Ages Health Services Inc – ‘10QSB’ for 3/31/97

As of:  Wednesday, 5/21/97   ·   For:  3/31/97   ·   Accession #:  910647-97-143   ·   File #:  33-65106

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Quarterly Report — Small Business   —   Form 10-QSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10QSB       Quarterly Report -- Small Business                    15±    68K 
 2: EX-27       Article 5--Financial Data Schedule                     1      6K 
 3: EX-99       Ex-99.1 - Restated Statement of Operations             2±     8K 
 4: EX-99       Ex-99.2 - Restated Balance Sheet                       2±    12K 

10QSB   —   Quarterly Report — Small Business
Document Table of Contents

U.S. SECURITIES AND EXCHANGE COMMISSION   
Washington, DC 20549    
FORM 10-QSB   

Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act      
of 1934                                                                         

For the quarter ended March 31, 1997                                            

Commission file number      1-12564                                             
_________________                 

Ages Health Services Inc.   
______________________________________________________________________________  
(Exact name of small business issuer as specified in its charter) 

Massachusetts                           04 - 3102249    
_____________________________________  _______________________________________  
(State or other jurisdiction of               (I.R.S. employer          
incorporation or organization)               identification No.)        

800 Hingham Street, Suite 103 S, Rockland, MA 02370   
______________________________________________________________________________  
(Address of principal executive offices)    

617 - 871- 6550   
______________________________________________________________________________  
(Issuer's telephone number)   

N/A   
______________________________________________________________________________  
(Former name, former address and former fiscal year, if changed   
since last report)    

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

Yes    X     No                                                                 
_____       _____                                                     

The number of shares outstanding of registrant's no par value common stock,     
at April 30, 1997,was 2,580,100.                                                

Transitional small business disclosure format (check one):                      

Yes           No     X                                                          
_____         _____                                                   

AGES Health Services Inc.   

INDEX   

                                                        [Enlarge/Download Table]

PART 1 - FINANCIAL INFORMATION  *                                                    
______________________________                                                       

Item 1. - Financial Statements                                               Page    
                                                                             Number  
                                                                             ______  

                                                                                     
      Balance Sheets                                                                 
       at March 31, 1997 and September 30, 1996............................. 3  -  4 

      Statements of Operations                                                       
       for the three months and six months ended March 31, 1997 and 1996.... 5       

      Statements of Cash Flows                                                       
       for the six months ended March 31, 1997 and 1996..................... 6  -  7 

      Notes to Financial Statements......................................... 8  -  10

Item 2. - Management's Discussion and Analysis of                                    
          Financial Condition and Results of Operations..................... 10 - 12 

PART II - OTHER INFORMATION                                                          
___________________________                                                          

Item 1. - Legal Proceedings................................................. 12      

Item 2. - Changes in Securities  See Item 5................................. 12      

Item 5. - Other Matters..................................................... 12      

Item 6. - Exhibits and Reports on Form 8-K.................................. 12      

Signatures.................................................................. 13      

<F*> The financial information at September 30, 1996 has been derived from           
     the Company's audited financial statements at that date.  All other             
     information is unaudited.                                                       

AGES HEALTH SERVICES INC.   

Balance Sheets    
(Unaudited)   

                                                        [Enlarge/Download Table]

                                                                       March 31    September 30,
                                                                         1997          1996*    
                                                                       --------    -------------

Assets                                                                                          

                                                                                                
Current:                                                                                        
  Cash and cash equivalents                                           $  144,457    $   25,548  
  U.S. Treasury Notes                                                          -     1,480,785  
  Accounts receivable, less allowance for uncollectible                                         
   accounts of $473,468 and $570,000                                   2,164,782     2,018,537  
  Prepaid expenses                                                        55,482        49,013  
  Current portion of long-term note receivable related                                          
   to discontinued operations                                              7,702         5,000  
  Deferred taxes                                                          15,000        15,000  
                                                                      ------------------------  
      Total current assets                                             2,387,423     3,593,883  
                                                                      ------------------------  
Property and equipment, net of accumulated depreciation of                                      
 $166,305 and $131,251                                                   177,681       193,472  
                                                                      ------------------------  

Deferred financing costs, net of accumulated amortization of                                    
 $8,237 and $1,030                                                             -         7,207  
                                                                      ------------------------  

Long-term note receivable related to discontinued                                               
 operations, less current portion                                         10,320        14,726  
                                                                      ------------------------  

                                                                      $2,575,424    $3,809,288  
                                                                      ========================  

Liabilities and Stockholders' Equity (Deficit)                                                  

Current liabilities:                                                                            
  Short-term borrowings                                               $1,525,938    $1,695,750  
  Accounts payable                                                       307,271       210,237  
  Dividends payable                                                       25,000        10,000  
  Accrued expenses                                                       506,347       832,375  
  Current portion of long-term debt and loans payable                    215,780       192,375  
                                                                      ------------------------  

      Total current liabilities                                        2,580,336     2,940,737  

Long-term debt and notes payable, less current portion                   299,118       328,077  
Deferred income taxes                                                     15,000        15,000  
                                                                      ------------------------  

      Total liabilities                                                2,894,454     3,283,814  
                                                                      ------------------------  

Commitments and contingencies                                                                   

Stockholders' equity (deficit):                                                                 
  Preferred stock, 12% cumulative, nonparticipating, $1,000                                     
   per share liquidation value, without par value; 100,000                                      
   shares authorized, 250 shares issued and outstanding                  250,000       250,000  
  Common stock, without par value; 4,500,000 shares                                             
   authorized; 2,580,100 shares issued and outstanding                 3,375,897     3,375,897  
  Accumulated deficit                                                 (3,944,927)   (3,082,224) 
  Unrealized loss on marketable securities                                     -       (18,199) 
                                                                      ------------------------  

      Total stockholders' equity (deficit)                              (319,030)      525,474  
                                                                      ------------------------  

                                                                      $2,575,424    $3,809,288  
                                                                      ========================  

See accompanying notes to financial statements.                                                 

<F*> The balance sheet at September 30, 1996 has been derived from the                          
     audited financial statements at that time.  All other information is                       
     unaudited.                                                                                 

AGES HEALTH SERVICES INC.   

Statements of Operations    
(Unaudited)   

                                                        [Enlarge/Download Table]

                                                For the three months         For the six months    
                                                  ended March 31,             ended March 31,      
                                              ------------------------    ------------------------ 
                                                 1997          1996          1997          1996    
                                                 ----          ----          ----          ----    

                                                                                                   
Net patient service revenue                   $1,652,931    $2,041,385    $3,275,966    $3,937,299 
Cost of patient services                       1,328,782     1,430,081     2,573,004     2,763,788 
                                              ---------------------------------------------------- 
  Gross profit on patient services               324,149       611,304       702,962     1,173,511 
                                              ---------------------------------------------------- 

General and administrative expenses              775,181       571,779     1,454,559     1,073,723 
Amortization of acquisition-related costs              -        15,536             -        39,484 
Amortization of deferred financing costs           6,178             -         7,207             - 
                                              ---------------------------------------------------- 
  Operating expenses                             781,359       587,315     1,461,766     1,113,207 
                                              ---------------------------------------------------- 

Operating income (loss)                         (457,210)       23,989      (758,804)       60,304 

Interest expense, net                             40,269        19,319        70,700        43,976 
                                              ---------------------------------------------------- 

Operating loss on continuing operations         (497,479)        4,670      (829,504)       16,328 

Loss on disposal of discontinued operations            -             -             -        (3,217)
                                              ---------------------------------------------------- 

Net income (loss)                               (497,479)        4,670      (829,504)       13,111 

Preferred stock dividends                         (7,500)       (7,500)      (15,000)      (15,000)
                                              ---------------------------------------------------- 

Net income (loss) applicable to common stock  $ (504,979)   $   (2,830)   $ (844,504)   $   (1,889)
                                              ==================================================== 

Net income (loss) per share of common stock   $     (.20)            -    $     (.33)            - 
                                              ==================================================== 

Weighted average number of shares of                                                               
 common stock outstanding                      2,580,100     2,580,100     2,580,100     2,580,100 


See accompanying notes to financial statements.                                 

AGES HEALTH SERVICES INC.   

Statements of Cash Flows    
(Unaudited)   

                                                        [Enlarge/Download Table]

                                                                 For the six months     
                                                                  ended March 31,       
                                                              ------------------------- 
                                                                  1997          1996    
                                                                  ----          ----    

                                                                                        
Cash flows from operating activities:                                                   
  Net income (loss)                                           $  (829,504)    $  13,111 
  Adjustments to reconcile net income (loss) to net cash                                
   used for operating activities:                                                       
    Depreciation and amortization                                  42,261        69,917 
    Provision for losses on accounts receivable                   275,502        62,797 
    Deferred consulting costs                                           -        18,000 
    Loss on sale of marketable securities                          16,294           938 
    Changes in operating assets and liabilites:                                         
      Accounts receivable                                        (421,747)     (530,169)
      Prepaid expense                                              (6,469)       (5,417)
      Accounts payable                                             97,034       150,612 
      Accrued expenses                                           (326,028)      (63,909)
                                                              ------------------------- 

        Net cash used for operating activities                 (1,152,657)     (284,120)
                                                              ------------------------- 

Cash flows from investing activities:                                                   
  Proceeds from sale of marketable securities                   1,464,491       499,062 
  Purchase of marketable securities                                     -      (499,062)
  Purchase of property and equipment                              (19,263)      (24,471)
  Principal payments from note receivable                           1,704         2,248 
                                                              ------------------------- 

        Net cash provided by (used for) investing activities    1,446,932       (22,223)
                                                              ------------------------- 

Cash flows from financing activities                                                    
  Repayments of short-term borrowings                            (169,812)      214,329 
  Principal payments on other notes payable                        (5,554)       (4,757)
  Dividends paid on preferred stock                                     -       (10,000)
                                                              ------------------------- 

      Net cash provided by (used for) financing activities       (175,366)      199,572 
                                                              ------------------------- 

Net increase (decrease) in cash and cash equivalents              118,909      (106,771)

Cash and cash equivalents, beginning of period                     25,548       126,878 
                                                              ------------------------- 

Cash and cash equivalents, end of period                      $   144,457     $  20,107 
                                                              ========================= 

See accompanying notes to financial statements.                                 

AGES HEALTH SERVICES INC.   

Notes to Financial Statements   

1.  Basis of Presentation                                                       

The financial statements as of March 31, 1997 and 1996 are unaudited
but include all adjustments (consisting of normal, recurring adjustments)       
which the Company considers necessary for a fair presentation of such           
interim financial statements.  The accompanying financial statements and        
notes are presented as permitted by Form 10-QSB and do not contain certain      
information included  in the Company's annual audited financial                 
statements and  notes thereto.  The results of operations for the six           
months ended March 31, 1997 will not be indicative of the results to be         
expected for the entire year ending September 30, 1997, due to the sale of      
substantially all of the Company's operating assets to Arbour Elder             
Services, Inc. pursuant to an Asset Purchase Agreement dated February 1,        
1997 ("the Agreement"), which closed May 4, 1997.  (see Item 2. Management's    
Discussion and Analysis of Financial Condition and Results of Operation,        
Management Agreement and Sale of Assets).                                       

2.  U.S. Treasury Notes                                                         

Short term investments in U.S. Treasury Notes are considered        
available-for-sale securities, and therefore are accounted for at fair          
market value.  Unrealized gains and losses are recorded as a component of       
Stockholders' Equity.  Realized gains and losses are recognized in the          
results of operations.  On January 16, 1997, the Company redeemed its two       
$500,000 U.S. Treasury Notes prior to their maturity date.  The notes           
matured at less than full face value.  Less transaction costs, the              
redemption yielded $964,882 of cash, which was used to pay off short term       
borrowings and interest due under the Company's brokerage borrowing             
agreement and to provide $33,019 of working capital.                            

3.  Short-Term Borrowings                                                       

Short-term borrowings at March 31, 1997 of $1,525,938, were due to  
Arbour Elder Services, Inc. under terms the Agreement.  Principal and           
interest payments on the borrowings were suspended pending the close of the     
Agreement, which closing took place effective May 4, 1997.  (see Item 2.        
Management's Discussion and Analysis of Financial Condition and Results of      
Operation, Management Agreement and Sale of Assets).                            

4.  Taxes on Income                                                             

In recognition of the uncertainty regarding the ultimate amount of  
income tax benefits to be derived from the Company's net operating loss         
carryforward and other deferred tax assets, the Company has provided a          
deferred tax asset valuation allowance at March 31, 1997 equal to 100% of       
the net operating loss carryforward and a portion of the other deferred tax     
assets.  Accordingly, the Company has not recognized a tax credit for the       
six months ended March 31, 1997 in the accompanying statements of               
operations.  A current tax provision was not provided for the six months        
ended March 31, 1996 due to the availability of the net operating loss          
carryforward which was used to offset current taxes due.                        

5.  Net Income (Loss) Per Share of Common Stock                                 

Net income (loss) per share of Common Stock is computed by dividing 
net income (loss) applicable to common stockholders by the weighted average     
number of common and common equivalent shares outstanding during each period    
presented.  Common shares issuable upon exercise of outstanding warrants and    
options, when dilutive, are included in the computation of shares               
outstanding.                                                                    

6.  Cash Flow Information                                                       

 Payments for interest and income taxes for the six months ended March
31, follows:                                                                    

                                                                [Download Table]

                              1997       1996  
                              ----       ----  

                                               
Interest                     $76,730    $71,525
Income taxes                 $     -    $     -

 A supplemental schedule of noncash investing and financing activities
for the six months ended March 31,  follows:                                    

                                                                [Download Table]

                                                       1997     1996 
                                                       ----     ---- 

                                                                     
Preferred Stock dividends accrued                     15,000    5,000
Unrealized gain (or loss) on marketable securities         -    9,843


7.  Legal Proceedings                                                           

The Massachusetts Department of the Attorney General undertook a two
year review of certain of the Company's Medicaid claims related to              
diagnostic, consultation and medical services performed at nursing homes        
serviced by the Company.  The primary focus of the review was to determine      
whether the services performed were qualifying reimbursable services.  The      
Company has maintained that the services provided were appropriate and that     
all services were billed correctly.  In February of 1997, the Company and       
the Attorney General jointly filed a civil settlement agreement to conclude     
the dispute concerning Medicaid billings.  The Company admitted no liability    
or wrongdoing under the terms of the settlement.  The terms of the              
settlement call for the Company to pay $100,000, which amount the Company       
believes approximated its projected legal expenses to conclude the matter       
without settlement, and which amount the Company has previously reserved for    
the matter.  In addition, the Company will donate $25,000 worth of              
uncompensated services and training to patients, their families and their       
caregivers.  At March 31, 1997, the Company had paid $7,690 of the cash         
portion of the settlement, and had donated $20,400 worth of uncompensated       
services and training.                                                          

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

Management Agreement and Sale of Assets                             
---------------------------------------                             
The Company entered into an Asset Purchase Agreement ("Agreement")  
dated February 1, 1997 with Arbour Elder Services, Inc. ("Arbour").             
Pursuant to the Agreement the Company is to sell substantially all of its       
operating assets.  The assets being sold include certain accounts               
receivable, contractual and lease rights, licenses and permits to the extent    
permitted by law, equipment, and intellectual property rights.  The purchase    
price for the assets is $1,100,000 in cash of which $100,000 was paid on the    
signing of the Agreement, the assumption of liabilities up to $760,000 and a    
payment of up to $800,000 based upon the amount of retained accounts            
receivable actually collected.  Arbour shall be entitled to retain the first    
$1,000,000 of accounts receivable collected, and shall remit the next           
$800,000 of collections to the Company.  Arbour shall retain any net            
accounts receivable collected in excess of $1,800,000.  The closing of the      
transactions contemplated by the Agreement ("Closing") took place May 4,        
1997, subsequent to the satisfaction of certain conditions, including           
approval of the Stockholders of the Company.                                    

 In connection with the Agreement, the Company and Arbour entered into
a Management Agreement ("Management Agreement") pursuant to which Arbour,       
effective February 1, 1997, assumed the responsibility for the management of    
the operations of the Company.  The services to be performed by Arbour          
include all services necessary for the operation of such business, such as      
hiring and firing personnel, payment of salaries and all other operating        
expenses, purchasing of supplies and supervising the operations.  Arbour as     
manager, and for its compensation, is entitled to retain all revenues from      
the services rendered, but is obligated to pay all of the expenses incurred     
in connection therewith.  The management period ended May 4, 1997 with the      
closing of the transactions contemplated by the Agreement.  Arbour, as          
manager, bears the operating loss for two months of the quarter ended March     
31, 1997.  A restated Statement of Operations for the six months ended March    
31, 1997 showing the effect of Arbour's management obligations with respect     
to operations in February and March are included as Exhibit 99.1 (see Item 6,   
Exhibits and Reports on Form 8-K).                                              

Liquidity and Capital Resources                                     
-------------------------------                                     
 During the six months ended March 31, 1997, the Company required cash
of $1,152,657 to fund operating activities primarily as a result of the net     
loss from operating activities of $829,504.  The Company invested $19,263 in    
property and equipment and repaid $169,812 on short-term borrowings during      
the six months of Fiscal 1997.  The Company's operating cash requirements,      
equipment purchases and debt repayment were funded in part by proceeds from     
the sale of marketable securities of $1,464,491.                                

The Company's working capital was ($192,913) at March 31, 1997      
compared to $653,146 at September 30, 1996. The Company was not adequately      
capitalized at March 31, 1997, to continue current operations.  However, the    
Company's Management Agreement with Arbour placed the burden of continuing      
operations on Arbour for the period on and after February 1, 1997 up to the     
close of the transactions contemplated by the Agreement, which took place on    
May 4, 1997.  A restated Balance Sheet for March 31, 1997, showing the          
effect of Arbour's management obligations with respect to operations in         
February and March are included as Exhibit 99.2 (see Item 6, Exhibits and       
Reports on Form 8-K).                                                           

Results of Operations                                               
---------------------                                               
Net patient service revenues decreased by $661,333 or 16.8% from the
first six months of Fiscal 1996 to the first six months of Fiscal 1997, due     
to a decrease of $658,679 or 23.4% in the Massachusetts nursing home            
program, and to a decrease of $269,160 or 52.8% in the Connecticut nursing      
home program.                                                                   

 The Company's cost of patient services as a percentage of net patient
service revenues increased from 70.2% for the first six months of Fiscal        
1996 to 78.5% for the first six months of Fiscal 1997.  This increase is due    
primarily to reorganization of the Company's service delivery model for         
therapy services in the Massachusetts nursing home program, where the           
Company hired three field managers to oversee and improve quality of care.      
Cost of patient services as a percentage of net patient service revenues in     
this segment increased from 67.5% for the first six months of Fiscal 1996 to    
78.0% for the first six months of Fiscal 1997.                                  

 The Company's general and administrative expenses as a percent of net
patient service revenues increased from 27.3% for the first six months of       
Fiscal 1996 to 44.4% for the first six months of Fiscal 1997.  The increase     
is due to increases in professional fees necessary to complete the              
agreements with Arbour and the settlement with the Massachusetts Attorney       
General, to a $25,000 provision for uncompensated services to be provided in    
connection with the civil settlement jointly filed with the Massachusetts       
Department of the Attorney General (see Part II, Item 1. Legal Proceedings),    
to $40,188 in IRS tax deposit penalties, and to a $178,196 increase in          
provision for doubtful accounts.  This provision increased from $97,306 or      
2.5% of net patient service revenues, to $275,502 or 8.4% of net patient        
service revenues.  In addition, the reserve for doubtful accounts as a          
percent of gross accounts receivable increased from 11% at March 31, 1996 to    
18% at March 31, 1997.  The provision for doubtful accounts is estimated        
based on an ongoing review of collectibility of the Company's accounts          
receivable, by state, by pay source.  A major factor in the Company's           
decision to increase reserves relates to claims submitted to the                
Massachusetts Medicaid Program which pays claims on behalf of its               
beneficiaries only after all other insurances (Medicare and any intervening     
Medicare supplementary insurances) have paid or rejected a claim.               
Massachusetts Medicaid has intensified its efforts to identify intervening      
insurances and to ensure compliance with regulations regarding payment or       
rejection by intervening insurances.  These intensified efforts have            
increased the proportion of paper claims that must be billed through            
multiple payors.  This process of submitting paper claims substantially         
increases the time and effort involved in securing final payment of unpaid      
Medicare balances from the Massachusetts Medicaid Program.                      

The Company's interest expense, net of interest income, increased by
$26,724 during the first six months of Fiscal 1997 versus the first six         
months of Fiscal 1996, as a result of increased short term borrowings.          

  The Company's net loss applicable to common stock was $844,504 or $.33
per share for the first six months of Fiscal 1997 compared to $1,889 or $.00    
per share for the first six months of Fiscal 1996.                              

PRO FORMA FINANCIAL INFORMATION                                                 

The following Pro Forma Condensed Balance Sheet of the Company as of March      
31, 1997 reflects the financial position of the Company after giving effect to  
the disposition of the assets and assumption of the liabilities                 
pursuant to the Agreement with Arbour and assumes the transaction occurred on   
March 31, 1997.  The following Pro Forma Condensed Statements of Operations     
for the fiscal year ended September 30, 1996 and six months ended March         
31, 1997 assume that the transaction occurred on October 1, 1995 and are based  
on the operations of the Company for the year ended September 30, 1996 and the  
six months ended March 31, 1997, respectively.  These Statements of             
Operations assume no new business will have been acquired in the relevant       
period.                                                                         

PRO FORMA FINANCIAL INFORMATION   

 AGES HEALTH SERVICES INC.
PRO FORMA CONDENSED BALANCE SHEET AT MARCH 31, 1997   
 (Unaudited)

                                                        [Enlarge/Download Table]


                                                                                       Pro Forma Adjustments                      
                                                                                  -------------------------------                 
                                                                   Historical       Ages (a)         Other (d)       Pro Forma    
                                                                   -----------    -----------     ---------------    -------------

                                                                                                                                  
Assets                                                                                                                            

Current:                                                                                                                          
  Cash and cash equivalents                                        $   144,457    $         0     $ 1,100,000 (b)     $ 1,244,457 
Accounts receivable, less allowance for uncollectible accounts                                                                    
 of $473,468                                                         2,164,782      2,164,782         800,000 (b)         800,000 
  Prepaid expenses                                                      55,482         55,482               0                   0 
  Current portion of long-term note receivable related to                                                                         
   discontinued operations                                               7,702          7,702               0                   0 
  Deferred taxes                                                        15,000              0         (15,000)(c)               0 
                                                                   -------------------------------------------------------------- 

      Total current assets                                           2,387,423      2,227,966       1,885,000           2,044,457 
                                                                   -------------------------------------------------------------- 

Property and equipment, net of accumulated depreciation                                                                           
 of $166,305                                                           177,681        177,681               0                   0 
                                                                   -------------------------------------------------------------- 

Long-term note receivable related to discontinued operations,                                                                     
 less current portion                                                   10,320         10,320               0                   0 
                                                                   -------------------------------------------------------------- 

                                                                   $ 2,575,424    $ 2,415,967     $ 1,885,000         $ 2,044,457 
                                                                   ============================================================== 

Liabilities and Stockholders' Equity (Deficit)                                                                                    

Current liabilities:                                                                                                              
  Short-term borrowings                                            $ 1,525,938    $         0     $  (494,685)(b)     $ 1,031,253 
  Accounts payable                                                     307,271              0               0             307,271 
  Dividends payable                                                     25,000              0               0              25,000 
  Accrued expenses                                                     506,347              0        (273,465)(b)         232,882 
  Current portion of long-term debt and loans payable                  215,780              0         (16,922)(b)         198,858 
                                                                   -------------------------------------------------------------- 

      Total current liabilities                                      2,580,336              0        (785,072)(b)       1,796,264 

Long-term debt and loans payable, less current portion                 299,118              0          (5,747)(b)         293,371 
Deferred income taxes                                                   15,000              0         (15,000)(c)               0 
                                                                   -------------------------------------------------------------- 

      Total liabilities                                              2,894,454              0        (805,819)          2,088,635 
                                                                   -------------------------------------------------------------- 

Commitments and contingencies                                                                                                     

Stockholders' equity                                                  (319,030)     2,415,967       2,690,819             (44,178)
                                                                   -------------------------------------------------------------- 

                                                                   $ 2,575,424    $ 2,415,967     $ 1,885,000         $ 2,044,457 
                                                                   ============================================================== 

<FN>                                                                                                                              
--------------------                                                                                                              
<F1>  (a)   To eliminate the assets of Ages Health Services ("Ages") sold in                                                      
            connection with the asset purchase agreement with Arbour Elder Services,                                              
            Inc.                                                                                                                  

<F2>  (b)   To reflect proceeds from the sale of assets consisting of $1,100,000 in                                               
            cash plus retention of $800,000 of accounts receivable collections after                                              
            the buyer's receipt of the first $1,000,000 of accounts receivable                                                    
            collected, and assumption by the buyer of $30,819 of future payments on                                               
            leases and approximately $760,000 of the Company's other liabilities.                                                 

<F3>  (c)   To reflect the elimination of deferred taxes.                                                                         

<F4>  (d)   Does not reflect any adjustment for liabilities (totalling approximately                                              
            $750,000) which the Company believes it may be able to settle at amounts                                              
            less than their book value.                                                                                           
</FN>                                                                                                                             

PRO FORMA FINANCIAL INFORMATION 

AGES HEALTH SERVICES INC. 
PRO FORMA CONDENSED STATEMENT OF OPERATIONS 
FOR THE YEAR ENDED SEPTEMBER 30, 1996 
 (Unaudited)

                                                        [Enlarge/Download Table]


                                                                      Pro Forma Adjustments                 
                                                                  ----------------------------              
                                                   Historical       Ages (a)         Other        Pro Forma 
                                                  ------------    -----------    -------------    --------- 

                                                                                                            
Net patient service revenue                       $ 7,214,781     $ 7,214,781    $       0        $       0 
Cost of patient services                            5,295,567       5,295,567            0                0 
                                                  --------------------------------------------------------- 
      Gross profit on patient services              1,919,214       1,919,214            0                0 
                                                  --------------------------------------------------------- 

General and administrative expenses                 2,767,182       2,767,182      132,000 (b)      132,000 
Amortization of deferred financing costs               45,902          45,902            0                0 
                                                  --------------------------------------------------------- 
      Operating expenses                            2,813,084       2,813,084      132,000          132,000 
                                                  --------------------------------------------------------- 

Operating loss                                       (893,870)       (893,870)    (132,000)        (132,000)

Interest expense, net                                 110,034         110,034       19,800 (b)       19,800 
                                                  --------------------------------------------------------- 

Net loss                                           (1,003,904)     (1,003,904)    (151,800)        (151,800)

Preferred stock dividends                             (30,000)              0            0          (30,000)
                                                  --------------------------------------------------------- 

Net loss applicable to common stock               $(1,033,904)    $(1,003,904)   $(151,800)       $(181,800)
                                                  ========================================================= 

Net loss per share of common stock                $      (.40)                                    $    (.07)
                                                  ===========                                     ========= 
Weighted average number of shares of common                                                                 
 stock outstanding                                  2,580,100                                     2,580,100 

<FN>                                                                                                        
--------------------                                                                                        
<F1>  (a)   To eliminate the revenue and expenses of Ages Health Services Inc.                              
            ("Ages") for the entire period.                                                                 

<F2>  (b)   To reflect costs that would not have been eliminated due to the sale of                         
            assets and liabilities.                                                                         
</FN>                                                                                                       

PRO FORMA FINANCIAL INFORMATION 

AGES HEALTH SERVICES INC. 
PRO FORMA CONDENSED STATEMENT OF OPERATIONS 
FOR THE SIX MONTHS ENDED MARCH 31, 1997 
 (Unaudited)

                                                        [Enlarge/Download Table]


                                                                     Pro Forma Adjustments                  
                                                                  ---------------------------               
                                                  Historical        Ages (a)        Other         Pro Forma 
                                                  -----------     -----------    ------------     --------- 

                                                                                                            
Net patient service revenue                       $ 3,275,966     $ 3,275,966    $      0         $       0 
Cost of patient services                            2,573,004       2,573,004           0                 0 
                                                  --------------------------------------------------------- 
      Gross profit on patient services                702,962         702,962           0                 0 
                                                  --------------------------------------------------------- 

General and administrative expenses                 1,454,559       1,454,559      80,300 (b)        80,300 
Amortization of deferred financing costs                7,207           7,207           0                 0 
                                                  --------------------------------------------------------- 
      Operating expenses                            1,461,766       1,461,766      80,300            80,300 
                                                  --------------------------------------------------------- 

Operating loss                                       (758,804)       (758,804)    (80,300)          (80,300)

Interest expense, net                                  70,700          70,700       9,900 (b)         9,900 
                                                  --------------------------------------------------------- 

Net loss                                             (829,504)       (829,504)    (90,200)          (90,200)

Preferred stock dividends                             (15,000)              0           0           (15,000)
                                                  --------------------------------------------------------- 

Net loss applicable to common stock               $  (844,504)    $  (829,504)   $(90,200)        $(105,200)
                                                  ========================================================= 

Net loss per share of common stock                $      (.33)                                    $    (.04)
                                                  ===========                                     ========= 

Weighted average number of shares of common                                                                 
 stock outstanding                                  2,580,100                                     2,580,100 

<FN>                                                                                                        
--------------------                                                                                        
<F1>  (a)   To eliminate the revenue and expenses of Ages Health Services Inc.                              
            ("Ages") for the entire period.                                                                 

<F2>  (b)   To reflect costs that would not have been eliminated due to the sale of                         
            assets and liabilities.                                                                         
</FN>                                                                                                       

PART II  Other Information                                                      
--------------------------                                                      

Item 1.  Legal  Proceedings                                                     
---------------------------                                                     
See Note 7 to Financial Statement                             

Item 2.  Changes in Securities                                                  
------------------------------                                                  
See Item 5.                                                   

Item 5.  Other Matters                                                          
----------------------                                                          
See Item 2. Management's Discussion and Analysis of Financial 
Condition and Results of Operations, Management Agreement and 
Proposed Sale of Assets.                                      

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

(a)  Exhibits  --  Exhibit 27   - Financial Data Schedule     
                    --  Exhibit 99.1 - Restated Statement of Operations:
                                      six months ending March 31, 1997
                      --  Exhibit 99.2 - Restated Balance Sheet at March 31,
          1997

(b)  Reports on Form 8 - K  --  none                          

SIGNATURES    

 In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the       
undersigned, thereunto duly authorized.                                         

                       Ages Health Services Inc.
          (Registrant)

May 20, 1997                  /s/ Henry Goodhue               
Date ______________________________    ___________________________              
           Henry Goodhue
        Controller
                           (principal financial officer)

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10QSB’ Filing		Date		Other Filings
		9/30/97
Filed on:		5/21/97
		5/20/97
		5/4/97
		4/30/97		PRE 14A
For Period End:		3/31/97		NT 10-Q
		2/1/97
		1/16/97
		9/30/96		10KSB,  10KSB/A
		3/31/96		10QSB
		10/1/95
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