COMMUNITY CARE SERVICES INC, 424B1, 1996-10-23

COMMUNITY CARE SERVICES INC
424B1, 1996-10-23
HOME HEALTH CARE SERVICES

Previous: WILLOWBRIDGE STRATEGIC TRUST, POS AM, 1996-10-23

Next: FIRSTPLUS INVESTMENT CORP, 8-K, 1996-10-23

<PAGE>

Pursuant To Rule 424B1
File No.: 333-1700
PROSPECTUS

LOGO

COMMUNITY CARE SERVICES, INC.
1,300,000 Shares of Common Stock, $.01 par value
1,300,000 Class A Warrants

Community Care Services, Inc. (the "Company") is hereby offering 1,300,000
shares of Common Stock, $.01 par value of the Company (the "Common Stock")
and 1,300,000 Class A warrants each to purchase one share of Common Stock at
an exercise price of $6.00 per share (the "Class A Warrant") (the
"Offering"). The Class A Warrants are also referred to as the "Warrants". The
Warrants are exercisable for a period of five years commencing two years from
the effective date of the Offering (the "Effective Date"). The exercise price
of the Warrants is subject to adjustment in certain events pursuant to the
anti-dilution provisions thereof. Prior to this Offering, there has been no
public market for the Common Stock or the Warrants, and there can be no
assurance that a public market for such securities will develop or be
sustained on completion of the Offering. See "Risk Factors." The Common Stock
and Warrants have been approved for quotation on The Nasdaq SmallCap Market
under the proposed symbols -- CCSE and CCSEW, respectively. The offering
price has been determined by negotiations between Maidstone Financial, Inc.
(the "Representative"), as representative of the several underwriters named
herein (the "Underwriters") and the Company, and does not necessarily bear
any relationship to any recognized criteria of value. See "Underwriting" for
a discussion of the factors considered in determining the initial public
offering price.

The Warrants are redeemable, in whole or in part, at a price of $.05 per
Warrant commencing two years from the Effective Date and prior to their
expiration, provided that (i) prior written notice of not less than 30 days
is given to the Warrantholders; (ii) the closing high bid price per share of
the Common Stock, or the last sale price per share if listed on a national
exchange, for the 20 consecutive trading days ending on the third business
day prior to the date on which the Company gives notice, has been at least
$8.00 for the Class A Warrants, subject to adjustment for certain events; and
(iii) Warrantholders shall have the exercise rights until the close of the
business day preceding the date fixed for redemption. See "Description of
Securities -- Warrants."

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND "DILUTION" ON PAGES SIX AND
FIFTEEN, RESPECTIVELY, OF THIS PROSPECTUS.

------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
Underwriting Discounts
Price to Public and Commissions (1) Proceeds to Company (2)
------------------- -------------------------- -------------------------
<S> <C> <C> <C>
Per Share of Common Stock .... $ 5.10 $ .459 $ 4.641
Per Class A Warrant .......... $ .10 $ .009 $ .091
Total(3) ..................... $6,760,000 $ 608,400 $ 6,151,600
</TABLE>
- ------
(1) Excludes additional compensation to be received (a) by the Underwriters
in the form of Warrants to purchase 130,000 shares of Common Stock and
130,000 Class A Warrants and exercisable for a period of four years
commencing one year from the date of this Prospectus at $8.42 per share
of Common Stock and $.165 per Warrant; (b) by the Representative in the
form of a non-accountable expense allowance of $202,800, or $233,220 if
the Underwriters exercise the over-allotment option in full; and (c) by
the Representative in the form of a 36-month consulting agreement for an
aggregate payment of $104,600 payable in full at the closing of this
Offering. The underwriting agreement between the Company and the
Underwriters (i) provides for indemnification of the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended and (ii) gives the Representative the right to appoint a
designee to attend all meetings of the Board of Directors for a period of
no less than three years following the closing of this offering. See
"Underwriting."

(2) Before deducting offering expenses payable by the Company estimated at
$483,000, excluding the Underwriters' non-accountable expense allowance
and consulting fees.

(3) The Company has granted the Underwriters a 30-day option to purchase up
to 195,000 additional shares of Common Stock and/or 195,000 Class A
Warrants solely to cover over-allotments (the "Over-Allotment Option").
If the Over-Allotment Option is exercised in full, the Price to Public,
<PAGE>

Underwriting Discounts and Commissions, and Proceeds to Company will be
$7,774,000, $699,660 and $7,074,340. See "Underwriting."

The shares of Common Stock and Class A Warrants are offered on a "firm
commitment" basis by the Underwriters named herein, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, subject to
approval of certain legal matters by the counsel for the Underwriters. The
Underwriters reserve the right to withdraw, cancel or modify the Offering and
to reject any order in whole or in part. It is expected that delivery of
certificates representing the shares of Common Stock and Warrants will be
made against payment therefor at the offices of Maidstone Financial, Inc.,
101 E. 52nd Street, New York, New York 10022 on or about October 25, 1996.

------

LOGO Maidstone Financial, Inc. LOGO THE HARRIMAN GROUP INC.

The date of this Prospectus is October 18, 1996.

<PAGE>

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMPANY'S SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.

The Company intends to furnish to its shareholders annual reports
containing audited financial statements examined by its independent auditors.
In addition, the Company may furnish to its shareholders quarterly or
semi-annual reports containing unaudited financial information and such other
interim reports as the Company may determine.

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus and should be read in conjunction with the
section entitled "Risk Factors." Unless otherwise indicated, all financial
and other information contained in this Prospectus (i) reflects the
2.2-for-one stock dividend effected by the Company in August 1996, (ii)
reflects the exchange of 1,441,666 shares of Common Stock for 2,883,332 Class
A Warrants effected in August 1996 and (iii) assumes that the Over-Allotment
Option has not been exercised.

THE COMPANY

COMMUNITY CARE SERVICES, INC. (the "Company") is a provider of an
extensive variety of home health care products and services, medical
equipment and disposable medical supplies primarily in the five boroughs of
New York City, and Westchester, Rockland, and Nassau Counties, New York, as
well as northern New Jersey and southern Connecticut. The Company's equipment
and products are generally used for acute (short term) and long term medical
care, and respiratory, rehabilitative and wound care therapies.

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 for patients. The Company then supplies and delivers the
necessary medical products and equipment to the patients' homes. The Company
works with physicians, discharge planners, case/utilization managers, social
workers, nurses, patients and family members to identify the home care
products and equipment that are appropriate and cost effective, given the
patients' diagnosis, for care, treatment and recovery at home. The Company
has developed a diagnostic centered program pursuant to which its personnel
is educated about the various needs of, and appropriate products for,
patients with particular diseases such as cancer, AIDS or Alzheimer's
disease, among others, and for particular classes of patients such as the
developmentally disabled and hospice patients. The Company sells or rents, as
appropriate, the relevant equipment and/or supplies to the patient, with
payment generally received from Medicare, Medicaid, a private insurer and to
a lesser extent, the patients themselves. See "Risk Factors -- Dependence
Upon Third Party Reimbursement" and "Business -- Government Regulation and
Reimbursement". The Company is accredited with commendation by the Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO"), a private
not-for-profit organization which surveys and evaluates hospitals and health
care organizations. A team of JCAHO experts surveys an organization every
three years in accordance with established standards to determine its
accreditation status, which ranges from a rating with commendation, the
highest standard, to no accreditation, the lowest standard.

The Company's objective is to become a leading regional provider of
comprehensive home health care equipment and products in the metropolitan New
York/New Jersey/Connecticut tri-state region. The Company's strategy to
achieve this objective is focused on continuing to provide to patients and
referral sources an integrated program of equipment, products and services,
while ensuring the highest quality delivery and set-up of medical equipment
and products. The specific areas of growth that the Company intends to target
are (i) increasing sales of basic medical equipment and disposable medical
supplies it currently offers to customers; (ii) adding additional product
lines for high growth markets, such as orthotics, mastectomy supplies and
specialized wound care products; and (iii) aggressively expanding its
position as a supplier of choice for home health care products to health
maintenance organizations ("HMOs"), preferred provider organizations
("PPOs"), and other managed care organizations and medical providers in the
tri-state region. The Company has recently experienced growth in the medical
supplies portion of its business since becoming a provider of disposable
medical supplies for the largest certified home health care agency in New
York.

The Company anticipates continued growth in the home health care market
generally due to the increasing emphasis on cost effective medical treatment,
the "Greying of our Society" and continuing advances in medical technology,
although there can be no assurance as to any such growth or advances.

3
<PAGE>

The Company intends to seek out regional acquisition opportunities that
are compatible with the Company's product lines and services. The Company has
not identified any specific acquisitions and there can be no assurance that
the Company will effect any acquisitions.

The Company was incorporated in the State of New York in July 1992 and
acquired certain assets of Adam Health Care Equipment Corp. ("Adam"), a New
York based durable medical equipment and supply company, in April 1993. The
Company acquired the assets for cash and notes totaling $1,500,000.
Approximately $450,000 was paid at or prior to the closing of the acquisition
and the balance was payable in installments through March 31, 1995. The
Company has not paid the balance and is seeking rescission of the obligation.
See "Risk Factors -- Pending Litigation; Potential Adverse Impact of
Counterclaims" and "Business -- Legal Proceedings". The principal executive
offices of the Company are located at 18 Sargent Place, Mount Vernon, New
York 10550 and its telephone number is (914) 665-9050.

THE OFFERING

Securities Offered by the
Company...................... 1,300,000 shares of Common Stock(1)
1,300,000 Class A Warrants(1)

Common Stock Outstanding Before
the Offering................. 4,730,000 shares

Common Stock to be Outstanding
After the Offering........... 6,030,000 shares (2)

Class A Warrants to be
Outstanding After the
Offering .................... 5,458,332

Use of Proceeds................ The proceeds of this Offering will be used
for expanded marketing efforts;
technological upgrades; development of an
independent rehabilitation division;
repayment of loans in an aggregate amount of
$255,409, of which $135,409 will be paid to
Dean L. Sloane, a director of the Company;
repayment of 8% promissory notes in the
aggregate principal amount of $937,500; and
working capital purposes. See "Use of
Proceeds."

Risk Factors and Dilution...... An investment in the securities offered
hereby is highly speculative and involves
substantial dilution. Prospective investors
should consider carefully the factors set
forth under "Risk Factors" and "Dilution."

Nasdaq Symbols(3)
Common Stock................. CCSE
Warrants .................... CCSEW

Boston Stock Exchange
Symbols(3)
Common Stock ................ CYS
Warrants..................... CYS.WS

- ------
(1) Does not include 220,000 shares of Common Stock and 4,158,332 Class A
Warrants being offered concurrently with this Offering by selling
securityholders pursuant to a Selling Securityholders' Prospectus.

(2) Does not include (i) 130,000 shares of Common Stock and 130,000 Warrants
issuable upon exercise of the Underwriters' Warrants, (ii) 195,000 shares
of Common Stock and 195,000 Class A Warrants which may be issued upon
exercise of the Over-Allotment Option, (iii) 5,783,332 shares subject to
exercise of all Class A Warrants and (iv) 28,000 shares of Common Stock
issuable upon exercise of outstanding options. See "Underwriting."

4
<PAGE>

(3) Quotation on The Nasdaq SmallCap Market and listing on the Boston Stock
Exchange does not imply that a liquid and active market will develop, or
be sustained, for the securities upon completion of the Offering.

SUMMARY FINANCIAL INFORMATION

</TABLE>

<TABLE>
<CAPTION>
March 31, June 30, 1996 (1)
------------ -------------------------------
1996 As
Actual Actual Adjusted (2)
----------- ------------- -------------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) $ (978,683) $ (907,611) $ 3,853,161
Total assets 5,467,115 5,689,676 10,199,567
Total long-term debt 931,512 883,283 0
Total shareholders' equity 103,764 229,352 5,622,526

</TABLE>

- ------
(1) Gives effect to (i) the exchange of 1,441,666 shares of Common Stock for
2,883,332 Class A Warrants and (ii) the 2.2-for-one stock dividend
effected by the Company in August 1996.

(2) Gives effect to the 1,300,000 shares of Common Stock and 1,300,000 Class
A Warrants offered hereby and the application of the estimated net
proceeds therefrom.

5
<PAGE>

RISK FACTORS

THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND SHOULD BE PURCHASED
ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT IN THE
COMPANY. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS, AS WELL AS ALL OTHER INFORMATION SET FORTH ELSEWHERE IN THIS
PROSPECTUS.

1. History of Operating Losses. From the acquisition of the assets of Adam
in April 1993 through the end of the 1995 fiscal year, the Company had
sustained ongoing losses. The Company had an accumulated deficit of $699,281
and $271,356 from inception through March 31, 1995 and March 31, 1996,
respectively. For the fiscal year ended March 31, 1995, the Company had a net
loss of $322,691, a shareholders' deficit of $649,281 and a working capital
deficit of $1,523,640. For the fiscal year ended March 31, 1996, the Company
had net income of $427,925, shareholders' equity of $103,764 and a working
capital deficit of $978,683. As of June 30, 1996, the Company had a
shareholder's equity of $229,352 and a working capital deficit of $907,611.
There can be no assurance as to the future profitability of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

2. Dependence Upon Third Party Reimbursement. Virtually all of the
Company's revenues are attributable to payments received from third-party
payors, including the Medicare and Medicaid programs and private insurers.
For the three months ended June 30, 1996, 32.3% and 29.6% of the Company's
revenues were derived from Medicare and Medicaid, respectively and for the
fiscal year ended March 31, 1996, 35.4% and 36.4% of the Company's revenues
were derived from Medicare and Medicaid programs, respectively. The revenues,
cash flows and profitability of the Company, like those of other companies in
the health care industry, are affected by the continuing efforts of
third-party payors to control expenditures for health care. In addition,
reimbursement can be influenced by the financial instability of private
third-party payors and by budget pressures and cost shifting by governmental
payors. A reduction in coverage or reimbursement rates by third-party payors
could have a material adverse effect on the Company's results of operations.
Additionally, the third party payors generally do not make payments until
75-90 days after invoicing. See "Business -- Government Regulation and
Reimbursement."

3. Reliance on Key Sources of Referral. During the three months ended June
30, 1996, the Company's five largest sources of referral, the Visiting Nurse
Service of New York -- Manhattan, the Visiting Nurse Service of New York --
Bronx, the Visiting Nurse Service -- Queens, the Visiting Nurse Service --
Brooklyn and Wyckoff Hospital accounted for approximately 28.8%, 16.3%,
13.8%, 7.7% and 4.4%, respectively, of the Company's total revenues. During
the fiscal year ended March 31, 1996, the Visiting Nurse Service --
Manhattan, the Visiting Nurse Service -- Bronx, Wyckoff Hospital, the
Hospital for Joint Diseases and the Visiting Nurse Service -- Queens
accounted for 18.4%, 12.4%, 9.2%, 6.7% and 5.5%, respectively, of the
Company's total revenues. For the three months ended June 30, 1996, the four
borough offices of the Visiting Nurse Service of New York ("VNS")
collectively accounted for 66.6% of the Company's revenues. Each of the VNS
offices in Brooklyn, Queens, Manhattan and the Bronx place orders separately.
However, if the parent office of VNS were to eliminate the Company as a
provider, the Company could experience a material adverse effect on its
business. The loss of, or decrease in, business generated by any of its major
sources of referral could have a material adverse effect on the Company's
business. Although the Company has entered into agreements with various
providers which govern the terms of reimbursement, the Company does not have
any long term purchase orders but receives its purchase orders on an
individual basis. See "Business -- Marketing Programs."

4. Government Regulation; Medicaid and Medicare Reimbursement;
Anti-Kickback Laws. Health care in the U.S. is subject to laws and
regulations of federal, state and local governments. The failure to obtain,
renew or maintain required regulatory approvals or licenses, if any, could
adversely affect the Company's business, and could prevent it from offering
any or all of its products or services to patients. The Company is not
currently subject to any material regulatory approvals or licenses. If the
Company fails to comply with governmental requirements pertaining to Medicaid
and Medicare reimbursements, the Company can be terminated as a Medicaid and
Medicare service provider. This could jeopardize the ability of the Company
to maintain reimbursement from other programs. There can be no assurance that
federal, state or local laws or regulations will not be adopted which could
increase the Company's cost of doing business, reduce reimbursement levels or
otherwise have a material adverse effect on the Company's business, financial
condition or operating results. See "Business -- Government Regulation and
Reimbursement."

6
<PAGE>

As suppliers of services under the Medicare and Medicaid programs, the
Company is also subject to Medicare and state health care program
anti-kickback laws. These laws generally prohibit any remuneration for the
referral of Medicare or Medicaid patients. Proposed federal legislation
expands the anti-kickback laws to include referrals of any patients
regardless of payor source. Violations of the anti-kickback laws may result
in civil and criminal penalties and exclusion from participation in the
Medicare and state health programs such as Medicaid.

5. Pending Litigation; Potential Adverse Impact of Counterclaims Against
the Company. In 1993, the Company commenced an action against Adam and its
principals in the Supreme Court of the State of New York, County of
Westchester. The action arises out of the acquisition of certain assets of
Adam by the Company in April 1993. The complaint alleges that the defendants
made numerous misrepresentations relating to the business previously
conducted by Adam. The complaint seeks recovery of damages of $1,500,000,
additional punitive damages, the reduction of the original purchase price or
rescission of the original purchase agreement. The defendants have asserted
counterclaims against the Company. The counterclaims seek the payment of the
unpaid purchase price of $1,050,000 and collection expense of over $175,000.
Defendants also allege various additional causes of action, claiming
plaintiffs converted or interfered with the collection of property owned or
due to defendants and seek damages of over $7,000,000, including $5,000,000
in punitive damages. The Company believes it has meritorious defenses to the
counterclaims. However, there can be no assurance that the Company will be
successful in recovering damages for its claims or in defending itself
against the counterclaims. A judgment against the Company as a result of the
counterclaims could have a material adverse effect on its business. The
action is still in its final pre-trial stages and the Company expects a trial
date to be set shortly. See "Business -- Legal Proceedings."

6. Immediate and Substantial Dilution. This Offering involves an immediate
and substantial dilution to investors. Purchasers of shares of Common Stock
in the Offering will incur an immediate dilution of $4.32 per share in the
net tangible book value of their investment from the initial Offering price,
which dilution amounts to approximately 83% of the initial Offering price per
share of Common Stock. Investors in the offering will pay $5.20 per share of
Common Stock (giving effect to the aggregate offering price per share of
Common Stock and Class A Warrant), as compared with an average cash price of
$.01 per share of Common Stock paid by existing shareholders. See "Dilution."

7. Competition. The home health care market is highly competitive and
includes a large number of providers. Some of the Company's current and
potential competitors have, or may obtain, significantly greater financial
and marketing resources than the Company. There are relatively few barriers
to entry in the local markets that the Company serves. Other companies,
hospitals and health maintenance organizations ("HMOs") have entered the home
health care market in the past and others may do so in the future. There can
be no assurance that the Company will not encounter increased competition in
the future that could limit its ability to maintain or increase its market
share. Such increased competition could have a material adverse effect on the
Company's business and results of operations. See "Business -- Competition."

8. Potential Liability; Adequacy of Insurance Coverage. Participants in
the home health care market are subject to lawsuits alleging negligence,
product liability or other similar legal theories, many of which involve
large claims and significant defense costs. Although the Company currently
maintains liability insurance intended to cover such claims, there can be no
assurance that the coverage limits of such insurance will be adequate or that
all such claims will be covered by the insurance. In addition, such insurance
policies must be renewed annually. Such insurance varies in cost, is
difficult to obtain and may not be available in the future on acceptable
terms, if at all. A successful claim in excess of the insurance coverage
could have a material adverse effect on the Company's business and results of
operations. Claims, regardless of their merit or eventual outcome, may also
have a material adverse effect upon the Company's reputation. See "Business
- -- Insurance."

9. Dependence on Key Personnel; Experience of Management. There are only
two executive officers of the Company. The Company is dependent on the
continued services of Alan T. Sheinwald, the Company's President and Chief
Executive Officer and Allan Goldfeder, the Company's Chief Operating Officer.
If such executive officers were to leave the Company, its operating results
could be adversely affected. Following this Offering, there can be no
assurance that, if the Company grows, the current management team will be
able to continue to adequately manage the Company's affairs. Further, there
can be no assurance that the Company will be able to identify and hire
additional qualified managers on terms economically feasible for the Company.
See "Management -- Directors, Executive Officers and Key Employees."

7
<PAGE>

10. Control by Current Shareholders and Management. Upon completion of
this Offering, the current shareholders of the Company will beneficially own
78.44% of the outstanding shares of Common Stock. The Company's directors and
executive officers and their affiliates will control approximately 76.92% of
the outstanding shares of Common Stock. As a result, these shareholders will
be able to determine the outcome of certain corporate actions requiring
shareholder approval, and will be able to elect the Board of Directors of the
Company. Such concentration of ownership may have the effect of preventing a
change in control of the Company. See "Dilution," "Principal Shareholders"
and "Description of Securities."

11. Broad Discretion in Application of Proceeds; Unspecified Acquisitions.
Approximately 58.5% of the net proceeds of this Offering, or $3,134,291, will
be applied to working capital and general corporate purposes. In addition,
the Company may utilize a portion of the net proceeds of this Offering
currently allocated to working capital for potential acquisitions. As of the
date of this Prospectus, the Company has not identified any particular
acquisition targets. Shareholders of the Company may have no opportunity to
approve specific acquisitions or to review the financial condition of any
potential target. Accordingly, management of the Company will have broad
discretion over the use of proceeds. See "Use of Proceeds."

12. Shareholder Inability to Review and Vote on Any Unspecified
Acquisitions. Pursuant to New York Corporate law, the Company's Board of
Directors has the authority to approve unspecified acquisitions to be made by
the Company. Such acquisitions are not subject to review or voting by the
shareholders of the Company.

13. Benefits to Affiliates. Certain of the Company's shareholders and
former shareholders and their affiliates have made loans to the Company in an
aggregate principal amount equal to $255,409. The Company intends to use the
proceeds of this Offering to repay these loans as follows: $135,409 to Dean
L. Sloane, a director and shareholder of the Company; $15,000 to each of
Manuel N. Wilson and Wade Wilson, former shareholders; and $90,000 to At Home
Health Care Supplies, Inc., an affiliate of two former shareholders of the
Company. See "Use of Proceeds."

14. Repayment of Debt. Approximately 12.4% of the proceeds of this
Offering, or $667,500, will be used to repay 8% promissory notes issued by
the Company in connection with a private placement in January 1996. In
addition, approximately 5.7% of the proceeds of this Offering, or $304,000,
will be used to pay 8% promissory notes issued by the Company in August and
September, 1996 to fund its operating expenses. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources."

15. No Dividends and None Anticipated. To date, no dividends have been
declared or paid on the Common Stock, and the Company does not anticipate
declaring or paying any dividends in the foreseeable future, but rather
intends to reinvest profits, if any, in its business. Investors should,
therefore, be aware that it is unlikely that any dividends will be paid on
the Common Stock in the foreseeable future. See "Dividend Policy."

16. Lack of Market; Possible Volatility of Stock Price; Arbitrary
Determination of Offering Price. Prior to this Offering, there has been no
public market for the Company's Common Stock or Warrants, and there can be no
assurance that an active market in any securities of the Company will develop
or be sustained after this Offering. In the absence of an active public
trading market, an investor may be unable to liquidate his or her investment.
The price of the shares of Common Stock and Class A Warrants being offered
hereby, and the exercise price and other terms of the Warrants, were
determined by negotiations between the Company and the Underwriters and are
not necessarily related to the Company's assets, earnings, book value per
share, its results of operations or any other generally accepted criteria of
value and should not be construed as indicative of their value. See
"Underwriting."

The stock market has, from time to time, experienced significant price and
volume fluctuations that may be unrelated to the operating performance of any
particular company. In addition, the market prices of the securities of many
publicly-traded companies in the health care industry have in the past been,
and in the future can be expected to be, especially volatile. Various factors
and events, including future announcements of new services or products
offered by the Company or its competitors, developments or disputes
concerning, among other things, regulatory developments in the United States,
and economic and other external factors, as well as fluctuations in the
Company's financial results, could have a significant impact on the market
price of the Company's securities.

17. Concurrent Offering by Selling Securityholders; Potential Adverse
Impact on Price and Liquidity. Concurrently with this Offering, the Company
is registering for sale an aggregate of 220,000 shares of Common

8
<PAGE>

Stock and 4,158,332 Class A Warrants owned by the Selling Securityholders.
Such Selling Securityholders holding Warrants have entered into an agreement
with the Representative not to sell their Warrants for a period of two years
from the Effective Date without the Representative's prior written consent.
Selling Securityholders owning shares of Common Stock have entered into an
Agreement with the Representative not to sell their shares for a period of 18
months from the Effective Date without the Representative's written consent.
The Company anticipates that certain Selling Securityholders may request a
release from their lock up agreements. The Representative has the discretion
to release such lock-ups and has indicated that its decision to grant such
consent will be dependent on market conditions. The sale of such securities
could have an adverse effect on the market price and liquidity of the
Company's securities.

18. Shares Eligible for Future Sale. Of the 4,730,000 shares of Common
Stock of the Company outstanding as of the date of this Prospectus, 4,638,334
shares are "restricted securities," which are owned by "affiliates" of the
Company, as those terms are defined in Rule 144 promulgated under the
Securities Act.

Absent registration under the Securities Act, the sale of such "restricted
securities" is subject to Rule 144, as promulgated under the Securities Act.
In general, under Rule 144, subject to the satisfaction of certain other
conditions, a person, including an affiliate of the Company, who has
beneficially owned restricted shares of Common Stock for at least two years
is entitled to sell in brokerage transactions, within any three-month period,
a number of shares that does not exceed the greater of 1% of the total number
of outstanding shares of the same class, or if the Common Stock is quoted on
The Nasdaq SmallCap Market or a stock exchange, the average weekly trading
volume during the four calendar weeks preceding the sale. Rule 144 also
permits a person who presently is not and who has not been an affiliate of
the Company for at least three months immediately preceding the sale and who
has beneficially owned the shares of Common Stock for at least three years to
sell such shares without regard to any of the volume limitations as described
above.

Also being registered for sale pursuant to the Selling Securityholders'
Prospectus are 220,000 shares of Common Stock and 4,158,332 Class A Warrants
and the shares underlying such Warrants. All of the Company's existing
shareholders have agreed not to sell or otherwise dispose of any of their
warrants or shares of Common Stock now owned or issuable upon the exercise of
currently exercisable warrants for a period of 24 months from the date of
this Prospectus, without the prior written consent of the Representative,
except for the shareholders owning the 220,000 shares listed in the Selling
Securityholders' Prospectus who have agreed not to sell or otherwise dispose
of any of their shares for a period of 18 months from the date of this
Prospectus without the prior written consent of the Representative. The
Representative may release any shareholder from the "lock-up" agreement,
although not prior to the exercise or expiration of the Over-Allotment
Option. No prediction can be made as to the effect, if any, that sales of
shares of Common Stock or the availability of such shares for sale will have
on the market prices of the Company's securities prevailing from time to
time. The possibility that substantial amounts of Common Stock may be sold
pursuant to the Selling Securityholders' Prospectus or under Rule 144 into
the public market may adversely affect prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital in the
future through the sale of equity securities. See "Shares Eligible for Future
Sale."

19. Potential Adverse Effect of Future Issuances of Authorized Preferred
Stock. The Company's Certificate of Incorporation authorizes the issuance of
serial preferred stock with such designations, rights and preferences as may
be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue
preferred stock, with such rates of dividends, redemption provisions,
liquidation preferences, voting rights, conversion privileges and other
characteristics as the Board of Directors may deem necessary. Such preferred
stock, if issued, could adversely affect the holders of the Common Stock. In
addition, the preferred stock could discourage, delay or prevent a takeover
of the Company. The Company has no present intention to issue any shares of
Preferred Stock. See "Description of Securities."

20. Dilutive Effect of Underwriters' Warrant and other Options. Upon
completion of this Offering, the Company will sell to the Underwriters a
Warrant to purchase up to 130,000 shares of Common Stock and Warrants, at a
price per share of Common Stock or Warrant equal to 165% of the initial
public Offering price of the shares of Common Stock and Warrants. The
Underwriters' Warrant will be exercisable at any time during the four-year
period commencing one year from the Effective Date of this Offering. As of
the date of this Prospectus, there are outstanding Warrants to purchase an
aggregate of 4,158,332 shares of Common Stock and options

9
<PAGE>

to purchase an aggregate of 28,000 shares of Common Stock. If the
Underwriters' Warrant and the outstanding Warrants and options are exercised,
the percentage of Common Stock then held by the existing shareholders will be
reduced. The Underwriters' Warrant and the outstanding Warrants and options
can be expected to be exercised at a time when the Company would be able to
obtain funds from the sale of Common Stock or other securities at a price
higher than the exercise price thereof. See "Underwriting."

21. Need for Additional Financing. The Company believes that the proceeds
of the Offering will be sufficient to finance the Company's working capital
requirements for a period of at least 12 months following the completion of
this Offering. However, the Company is required to maintain a high level of
inventory relative to its business, and accounts receivable are paid
primarily by third party payors who do not generally make payments until
75-90 days after invoicing. A greater than anticipated increase in volume may
require the Company to seek additional financing during such periods. In
addition, the Company's strategy is to acquire companies with related and
complementary businesses, although the Company has not presently identified
any specific acquisitions. The Company may require financing in connection
with acquisitions. The Company could also require financing if the defendants
in the Adams litigation prevailed in their counterclaims. There can be no
assurance that additional financing will be available on terms acceptable to
the Company, or at all. In addition, for a period of two years following the
Effective Date, the Company cannot issue shares of Common Stock (other than
pursuant to the 1996 Stock Option Plan) without the Representative's Consent
which consent may not be unreasonably withheld. Such limitation may adversely
affect the Company's ability to obtain financing. See "Underwriting." In the
event that the Company is unable to obtain such additional financing as it
becomes necessary, the Company will not be able to achieve all of its
business plans. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

22. The Nasdaq SmallCap Market Maintenance Requirements; Possible
Delisting of Securities from The Nasdaq SmallCap Market; Risks of Low-Priced
Stocks. Prior to this Offering, there has been no established public trading
market for the Company's securities and there is no assurance that a public
trading market for the Company's securities will develop after the completion
of this Offering. If a trading market does in fact develop for the securities
offered hereby, there can be no assurance that it will be sustained.

The Common Stock and Warrants have been approved for quotation on The
Nasdaq SmallCap Market upon the Effective Date. The Commission has approved
rules imposing criteria for listing of securities on The Nasdaq SmallCap
Market, including standards for maintenance of such listing. For continued
listing, a company, among other things, must have at least $2,000,000 in
total assets, $1,000,000 in capital and surplus and a minimum bid price of
$1.00 per share. If the Company is unable to satisfy The Nasdaq SmallCap
Market's maintenance criteria in the future, its securities may be delisted
from The Nasdaq SmallCap Market. In the event the Company's securities are
delisted from The Nasdaq SmallCap Market, and not traded on any other
exchange, trading, if any, in securities would, thereafter, be conducted in
the over-the-counter on the OTC Bulletin Board. Consequently, an investor may
find it more difficult to dispose of, or to obtain accurate quotations as to
the price of the Company's securities. Quotation on The Nasdaq SmallCap
Market does not imply that a meaningful, sustained market for the Company's
securities will develop or, if developed, that it will be sustained for any
period of time.

23. Potential Adverse Effect of Redemption of Warrants. The Warrants
offered hereby are redeemable, in whole or in part, at a price of $.05 per
Warrant, commencing two years after the Effective Date and prior to their
expiration; provided that (i) prior notice of not less than 30 days is given
to the Warrantholders; (ii) the closing high bid price if traded on Nasdaq,
or the last sale price if traded on a national exchange, per share of Common
Stock on each of the 20 consecutive trading days ending on the third business
day prior to the date on which the Company gives notice of redemption has
been at least $8.00 for the Class A Warrants; and (iii) Warrantholders shall
have exercise rights until the close of the business day preceding the date
fixed for redemption. Notice of redemption of the Warrants could force the
holders to exercise the Warrants and pay the exercise price at a time when it
may be disadvantageous for them to do so, or to sell the Warrants at the
current market price when they might otherwise wish to hold them, or to
accept the redemption price, which may be substantially less than the market
value of the Warrants at the time of redemption. The Warrants may not be
exercised unless the registration statement pursuant to the Securities Act
covering the underlying shares of Common Stock is current and such shares
have been qualified for sale, or there is an exemption from applicable
qualification requirements,

10
<PAGE>

under the securities laws of the of the state of residence of the holder of
the Warrants. Although the Company does not presently intend to do so, the
Company reserves the right to call the Warrants for redemption whether or not
a current prospectus is in effect or such underlying shares are not, or
cannot be, registered in the applicable states. Such restrictions could have
the effect of preventing certain Warrantholders from liquidating their
Warrants. See "Description of Securities -- Warrants."

24. Current Prospectus and State Blue Sky Registration Required to
Exercise Warrants. Holders of the Warrants will have the right to exercise
the Warrants for the purchase of shares of Common Stock only if a current
prospectus relating to such shares is then in effect and only if the shares
qualified for sale under the securities laws of the applicable state or
states. The Company has undertaken and intends to file and keep effective and
current a prospectus which will permit the purchase and sale of the Common
Stock underlying the Warrants, but there can be no assurance that the Company
will be able to do so. Although the Company intends to seek to qualify for
sale the shares of Common Stock underlying the Warrants in those states in
which the securities are to be offered, no assurance can be given that such
qualifications will occur. The Warrants may lose or be of no value if a
prospectus covering the shares issuable upon the exercise thereof is not kept
current or if such underlying shares are not, or cannot be, registered in the
applicable states. See "Description of Securities -- Warrants."

25. Penny Stock Regulation. In the event that the Company is unable to
satisfy the maintenance requirements for The Nasdaq SmallCap Market, trading
would be conducted on the "pink sheets' or the NASD's OTC Bulletin Board. In
the absence of the Common Stock being quoted on The Nasdaq SmallCap Market,
or the Company's having at least $2,000,000 in stockholders' equity, trading
in the Common Stock would be covered by Rule 15g-9 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), for
non-Nasdaq and non-exchange listed securities. Under such rule,
broker-dealers who recommend such securities to persons other than
established customers and institutional accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities are
exempt from this rule if the market price is at least $5.00 per share.

The Commission adopted regulations that generally define a penny stock to
be any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security
listed on Nasdaq, or an equity security issued by an issuer that has (i) net
tangible assets of at least $2,000,000, if such issuer has been in continuous
operation for three years, (ii) net tangible assets of at least $5,000,000,
if such issuer has been in continuous operation for less than three years, or
(iii) average revenue of at least $6,000,000 for the preceding three years.
Unless an exception is available, the regulations require the delivery, prior
to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the risks associated therewith.

If the Company's securities were to become subject to the regulations
applicable to penny stocks, the market liquidity for the securities would be
severely affected, limiting the ability of broker-dealers to sell the
securities and the ability of purchasers in this Offering to sell their
securities in the secondary market. There is no assurance that trading in the
Company's securities will not be subject to these or other regulations that
would adversely affect the market for such securities.

26. Relationship of Underwriters to Trading; Potential Adverse Impact on
Liquidity and Market Price of Securities. The Underwriters may act as brokers
or dealers with respect to the purchase or sale of the Common Stock and the
Warrants in the over-the-counter market where each is expected to trade. The
Representative also has the right to act as the Company's exclusive agent in
connection with any future solicitation of Warrantholders to exercise their
Warrants. Unless granted an exemption by the Commission from Rule 10b-6 under
the Exchange Act, the Representative will be prohibited from engaging in any
market-making activities or solicited brokerage activities with regard to the
Company's securities during a period beginning nine business days prior to
the commencement of any such solicitation and ending on the later of the
termination of such solicitation activity or the termination (by waiver or
otherwise) of any right the Representative may have to receive a fee for the
exercise of the Warrants following such solicitation. As a result, the
Representative and soliciting broker/dealers may be unable to continue to
make a market in the Company's securities during certain periods while the
exercise of the Warrants is being solicited. Such a limitation, while in
effect, could impair the liquidity and market price of the Company's
securities.

11
<PAGE>

27. Consulting Agreement with Representative; Obligation to Make Payment
Out of Offering Proceeds. The Company has agreed to retain the Representative
as a financial consultant for a three-year period commencing on the Effective
Date. The consulting fees are payable to the Representative upon the closing
of the Offering. See "Use of Proceeds."

28. Non-Registration in Certain Jurisdictions of Shares Underlying the
Warrants. Although the shares of Common Stock and Warrants will not knowingly
be sold to purchasers in jurisdictions in which they are not registered or
otherwise qualified for sale, purchasers may buy Warrants in the aftermarket
or may move to jurisdictions in which the shares of Common Stock issuable
upon exercise of the Warrants are not so registered or qualified during the
period that the Warrants are exercisable. In such event, the Company would be
unable to issue shares to those persons desiring to exercise their Warrants
unless and until the shares could be registered or qualified for sale in the
jurisdiction in which such purchasers reside, or an exemption to such
qualification exists or is granted in such jurisdiction. If the Company was
unable to register or qualify the shares in a particular state and no
exemption to such registration or qualification was available in such
jurisdiction, in order to realize any economic benefit from the purchase of
the Warrants, a holder might have to sell the Warrants rather than exercise
them. No assurance can be given, however, as to the ability of the Company to
effect any required registration or qualification of the Common Stock or
Warrants in any jurisdiction in which registration or qualification has not
already been completed. See "Description of Securities -- Warrants."

12
<PAGE>

USE OF PROCEEDS

The gross proceeds from the sale of shares of Common Stock and Warrants in
this Offering are estimated to be $6,760,000 and the offering expenses are
estimated to be $1,398,800 including underwriting commissions of $608,400,
the Underwriters' non-accountable expense allowance of $202,800, consulting
fees aggregating $104,600 for a 36 month consulting agreement and $483,000 of
other Offering expenses. The net proceeds to the Company from the sale of
shares of Common Stock and Warrants in this Offering are estimated to be
approximately $5,361,200 ($6,253,520 if the Over-Allotment Option is
exercised in full), after deducting the estimated underwriting discounts and
offering expenses payable by the Company. The Company intends to use the
proceeds as follows:

<TABLE>
<CAPTION>
Percentage of
Purpose Amount Net Proceeds
------- ------------- ---------------
<S> <C> <C>
Marketing ........................................... $ 250,000 4.7%
Technological upgrades(1) ........................... $ 200,000 3.7%
Development of independent rehabilitation division(2) $ 550,000 10.2%
Repayment of shareholder loans(3) ................... $ 255,409 4.8%
Repayment of 8% Notes(4) ............................ $ 971,500 18.1%
Working capital ..................................... $3,134,291 58.5%
---------- ------
Total .......................................... $5,361,200 100.0%
========== ======
</TABLE>
- ------
(1) Includes the costs of purchasing computer systems, and developing a
proprietary software system, to upgrade the Company's order taking,
accounting and billing systems.

(2) Includes the costs of staffing of, and creation of a workroom for, the
independent rehabilitation division.

(3) Includes the repayment of (i) $15,000 to each of Manuel N. Wilson and
Wade Wilson, former shareholders of the Company, (ii) $90,000 to At Home
Health Care Supplies, Inc., an affiliate of two former shareholders of
the Company, and (iii) $135,409 to Dean Sloane, a director of the
Company.

(4) Includes the repayment of principal and accrued interest pursuant to
promissory notes in the aggregate principal amount of $937,500. The
proceeds from such notes provided working capital which the Company used
to fund the expansion of its business.

The foregoing represents the Company's estimate of the allocation of the
net proceeds of the Offering, based upon the current status of its operations
and anticipated business plans. It is possible, however, that the application
of funds will differ considerably from the estimates set forth herein due to
changes in the economic climate and/or the Company's planned business
operations or anticipated complications, delays and expenses, as well as any
potential acquisitions that the Company may consummate, although no specific
acquisition has been identified. Any reallocation of the net proceeds will be
at the discretion of the Board of Directors of the Company.

Pending the foregoing uses, a portion of the net proceeds of this Offering
may be invested in certificates of deposit, United States government
obligations, prime commercial paper, money market funds or similar short-
term investments.

The Company estimates that the net proceeds from this Offering will be
sufficient to meet the Company's liquidity and working capital requirements
for a period of 12 months from the completion of this Offering. In the event
that the Company consummates any acquisition, such funds will be derived from
the funds currently allocated to working capital or from revenues generated
from the Company's operations. There can be no assurance that the Company
will generate sufficient revenues for such acquisitions. Additional working
capital financing may be required to finance the costs of the Company's
marketing and business plans. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

13
<PAGE>

DIVIDEND POLICY

The Company plans to retain any future earnings for use in its business
and, accordingly, the Company does not anticipate paying dividends in the
foreseeable future. Payment of dividends is within the discretion of the
Company's Board of Directors and will depend, among other factors, upon the
Company's earnings, financial condition and capital requirements.

CAPITALIZATION

The following table sets forth (i) the actual capitalization of the
Company at June 30, 1996 after giving effect to (x) the 2.2-for-one stock
dividend and (y) the exchange of 1,441,666 shares of Common Stock for
2,883,332 Class A Warrants, and (ii) the capitalization as adjusted to
reflect the sale of the 1,300,000 shares of Common Stock and 1,300,000 Class
A Warrants offered by the Company hereby and the application of the estimated
net proceeds therefrom. See "Use of Proceeds." This section should be read in
conjunction with the Company's financial statements and related notes
appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
June 30, 1996(1)
------------------------------
Actual As Adjusted
------------- -------------
<S> <C> <C>
Total long-term debt, excluding current portion ............................... $ 883,283 $ 0
Preferred Stock, $.01 par value; 1,000,000 shares authorized; none issued and
outstanding .................................................................. -- --
Common Stock, $.01 par value; 20,000,000 shares authorized; 4,730,000 shares
issued and outstanding; 6,030,000 shares issued and outstanding as adjusted .. $ 47,300 $ 60,300
Additional paid-in capital .................................................... $ 327,820 $5,770,994
Accumulated deficit ........................................................... $ (145,768) $ (208,768)
Total shareholders' equity ............................................... $ 229,352 $5,622,526
Total capitalization ................................................ $1,112,635 $5,622,526
</TABLE>
- ------
(1) Does not include (i) 1,275,000 shares of Common Stock reserved for
issuance upon exercise of the Company's Class A Warrants issued to the
holders of 8% Notes, (ii) 2,883,332 shares of Common Stock reserved for
issuance upon exercise of the Company's Class A Warrants, which Warrants
were issued by the Company in August 1996 in exchange for 1,441,666
shares of the Company's Common Stock, (iii) 1,300,000 shares of Common
Stock reserved for issuance upon the exercise of Class A Warrants offered
hereby, (iv) 260,000 shares of Common Stock issuable upon exercise of
Underwriters' Warrant, (v) 390,000 shares of Common Stock which may be
issued upon exercise of the Over-Allotment Option and the Warrants issued
in connection therewith and (vi) 28,000 shares of Common Stock reserved
for issuance upon exercise of outstanding options. See "Underwriting."

14
<PAGE>

DILUTION

At June 30, 1996, the Company had a net tangible book value (deficit) of
$(317,349), or $(.07) per share of outstanding Common Stock. Net tangible
book value per share represents the Company's total tangible assets less
total liabilities, divided by the number of shares of Common Stock
outstanding. After giving effect to receipt of the estimated net proceeds
from the Company's sale of 1,300,000 shares of Common Stock and 1,300,000
Class A Warrants (after deducting the estimated offering expenses), the pro
forma net tangible book value of the Company would have been approximately
$5,336,332, or approximately $.88 per share of outstanding Common Stock, at
June 30, 1996. This represents an immediate dilution of $4.32 per share, or
83%, to purchasers of Common Stock in this Offering. The following table
illustrates the per share dilution to be incurred by the public investors in
the Offering:

<TABLE>
<CAPTION>
<S> <C> <C>
Initial Offering price per Share of Common Stock(1) ........... $5.20
Net tangible book value (deficit) per share before Offering . $ (.07)
Increase per share attributable to shares offered hereby .... $ .95
------
Pro forma net tangible book value per share after Offering. ... $ .88
-----
Dilution of net tangible book value per share to new investors. $4.32
=====
</TABLE>

- ------
(1) Aggregate price per share of Common Stock and Warrant for purposes of
calculating dilution.

The following table sets forth as of June 30, 1996 the number of shares of
Common Stock purchased from the Company and the total consideration and
weighted average price per share paid by existing shareholders of the Company
and by new investors purchasing shares in this Offering, before deducting the
underwriting discount and estimated Offering expenses:

<TABLE>
<CAPTION>
Weighted
Shares Purchased Total Consideration Average Price
Number Percent Amount Percent Per Share
----------- --------- ------------ --------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1) 4,730,000 78% $ 61,000 1% $ .01
New investors(2) ........ 1,300,000 22% 6,760,000 99% $5.20
--------- --- ---------- --- -----
Total ................. 6,030,000 100% $6,821,000 100%
========= === ========== ===
</TABLE>

- ------
(1) Gives effect to (i) the exchange of 1,441,666 shares of the Company's
Class A Common Stock for 2,883,332 Class A Warrants effected in August
1996 and (ii) the 2.2 for-one stock dividend effected in August 1996.
(2) Gives effect to the aggregate purchase price of shares of Common Stock
and Class A Warrants.

15
<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data as of and for the fiscal years ended
March 31, 1996 and March 31, 1995 derived from the audited financial
statements of the Company. The selected financial data as of and for the
three months ended June 30, 1996 and 1995 is derived from the financial
statements of the Company which have not been audited.

In the opinion of management, the selected financial data presented below
for the three months ended June 30, 1996 and 1995 include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods. The results of operations for the three months ended June 30, 1996
are not necessarily indicative of the results to be expected for the full
fiscal year. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements of the Company included elsewhere
herein.

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
Three Months Ended
Year Ended March 31, June 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Operating Data:
Net Revenue ............................. $6,181,757 $2,940,892 $ 2,487,381 $1,042,240
---------- ---------- ----------- ----------
Costs and expenses:
Cost of net revenues:
Product and supply costs ........... 2,084,306 1,014,181 1,020,657 367,042
Rental equipment depreciation ...... 251,445 145,815 82,701 53,958
---------- ---------- ----------- ----------
2,335,751 1,159,996 1,103,358 421,000
Selling, general and administrative
expenses ........................... 2,660,071 1,621,777 1,009,743 479,320
Provision for doubtful accounts ....... 298,811 125,000 42,795 52,499
Amortization of intangible assets ..... 107,966 245,012 43,024 23,753
---------- ---------- ----------- ----------
5,402,599 3,151,785 2,198,920 976,572
---------- ---------- ----------- ----------
Operating income (loss) ............... 779,158 (210,893) 288,461 65,668
Interest expense ...................... 155,233 111,798 64,201 26,059
---------- ---------- ----------- ----------
Income (loss) before provision for income
taxes ................................. 623,925 (322,691) 224,260 39,609
Provision for income taxes .............. 196,000 0 98,672 0
---------- ---------- ----------- ----------
Net income (loss) ....................... 427,925 (322,691) 125,588 39,609
Net income (loss) per common share(1) ... .09 (.07) .03 .01
Weighted average number of shares
outstanding(1) ........................ 4,730,000 4,510,000 4,730,000 4,730,000

</TABLE>

<TABLE>
<CAPTION>
March 31, 1996 June 30, 1996(1)
-------------- ----------------------------
As
Balance Sheet Data: Actual Actual Adjusted(2)
- ------------------- -------------- ------------ ------------
<S> <C> <C> <C>
Working capital (deficit) ......................... $ (978,683) $ (907,611) $ 3,853,161
Total assets ...................................... 5,467,115 5,689,676 10,199,567
Total long-term debt .............................. 931,512 883,283 0
Total shareholders' equity.......................... 103,764 229,352 5,622,526
</TABLE>

- ------
(1) Gives effect to (i) the 2.2-for-one stock dividend effected by the
Company in August 1996 and (ii) the exchange of 1,441,666 shares of the
Company's Common Stock for 2,883,332 Class A Warrants.

(2) Gives effect to the 1,300,000 shares of Common Stock and 1,300,000 Class
A Warrants offered hereby and the application of the estimated net
proceeds therefrom.

16
<PAGE>

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

The following discussion and analysis should be read in conjunction with
the Financial Statements and related Notes contained elsewhere in this
Prospectus.

GENERAL

The Company was formed to acquire and operate a home health care medical
equipment and supply business. It commenced operations in July 1992 and in
April 1993 expanded its operations by acquiring certain Adam assets,
primarily rental equipment and customer lists.

FISCAL YEAR ENDED MARCH 31, 1996 COMPARED WITH FISCAL YEAR ENDED MARCH 31,
1995

Net revenues increased by $3,240,865, or 110.2%, to $6,181,757 at March
31, 1996 from $2,940,892 at March 31, 1995. The increase in revenues was due
primarily to the Company's expansion of its medical supply lines and
rehabilitation products division.

Cost of net revenues increased by $1,175,755, or 101.4%, to $2,335,751 for
the year ended March 31, 1996 from $1,159,996 for the year ended March 31,
1995. Cost of net revenues decreased as a percentage of net revenues to 37.8%
for the year ended March 31, 1996 from 39.4% for the year ended March 31,
1995. This decrease in cost of net revenues as a percentage of net revenues
in the year ended March 31, 1996 is primarily attributable to several volume
discounts received by the Company in connection with the initial bulk
purchases of medical supplies when the Company became a provider to the
largest certified home health care agency in New York.

Selling, general and administrative expenses increased by $1,038,294, or
64.0%, to $2,660,071 at March 31, 1996 from $1,621,777 at March 31, 1995
representing a decrease as a percentage of net revenues of 12.1%, to 43% from
55.1%. The decrease as a percentage of net revenues was primarily attributed
to certain fixed selling, general and administrative expenses remaining
constant as revenue increased. Selling, general and administrative expenses
increased due to the hiring of additional personnel to support the growth in
the Company's sales.

The Company had income from operations of $779,158 for the year ended
March 31, 1996, as compared to a loss from operations of ($210,893) for the
year ended March 31, 1995. This was mainly attributed to the Company's
significant increase in revenue while certain operating costs did not
increase proportionally with the increase in revenue. To a lesser degree, the
increased profits were also due to the expiration of certain intangible
assets which expired in the March 31, 1995 fiscal year and decreased legal
fees in the year ended March 31, 1996.

Interest expense increased by $43,435, or 38.9%, to $155,233 at March 31,
1996 from $111,798 at March 31, 1995. The increase was due to an increase in
outstanding indebtedness.

The Company had net income of $427,925 at March 31, 1996, compared with a
net loss of $(322,691) at March 31, 1995.

THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED JUNE 30,
1995

Net revenues increased by $1,445,141, or 138.7%, to $2,487,381 for the
three months ended June 30, 1996 from $1,042,240 for the three months ended
June 30, 1995. This increase was primarily due to the expansion of the
Company's medical supply business after the Company became a provider of
disposable medical supplies for the largest certified home health care agency
in New York and further development of the Company's rehabilitation products
division.

Cost of net revenues increased by $682,358, or 162.1%, to $1,103,358 for
the three months ended June 30, 1996 from $421,000 for the three months ended
June 30, 1995. Cost of net revenues increased as a percentage of net revenues
to 44.4% for the three months ended June 30, 1996 from 40.4% for the three
months ended June 30, 1995. The increase in percentage of cost of net
revenues was due to the increase in net revenues from the

17
<PAGE>

sale of medical supplies which has a higher product cost than durable medical
equipment and additionally, the increased sales, rather than rentals, of
durable medical equipment which results in a higher product cost for such
equipment. Management does not anticipate that the sales of medical supplies
as a percentage of the Company's net revenues will further materially
increase.

Selling, general and administrative expenses increased by $530,423, or
110.7%, to $1,009,743 for the three months ended June 30, 1996 from $479,320
for the three months ended June 30, 1995, but decreased as a percentage of
net revenues to 40.6%, from 46.0%. The decrease in expenses as a percentage
of net revenues was primarily due to fixed expenses remaining constant as net
revenues increased. Selling, general and administrative expenses increased
due to the hiring of additional personnel to support the growth in the
Company's sales.

Income from operations increased by $222,793 to $288,461 for the three
months ended June 30, 1996 from income from operations of $65,668 for the
three months ended June 30, 1995. The operating income as a percentage of net
revenues was 11.6% for the three months ended June 30, 1996 as compared to
6.3% for the three months ended June 30, 1995. The increase was primarily due
to the increase in net revenues and a decrease in the selling, general and
administrative expenses as a percentage of net revenues as stated above.

Interest expense increased by $38,142, or 146.4%, to $64,201 for the three
months ended June 30, 1996 from $26,059 for the three months ended June 30,
1995. The increase in outstanding indebtedness resulted from the Company's
need to finance its expansion. The Company experienced a .1% increase in
interest expense as a percentage of net revenues to 2.6% for the three months
ended June 30, 1996 from 2.5% for the three months ended June 30, 1995.

The Company had net income of $125,558 for the three months ended June 30,
1996 and net income of $39,609 for the three months ended June 30, 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary need for funds is to provide working capital to
support its business plans. From inception through the end of fiscal 1994,
the Company financed its operations, in part, through loans from its officers
and directors in the aggregate principal amount of $245,200. The Company has
also financed its operations through credit obtained from vendors, and, to a
lesser extent, from credit lines and bank notes. In connection with the
expansion of its business, the Company entered into lease agreements relating
to the purchase of inventory and rental equipment at interest rates ranging
from 9% to 13% per year. The Company currently has seven lease financing
agreements outstanding with three vendors which it expects to satisfy out of
cash provided by operating activities.

Because of an increased need for working capital as a result of the
expansion of the Company's business, the Company completed two equity private
placements and one debt financing. Between April and December 1995, the
Company received net proceeds of $99,870 from the sale of 1,041,666 shares of
its Common Stock. In January 1996, the Company completed a private placement
of 500,000 shares of Common Stock for a net consideration to the Company of
$212,500. (In August 1996, 1,441,666 of such shares of Common Stock were
exchanged for 2,883,332 Class A Warrants.) In February 1996, the Company
completed a private placement of 25.5 units, each unit comprised of a
promissory note in the principal amount of $25,000 with interest payable at a
rate of 8% per year and 50,000 Class A Warrants. The net consideration
received by the Company in connection with this debt financing was $553,500.
The Company is obligated to repay the aggregate principal amount of $637,500
plus accrued interest on the 8% notes from the proceeds of the Offering. The
Company also intends to repay, with the proceeds of the Offering, the related
party loans in the aggregate principal amount of $255,409 (representing the
original loans from officers and directors in the aggregate principal amount
of $245,200 plus $10,209 of accrued interest which has been added to
principal). See "Use of Proceeds."

In January 1996, one of the Company's vendors advanced funds to enable the
Company to satisfy in full an outstanding line of credit with NatWest Bank in
the aggregate principal amount of $106,338. As a result, the Company has
outstanding a one year note, secured by inventory, with such vendor in the
aggregate principal amount of $106,338 with monthly principal payments of
$8,870 and interest at a rate of 1% over the prime rate of Chase Manhattan
Bank, N.A. The Company currently has a credit facility with the Bank of New
York in the aggregate principal amount of $200,000 which is fully drawn down,
with interest payable monthly at a rate of

18
<PAGE>

1.0% above the prime rate of the Bank of New York, as announced from
time-to-time. At June 30, 1996, the Company had negative working capital of
$(907,611). In August and September 1996, the Company received three loans
each in the principal amount of $100,000 with interest accruing at a rate of
8% per year. The Company intends to repay such loan out of the proceeds of
the Offering. Virtually all of the Company's revenues are attributable to
payments received from third party payors who generally do not make payments
for 75 to 90 days after invoicing. In order to manage the delay between
invoicing and receipt of payment, the Company has entered into various
financing arrangements to fund operations. See "Use of Proceeds."

The Company believes that internally generated funds and the proceeds of
this Offering will provide sufficient liquidity and enable it to meet its
currently foreseeable working capital requirements for at least the next 12
months. However, the Company may need to obtain additional financing to meet
its growth objectives or 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. See "Risk Factors -- Need for
Additional Financing." In addition, for a period of two years following the
Effective Date, the Company cannot issue shares of Common Stock (other than
pursuant to the 1996 Stock Option Plan) without the prior written consent of
the Representative. Such limitation could adversely affect the Company's
ability to obtain additional financing. See "Underwriting."

The Company believes that the adoption by the Financial Accounting
Standards Board of Statement of Financial Accounting Standards ("SFAS") No.
121 "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of"
and SFAS No. 123, "Accounting for Stock Based-Compensation" will not have a
material impact on the Company's financial condition and results of
operations.

The Company believes that a final judgment in the Adams litigation in its
favor would not affect its liquidity, operations or capital resources,
because management believes that a judgement in the Company's favor would
result in a reduction of the purchase price to be paid by the Company for the
assets and the Company's current portion of long-term debt would be reduced
accordingly. If the defendants were to prevail, the Company would, in all
likelihood, attempt to obtain the necessary financing to satisfy any
additional amounts required to be paid pursuant to a judgment requiring
payment of the original purchase price. The Company does not believe such a
judgment would have a material adverse effect on its liquidity, operations
and capital resources. Although the Company does not believe that a judgment
in favor of the defendants would include punitive damages, should such a
judgment be awarded, it would have a material adverse effect on the Company's
liquidity, operations and capital resources.

SEASONALITY

The Company generally has not experienced seasonal fluctuation.

INFLATION

The Company believes that the relatively moderate rates of inflation in
recent years have not had a significant impact on its net revenues or its
profitability.

19
<PAGE>

BUSINESS

The Company is a provider of an extensive variety of home health care
products and services, durable medical equipment, and disposable medical
supplies in the metropolitan New York region. 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. In April 1993,
the Company acquired certain assets of Adam, including inventory, office
equipment and an assignment of the office lease, for a purchase price of
$1,500,000. Approximately $450,000 was paid at or prior to the closing of the
Acquisition, with the balance payable in installments through March 31, 1995.
The Company has not paid the balance and is seeking a rescission of the
payment obligations. See "Legal Proceedings." Since acquiring the assets of
Adam, the Company's management has expanded operations by implementing a
sales strategy focusing on an informed diagnostic-centered approach, signing
new major payor contracts with additional HMOs and PPOs including Metro Plus
Health Maintenance Organization, Beech Street Corporation, Group Health
Insurance, Inc. and MultiPlan Inc., and offering new equipment, products and
services such as low air loss beds, alternating pressure beds and standing
wheelchairs. In addition, the Company has recently significantly increased
its sales of medical supplies as a result of becoming a provider of
disposable medical supplies for the largest certified home health care agency
in New York.

The Company anticipates continued growth in the home health care market
due to increasing emphasis on cost effective medical treatment, the "Greying
of Our Society" and continuing advances in medical technology. The over-65
population, which has a higher incidence of illness and disability, continues
to increase. At the same time, home treatment of medical needs as compared
with hospital treatment is generally considered more cost effective. The
increased acceptance of home care has been bolstered by medical technological
advances which have facilitated the maintenance of high medical standards in
home care. The Company believes that cost containment initiatives of managed
care providers and continued limitations on reimbursement to hospital and
other institutions will contribute to continued strong demand for home
medical equipment and products.

MARKET OVERVIEW

Based on market research prepared by FIND/SVP, Inc., an independent New
York city-based research firm, the Company estimates that the size of the
home health care market in 1992 was $20 billion and is expected to grow to
$42.5 billion by 1996. The Company estimates that the local tri-state market
(New York, New Jersey and Connecticut) was $4.2 billion in 1992, growing to
$8.5 billion by 1996.

Aging Population. According to FIND/SVP, Inc., the number of individuals
over 65 in the U.S. has grown from 25.7 million in 1980, or 11.3%, of the
population, to approximately 31.6 million in 1990, or 12.6%, of the
population and is projected to increase to more than 33.8 million, or 13%, of
the population by 1996. The elderly have traditionally accounted for two to
three times the average per capita share of health care expenditures. As the
number of Americans over 65 increases, the need for home health care services
is also expected to increase. The Company estimates that 4.0 million people
will reach the age of 65 by 1996 in its local market.

Cost Effectiveness of Home Health Care Services. According to FIND/SVP,
Inc., health care expenditures in the United States increased from
approximately $248 billion in 1980 (9.1% of the gross national product
("GNP") to approximately $666 billion in 1990 (12.2% of GNP). In response to
rapidly rising costs, governmental (Medicare and Medicaid) and private payors
have adopted costs and containment measures that encourage reduced hospital
admissions, reduced lengths of stay in the hospitals, and delayed nursing
home/institutional admission. For example, the current hospital reimbursement
methodology is based on patient diagnosis with very specific limitations on
the length of hospital stays, leading to the earlier discharge of patients
from hospitals. These measures have, in turn, fostered an increase in home
health care which, when appropriate, generally provides medically necessary
equipment and products at significantly less expense than in an institutional
setting.

Physician Acceptance. In the last decade, the medical profession has shown
greater acceptance of home health care in the clinical management of patient
care. Evidencing this greater acceptance, the American Medical Association
Councils on Scientific Affairs and Medical Education have recommended that
training in the principles and practice of home health care be incorporated
into the undergraduate, graduate and continuing

20
<PAGE>

education programs for physicians. In addition, the reimbursement guidelines
of payor sources (which are increasingly drafted to limit or avoid hospital
treatment) have created a climate in which physicians must prescribe and
arrange for home health equipment and products for their patients.

Advanced Technology. Advances in technology have enabled numerous patients
who previously required hospitalization to be treated at home without
sacrificing the quality of care. The advances in the miniaturization and
computerization of equipment have fostered the development of portable
medical equipment. For example, such advances have enabled patients requiring
acute respiratory care to be treated at home because of the availability of
portable respiratory equipment. In addition, the development of advanced
seating and positioning equipment and power vehicles (such as wheelchairs and
scooters) have greatly enhanced the feasibility of home care for many
developmentally disabled individuals, as well as patients suffering from
stroke, paralysis and head injuries. The number of medical conditions that
can be treated in the home is growing significantly. These conditions include
incontinence, wounds, diabetes, infections and infectious diseases (including
AIDS-related infections), impaired digestive tracts and various forms of
cancer.

PRODUCTS AND SERVICES

The Company services patients referred to the Company by nurses,
physicians, social workers and payor case managers, as well as discharge
planners at hospitals, HMOs, PPOs and rehabilitation centers. Working with
these individuals, the Company's personnel coordinate the delivery and set-up
of the products and supplies to be used by patients in their home recovery
and care. Upon receipt of an order, the Company will arrange for the
appropriate products and supplies to be delivered to the patient at home. At
the time of delivery, the Company's personnel will set up equipment as
necessary and spend time with the patient and/or care givers to explain the
proper use of the medical equipment delivered. The Company handles customer
service inquiries via an 800 telephone number and will generally send its
personnel to visit the patient if necessary to rectify any problems that may
arise.

The primary categories of products provided by the Company (and examples
of the products available in each category) are set forth below:

Durable Medical Equipment -- Hospital beds
-- Wheelchairs
-- Walking aids
-- Bathroom safety equipment
-- Patient lifts

Disposable Medical Supplies -- Incontinent products (diapers,
liners, chux)
-- Wound care products (dressings and
bandages for treating decubitus (bed
sores and lesions), pressure sores,
ulcerations, etc.)
-- Nutritional products (Ensure,
Sustacal, etc.)
-- Diabetic products/supplies
-- Ostomy supplies
-- Urological supplies (catheters, etc)
-- Blood pressure products
-- Skin care products

Rehabilitation Products -- Power operated vehicles
(includes specialized versions (such as wheelchairs and scooters)
of durable medical products) -- Advanced support surfaces (low air
loss beds, alternating pressure
mattresses)
-- Specialized seating

Respiratory Equipment and Products -- O2 concentrators
-- Nebulizers with compressors
-- Suction pumps
-- Oximetry equipment
-- C-PAP (Continuous positive air
pressure) equipment
-- Bi-PAP (Bi-level positive air
pressure) equipment

21
<PAGE>

The Company's inventory is housed in its 20,000 square foot
office/warehouse facility in Mount Vernon, New York. All of its products are
readily available from more than one supplier and the Company can generally
fill an order within 24 hours of placement. The Company operates on a regular
basis 24 hours a day, Monday through Saturday and provides services on an
emergency basis on Sundays. The Company utilizes its 800 telephone number for
customer service calls. The Company's office receives calls from 8:00 A.M. to
6:00 P.M. Monday through Friday and 9:00 A.M. to 1:00 P.M. on Saturdays while
an answering service handles calls at all other hours. The Company's service
technicians are available to handle calls on a 24-hour basis.

Generally, the cost of the Company's products and supplies is covered by
third party payor arrangements such as Medicaid, Medicare or private
insurance. Equipment such as hospital beds, wheelchairs and patient lifters
covered by Medicare is generally paid for on a rental basis over a 15 month
term. In many instances, such equipment is returned to the Company prior to
the 15 month term, in which case the equipment is re-conditioned and
available for a new rental term. Generally, the equipment can be
reconditioned for use to be available for several rental terms for a period
in excess of five years. The Company receives a semi-annual maintenance
payment for any equipment that is used in excess of 15 months. Purchased
equipment covered by Medicare is reimbursed at approved published prices.
Equipment covered by Medicaid is generally sold pursuant to an approved price
range or a cost plus fee basis. Insurance payors use customary and usual
standards for their reimbursement terms which are generally comparable to
Medicare terms. The Company usually receives payment within 75 to 90 days of
invoicing. An inconsequential percentage of the Company's business is direct
cash sales to customers. For the fiscal year ending March 31, 1996, the
allocation of net revenues among the Company's third party payors was
approximately 35.4% to Medicare, 36.4% to Medicaid and 28.2% to private
insurers and direct cash sales. See "Risk Factors -- Dependence Upon Third
Party Reimbursement."

STRATEGIC OBJECTIVES

The Company's strategic objective is to become the leading provider of
home medical equipment, disposable medical supplies and services in the
metropolitan New York/New Jersey/Connecticut region by focusing on the
following objectives.

Integrated Care. The Company is committed to fulfilling the physician's
and/or payor source's need for a complete plan of care for their patients at
home by providing a full range of quality home medical equipment and related
services. The Company plans to seek out and negotiate agreements to provide
products and services in conjunction with providers of other home medical
services such as nursing companies and intravenous care providers. These
agreements will enable the Company to be considered a full service provider
to health care workers and customers for their home health care needs and
will also increase the number of the Company's referral sources. While the
Company's core business is its home medical equipment, the Company's revenues
are enhanced by its ability to provide other medical products (products for
the treatment of incontinence, diabetes and wound care, as well as advanced
support surfaces, etc.) to high acuity and multiple therapy patients.

Focus On Growth Markets. The Company is seeking to expand its core home
medical equipment business by enlarging its geographic sales territory and
increasing the number of referral sources with whom it has relationships. The
Company is also exploring the possibility of offering new products in some of
its existing high growth markets such as respiratory therapy, nutritional
products, decubitus care (skin sores or lesions), advanced support surfaces,
advanced seating and positioning products, power operated vehicles and
incontinence treatment. The Company is also exploring the possibility of
adding new product categories to its existing business. High growth markets
being considered include orthotics, mastectomy supplies, specialized wound
care products and products for the treatment of sleep disorders.

Increase Market Share. The metropolitan New York market is highly
fragmented, comprised of a large range of small local operators. The Company
estimates that there are 1,000 home medical equipment dealers in its market.
The Company believes 85% of such dealers generate revenues of up to $2.0
million, 13% generate revenues between $2.0 million and $5.0 million, and 2%
generate revenues of in excess of $5.0 million. There are a few regional or
national home medical equipment businesses. With the anticipated continued
growth of the home health care market, the Company believes that there is an
opportunity to expand its market share by providing the elements it believes
are critical to the success of home medical equipment providers -- (i)
providing high quality products, (ii) offering a high level of customer
service evidenced by prompt responsiveness to, and good communications with,
customers, and (iii) understanding and adapting to the needs of local
markets.

22
<PAGE>

Improve Operating Efficiencies. Management is committed to reducing
operating expenses through the use of improved systems and controls to
streamline its operations in the areas of billing and collections,
administrative support and sales administration. The Company has implemented
new systems for tracking sales, enabling management and sales personnel to
monitor performance and target particular geographic or product areas for
expansion. The Company recently redesigned and computerized its intake
procedures to simplify phone ordering for both the order placer (usually a
health care worker) and the end user (the patient). Simplifying the intake
process has improved the Company's billing and collection procedures because
of the improved accuracy and completeness of data collected. In addition, the
Company is in the process of installing new computer systems that the Company
believes will improve employee productivity and further reduce administrative
overhead.

In addition to expanding its business by increasing sales, the Company
may, if such opportunities arise, consider the expansion of its business by
means of acquisitions or joint ventures. The Company's ability to effect such
transactions could be adversely affected by its inability to issue shares of
Common Stock without the Representative's prior written consent for a period
of two years following the Effective Date. See "Underwriting." The Company is
not currently conducting formal negotiations for any such acquisitions.

The Company's operating strategy to achieve the foregoing objectives
include the following elements:

Targeting Referral Sources. The Company has been developing an effective
sales force currently consisting of four field sales representatives, seven
institutional on-site sales and service representatives, thirteen customer
service representatives at the Company's offices who take orders and
follow-up calls from customers and referral sources and six equipment
drivers/technicians who generally work in the field to handle certain repairs
and information inquiries. The field and customer service representatives
enable the Company to market its home medical equipment and products to
numerous sources of patient referrals, including physicians, therapists,
nurses, discharge/case management professionals, social workers, hospitals,
sub-acute facilities, clinics, nursing homes, HMOs, PPOs, insurance companies
and social service organizations as well as directly to the end user. The
Company is constantly training and tracking its sales representatives to
generate more revenues from the Company's existing referral sources and to
better target and penetrate new sources of patient referrals.

Commitment to Quality Service. The Company believes that the quality of
its service is critical to its ability to obtain referrals and to expand its
business. To assure delivery of high quality service, the Company has
established policies and procedures prescribing standards for patient care
and has retained the services of a full time consultant who regularly
examines its operation/facility to assure compliance with those standards.
The Company has been accredited with commendation by the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO").

Focus on Receivables Management. In selecting its equipment, products and
services, the Company carefully considers the adequacy of reimbursement and
the ease with which payment can be obtained. The Company's reimbursement
staff has significant experience in the industry as its primary billers
average 16.5 years experience in reimbursement. Their knowledge and
familiarity with the various reimbursement forms, policies and
categorizations expedites the Company's billing procedures and facilitates
the reimbursement process. The Company's receivables management is also
enhanced by its electronic billing of Medicare and Medicaid which reduces the
amount of paperwork to be handled and the amount of time required to process
reimbursement billing.

Management Information Systems. The Company has been implementing updated
computerized systems, including order entry, distribution, third-party
billing and customer information systems. These systems enable the Company to
have relatively easy access to all the information processed by it including
commencement of service, type of product utilized, the time period used and
clinical outcome (for rental equipment users) and frequency and nature of
service calls. These systems enable the Company to provide utilization
reports and relevant data to its referral sources who can use such
information to control the cost of managing home patient care. The Company
intends to seek to develop applications to integrate its database with those
of its referral sources and with other health care providers. This would
allow the Company to provide integrated patient discharge planning and
detailed utilization review data to its referral sources.

MARKETING PROGRAMS

Diagnostic Centered Programs. The Company has developed a diagnostic
centered approach to meeting the needs of its customers. The Company's
personnel receives continuing education focused on the needs of

23
<PAGE>

customers classified by diagnosis or special needs. As a result, the
Company's representatives can provide doctors, nurses, social workers,
therapists, payor case managers, and customers with information regarding
products for a patient's home care needs, both in terms of general care and
product improvements. The Company believes that this enhances the quality of
the service it can offer to referral sources as well as the products it
supplies to the end users.

Institutional Support Program. The Company's current management team has
developed a support program for the benefit of institutions such as hospitals
and certified home health agencies whereby the Company provides certain of
its personnel for on-site locations at these institutions. These on-site
managers work with the institution's personnel in determining the need for
medical equipment, products and services for patients about to be discharged.
They also help determine patient payor sources, order patient home medical
equipment and arrange for delivery of the equipment to the patient at home.
The Company believes that this program facilitates cost effective treatments
for the home patient, and enhances the Company's position as a source of home
medical equipment and supplies.

Rehabilitation Division. The Company has established a separate division
within its current facilities to provide specialized products for individuals
with acute, long-term home health care needs. These products include
specialized bathroom products, specialized vehicles and specialized support
services, many of which have to be customized to meet individual needs.
Although the Company has been providing such products for the past year,
management has recently established a separate division to sell, market and
customize these products. In addition to a separate sales staff, the Company
is establishing a workroom to customize the rehabilitation products as
needed.

Additional Home Care Services. The Company is exploring the potential for
expanding its business to include additional home care services. Management
expects that its knowledge of the needs of patients and providers in
connection with durable medical goods can be applied to a broader range of
home care medical services. The establishment of additional related home care
services would enable the Company to offer providers a single source for
coordinating all of their patients' at home health care needs. By working
through a single source, the patient's needs can be monitored and coordinated
to ensure that all necessary services and goods are provided on a timely,
efficient basis.

COMPETITION

The home health care provider industry is highly competitive and
fragmented. While there are a few selected national providers, the Company
currently encounters its most significant competition in providing home
health care products from small commercial providers operating in the New
York metropolitan area. The Company believes that health care facilities in
the geographic area serviced by the Company consider quality of care,
reliability and reputation to be the most important factors in referring a
home health care provider to its patients, although other factors such as
financial stability, personnel policies and practices and cost are also
considered. In addition to present competition, other companies that do not
currently provide home health care products may enter the business.

GOVERNMENT REGULATION AND REIMBURSEMENT

The Company must comply with various requirements in connection with its
participation in Medicaid and Medicare. Medicaid is a combined federal-state
program for medical assistance to impoverished individuals who are aged,
blind, or disabled or members of families with dependent children. The
Medicaid program in New York is subject to federal requirements. The New York
State Department of Social Services has the authority to set levels of
reimbursement within federal guidelines. The Company receives, from its
customers who are covered by Medicaid, only the reimbursement permitted by
Medicaid and is not permitted to collect from the patient any difference
between its customary charge to such customers and the amount reimbursed. Any
difference between the Company's customary charge to its customers who are
covered by Medicaid and amounts reimbursed by Medicaid are not material to
the Company's operating results because the Company's customary charges to
such customers generally do not exceed amounts reimbursable by Medicaid.

24
<PAGE>

Medicare is a federal health insurance program, for the elderly and for
chronically disabled individuals, which pays for equipment and services when
medically necessary. Medicare uses a charge-based reimbursement system for
purchased medical equipment based on approved published prices. Equipment
such as hospital beds, wheelchairs and patient lifters is generally paid for
on a rental basis over a 15 month term, with maintenance payments
semi-annually thereafter.

The Company, like other Medicaid and Medicare providers, is subject to
governmental audits of its Medicaid and Medicare reimbursement claims, but to
date has not experienced significant losses as a result of any such audit.
The Company is not subject to any pending audits or audit reports. As a
provider of services under the Medicaid and Medicare programs, the Company is
also subject to the Medicaid and Medicare fraud and abuse laws ("Fraud and
Abuse Laws"). The laws prohibit any bribe, kickback or rebate in return for
the referral of Medicaid or Medicare patients. Violations of these
prohibitions may result in civil and criminal penalties and exclusion from
participation in the Medicaid and Medicare programs. The United States
Department of Health and Human Services ("HHS") has interpreted the Fraud and
Abuse Laws as they apply to Medicare and Medicaid broadly to include the
intentional payment of anything of value to influence the referral of
Medicare or Medicaid recipients. HHS has issued regulations that set forth
certain so-called "safe harbors," representing business relationships and
payments that can be undertaken without violation of the Fraud and Abuse
Laws. The Company believes that it has arranged and will continue to arrange
its business relationships so as to comply with the Fraud and Abuse Laws. The
Company has not been the subject of any Medicaid or Medicare fraud
investigation to date.

Pursuant to the federal/state statutory scheme for the regulation and
administration of the Medicaid program, each state has a Medicaid Fraud
Control Unit. In New York State that Unit is placed within the Office of the
Attorney General. This office has broad civil and criminal jurisdiction over
Medicaid providers. In the course of its operations, it reviews Medicaid
providers. The Company is currently the subject of such a review. Several
other providers of medical equipment and supplies in the same general
geographic area have recently been subject to similar reviews. The Company
believes that it has complied with all appropriate regulations; and no claims
or charges have been lodged by the Attorney General as a result of this
review at this time.

The Company believes it is in substantial compliance with all material
statutes, regulations, standards and conditions applicable to its business.
However, new laws and/or regulations, standards or conditions may be adopted
or existing laws, regulations, standards or conditions may be interpreted by
governmental authorities in a manner which could adversely impact the
Company's operations. The Company cannot predict whether any such proposals
or interpretations will be adopted and, if adopted, what effect such
proposals or interpretations would have on the Company's business.

The Company's participation in the New York Medicaid program requires it
to enroll and re-enroll as an authorized provider with the New York State
Department of Social Services. Re-enrollment is required upon certain events
including a change of five (5%) percent or more of beneficial equity
ownership in the Company. An adverse determination, which is not subject to
prior judicial review, could have material adverse consequences to the
Company. The Company has recently received approval of its re-enrollment
application.

Government funding for health care programs is subject to statutory and
regulatory changes, administrative rulings, interpretations of policy,
determinations by intermediaries and governmental funding restrictions, all
of which could materially increase or decrease program reimbursements for the
Company's products and services. Efforts have been made at various levels to
reduce the costs of such programs. No assurance can be given that future
funding levels for Medicare and Medicaid programs will be comparable to
present levels. Changes in reimbursement policies as a result of budget cuts
or other government action could adversely affect the Company's operations.

The Clinton Administration, as well as certain United States Congressmen,
have each proposed legislation that would affect major reforms of the United
States health care system, including increasing access to health care for all
citizens. Although such legislation has not been enacted, health care reform
proposals are still under consideration and, New York State is considering
various health care reform proposals of its own. The Company anticipates that
Congress and state legislatures will continue to review and assess
alternative health care delivery systems and cost-control measures, and
public debate of these issues will likely continue in the future. Given the
complexity of these issues and the early stage of the legislative process,
the Company cannot predict which, if any, reform measures will be adopted
and, if adopted, the effect such measures will have on the Company's
business.

25
<PAGE>

INSURANCE

The Company carries a broad range of general liability, comprehensive
property damage, worker's compensation, and other insurance coverages that
management considers adequate for the protection of its assets and
operations, although there can be no assurance that the coverage limits of
such policies will be adequate. The Company has general liability coverage of
$1,000,000 per occurrence and $3,000,000 aggregate and umbrella coverage of
$1,000,000. A successful claim against the Company in excess of its insurance
coverage could have a material adverse effect on the Company and its
financial condition. Claims against the Company, regardless of their merit or
outcome, may also have an adverse effect on the Company's reputation and
business. See "Risk Factors -- Potential Liability; Adequacy of Insurance
Coverage."

EMPLOYEES

As of September 30, 1996, the Company had approximately 67 employees. Its
management team is comprised of two executives and two managers with
extensive experience in the home health care industry. Four field sales
representatives and seven institutional on-site sales and service
representatives work on a salary plus commission basis. Six drivers deliver
products and are specially trained by the Company to properly set up
equipment and explain its use to patients. The Company has nine warehouse
workers, two wheelchair mechanics, thirteen customer service and sales intake
personnel, sixteen individuals who handle reimbursement and a five person
administrative staff. The Company also has one supervisory staff respiratory
therapist and a pool of respiratory therapists who work on a consulting basis
on an as needed basis to provide service and advice to customers utilizing
respiratory equipment. The Company also has six contract drivers who make
deliveries. The Company is not a party to any collective bargaining
agreements and considers its relations with employees to be good.

LEGAL PROCEEDINGS

In 1993, the Company commenced an action against Adam and its principals
in the Supreme Court of the State of New York, County of Westchester. The
action arises out of the acquisition of the business and assets of Adam by
the Company in April 1993. The complaint alleges that the defendants made
numerous misrepresentations relating to the business previously conducted by
Adam. The complaint seeks recovery of damages of $1,500,000, additional
punitive damages, the reduction of the original purchase price or rescission
of the original purchase agreement. The defendants have asserted
counterclaims against the Company. The counterclaims seek the payment of the
unpaid purchase price of $1,050,000 and collection expense of over $175,000.
Defendants also allege various additional causes of action, claiming
plaintiffs converted or interfered with the collection of property owned or
due to defendants and seek damages of over $7,000,000, including $5,000,000
in punitive damages. A motion for summary judgment filed by defendants has
been denied in its entirety. Partial summary judgment has been granted to the
Company dismissing three of the counterclaims asserted against it. A Notice
of Appeal from these judgments has been filed by defendants. The Company
believes it has meritorious defenses to the remaining counterclaims. However,
there can be no assurance that the Company will be successful in recovering
damages for its claims or in defending itself against the remaining
counterclaims. A judgment against the Company as a result of the
counterclaims could have a material adverse effect on its business. See "Risk
Factors -- Pending Litigation; Potential Adverse Impact of Counterclaims
against the Company."

From time to time the Company is a party to litigation arising in the
ordinary course of business. There can be no assurance that the Company's
insurance coverage will be adequate to cover all liabilities occurring out of
such claims.

FACILITIES

The Company offices and warehouse are located in a 20,000 square foot
facility in Mount Vernon, N.Y., pursuant to a five year lease commencing
January 1, 1996 which provides for annual rental payments of $114,000 for the
first three years of the lease term and $132,000 for the last two years of
the lease term.

26
<PAGE>

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The directors and executive officers of the Company are as follows:

Name Age Position
---- --- --------
Alan T. Sheinwald ...... 31 President, Chief Executive Officer, Chief
Financial Officer and Chairman
Allan C. Goldfeder ..... 41 Chief Operating Officer and Secretary
Matthew J. McDonough ... 34 Operations Manager
Bruce L. Ansnes ........ 53 Director
Bernard M. Kruger, M.D. 54 Director
Craig V. Sloane ........ 45 Director
Dean L. Sloane ......... 50 Director

Alan T. Sheinwald joined the Company in November 1995 as President, Chief
Executive Officer, Chief Financial Officer and Director and was elected
Chairman in June 1996. From April 1995 until joining the Company, he was
President and Chief Executive Officer of Alliance Care Services, Inc., a
health care consulting firm. From January 1990 until April 1995, Mr.
Sheinwald was employed by Mayflower Group, Inc. ("Mayflower"), initially as a
General Manager for a transportation facility, then as Senior Operations
Manager overseeing sales and operations for Mayflower's northeast division, a
$20 million operating division. In 1993, Mr. Sheinwald was named Vice
President -- Sales and Marketing for Mayflower, overseeing the development
and implementation, with agencies and institutions nationwide, of transport
systems, including medical transport systems. From May 1987 until January
1990, Mr. Sheinwald was a Cavalry Tank Platoon Leader, Division and Battalion
Staff Officer for the United States Army. Mr. Sheinwald has a B.S. from the
United States Military Academy at West Point and an M.B.A. from New York
University.

Allan C. Goldfeder has been Chief Operating Officer of the Company since
September 1993 and Secretary of the Company since January 1996. From January
1993 until September 1993, Mr. Goldfeder was an independent consultant to the
health care industry. From July 1989 until January 1993, he was a Director of
Operations and then Director of New Product Development for U.S. Home Care
Corporation. Mr. Goldfeder was a divisional Vice President from February 1986
until June 1989 with Continental Health Affiliates, Inc. From January 1977
until September 1985, Mr. Goldfeder was employed by Quality Care. Mr.
Goldfeder has a B.S. from City University of New York.

Matthew J. McDonough joined the Company in February 1996 as Operations
Manager. From December 1992 to July 1994, Mr. McDonough was a Regional
Manager for the Mayflower Group, Inc. and from July 1994 to February 1996 was
an Assistant Station Manager with Airborne Express Inc. Mr. McDonough has
also gained significant operational experience as an engineering officer in
the United States Navy. He has a B.S. from Old Dominion University.

Bruce L. Ansnes became a director of the Company in August 1996. Since
1986, he has been a private investor. From 1978 until 1983, Mr. Ansnes was
Treasurer, and from 1983 until 1986, Treasurer and Vice President, of Culbro
Corporation. He has a B.A. from Colby College and an M.B.A. from Columbia
University.

Bernard M. Kruger, M.D. became a Director of the Company in August 1996.
He has been in the private practice of internal medicine and medical oncology
since 1979, and is affiliated with Lenox Hill Hospital, Beth Israel Hospital,
Mount Sinai Hospital and the Orthopedic Institute. Dr. Kruger is a director
of Community Medical Transport, Inc. a publicly traded company.

Craig V. Sloane has been a director of the Company since its inception.
Since December, 1990, he has served as Vice President -- Operations and a
Director of Community Medical Transport, Inc., a publicly traded company.
From 1985 through October 1990, he was a futures analyst at Smith Barney
Harris Upham & Co.

Dean L. Sloane has been a director of the Company since its inception.
Since December, 1988, he has been Chairman of the Board, President and a
Director of Community Medical Transport, Inc., a publicly traded company. Mr.
Sloane has also been a director, since May, 1996, of SunStar Healthcare,
Inc., a publicly traded company. From 1973 through 1988, Mr. Sloane served as
Chief Executive Officer of Prime Medical Services Inc. (formerly known as
C.P. Rehab Corp.), a publicly traded specialty medical management service
company. Mr. Sloane co-founded and served as Chairman of the Board of
National Home Health Care Corp., a publicly traded

27
<PAGE>

medical management and home care company, from 1983 to 1986. Mr. Sloane also
served as a director of EPIC Health Group, Inc., a publicly traded mail order
pharmaceutical company, from 1984 to 1986. Mr. Sloane has been a member of
the Young Presidents Organization since 1985 and is a Certified Public
Accountant.

Dean L. Sloane and Craig V. Sloane are brothers.

Upon the closing of the Offering and for a period of three years
thereafter, the Underwriters shall have the right, but not the obligation, to
appoint a designee to serve as an advisor to the Board of Directors. The
Underwriters have not designated an individual to serve in such capacity.

EXECUTIVE COMPENSATION

The following table sets forth information concerning compensation paid or
accrued by the Company for services rendered during the fiscal years ended
March 31, 1994, 1995 and 1996 to the Company's Chief Executive Officer and
each of the Company's other executive officers (collectively, the "Named
Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------------- -------------------------------------------
Other Annual Restricted
Name and Fiscal Compensation Stock Awards Options LTIP
Principal Position Year Salary ($) Bonus ($) Other Compensation Granted Payouts All
- ------------------ ---- ---------- ----- ------------ ------------------ ------- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allan C. Goldfeder 1996 110,000 0 9,600 0 0 0 0
Chief Operating 1995 119,000 0 9,600 0 0 0 0
Officer(1) 1994 45,000 0 4,500 0 0 0 0

Alan T. Sheinwald 1996 48,077 0 3,150 0 0 0 0
Chief Executive
Officer(2)

</TABLE>

- ------
(1) Mr. Goldfeder was the Company's principal executive officer for the
fiscal years ended March 31, 1995 and 1994.

(2) Mr. Sheinwald's employment with the Company commenced November 13, 1995.

EMPLOYMENT AGREEMENTS

Upon consummation of this Offering, the Company will enter into an
employment agreement with Alan T. Sheinwald, President, Chief Executive
Officer and Chief Financial Officer of the Company. The agreement will have a
three-year term which renews for an additional year on each anniversary of
the agreement, and provides for an annual base compensation of $150,000. The
agreement provides for certain employee benefits including medical insurance,
vacation and a car allowance, and also contains a non-competition provision
covering the term of the agreement plus one year following termination.

Upon consummation of this Offering, the Company will also enter into an
employment agreement with Allan Goldfeder, Chief Operating Officer of the
Company. The agreement will have a three-year term which renews for an
additional year on each anniversary of the agreement, and provides for an
annual base compensation of $120,000. The agreement provides for certain
employee benefits including medical insurance, vacation and a car allowance,
and also contains a non-competition provision covering the term of the
agreement plus one-year following termination.

STOCK OPTION PLAN

The Company's Board of Directors has adopted a 1996 Stock Option Plan (the
"Plan") for officers, employees, directors and consultants of the Company or
any of its subsidiaries. The Plan authorizes the grant-

28
<PAGE>

ing of stock options to purchase an aggregate of not more than 603,000 shares
of the Company's Common Stock. As of the date hereof, options to purchase an
aggregate of 28,000 shares of Common Stock have been granted and options to
purchase an aggregate of 575,000 shares of Common Stock are available for
grant under the Plan.

The Plan is administered by a Stock Option Committee (the "Committee"),
consisting of two disinterested members of the Board of Directors. In
general, the Committee will select the persons to whom options will be
granted and will determine, subject to the terms of the Plan, the number, the
exercise period and other provisions of such options. The options granted
under the Plan will be exercisable in such installments as may be provided in
the grant.

Options granted to employees may be either incentive stock options under
the Internal Revenue Code ("ISOs") or non-ISOs. The Board may determine the
exercise price, provided that, in the case of ISOs, such price may not be
less than 100% (110% in the case of ISOs granted to holders of 10% of the
voting power of the Company's stock) of the fair market value (as defined in
the Plan) of the Company's Common Stock at the date of grant. The aggregate
fair market value (determined at time of option grant) of stock with respect
to which ISOs become exercisable for the first time in any year cannot exceed
$100,000. The Company does not expect the exercise price of non-ISO's to be
less than fair market value.

The options are evidenced by a written agreement containing the above
terms and such other terms and conditions consistent with the Plan as the
Board of Directors may impose. Each option, unless sooner terminated, shall
expire no later than 10 years (five years in the case of ISOs granted to
holders of 10% of the voting power of the Company's stock) from the date of
the grant, as the Board may determine. The Board has the right to amend,
suspend or terminate the Plan at any time, provided, however, that unless
ratified by the Company's shareholders within 12 months thereafter, no
amendment or change in the Plan will be effective: (a) increasing the total
number of shares which may be issued under the Plan; (b) reducing below fair
market value on the date of grant the price per share at which any option
which is an ISO may be granted; (c) extending the term of the Plan or the
period during which any option which is an ISO may be granted or exercised;
(d) altering in any way the class of persons eligible to participate in the
Plan; (e) materially increasing the benefits accruing to participants under
the Plan; or (f) with respect to options which are ISOs, amending the Plan in
any respect which would cause such options to no longer qualify for incentive
stock option treatment pursuant to the Internal Revenue Code of 1986.

COMPENSATION OF DIRECTORS

Following the consummation of this Offering, directors who are not
employed by the Company will be paid a fee of $1,000 for each meeting
attended and $500 for each committee meeting attended. All directors are
reimbursed for expenses incurred on behalf of the Company.

29
<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of September 30, 1996 (after giving effect
to the 2.2-for-one stock dividend and the exchange of 1,441,666 shares of
Common Stock for 2,883,332 Class A Warrants) by (i) each shareholder known by
the Company to be the beneficial owner of more than 5% of the outstanding
Common Stock, (ii) each director and executive officer of the Company, and
(iii) all directors and executive officers as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the Common
Stock listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws where applicable.

<TABLE>
<CAPTION>
Number of Number of
Number of Shares Number of Shares Warrants Warrants
Beneficially Beneficially Owned Percentage of Common Stock Owned Beneficially
Owned Before After -------------------------- Before Owned
Name Offering Offering Before Offering After Offering Offering After Offering
---- -------- -------- --------------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Bruce L. Ansnes(1) 110,000 110,000 2.32% 1.83% 0 0
15 Glen Park Road
Purchase, NY 10577

Bernard M. Kruger, M.D.(1) 18,334 18,334 .39% .30% 0 0
170 East 78th Street
New York, NY 10021

Dean L. Sloane 1,713,800 1,713,800 36.23% 28.42% 0 0
45 Morris Street
Yonkers, NY 10705

Craig V. Sloane 428,450 428,450 9.06% 7.10% 0 0
45 Morris Street
Yonkers, NY 10705

Alan T. Sheinwald 2,142,250 2,142,250 45.29% 35.53% 0 0
18 Sargent Place
Mount Vernon, NY 10550

Allan C. Goldfeder 225,500 225,500 4.77% 3.74% 0 0
18 Sargent Place
Mount Vernon, NY 10550

All Executive Officers
and Directors 4,638,334 4,638,334 98.06% 76.92% 0 0
</TABLE>

- ------
(1) The shares of Common Stock owned by Mr. Ansnes and Dr. Kruger are being
registered for sale in the Selling Securityholders' Prospectus. Each of
Mr. Ansnes and Dr. Kruger has entered into a Lock-up Agreement not to
sell, transfer or dispose of such shares without the prior written
consent of the Representative for a period of 18 months from the date of
this Prospectus.

30
<PAGE>

CERTAIN TRANSACTIONS

All transactions with officers and shareholders and their affiliates were
made on terms no less favorable to the Company than those available from
unaffiliated parties. All future transactions between the Company and its
officers, directors and 5% shareholders will be on terms no less favorable
than could be obtained by independent third parties and will be approved by a
majority of the independent disinterested directors of the Company.

LOANS

The Company received loans from certain shareholders and former
shareholders and their affiliates in the aggregate amount of $255,409. All
the loans are currently non-interest bearing. The loans were made on March
31, 1993 to help finance the Company's operations. One loan of $80,000 bore
interest at a rate of 8-1/4% until September 30, 1994, at which time the
accrued interest was added to the principal outstanding. The Company expects
to repay these loans from the proceeds of this Offering as follows: $135,409
to Dean L. Sloane (which includes accrued interest of $10,209 through
September 30, 1994); $15,000 each to Manuel N. Wilson and Wade Wilson; and
$90,000 to At Home Health Care Supplies, Inc. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

LEASE

The Company entered into a sublease on September 1, 1995 with At Home
Health Care Supplies, Inc., an affiliate of former shareholders and directors
of the Company for the office/warehouse space it currently occupies. The
Company paid $4,500 per month for 10,000 square feet of space plus a pro rata
share of expenses which aggregated $18,000 for the term of the lease. The
Company has terminated the sublease and entered into a new lease with the
owner of the premises to occupy 20,000 square feet at the same location. See
"Business -- Facilities."

CONSULTING AGREEMENT

During the fiscal year ended March 31, 1995, the Company paid $35,136 to
Purchase Marketing Associates, a consulting company whose president, Manuel
N. Wilson, was a former shareholder, director and promoter of the Company,
pursuant to a consulting agreement between the Company and such entity. The
agreement was amended on May 1, 1995 to provide for the same consulting
services to be provided for a fixed fee of $4,500 per month. The agreement
was terminated in November 1995 with payments made through January 31, 1996
aggregating $45,000.

AGREEMENTS WITH REPRESENTATIVE

The Company expects to enter into a Consulting Agreement with the
Representative upon the closing of the Offering, whereby the Representative
will provide advisory services for a period of 36 months for an aggregate fee
of $104,600 payable at the closing out of the proceeds of the Offering. In
addition, the Representative shall have the right, for a period of three
years, after the closing of the Offering, to appoint a designee to serve as
an advisor to the Board of Directors. The Company has further agreed to
appoint the Representative as the Company's warrant solicitation agent
pursuant to which the Representative will receive a 8% fee upon exercise of
the Warrants, subject to NASD guidelines.

EXCHANGE OF SHARES FOR WARRANTS

In August, 1996, the Company issued to six shareholders an aggregate of
2,883,332 Class A Warrants in exchange for the cancellation of 1,441,666
shares of Common Stock owned by such shareholders.

31
<PAGE>

DESCRIPTION OF SECURITIES

The following descriptions of the Company's securities are qualified in
all respects by reference to the Certificate of Incorporation and By-laws of
the Company, and the warrant agreement (the "Warrant Agreement"), dated as of
October 18, 1996, by and between the Company and Continental Stock Transfer &
Trust Company (the "Warrant Agent"), copies of which are filed as Exhibits to
the Registration Statement of which this prospectus is a part. The
Certificate of Incorporation of the Company authorizes the Company to issue
up to 1,000,000 shares of preferred stock, par value $.01 per share (the
"Preferred Stock"), none of which is outstanding and 20,000,000 shares of
Common Stock, par value $.01 per share.

COMMON STOCK

As of September 30, 1996, there were 4,730,000 shares of Common Stock
outstanding. There will be 6,030,000 shares of Common Stock outstanding after
giving effect to the sale of the shares of Common Stock offered hereby. The
holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders. Subject to
preferential rights with respect to any outstanding Preferred Stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor.
In the event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities and satisfaction of preferential rights and have
no rights to convert their Common Stock into any other securities. All shares
of Common Stock have equal, non-cumulative voting rights, and have no
preference, exchange, preemptive or redemption rights. The outstanding shares
of Common Stock are, and the Common Stock to be outstanding upon completion
of the Offering will be, fully paid and nonassessable. See "Capitalization."

WARRANTS

Each Class A Warrant entitles its holder, commencing two years from the
Effective Date, to purchase one share of Common Stock at an exercise price of
$6.00 per share. The Warrants expire on October 17, 2003, seven years after
the Effective Date.

The Registration Statement of which this Prospectus is a part may remain
effective for a period of nine months following the Effective Date although
the Warrants will not be exercisable until two years after the Effective
Date.

The Warrants are redeemable by the Company at a price of $.05 per
Redeemable Warrant, commencing two years from the Effective Date and prior to
their expiration, on 30 days prior written notice to the registered holders
of the Warrants, provided the closing high bid price per share of the Common
Stock, or the last sale price per share if listed on a national exchange for
a period of 20 consecutive trading days ending not more than three days prior
to the date of any redemption notice equals or exceeds at least $8.00,
subject to adjustment, for the Class A Warrants. The Warrants shall be
exercisable until the close of the business day preceding the date fixed for
redemption. In addition, subject to the rules of the NASD, the Company has
agreed to engage the Representative as warrant solicitation agent, in
connection with which it would be entitled to a 8% fee upon exercise of the
Warrants. See "Underwriting."

The Warrants will be issued pursuant to the Warrant Agreement by the
Warrant Agent and will be evidenced by warrant certificates in registered
form.

The exercise price of the Warrants and the number and kind of shares of
Common Stock or other securities and property issuable upon exercise of the
Warrants are subject to adjustment in certain circumstances, including a
stock split of, stock dividend on, or a subdivision, combination or
recapitalization of the Common Stock. Additionally, an adjustment will be
made upon the sale of all or substantially all of the assets of the Company
in order to enable holders of Warrants to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable
in such event by a holder of the number of shares of Common Stock that might
otherwise have been purchased upon exercise of the Warrant.

32
<PAGE>

The Warrants do not confer upon the holder any voting or any other rights
of a stockholder of the Company. Upon notice to the Warrantholders, the
Company has the right to reduce the exercise price or extend the expiration
date of the Warrants.

Warrants may be exercised upon surrender of the Warrant certificate
evidencing those Warrants on or prior to the respective expiration date (or
earlier redemption date) of the Warrants at the offices of Continental Stock
Transfer & Trust Co., the warrant agent, with the form of "Election to
Purchase" on the reverse side of the warrant certificate completed and
executed as indicated, accompanied by payment of the full exercise price (by
certified check payable to the order of the warrant agent) for the number of
Warrants being exercised.

No Warrant will be exercisable or redeemable unless at the time of
exercise the Company has filed with the Commission a current prospectus
covering the issuance of shares of Common Stock issuable upon exercise of the
Warrant and the issuance of shares has been registered or qualified or is
deemed to be exempt from registration or qualification under the securities
laws of the state of residence of the holder of the Warrant. The Company has
undertaken to use its best efforts to maintain a current prospectus relating
to the issuance of shares of Common Stock upon the exercise of the Warrants
until the expiration of the Warrants, subject to the terms of the Warrant
Agreement. While it is the Company's intention to maintain a current
prospectus, there is no assurance that it will be able to do so. The Company
anticipates that this Registration Statement will remain effective for nine
months following the Effective Date. See "Risk Factors -- Current Prospectus
and State Blue Sky Registration Required to Exercise Warrants."

The Company may reduce the exercise price or extend the exercise of the
Warrants provided a current prospectus reflecting such changed terms is in
effect prior to the exercise of any Warrants. The Company will insure that
information regarding such impending change is disseminated to Warrantholders
and the public in an adequate and timely manner. In the event that such
action is taken, the Company must file a new registration statement and have
it declared effective prior to any exercise of any Warrants.

No fractional shares will be issued upon exercise of the Warrants.
However, if a Warrantholder exercises all Warrants then owned of record by
him or her, the Company will pay to that Warrantholder, in lieu of the
issuance of any fractional share which otherwise issuable, an amount in cash
based on the market value of the Common Stock on the last trading day prior
to the exercise date.

Upon the exercise of the Warrants, the Company will pay the Representative
a commission of 8% of the aggregate exercise price if (i) the market price of
the Company's shares of Common Stock on the date the Warrant is exercised is
greater than the then exercise price of the Warrants; (ii) the exercise of
the Warrant was solicited by the Representative; (iii) the Warrant is not
held in a discretionary account; (iv) disclosure of compensation arrangements
was made both at the time of the Offering and at the time of exercise of the
Warrant; (v) the holder of the Warrant, has stated in writing that the
exercise was solicited and designated in writing by the soliciting
broker-dealer; and (vi) the solicitation of the exercise of the Warrant was
not in violation of rule 10b-6, promulgated under the Exchange Act. No fee
will be paid to the Representative on Warrants exercised within one year of
the Effective Date or on Warrants voluntarily exercised at any time without
solicitation by the Representative.

In connection with the solicitation of Warrant exercises, unless granted
an exemption by the Commission from Rule 10b-6, the Representative and any
other soliciting broker-dealer will be prohibited from engaging in any
market-making activities with respect to the Company's securities for the
period commencing either two or nine business days (depending on the market
price of the Company's shares of Common Stock, prior to any solicitation
activity of the exercise of Warrants until the later of (i) the termination
of such solicitation activity or (ii) the termination (by waiver or
otherwise) of any right which the Representative or any other soliciting
broker-dealer may have to receive a fee for the exercise of Warrants
following such solicitation. As a result, the Representative or other
soliciting broker-dealer may be unable to provide a market for the Company's
securities, should it desire to do so, during certain periods which the
Warrants are exercisable.

PREFERRED STOCK

The Company's Certificate of Incorporation authorizes the issuance of
1,000,000 shares of Preferred Stock with designations, rights and preferences
determined from time to time by its Board of Directors.

33
<PAGE>

Accordingly, the Company's Board of Directors is empowered, without
shareholder approval, to issue Preferred Stock with dividend, liquidation,
conversion, voting or other rights that could adversely affect the voting
power or other rights of the holders of the Common Stock. In the event of
issuance, the Preferred Stock could be used, under certain circumstances, as
a method of discouraging, delaying or preventing a change in control of the
Company. Although the Company has no present intention to issue any shares of
its Preferred Stock, there can be no assurance that it will not do so in the
future.

UNDERWRITERS' WARRANT

In connection with this Offering, the Company has agreed to sell to the
Underwriters, or its designees, for $10, the Underwriters' Warrant to
purchase 130,000 shares of Common Stock and /or 130,000 Class A Warrants. The
Underwriters' Warrant is exercisable for a four-year period commencing one
year from the Effective Date of this Offering and entitles the Underwriters
to purchase each share of Common Stock or Warrant covered thereby at an
exercise price equal to 165% of the offering price per share of Common Stock
or Warrant, subject to adjustment in certain events. The Underwriters'
Warrant may not be sold, transferred, assigned or hypothecated except to
officers of the underwriters or members of the selling group or any officer
or partner of any member of the selling group. The prices payable for the
securities upon exercise of the Underwriters' Warrant and the number of
securities underlying the Underwriters' Warrant are subject to adjustment to
prevent dilution. See "Underwriting."

OPTIONS

As of the date of this Prospectus, no options have been granted. See
"Management -- Stock Option Plan."

TRANSFER AND WARRANT AGENT

The transfer and warrant agent for the Common Stock is Continental Stock
Transfer & Trust Company.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering, there has been no market for the Common Stock.
Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices.

Upon completion of this Offering, the Company will have approximately
6,030,000 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option). Of these shares, the 1,300,000 shares
sold in this Offering will be freely tradeable without restriction (except as
to affiliates of the Company) or further registration under the Act.

Each of the Company's current shareholders has entered into an agreement
(the "Lock-Up Agreement") not to offer, sell, contract to sell or grant any
option to purchase or otherwise dispose of the remaining 4,730,000 shares of
Common Stock, without the prior written consent of the Representative, (i)
with respect to the 4,510,000 shares owned by the Company's officers and
three of its directors, for a period of 24 months after the Effective Date,
and (ii) with respect to the remaining 220,000 shares owned by Selling
Securityholders, for a period of 18 months after the Effective Date. Each of
the Company's warrantholders has entered into a Lock-Up Agreement for a
period of 24 months after the Effective Date. Following expiration or release
from the Lock-Up Agreement, (i) 4,510,000 shares will be eligible for
immediate sale, subject to compliance with Rule 144 volume limitations and
(ii) 220,000 shares, and 4,158,332 Class A Warrants and the shares underlying
such warrants, all of which are being registered for sale pursuant to the
Selling Securityholders' Prospectus, will be eligible for immediate sale. The
Representative will not release the lock-up prior to the exercise or
expiration of the Over-Allotment Option.

In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned restricted securities within the
meaning of Rule 144 ("Restricted Shares") for at least two years, including
the holding period of any securities which converted into the Restricted
Shares and including the holding period of any prior owner except an
affiliate of the Company, would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of one percent of
the then outstanding shares of Common Stock or the average weekly trading
volume of the Common Stock reported during the four calendar weeks pre-

34
<PAGE>

ceding such sale. Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated with such person) who is not deemed to have been an affiliate of
the Company at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least three years (including any period of
ownership of preceding non-affiliated holders), would be entitled to sell
such shares under Rule 144(k) without regard to the volume limitations,
manner of sale provisions, public information requirements or notice
requirements.

Up to 130,000 shares of Common Stock and/or 130,000 Warrants may be
purchased by the Underwriters through the exercise of the Underwriters'
Warrant. Such shares may be freely tradeable, provided that the Company
satisfies certain securities registration and qualification requirements in
accordance with the terms of the Underwriters' Warrant. See "Underwriting."

UNDERWRITING

Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") between the Company and the Underwriters, the
Company has agreed to sell to the Underwriters, and the Underwriters,
severally and not jointly, have agreed to purchase, on a "firm commitment"
basis, all of the 1,300,000 shares of Common Stock and the 1,300,000 Warrants
offered hereby as follows:

Name Shares and Warrants
---- -------------------
Maidstone Financial Inc..... 350,000
The Harriman Group, Inc..... 950,000
Total ................... 1,300,000
=========

The Underwriting Agreement provides that the obligations of the Underwriter
are subject to certain conditions precedent including the current
effectiveness of the Registration Statement, delivery of an opinion of
Company's counsel, a "comfort letter" from the Company's accountants, the
delivery of an officer's certificate certifying that all representations and
warranties are true and correct, the appointment of the Transfer and Warrant
Agent and NASD approval of the Underwriters' compensation. The Underwriting
Agreement also provides that the Underwriters will be obligated to purchase
all of the shares of Common Stock and Warrants if any are purchased.

The Underwriters have advised the Company that they propose to offer the
shares of Common Stock and Warrants to the public at the offering prices set
forth on the cover page of this Prospectus and that the Underwriters may
allow to certain dealers, who are members of the National Association of
Securities Dealers, concessions not in excess of $.2295 per share of Common
Stock and $.0045 per Class A Warrant. After the Offering, the public offering
price and concessions and discounts and other offering terms may be changed.

The Company has granted an option to the Underwriters exercisable during
the 30-day period from the date of this Prospectus, to purchase up to a
maximum of 195,000 additional shares of Common Stock and/or 195,000
additional Class A Warrants solely to cover over-allotments, if any, in the
sale of the shares of Common Stock and Warrants, at the Offering price, less
the underwriting discounts and commission set forth on the cover page of this
Prospectus.

The Company has agreed to pay the Representative a non-accountable expense
allowance equal to 3% of the gross proceeds of the Offering, including the
proceeds of the Over-Allotment Option, if and to the extent exercised, of
which $30,000 has been paid to date. The Underwriting Agreement provides for
reciprocal indemnification between the Company and the Underwriter against
certain liabilities in connection with this Offering, including liabilities
under the Securities Act of 1933, as amended (the "Act").

As additional compensation in connection with this Offering the Company
has agreed to sell to the Underwriters, for nominal consideration, the
Underwriters' Warrants to purchase 130,000 shares of Common Stock and/or
Warrants. The Underwriters' Warrant is exercisable for a four-year period
commencing one year from the Effective Date and entitles the Underwriters to
purchase each share of Common Stock and Warrant covered thereby at an
exercise price equal to 165% of the initial public Offering price per share
of Common Stock and Warrant, subject to adjustment in certain events. The
Underwriters' Warrant may not be sold, trans-

35
<PAGE>

ferred, assigned or hypothecated except to officers of the underwriters or
members of the selling group or any officer or partner of any member of the
selling group. The prices payable for the securities upon exercise of the
Underwriters' Warrant and the number of securities underlying the
Underwriters' Warrant are subject to adjustment to prevent dilution.

For the term of the Underwriters' Warrant, the holder or holders thereof
are given, at a nominal cost, the opportunity to profit from a rise in the
market price of the shares of Common Stock subject to the Underwriter's
Warrant with a resulting dilution in the interests of other shareholders. The
Company may find it more difficult to raise additional equity capital if it
should be needed for its business while the Underwriters' Warrant is
outstanding; and at any time when the holders of the Underwriters' Warrant
might be expected to exercise such Warrant, the Company would in all
likelihood be able to obtain additional equity capital on terms more
favorable than those provided in the Underwriters' Warrant. Any profit
realized on the sale of the Underwriters' Warrant and shares of Common Stock
and Warrants subject to the Underwriters' Warrant may be deemed additional
underwriting compensation.

All of the Company's officers, three of its directors and all
warrantholders have agreed not to publicly sell, prior to 24 months from the
date hereof, any securities of the Company owned by them, without the prior
written approval of the Underwriter. The remaining Company shareholders have
agreed not to publicly sell prior to 18 months from the date hereof any
securities of the Company owned by them, without the prior written approval
of the Representative.

The Underwriting Agreement gives the Representative the right to appoint a
designee to attend all meetings of the Company's Board of Directors for a
period of three years following the closing of this Offering.

The Underwriting Agreement also provides that the Company may not issue
shares of Common Stock (other than pursuant to its 1996 Stock Option Plan)
for a period of two years following the Effective Date without the
Representative's prior written consent, which may not be unreasonably
withheld.

The Company has agreed to retain the Representative as a financial
consultant, for a period of three years from the date of this Prospectus at
an annual fee of $34,867, all of which fees (an aggregate of $104,600) will
be payable in advance on the completion of this Offering. The Underwriters
will seek out and review potential acquisition and joint venture targets for
the Company, as well as assisting the Company in responding to any
acquisitions for the Company.

The Company has agreed to indemnify the Underwriters against liabilities
incurred by the Underwriters by reason of misstatements or omissions to state
material facts in connection with the statements made in this Prospectus and
the Registration Statement of which it forms a part. The Underwriters, in
turn, have agreed to indemnify the Company against liabilities incurred by
the Company by reason of misstatements or omissions to state material facts
in connection with statements made in the Registration Statement and
Prospectus based on information furnished by the Underwriters.

The foregoing does not purport to be a complete statement of the terms and
conditions of the Underwriting Agreement. Reference is made to a copy of the
Underwriting Agreement, which is an exhibit to the Registration Statement of
which this Prospectus forms a part.

DETERMINATION OF OFFERING PRICE

There is currently no public market for the Company's securities.
Consequently, the Offering price has been determined by negotiations between
the Company and the Underwriters and does not necessarily bear any
relationship to any recognized criteria of value. In their negotiations of
the Offering price, the Company and the Underwriters took into account
estimates of the business potential and earning prospects of the Company, the
present state of the Company's development and prevailing market conditions.
In this regard, greater significance was given to the business potential and
earnings prospects of the Company than was given to historical financial
information. The Offering price set forth on the cover page of this
Prospectus should not, however, be considered an indication of the actual
value of the securities of the Company. Such market price is subject to
change as a result of market conditions and other factors.

36
<PAGE>

There can be no assurance that an established trading market will develop
for the Common Stock, or, if such market develops and continues, that the
prevailing market price for such securities will bear a favorable
relationship to the Offering price of the Common Stock. See "Risk Factors --
Lack of Market; Possible Volatility of Stock Price; Arbitrary Determination
of Offering Price."

LEGAL MATTERS

The validity of the securities being offered hereby is being passed upon
for the Company by Parker Duryee Rosoff & Haft, A Professional Corporation,
New York, New York. Gersten, Savage, Kaplowitz & Curtin, L.L.P., New York,
New York is acting as counsel for the Underwriters.

EXPERTS

The financial statements of the Company as at March 31, 1996 and for each
of the years in the two-year period then ended included in this Prospectus,
have been audited by Richard A. Eisner & Company, LLP, independent certified
public accountants as set forth in their report thereon appearing elsewhere
herein. Such financial statements are included herein and in the Registration
Statement in reliance upon such report given upon the authority of said firm
as experts in auditing and accounting.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form SB-2 in accordance
with the provisions of the Securities Act of 1933, as amended, with respect
to the securities offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits filed
thereto. For further information, reference is made to such Registration
Statement and to the exhibits filed therewith. Statements herein contained
concerning the provisions of any document are not necessarily complete and,
in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement. The Registration Statement and the
exhibits may be inspected without charge at the offices of the Commission
and, upon payment to the Commission of prescribed fees and rates, copies of
all or any part thereof may be obtained from the Commission's principal
office at the Public Reference Section, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 or at the Northeast Regional Office, 7
World Trade Center, New York, New York 10048. In addition, the Commission
maintains a web site on the internet at http://www.sec.gov that contains
reports, proxy and information statements and other information of issuers
that file electronically with the Commission.

37
<PAGE>

COMMUNITY CARE SERVICES, INC.
- I N D E X -
PAGE
NUMBER
------

REPORT OF INDEPENDENT AUDITORS ................... F-2

BALANCE SHEETS ................................... F-3

STATEMENTS OF OPERATIONS ......................... F-4

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY .... F-5

STATEMENTS OF CASH FLOWS ......................... F-6

NOTES TO FINANCIAL STATEMENTS .................... F-7

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Community Care Services, Inc.

We have audited the accompanying balance sheet of Community Care Services,
Inc. as at March 31, 1996 and the related statements of operations, changes
in stockholders' equity and cash flows for the years ended March 31, 1996 and
March 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of Community Care Services,
Inc. at March 31, 1996, and the results of its operations and its cash flows
for the years ended March 31, 1996 and March 31, 1995, in conformity with
generally accepted accounting principles.

Richard A. Eisner & Company, LLP
New York, New York
June 6, 1996

F-2
<PAGE>

COMMUNITY CARE SERVICES, INC.
BALANCE SHEETS

<TABLE>
<CAPTION>
March 31, June 30,
1996 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash .......................................................... $ 190,429 $ 163,113
Accounts receivable, trade - net (Notes D and F) .............. 2,808,265 2,955,638
Inventories (Notes B[2] and F) ................................ 441,085 523,227
Prepaid expenses .............................................. 4,377 18,452
---------- ----------
Total current assets ......................................... 3,444,156 3,660,430
Rental equipment, less accumulated depreciation of $418,760 and
$485,211, respectively (Note B[3]) ............................ 1,284,034 1,233,802
Property and equipment - net (Notes B[4] and E) ................. 218,410 213,206
Covenants not to compete - net (Note B[5]) ...................... 75,000 56,250
Accounts and customer lists - net (Note B[5]) ................... 139,972 134,970
Security deposits ............................................... 35,805 35,537
Deferred offering costs (Note C) ................................ 192,738 292,481
Deferred debt costs ............................................. 77,000 63,000
---------- ----------
TOTAL ......................................................... $5,467,115 $5,689,676
========== ==========
LIABILITIES
-----------
Current liabilities:
Accounts payable and accrued expenses ......................... $2,179,432 $2,407,497
Current portion of long-term debt (Note F) .................... 691,123 553,053
Note payable - bank (Note G) .................................. 200,000 200,000
Due to Adam Health Care Equipment Corp. (Note A) .............. 1,170,985 1,170,985
Income taxes payable (Note L) ................................. 181,299 236,506
---------- ----------
Total current liabilities .................................... 4,422,839 4,568,041
Long-term debt (Notes D and F) .................................. 931,512 883,283
Deferred income taxes payable (Note L) .......................... 9,000 9,000
---------- ----------
Total liabilities .......................................... 5,363,351 5,460,324
---------- ----------
Commitments and contingencies (Notes A, C and K)

STOCKHOLDERS' EQUITY
--------------------
(Note H)

Common stock, $.01 par value; authorized 20,000,000 shares,
issued and outstanding 4,730,000 shares at March 31, 1996 and
June 30, 1996 ................................................. 47,300 47,300
Preferred stock, $.01 par value; authorized 1,000,000 shares,
none issued
Additional paid-in capital ...................................... 327,820 327,820
Accumulated deficit ............................................. (271,356) (145,768)
---------- ----------
Total stockholders' equity ................................. 103,764 229,352
---------- ----------
TOTAL ...................................................... $5,467,115 $5,689,676
========== ==========

</TABLE>

The accompanying notes to financial statements are an integral part hereof.

F-3
<PAGE>

COMMUNITY CARE SERVICES, INC.
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Three Months Ended
Year Ended March 31, June 30,
----------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Net revenues ..................... $6,181,757 $2,940,892 $2,487,381 $1,042,240
---------- ---------- ---------- ----------
Costs and expenses:
Cost of net revenues:
Product and supply costs .... 2,084,306 1,014,181 1,020,657 367,042
Rental equipment depreciation 251,445 145,815 82,701 53,958
---------- ---------- ---------- ----------
2,335,751 1,159,996 1,103,358 421,000
Selling, general and
administrative expenses. .... 2,660,071 1,621,777 1,009,743 479,320
Provision for doubtful accounts 298,811 125,000 42,795 52,499
Amortization of intangible
---------- ---------- ---------- ----------
5,402,599 3,151,785 2,198,920 976,572
---------- ---------- ---------- ----------
Operating income (loss) ....... 779,158 (210,893) 288,461 65,668
Interest expense ................. 155,233 111,798 64,201 26,059
---------- ---------- ---------- ----------
Income (loss) before provision for
income taxes ................... 623,925 (322,691) 224,260 39,609
Provision for income taxes ....... 196,000 98,672
---------- ---------- ---------- ----------
NET INCOME (LOSS) ................ $ 427,925 $ (322,691) $ 125,588 $ 39,609
========== ========== ========== ==========
Per share data (Note B[8]):
Net income (loss) per common
share ....................... $ .09 $ (.07) $ .03 $ .01
========== ========= ========== ==========
Weighted average number of
shares outstanding .......... 4,730,000 4,510,000 4,730,000 4,730,000
========== ========= ========== ==========

</TABLE>
The accompanying notes to financial statements are an integral part hereof.

F-4
<PAGE>

COMMUNITY CARE SERVICES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(NOTE H)

<TABLE>
<CAPTION>
Common Stock
---------------------------
Number Additional
of Paid-in Accumulated
Shares Amount Capital Deficit Total
------------- ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance -- March 31, 1994 ............ 2,050,000 $ 20,500 $ 29,500 $(376,590) $(326,590)
Net (loss) ........................... (322,691) (322,691)
---------- -------- -------- --------- ---------
Balance -- March 31, 1995 ............ 2,050,000 20,500 29,500 (699,281) (649,281)
Net income ........................... 427,925 427,925
Warrants issued ...................... 12,750 12,750
Issuance of common stock ............. 1,541,666 15,417 296,953 312,370
---------- -------- -------- --------- ---------
Balance -- March 31, 1996 ............ 3,591,666 35,917 339,203 (271,356) 103,764
Conversion of common stock to warrants (1,441,666) (14,417) 14,417 - 0 -
Stock split of remaining shares of
common stock ........................ 2,580,000 25,800 (25,800) - 0 -
Net income for the three months ended
June 30, 1996 ....................... 125,588 125,588
---------- -------- -------- --------- ---------
BALANCE -- JUNE 30, 1996
(UNAUDITED) ......................... 4,730,000 $ 47,300 $327,820 $(145,768) $ 229,352
========== ======== ======== ========= =========
</TABLE>

The accompanying notes to financial statements are an integral part hereof.

F-5
<PAGE>

COMMUNITY CARE SERVICES, INC.
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Three Months Ended
Year Ended March 31, June 30,
----------------------------- --------------------------
1996 1995 1996 1995
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
(Unaudited)
Cash flows from operating activities:
Net income (loss) .............................. $ 427,925 $(322,691) $ 125,588 $ 39,609
Adjustments to reconcile net income (loss) to
net cash provided by operating
activities:
Depreciation and amortization expense ....... 363,676 396,696 117,192 77,713
Amortization of deferred unit cost and
debt discount ............................. 8,000 16,124
Disposal of rental equipment ................ 29,600 77,000 8,750
Loss on disposal of equipment ............... 3,833
Provision for doubtful accounts ............. 298,811 125,000 42,795 52,499
Interest added to loan balance .............. 10,209
Deferred income taxes payable ............... 9,000
Changes in operating assets and liabilities:
(Increase) in accounts receivable --
trade .................................. (2,434,237) (182,525) (190,168) (318,775)
(Increase) in inventories ................. (308,930) (68,149) (82,142) (22,221)
(Increase) decrease in prepaid expenses.... 21,145 (22,668) (14,075) (5,263)
(Increase) decrease in security deposits... (19,268) 268
Increase in accounts payable and accrued
expenses ............................... 1,815,760 582,690 228,065 245,261
Increase in income taxes payable .......... 181,299 55,207 488
----------- --------- ----------- ---------
Net cash provided by operating
activities ........................... 396,614 595,562 307,604 69,311
----------- --------- ----------- ---------
Cash flows from investing activities:
Acquisition of rental equipment ................ (819,331) (415,712) (43,345) (190,524)
Acquisition of property and equipment .......... (51,962) (29,460) (3,408) (8,314)
----------- --------- ----------- ---------
Net cash (used in) investing activities.. (871,293) (445,172) (46,753) (198,838)
----------- --------- ----------- ---------
Cash flows from financing activities:
Proceeds of bank borrowings .................... 200,000 80,000 100,606
Principal repayments of bank borrowings ........ (168,750) (250,000)
Proceeds from notes payable to suppliers ....... 106,338
Principal repayments of notes payable to
suppliers ................................... (241,337) (188,424)
Proceeds from debt offering .................... 637,500
Deferred debt costs ............................ (84,000)
Deferred offering costs ........................ (172,738) (20,000) (99,743)
Proceeds from issuance of common stock ......... 312,370 22,000
----------- --------- ----------- ---------
Net cash provided by (used in)
financing activities ................. 589,383 (190,000) (288,167) 122,606
----------- --------- ----------- ---------

NET INCREASE (DECREASE) IN CASH .................. 114,704 (39,610) (27,316) (6,921)

Cash at beginning of year ........................ 75,725 115,335 190,429 75,725
----------- --------- ----------- ---------
CASH AT END OF YEAR .............................. $ 190,429 $ 75,725 $ 163,113 $ 68,804
=========== ========= =========== =========
Supplementary disclosures of cash flow
information:
Cash paid during the year:
Interest .................................... $ 60,792 $ 32,543 $ 32,145 $ 573
Income taxes ................................ 6,189 43,472
</TABLE>

During the year ended March 31, 1996 the Company purchased property and
equipment with a note of $150,000. Also during the year ended March 31, 1996
suppliers have agreed to convert $726,474 of trade payables into notes
payable.

The accompanying notes to financial statements are an integral part hereof.

F-6
<PAGE>

COMMUNITY CARE SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED
JUNE 30, 1996 AND JUNE 30, 1995)

(NOTE A) -- ORGANIZATION:

[1] The Company was incorporated in July 1992 in the State of New York as
Community Support Services, Inc. During July 1992, it changed its name to
Community Care Services, Inc. (the "Company"). The Company operates a home
health care business which sells and rents durable medical equipment and
sells medical supplies primarily in the five boroughs of New York City, and
Westchester, Rockland and Nassau Counties, New York, as well as northern New
Jersey and southern Connecticut.

From inception through March 31, 1993, the Company had minimal activity.
In April 1993, the Company purchased certain assets and business of Adam
Health Care Equipment Corp. ("Adam"), a company in the same industry, for
$1,500,000 (the "Purchase Price"). In addition, the Company paid Adam an
additional $86,000 representing an adjustment to the Purchase Price mainly
for used equipment and parts. The Company paid $150,000 at the execution of
this agreement and $300,000 at the closing. $1,000,000 of the balance was to
be paid in equal quarterly installments evidenced by promissory notes with
interest at 6% per annum and a final payment due March 15, 1995. The
remaining $50,000 would be paid following the completion of a full Medicare
billing cycle.

In 1993, the Company commenced an action against Adam and its principals
arising out of the acquisition of certain assets of Adam by the Company in
April 1993. The complaint alleges that the defendants made numerous
misrepresentations relating to the business previously conducted by Adam. The
complaint seeks recovery of damages of $1,500,000, additional punitive
damages, the reduction of the original purchase price or rescission of the
original purchase agreement. The defendants have asserted counterclaims
against the Company. The counterclaims seek the payment of the unpaid
purchase price of $1,050,000 and collection expense of over $175,000.
Defendants also allege various additional causes of action, claiming
plaintiffs converted or interfered with the collection of property owned or
due to defendants and seek damages of over $7,000,000, including $5,000,000
in punitive damages. The Company believes it has meritorious defenses to the
counterclaims. However, there can be no assurance that the Company will be
successful in recovering damages for its claims or in defending itself
against the counterclaims. A judgment against the Company as a result of the
counterclaims could have a material adverse effect on its business. The
action is still in its final pre-trial stages and the Company expects a trial
date to be set shortly.

[2] The Company is in the process of raising additional funds through an
initial public offering of securities (the "IPO"). If the IPO is not
consummated, the Company intends to obtain additional bank financing.
However, there can be no guarantee that such financing will be available and
if available that these funds can be obtained on favorable terms.

(NOTE B) -- SIGNIFICANT ACCOUNTING POLICIES:

Significant accounting policies in the preparation of the financial
statements are as follows:

[1] Revenue recognition:

Revenues are recognized on the date services and related products are
provided to patients and are recorded at amounts estimated to be received
under reimbursement arrangements with third party payors, including private
insurers, Medicare and Medicaid.

[2] Inventories:

Inventories are stated at the lower of cost (first-in, first-out) or
market and consist primarily of medical supplies sold directly to patients
for use in their home.

[3] Rental equipment:

F-7
<PAGE>

COMMUNITY CARE SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited with respect to the three months ended
June 30, 1996 and June 30, 1995) - (Continued)

(NOTE B) -- Significant Accounting Policies: - (Continued)

Rental equipment consists of medical equipment rented to patients for use
in their homes and is stated at cost. Depreciation is provided using the
straight-line method over the useful life of the equipment which is estimated
at five years.

[4] Property and equipment:

Property and equipment are stated at cost. The Company computed
depreciation and amortization using the straight-line method over the useful
lives of the assets acquired which is estimated at five years.

[5] Intangible assets:

Intangible assets consist of covenants not to compete and accounts and
customer lists. The covenants are being amortized on a straight-line basis
over their contractual lives which range from two to four years. The accounts
and customer lists are being amortized using the straight-line method over
the period of expected benefit which is estimated at ten years. Intangible
assets are evaluated periodically, and adjusted if necessary, if events and
circumstances indicate that a permanent decline in value below the carrying
amount has occurred.

[6] Income taxes:

Effective August 10, 1992, the Company elected to be taxed as an S
corporation under the provisions of the Internal Revenue Code and state tax
laws. Under those provisions the Company did not pay federal corporate income
tax. However, it was subject to a limited extent, to New York State corporate
tax. The stockholders were liable for individual income taxes on the
Company's taxable income until November 1995 when the S corporation status
was automatically terminated by the sale of common stock to an ineligible
stockholder. No pro forma tax provision benefit has been presented to reflect
the Company's taxes as if it were a C corporation. The Company would have
reported net operating losses if it were a C corporation for the year ended
March 31, 1995 resulting in a deferred tax asset which would be netted
against a valuation allowance thereby providing a zero tax provision. For the
period after the termination of the S corporation tax status through June 30,
1996, a deferred tax liability has been realized because the losses incurred
as an S corporation are not available to the Company for carryforward. See
Note L in reference to tax provision.

[7] Estimates:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

[8] Per share data:

Net income per common share is based on the weighted average number of
common shares outstanding after giving retroactive effect to the conversion
of common shares for warrants and the 2.2 for 1 stock split, both effected in
August 1996. See Note H[2].

[9] Recently issued accounting pronouncements:

The Company believes that Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long- Lived Assets and
for Long-Lived Assets to be Disposed of" and SFAS No. 123, "Accounting for
Stock-Based Compensation" issued by the Financial Accounting Standards Board
will not have a material impact on the Company's financial position and
results of operations. In accordance with SFAS No.

F-8
<PAGE>

COMMUNITY CARE SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited with respect to the three months ended
June 30, 1996 and June 30, 1995) - (Continued)

(NOTE B) -- Significant Accounting Policies: - (Continued)

123 the Company expects to continue to account for employee stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and beginning in fiscal 1997 will
make the appropriate disclosures of pro forma net income (loss) and earnings
(loss) per share.

[10] Interim financial information:

The accompanying financial statements as of June 30, 1996 and for the
three-month periods ended June 30, 1996 and June 30, 1995 are unaudited. In
the opinion of management, they reflect all adjustments (consisting only of
normal and recurring adjustments) necessary for a fair presentation of the
Company's financial position, results of operations and cash flows.

The results of operations and cash flows for the three months ended June
30, 1996 are not necessarily indicative of the results that may be expected
for the full year ending March 31, 1997.

(NOTE C) -- PROPOSED PUBLIC OFFERING:

The Company has signed a letter of intent with respect to a proposed
public offering of the Company's securities. There is no assurance that such
offering will be consummated. In connection therewith the Company anticipates
incurring substantial expenses which, if the offering is not consummated,
will be charged to expense.

(NOTE D) -- ACCOUNTS RECEIVABLE:

Accounts receivable consists of the following:

March 31, June 30,
1996 1996
------------ ------------
Billed .............................. $1,871,154 $2,069,620
Unbilled ............................ 1,339,166 1,266,585
---------- ----------
Total ............................. 3,210,320 3,336,205
Less allowance for doubtful accounts . 402,055 380,567
---------- ----------
$2,808,265 $2,955,638
========== ==========

Unbilled receivables represent delivered products or services rendered as
of the balance sheet date which will be billed when the Company obtains the
physician's written prescription. Management evaluates the adequacy of the
allowance based on the specific payor and general economic conditions
including the aging of the account and the nature of the payor (private or
government agencies).

(NOTE E) -- PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:
March 31, June 30,
1996 1996
----------- ----------

Machinery and equipment ....................... $ 50,697 $ 54,106
Security system ............................... 3,843 3,843
Furniture and fixtures ........................ 59,613 59,613
Vans .......................................... 5,447 5,447
Leasehold improvements ........................ 125,943 125,943
-------- --------
245,543 248,952
Less accumulated depreciation and amortization . 27,133 35,746
-------- --------
$218,410 $213,206
======== ========

F-9
<PAGE>

COMMUNITY CARE SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited with respect to the three months ended
June 30, 1996 and June 30, 1995) - (Continued)

(NOTE F) -- LONG-TERM DEBT:

Long-term debt consists of the following:

<TABLE>
<CAPTION>
March 31, June 30,
1996 1996
----------- -----------
<S> <C> <C>
Notes payable to suppliers - payable at monthly intervals thru June
1997, with interest at 9% to 13% collateralized by inventory and
accounts receivable ................................................ $ 741,476 $ 553,053
Notes payable bearing interest at 8%, due August 1997 or upon closing
of public offering, face amount $637,500. The effective interest
rate is 9.53% ...................................................... 625,750 627,874
Loans payable to stockholders and affiliates - noninterest bearing
due the earlier of an IPO or due on demand after July 1, 1997 ...... 255,409 255,409
---------- ----------
Total ............................................................. 1,622,635 1,436,336
Less current maturities ............................................. 691,123 553,053
---------- ----------
$ 931,512 $ 883,283
========= = ==========
</TABLE>

(NOTE G) -- NOTE PAYABLE - BANK:

The note payable - bank is collateralized by personal guarantees of
certain stockholders, former stockholders and an affiliated company and a
$200,000 certificate of deposit of a former stockholder. The loan bears
interest at 1% above prime and is due on demand.

(NOTE H) -- STOCKHOLDERS' EQUITY:

[1] During April 1995, the Company issued 200,000 common shares for a
purchase price of $22,000.

During November 1995, the Company issued 841,666 common shares for an
aggregate price of $101,000. The net proceeds of this transaction were
$77,870.

During January 1996, the Company issued 500,000 common shares for an
aggregate price of $250,000. The net proceeds of this transaction were
$212,500.

[2] During April 1995, the Board of Directors authorized the changes and
increases of the Company's shares to reflect a change of the Company's no par
value common stock to $.01 par value and their exchange at the rate of one
share of no par value common stock for 13,666 2/3 shares of $.01 par value.
The Board of Directors also authorized the common stock $.01 par value to
increase by an additional 7,266,667 shares and authorized preferred stock
$.01 par value to increase to 1,000,000 shares. In August 1996 the Company
exchanged 1,441,666 shares of common stock for 2,883,332 Class A warrants and
then issued a 2.2 for 1 stock dividend on the remaining outstanding shares.
All references in the accompanying financial statements to the number of
shares and per share amounts reflect these changes.

[3] In April 1996, the Company amended its Certificate of Incorporation to
increase the number of authorized shares of common stock from 10,000,000 to
20,000,000 shares.

[4] During 1996, the Company adopted a 1996 Stock Option Plan (the "Plan")
which provides for the granting of options to purchase up to 603,000 common
shares to officers, employees, directors and consultants. Options granted may
be either Incentive Stock Options within the meaning of the Internal Revenue
Code or Nonstatutory Stock Options. The Plan is administered by the Board of
Directors or by a committee consisting of at least two persons chosen by the
Board of Directors, which determines to whom options will be granted and will
determine, subject to the terms of the Plan, the number, the exercise period
and other provisions of such options.

F-10
<PAGE>

COMMUNITY CARE SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited with respect to the three months ended
June 30, 1996 and June 30, 1995) - (Continued)

(NOTE H) -- Stockholders' Equity: - (Continued)

Members of the committee (or all of the members of the Board of Directors,
if no committee is established) shall not be entitled to receive
discretionary grants of options under the Plan, but shall automatically be
granted, on the first day of each fiscal year, Nonstatutory Stock Options to
purchase 1,000 shares of common stock.

[5] In connection with the issuance of the 8% notes payable, the Company
issued warrants for the purchase of 1,275,000 shares of common stock at a
purchase price of $7.50 per share; exercisable commencing February 1997 to
February 2001. Upon closing of the proposed public offering the warrants will
be exchanged into an equal number of Class A warrants which may be sold
pursuant to the offering.

(NOTE I) -- RELATED PARTY:

During the year ended March 31, 1995, the Company entered into an
agreement with another entity which is owned by one of the stockholders of
the Company, whereby the entity acted as a nonexclusive agent to represent
the Company with potential managed care organizations.

On May 1, 1995, the Company entered into a new agreement with this entity,
whereby the entity was to provide the same services as the above agreement
for a fixed fee of $4,500 per month. The agreement was terminated in November
1995 with payments to be made through January 1996.

The amounts expensed were $45,000 and $35,136 for the years ended March
31, 1996 and March 31, 1995, respectively.

(NOTE J) -- CONCENTRATION OF RISK:

Revenues from principal sources are as follows:

<TABLE>
<CAPTION>
Three Months
Year Ended Ended
March 31, June 30,
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Medicare ........................... 35.4% 42.9% 32.3% 42.8%
Medicaid ........................... 36.4 34.0 29.6 31.7
Private insurance and other
nongovernment agencies ............ 28.2 23.1 38.1 25.5
----- ----- ----- -----
Total ............................ 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====

</TABLE>

The Company derives the majority of its revenues from reimbursements by
third-party payors, typically invoicing and collecting payments directly from
the third-party payor.

During the years ended March 31, 1996 and March 31, 1995 and for the three
months ended June 30, 1996 and June 30, 1995, the Company's five largest
sources of referral accounted for approximately 52%, 37%, 71% and 40% of the
Company's total revenue, respectively.

Reimbursements can be influenced by the financial instability of private
third-party payors and the budget pressures and cost shifting by governmental
payors. A reduction in coverage or reimbursement rates by third- party payors
could have a material adverse effect on the Company's results of operations.

The Company, like other Medicaid and Medicare providers, is subject to
governmental audits of its Medicaid and Medicare reimbursement claims. As a
provider of services, under the Medicaid and Medicare programs, the Company
is also subject to the Medicaid and Medicare fraud and abuse laws.

F-11
<PAGE>

COMMUNITY CARE SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited with respect to the three months ended
June 30, 1996 and June 30, 1995) - (Continued)

(NOTE J) -- Concentration of Risk: - (Continued)

The percentage of accounts receivable is as follows:

<TABLE>
<CAPTION>
March 31, June 30,
1996 1996
------------- ------------
<S> <C> <C>
Medicaid ............................................. 34% 34%
Medicare ............................................. 32 31
Private insurance and other nongovernment agencies ... 34 35
--- ---
100% 100%
=== ===
</TABLE>

(NOTE K) -- COMMITMENTS:

[1] Lease:

During January 1996, the Company became obligated under a long-term lease
agreement for its office and warehouse facilities. In addition to the basic
rental, the lease provides for increases due to real estate taxes. Minimum
future obligations on the lease are as follows:

Year Ending
March 31,
-----------
1997 ............................ $114,000
1998 ............................ 114,000
1999 ............................ 118,500
2000 ............................ 132,000
Later years ..................... 99,000
--------
Total ......................... $577,500
========

Furthermore, the Company leases office space on a month-to- month basis.
The rent expense was $81,969, $69,156, $388,800 and $12,030 for the years
ended March 31, 1996 and March 31, 1995 and for the three-month periods ended
June 30, 1996 and June 30, 1995, respectively.

[2] Employment agreement:

Upon consummation of the proposed public offering, the Company will enter
into an employment agreement with its President, who is also its Chief
Executive Officer and Chief Financial Officer. The agreement will have a
three-year term which renews for an additional year on each anniversary of
the agreement, and provides for an annual base compensation of $150,000. A
noncompetition provision covering the term of the agreement plus one year
following termination is also included.

Upon consummation of the proposed public offering, the Company will also
enter into an employment agreement with its Chief Operating Officer. The
agreement will have a three-year term which renews for an additional year on
each anniversary of the agreement, and provides for an annual base
compensation of $120,000. The agreement also provides for certain employee
benefits and contains a noncompetition provision covering the term of the
agreement plus one year following termination.

F-12
<PAGE>

COMMUNITY CARE SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited with respect to the three months ended
June 30, 1996 and June 30, 1995) - (Continued)

(NOTE L) -- INCOME TAXES:

See Note B[6] in reference to change in S corporation status. The
estimated provision for income taxes for the period subsequent to termination
of the S corporation status through March 31, 1996 and June 30, 1996 consists
of the following:
March 31, June 30,
1996 1996
----------- ----------
Current .......................................... $187,000 $98,672
Deferred tax applicable to temporary differences
in depreciation expense ........................ 9,000
--------
Provision for income taxes ..................... $196,000 $98,672
======== =======

The difference between the tax provision and the amount that would be
computed by applying the statutory federal income tax rate to income before
taxes is attributable to the following:

March 31, June 30,
1996 1996
----------- ----------
Income tax provision at 34% ...................... $212,000 $76,500
State taxes, net of federal benefit .............. 37,000 22,172
Statutory federal income tax rate applicable to
income earned while Company was an S corporation. (53,000)
-------- -------
$196,000 $98,672
======== =======

(NOTE M) -- SUBSEQUENT EVENTS:

During August and September 1996, the Company borrowed $300,000 with
interest at 8%. The loans are due at the earlier of October 15, 1996 or the
closing of the IPO and are collateralized by junior liens on inventory and
accounts receivables.

F-13
<PAGE>
=============================================================================

No dealer, salesperson or other person has been authorized to give any
information or make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Underwriters. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any securities, to any person in any jurisdiction where such offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor
any sale made hereunder shall under any circumstances create any implication
that there has been no change in the affairs of the Company since the date
hereof.
------
TABLE OF CONTENTS

Page
--------
Prospectus Summary ........................ 3
The Company ............................... 3
Risk Factors .............................. 6
Use of Proceeds ........................... 13
Dividend Policy ........................... 14
Capitalization ............................ 14
Dilution .................................. 15
Selected Financial Data ................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 17
Business .................................. 20
Management ................................ 27
Principal Shareholders .................... 30
Certain Transactions ...................... 31
Description of Securities ................. 32
Shares Eligible for Future Sale ........... 34
Underwriting .............................. 35
Legal Matters ............................. 37
Experts ................................... 37
Additional Information .................... 37
Index to Financial Statements ............. F-1

Until November 12, 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Company's securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus with
respect to their unsold allotments or subscriptions.

===============================================================================
<PAGE>

=============================================================================

COMMUNITY CARE SERVICES, INC.

LOGO

1,300,000 SHARES OF COMMON STOCK
1,300,000 CLASS A WARRANTS

------

PROSPECTUS

------

LOGO

LOGO THE HARRIMAN GROUP, INC.

October 18, 1996

===============================================================================