES:
    Cost of net revenues
       Product and supply costs                         1,668,000      1,629,000      3,038,000      3,218,000
       Rental equipment depreciation                      285,000        154,000        586,000        401,000
                                                       ----------     ----------     ----------     ----------

       COST OF NET REVENUES                             1,953,000      1,783,000      3,624,000      3,619,000

    Selling, general and administrative                 1,861,000      2,185,000      3,769,000      4,296,000
    Provision for doubtful accounts                       178,000        217,000        568,000        430,000
    Amortization of intangible assets                     106,000        100,000        207,000        199,000
    Merger expense                                         46,000           --          170,000           --
                                                       ----------     ----------     ----------     ----------
    TOTAL COST AND EXPENSES                             4,144,000      4,285,000      8,338,000      8,544,000
                                                       ----------     ----------     ----------     ----------

    OPERATING  INCOME                                     176,000        148,000        333,000        321,000

    Interest expense, net                                 123,000        106,000        230,000        214,000
                                                       ----------     ----------     ----------     ----------

    Income before provision for income taxes               53,000         42,000        103,000        107,000

    Provision  for income taxes                            23,000         18,000         45,000         38,000
                                                       ----------     ----------     ----------     ----------

NET  INCOME                                            $   30,000     $   24,000     $   58,000     $   69,000
                                                       ==========     ==========     ==========     ==========

Per share data :

    Net income per common share:
        Basic                                          $     0.00     $     0.00     $     0.01     $     0.01
                                                       ==========     ==========     ==========     ==========

        Diluted                                        $     0.00     $     0.00     $     0.01     $     0.01
                                                       ==========     ==========     ==========     ==========

    Weighted average number of shares outstanding:
        Basic                                           7,200,009      7,145,049      7,200,009      7,145,049
                                                       ==========     ==========     ==========     ==========

        Diluted                                         7,210,945      7,145,049      7,210,041      7,145,049
                                                       ==========     ==========     ==========     ==========
</TABLE>

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


                                        3
<PAGE>   5
                  COMMUNITY CARE SERVICES, INC. AND SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  - UNAUDITED -

<TABLE>
<CAPTION>
                                                                           FOR THE
                                                                       SIX MONTHS ENDED
                                                                         SEPTEMBER 30,
                                                                  ----------------------------
                                                                      1999           1998
                                                                  -----------      -----------
<S>                                                               <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                      $    58,000      $    69,000
  Adjustments to reconcile net income
    to net cash provided by operating activities:
    Depreciation and amortization expense                             793,000          670,000
    Disposal of rental equipment
     Write off of rental equipment                                     11,000           37,000
     Provision for doubtful accounts                                  568,000          430,000
     Deferred tax asset                                                45,000           38,000
     Non cash compensation                                              7,000            9,000
    Changes in operating assets and liabilities:
     Accounts receivable                                             (136,000)         152,000
     Inventory                                                       (116,000)          52,000
     Prepaid expenses and other current assets                        (25,000)         184,000
     Other assets                                                      (3,000)          (8,000)
     Accounts payable and accrued expenses                           (300,000)         (52,000)
                                                                  -----------      -----------
          Net cash provided by operating activities                   902,000        1,581,000
                                                                  -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of rental equipment                                     (78,000)        (466,000)
  Acquisition of property and equipment                              (106,000)        (289,000)
                                                                  -----------      -----------
          Net cash (used in) investing activities                    (184,000)        (755,000)
                                                                  -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from promissory note                                        20,000          223,000
  Proceeds of bank borrowings under credit line                          --            150,000
  Exercise of underwriters warrants                                      --              6,000
  Repayments of credit line and term loan                            (125,000)         (53,000)
  Principal repayments of notes payable to suppliers                 (254,000)        (515,000)
  Repayments of former MRS stockholders notes                        (113,000)        (156,000)
  Principal repayments of notes payable to Adam
    Health Care Equipment Corp.                                      (142,000)        (142,000)
  Principal repayments of capital lease obligations                   (53,000)         (98,000)
                                                                  -----------      -----------
          Net cash (used in) provided by financing activities        (667,000)        (585,000)
                                                                  -----------      -----------

NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                  51,000          241,000

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                       84,000          276,000
                                                                  -----------      -----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                        $   135,000      $   517,000
                                                                  ===========      ===========
</TABLE>


                            (continued)
                                 4
<PAGE>   6
                  COMMUNITY CARE SERVICES, INC. AND SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  - UNAUDITED -
                                   (CONTINUED)


<TABLE>
<CAPTION>
                                                                       FOR THE
                                                                  SIX MONTHS ENDED
                                                                   SEPTEMBER 30,
                                                               ---------------------
                                                                 1999         1998
                                                               --------     --------
<S>                                                            <C>          <C>
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during the period
        Interest                                               $223,000     $203,000
                                                               --------     --------
        Taxes                                                  $ 20,000
                                                               --------     --------

SUPPLEMENTARY DISCLOSURES OF NON CASH ACTIVITIES:
       Rental equipment acquired under capital lease               --         40,000
       Property and equipment acquired under capital lease      182,000       20,000
       Conversion of trade payables into note payables          125,000         --
</TABLE>

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


                                        5
<PAGE>   7
                  COMMUNITY CARE SERVICES, INC. AND SUBSIDIARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

(NOTE A) - BUSINESS AND BASIS OF PRESENTATION

         Community Care Services, Inc., ("CCS") and its wholly owned subsidiary,
Metropolitan Respirator Service, Inc. ("MRS"), (collectively, the "Company")
provide home health care services and products consisting primarily of
respiratory equipment, rental and sale of durable medical equipment and sell
home health care supplies primarily in the five boroughs of New York City, and
Westchester, Rockland and Nassau Counties in New York State, as well as northern
New Jersey. The condensed consolidated financial statements include CCS and its
wholly owned subsidiary, MRS. Intercompany balances and transactions have been
eliminated in consolidation.

         The condensed consolidated financial statements of the Company for the
three and six months ended September 30, 1999 and 1998 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, 1999, the results of operations, and the
cash flows for the three and six months ended September 30, 1999 and 1998.

         The results of operations for the three and six months ended September
30, 1999 and 1998 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 consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended March 31, 1999 as filed with the Securities and Exchange Commission.

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Such amounts include, among others, the allowance for doubtful accounts, other
asset valuation allowances and certain liabilities. Management periodically
reevaluates the estimates inherent in certain financial statement amounts and
adjusts them accordingly. Actual results could differ from these estimates.

(NOTE B) - EARNINGS PER SHARE

         Basic and diluted net income per share is determined by dividing net
income by the weighted average number of common shares outstanding during the
years. Potentially issuable common shares, upon exercise or conversion of
options, warrants and convertible notes are included in the diluted calculation
if their effect would be dilutive.


                                        6
<PAGE>   8
                  COMMUNITY CARE SERVICES, INC. AND SUBSIDIARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

(NOTE C) - MERGER WITH LTTR HOME CARE, LLC

         The Company and LTTR Home Care, LLC ("LTTR") executed a letter of
intent effective April 6, 1999 providing for the purchase by LTTR or one of its
affiliates of all of the Company's issued and outstanding Common Stock for the
price of $1.20 per share, conditioned upon the successful negotiation of a
definitive written agreement, which was executed on July 14, 1999 and further
described below, and the approval of the Company's shareholders. LTTR had
previously acquired 2,126,250 shares of the Company's Common Stock from Alan T.
Sheinwald, the Company's former President and Chief Executive Officer. Also
effective April 6, 1999, Dean L. Sloane, Mary Sloane, Joshua Sloane, Craig V.
Sloane and The Sloane Family Foundation executed a letter of intent pursuant to
which they agreed, for a period of forty-five business days, or such earlier
time as negotiations on a definitive merger agreement between LTTR and the
Company terminated, not to transfer, encumber, or engage in any discussions or
negotiations with respect to their shares of Common Stock.

         On June 14, 1999, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Landauer Hospital Supplies, Inc. ("LHS"), a
New York corporation and LHS Merger Sub, Inc., a wholly owned subsidiary of LHS
("Merger Sub"). LHS is an affiliate of LTTR and is controlled by the Chairman of
the Company's Board of Directors. LTTR had previously acquired 2,126,250 shares
of the Company's Common Stock from the Company's former President and Chief
Executive Officer. The Merger Agreement provides for the merger of the Company
with Merger Sub, with the Company being the surviving entity (the "Merger"). As
part of the Merger each shareholder (other than LHS and its affiliates) will
receive $1.20 in cash in exchange for each share of Common Stock owned by them.
The Merger is subject to the approval of the holders of at least two-thirds of
the Company's issued and outstanding Common Stock. If the Merger is approved and
consummated, the Company will become a wholly-owned subsidiary of LHS. The
Company has agreed that if the Merger is not consummated, the Company will pay
LHS a termination fee of $350,000, plus certain other costs.

         On July 17, 1999, the Company filed a preliminary proxy statement with
the Securities and Exchange Commission soliciting shareholder approval for the
proposed Merger. On August 9, 1999 and August 17, 1999, the Company filed
amendments to the preliminary proxy statement in response to comments received
from the Securities and Exchange Commission. A definitive proxy statement was
filed with the Securities and Exchange Commission on November 4, 1999. A special
meeting of the Company's shareholders will be held on December 9, 1999 for the
purpose of approving the Merger.

          Costs related to the Merger, consisting mainly of professional fees,
were approximately $170,000 for the six month period ended September 30, 1999.

(NOTE D) - COMMITMENTS AND CONTINGENCIES

         On June 4, 1997, a search warrant was executed at the Company's
executive offices. The Company was informed that its then Chief Executive
Officer, Alan T. Sheinwald, and then Chief Operating Officer, Allan C.
Goldfeder, and the Company itself are targets of a U. S. Department of Justice
criminal investigation for allegedly improper payments relating to a contract,
involving


                                        7
<PAGE>   9
                  COMMUNITY CARE SERVICES, INC. AND SUBSIDIARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

Medicare, to provide healthcare services outside of New York State. The
Department of Justice has alleged that Messrs. Sheinwald and Goldfeder violated
the federal Anti-kickback Statute by causing the Company to make an aggregate
payment of $30,000 to a fictitious company named PEG, Inc. based in Georgia. The
Company understands that PEG was a vehicle created by the Federal Bureau of
Investigation as part of a sting operation involving the healthcare industry.
Based on discussions with representatives of the Department of Justice, the
Company understands that Messrs. Sheinwald and Goldfeder were allegedly directed
by representatives of a customer based in Connecticut to make payments to PEG in
exchange for the customer in Connecticut referring patients in need of
respiratory supplies to the Company. The Payments made to PEG were paid in
monthly installments of $5,000 which commenced in December 1996 and ended in May
1997. No further payments were made to PEG after the execution of the search
warrant at the Company's premises In June 1997.

         If the Company is charged with criminal wrongdoing and it is determined
that the Company engaged in criminal wrongdoing, the Company will be subject to
criminal penalties, which may include a fine of $1,000,000 or more and an order
of restitution, would be terminated as a Medicaid and Medicare services
provider, and could also be at risk of having its contracts with private
insurers and other non-governmental agencies terminated. Additionally, even if
the Company is not charged with criminal wrongdoing itself, but one or more past
or present officers or employees are convicted of crimes related to their
employment the Company could be terminated as a Medicaid and Medicare provider.
In these circumstances, although the Company would not be subject to automatic
exclusion from such programs, it could be at risk of having its contracts with
private insurers and other non-governmental agencies terminated. The Company has
cooperated with the government in the Department of Justice criminal
investigation. The Department of Justice has indicated that it does not have any
current intent to indict the Company, but the Company has not received any
assurance that an indictment will not be brought against it in the future.
Representatives of the Company were advised that the issuance of indictments
against Messrs. Sheinwald and Goldfeder were imminent, but no charges have been
filed against either of them as of September 30, 1999.

         The Company believes that its cooperation with the government in the
Department of Justice investigation and the severance of Mr. Sheinwald's ties to
the Company by virtue of the sale of his shares to Alan J. Landauer will have a
positive effect on the government's assessment of the Company and its decision
regarding whether to issue charges against the Company. There can be no
assurance, however, as to whether these or other factors will ultimately result
in the Department of Justice determining not to charge the Company with criminal
wrongdoing. The Company does not anticipate that the surrender of its Medicaid
provider number in favor of conducting its Medicaid business through
Metropolitan will have an impact on the sanctions that might be imposed against
the Company.

          The Company currently has a $2,800,000 line of credit with the Bank of
New York (the "Bank") with interest payable at the prime rate. As of September
30, 1999, approximately $2,500,000 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 until the uncertainty surrounding the Federal Investigation of the
Company is completed. The credit facility is callable by the Bank at any time.
The Bank has transferred the administration of the credit facility within the
Bank to its Asset Recovery Department.


                                        8
<PAGE>   10
                  COMMUNITY CARE SERVICES, INC. AND SUBSIDIARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

The Merger, if consummated, would provide the Company with sufficient capital to
satisfy its obligations to the Bank and to take advantage of market
opportunities.

         In March 1998, the Company entered into an agreement to finance a new
computer system with BNY Leasing ("BNY") formerly Tokai Financial Services, Inc.
The agreement initially allowed the Company to draw down $600,000 under a line
of credit. BNY had capped the line at $480,000 until the Federal Investigation,
as discussed above was resolved. The Company has drawn down approximately
$472,000 under the line of credit, and converted the line of credit into a
master lease agreement payable over thirty six months, with monthly payments of
approximately $16,000. The master lease agreement bears interest at 11.6%. As of
September 30, 1999, the outstanding balance of the master lease agreement is
approximately $416,000. The master lease is collaterized by a lien on all of the
Company's assets, subordinate to prior lienholders.

         In April 1999, the Company entered into restated and amended employment
agreements with two officers providing for base annual compensation of $225,000
and expiring on May 10, 2004, but which may be extended for additional one year
terms upon mutual written agreement.

         In September 1999, the Company borrowed $20,000 from LHS evidenced by a
note bearing interest at 6.0%. The interest and principal is due September 2000.
In, August 1999, the Company repaid the LHS note.

         In July 1999, the Company converted approximately $125,000 of trade
payables into non-interest bearing supplier note payables, which is payable over
twelve months with monthly payments of approximately $10,000.


                                        9
<PAGE>   11
                  COMMUNITY CARE SERVICES, INC. AND SUBSIDIARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


PART 1 - ITEM 2

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

FORWARD LOOKING STATEMENTS

         From time to time the Company may publish forward-looking statements
related to such matters as anticipated financial performance and similar
matters. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. These statements are typically identified
by the inclusion of phrases such as "the Company anticipates," "the Company
believes", "Management believes", and other phrases of similar meaning. Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors that may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. The
Company is subject to significant external factors which could significantly
impact its business, including changes in Medicare, Medicaid, and private pay
reimbursement, government fraud and abuse initiatives and other such factors
which are beyond the control of the Company. Certain of these factors are
discussed herein. These factors, as well as future changes in reimbursement and
changes in interpretations of regulations, could cause future results to differ
materially from historical trends and management's current expectations.

RECENT DEVELOPMENTS

         On July 17, 1999, the Company filed a preliminary proxy statement with
the Securities and Exchange Commission soliciting shareholder approval for the
proposed Merger. On August 9, 1999 and August 17, 1999, the Company filed
amendments to the preliminary proxy statement in response to comments received
from the Securities and Exchange Commission. A definitive proxy statement was
filed with the Securities and Exchange Commission on November 4, 1999. A special
meeting of the Company's shareholders will be held on December 9, 1999 for the
purpose of approving the Merger.

INVESTIGATIONS BY U.S. DEPARTMENT OF JUSTICE AND NEW YORK STATE DEPARTMENT OF
HEALTH

                  If the Company is charged with criminal wrongdoing and it is
determined that the Company engaged in criminal wrongdoing, the Company will be
subject to criminal penalties, which may include a fine of $1,000,000 or more
and an order of restitution, would be terminated as a Medicaid and Medicare
services provider, and could also be at risk of having its contracts with
private insurers and other non-governmental agencies terminated. Additionally,
even if the Company is not charged with criminal wrongdoing itself, but one or
more past or present officers or employees are convicted of crimes related to
their employment the Company could be terminated as a Medicaid and Medicare
provider. In these circumstances, although the Company would not be subject to
automatic exclusion from such programs, it could be at risk of having its
contracts with private insurers and other non-governmental agencies terminated.
The Company has cooperated with the government in the


                                       10
<PAGE>   12
                  COMMUNITY CARE SERVICES, INC. AND SUBSIDIARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

Department of Justice criminal investigation. The Department of Justice has
indicated that it does not have any current intent to indict the Company, but
the Company has not received any assurance that an indictment will not be
brought against it in the future. Representatives of the Company were advised
that the issuance of indictments against Messrs. Sheinwald and Goldfeder were
imminent, but no charges have been filed against either of them as of September
30, 1999.

         The Company believes that its cooperation with the government in the
Department of Justice investigation and the severance of Mr. Sheinwald's ties to
the Company by virtue of the sale of his shares to Alan J. Landauer will have a
positive effect on the government's assessment of the Company and its decision
regarding whether to issue charges against the Company. There can be no
assurance, however, as to whether these or other factors will ultimately result
in the Department of Justice determining not to charge the Company with criminal
wrongdoing. The Company does not anticipate that the surrender of its Medicaid
provider number in favor of conducting its Medicaid business through
Metropolitan will have an impact on the sanctions that might be imposed against
the Company.

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 were 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 results for
the three and six months ended September 30, 1999 reflect the reduction for the
aforementioned Medicare reimbursement rates as compared to the three and six
months ended September 30, 1998.


THREE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
1998

         NET REVENUES - Net revenues decreased by approximately $113,000 or 2.5%
to $4,320,000 for the three months ended September 30, 1999 from $4,433,000 for
the three months ended September 30, 1998. The decrease in net revenues was
primarily attributable to certain external factors that continued to impact the
Company including, additional reductions in the oxygen reimbursements rates as a
result of the Budget Act, reductions in reimbursement rates by certain third
party payors and a reduction in referral based business.

         COST OF NET REVENUES - Cost of net revenues increased by approximately
$170,000 or 9.5% to $1,953 for the three months ended September 30, 1999 from
$1,783,000 for the three months ended September 30, 1998. Cost of net revenues
increased as a percentage of net revenues to 45.2% for the three months ended
September 30, 1999 from 40.2% for the three months ended September 30, 1998. The
increase in cost of net revenues as a percentage of net revenues for the period
ended September 30, 1999 is primarily attributable to an increase in sales of
medical supplies which have a higher product cost.


                                       11
<PAGE>   13
                  COMMUNITY CARE SERVICES, INC. AND SUBSIDIARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

         SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and
administrative expenses decreased by approximately $324,000 or 21.4% to
$1,861,000 for the three months ended September 30, 1999 from $2,185,000 for the
three months ended September 30, 1998, and also decreased as a percentage of net
revenues to 43.1% from 49.3%. The reduction in selling, general and
administrative expenses is primarily attributable to cost reduction programs and
a reduction in personnel. Included in selling, general and administrative for
the three months ended September 30, 1999 and 1998, is approximately $8,000 and
$14,000, respectively, of legal expenses related to the investigation by the U.
S. Department of Justice (See Note D).

         PROVISION FOR DOUBTFUL ACCOUNTS - The Company recorded a provision for
doubtful accounts of approximately $178,000 for the three months ended September
30, 1999 as compared with $217,000 for the three months ended September 30,
1998.

         MERGER EXPENSE - The Company also incurred approximately $46,000 of
professional fees related to the Merger for the three month period ended
September 30, 1999.

         OPERATING INCOME - The Company generated operating income of
approximately $176,000 for the three months ended September 30, 1999 as compared
to an operating income of $148,000 for the three months ended September 30,
1998.

         INTEREST EXPENSE, NET - Interest expense, net decreased by
approximately $17,000 to $123,000 for the three months ended September 30, 1999
from $106,000 for the three months ended September 30, 1998.

         NET INCOME - The Company had a net income of approximately $30,000 for
the three months ended September 30, 1999 as compared with net income of $24,000
for the three months ended September 30, 1998.

SIX MONTHS ENDED SEPTEMBER 30, 1999 VERSUS SIX MONTHS ENDED SEPTEMBER 30, 1998

         NET REVENUES - Net revenues decreased by approximately $194,000 or 2.2%
to $8,671,000 for the six months ended September 30, 1999 from $8,865,000 for
the six months ended September 30, 1998. The decrease in net revenues was
primarily attributable to certain external factors that continued to impact the
Company including, additional reductions in the oxygen reimbursements rates as a
result of the Budget Act, reductions in reimbursement rates by certain third
party payors and a reduction in referral based business.

         COST OF NET REVENUES - Cost of net revenues increased by approximately
$5,000 or 0.2% to $3,624,000 for the six months ended September 30, 1999 from
$3,619,000 for the six months ended September 30, 1998. Cost of net revenues
increased as a percentage of net revenues to 41.8% for the six months ended
September 30, 1999 from 40.8% for the six months ended September 30, 1998. The
decrease in cost of net revenues as a percentage of net revenues for the period
ended September 30, 1999 is primarily attributable to increases in sales of
medical supplies which have a higher product cost and rental depreciation
expense.


                                       12
<PAGE>   14
                  COMMUNITY CARE SERVICES, INC. AND SUBSIDIARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

         SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and
administrative expenses decreased by approximately $527,000 or 12.3% to
$3,769,000 for the six months ended September 30, 1999 from $4,296,000 for the
six months ended September 30, 1998, and also decreased as a percentage of net
revenues to 43.5% from 48.5%. The reduction in selling, general and
administrative expenses is primarily attributable to cost reduction programs and
a reduction in personnel. Included in selling, general and administrative for
the six months ended September 30, 1999 and 1998, is approximately $9,000 and
$37,000, respectively, of legal expenses related to the investigation by the U.
S. Department of Justice (See Note D).

         PROVISION FOR DOUBTFUL ACCOUNTS - The Company recorded a provision for
doubtful accounts of approximately $568,000 for the six months ended September
30, 1999 as compared with $430,000 for the six months ended September 30, 1998.

         MERGER EXPENSE - The Company also incurred approximately $170,000 of
professional fees related to the Merger for the six month period ended September
30, 1999.

         OPERATING INCOME - The Company generated operating income of
approximately $333,000 for the six months ended September 30, 1999 as compared
to an operating income of $321,000 for the six months ended September 30, 1998.

         INTEREST EXPENSE, NET - Interest expense, net increased by
approximately $16,000 to $230,000 for the six months ended September 30, 1999
from $214,000 for the six months ended September 30, 1998.

         NET INCOME - The Company had a net income of approximately $58,000 for
the six months ended September 30, 1999 as compared with net income of $69,000
for the six months ended September 30, 1998.

LIQUIDITY AND CAPITAL RESOURCES

         Working capital decreased to a deficiency of approximately $863,000 at
September 30, 1999 from working capital deficiency of $1,562,000 at March 31,
1999. The current ratio increased to $.86 at September 30, 1999 from $.79 at
March 31, 1999.

         Net cash provided by operating activities was approximately $902,000
for the six months ended September 30, 1999 compared with net cash provided by
operating activities of approximately $1,581,000 for the six months ended
September 30, 1998. The decrease of approximately $679,000 was primarily
attributable to the increase in accounts receivable, inventory, and decreases in
accounts payable and accrued expenses.

         Net cash used in investing activities was approximately $184,000 for
the six months ended September 30, 1999, compared with approximately $755,000
for the six months ended September 30, 1998. The decrease of approximately
$571,000 is primarily attributable to a reduction in the acquisition of
equipment.


                                       13
<PAGE>   15
                  COMMUNITY CARE SERVICES, INC. AND SUBSIDIARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

         Net cash used in financing activities was approximately $667,000 for
the six month ended September 30, 1999, compared with net cash used in financing
activities of approximately $585,000 for the six months ended September 30,
1998. The increase of approximately $82,000 was primarily attributable to a
decrease in borrowings by the Company.

         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. Certain accounts receivable frequently are outstanding
for more than 90 days.

         Recently there has been consolidation within the New York Metropolitan
area in the industry in which the Company operates. Such recent consolidation
may limit the Company's ability to maintain or increase its market share and
could materially adversely affect its business, results of operations and
financial condition.

          The Company currently has a $2,800,000 line of credit with the Bank of
New York with interest payable at the prime rate. As of September 30, 1999,
approximately $2,500,000 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
until the uncertainty surrounding the Federal Investigation of the Company is
completed (See Note D). The Bank has transferred the administration of the
credit facility within the Bank to its Asset Recovery Department.

         The Company believes that internally generated funds will provide
sufficient liquidity and enable it to meet its currently foreseeable working
capital requirements for at least the next twelve months. However, the Company
may need to obtain additional financing to continue its operations. There can be
no assurance that additional financings 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. Furthermore, as indicated above, if in
connection with the Federal Investigation, the Company is found to have engaged
in criminal wrongdoing and/or is terminated as a Medicaid and Medicare provider,
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.

SEASONALITY

         The Company generally has not experienced seasonal fluctuation.


                                       14
<PAGE>   16
                  COMMUNITY CARE SERVICES, INC. AND SUBSIDIARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

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.

IMPACT OF THE YEAR 2000 ISSUE

         The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruption of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.

         The Company determined that it would be required to replace or update
significant portions of its software and hardware so that its computer systems
will properly utilize dates beyond December 31, 1999. The company completed its
hardware update in April 1999. The Company presently believes that with the
addition of new software, the Year 2000 Issue will be remedied. The Company is
in the process of completing its software updates. However, if such replacement
is not made, or is not completed in a timely manner, the Year 2000 Issue could
have a material impact on the operations of the Company.

         The Company has developed a contingency plan for the Year 2000 Issue.

         The Company has inquired with of its significant suppliers and large
customers to determine the extent to which the Company is vulnerable to those
parties' failure to remedy their own Year 2000 Issue. The Company's total Year
2000 project cost and estimates to complete include the estimated costs and time
associated with the impact of relevant other parties' Year 2000 Issue, and are
based on presently available information. However, there can be no guarantee
that the systems of other companies on which the Company's systems rely will be
timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would not have a
material adverse effect on the Company.

                  The Company has and will continue to utilize both internal and
external resources to develop and test the software on its systems. The Company
is in the process of completing its implementation. The total cost of the year
2000 project and other hardware and software updates is estimated at $1,057,000
and is being funded by a master lease agreement and from operations. To date,
the Company has incurred costs of $997,000 related to its Year 2000 compliance
efforts.


                                       15
<PAGE>   17
                  COMMUNITY CARE SERVICES, INC. AND SUBSIDIARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

         The cost of the project and the date on which the Company plans to
complete the project are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
plans. Specific factors that might cause such material differences include, but
are not limited to, the availability and cost of personnel trained in this area.


                                       16
<PAGE>   18
                  COMMUNITY CARE SERVICES, INC. AND SUBSIDIARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


PART II - OTHER INFORMATION

ITEM 1   - LEGAL PROCEEDINGS
Information concerning legal matters in incorporated by reference from Part I,
Note D 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

(a)      Exhibits
None

(b)      Reports on Form 8-K
         None.


                                       17
<PAGE>   19
                  COMMUNITY CARE SERVICES, INC. AND SUBSIDIARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                                   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.



                                        COMMUNITY CARE SERVICES, INC.
                                  --------------------------------------------
                                                (Registrant)

Date:  November 15, 1999                      /s/ Saverio D. Burdi
                                    -----------------------------------------
                                               Saverio D. Burdi,
                                            Chief Operating Officer

Date:  November 15, 1999                      /s/ Elia C. Guarneri
                                    -----------------------------------------
                                               Elia C. Guarneri,
                                             Chief Financial Officer
                                    Principal Financial & Accounting Officer


                                       18