SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB/A-3
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (FEE REQUIRED)
For the fiscal year ended May 31, 1995
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (NO FEE REQUIRED)
For the transition period from _______ to ______.
Commission File Number 0-16206
_________________________
OAK TREE MEDICAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 02-0401674
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
16504 STONEHAVEN ROAD, MIAMI LAKES, FLORIDA 33014
(Address of principal executive office and zip code)
Registrant's telephone number including area code: (305) 822-8889
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes:_____ No:__X___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $2,652,889.
Number of shares of Common Stock, $.01 par value, outstanding as of September
1, 1995: 2,073,857
Market value of voting stock (605,075 shares) held by non-affiliates as of
September 1, 1995: $4,840,600
Documents incorporated by reference: None.
<PAGE>
PART I
ITEM 1. BUSINESS
Oak Tree Medical Systems, Inc. ("Oak Tree") was incorporated in
Delaware on May 27, 1986. The Company has three subsidiaries: Acorn CORF I,
Inc., a Nevada corporation ("Acorn"), which owns and operates four physical
therapy clinics and a medical practice located in Jacksonville, Florida,
specializing in neurology and physiatry; Riverside CORF, Inc., a Nevada
corporation ("Riverside"), a comprehensive outpatient rehabilitation facility in
Jacksonville, Florida which operates under a federal license; and Oak Tree
Financial Services, Inc., a Florida corporation, which currently has no assets
and is not an operating business. Unless otherwise indicated by the text,
reference herein to the term "Company" will be deemed a reference to Oak Tree,
Acorn and Riverside.
MEDICAL BUSINESS
In keeping with its objective to pursue opportunities in the medical
services industry, the Company has recruited a team of medical entrepreneurs
whose career-long contacts can aid in acquiring medical practices representing a
variety of synergistic medical disciplines. The Company believes that there are
substantial acquisition opportunities in its industry due both to changes in
Federal and State legislation which bars physicians from owning entities to
which they refer patients, as well as material economic changes resulting from
the nation's entry into the managed care era. Physicians, long accustomed to the
"fee for service" system which encourages return follow-up visits, are now
confronted with the HMO insurance method which pays the physician a single,
pre-arranged monthly fee regardless of how many times a patient visits. As more
people join managed care networks, the physician's patient base tends to erode
unless he is on one or more HMO preferred doctor lists. He remains on that list
solely at the discretion of the HMO. These factors, coupled with rising medical
malpractice insurance costs and decreasing Medicare payments for the same
services, has placed the physician in a financial dilemma. The Company seeks to
accommodate the needs of these physicians and is concentrating its efforts in
culling from amongst the acquisition candidates those that offer both acceptable
margins and stable profitability as well as future growth or expansion
potential.
The Company actively seeks various acquisition opportunities with
particular emphasis on primary care physician practices and multi-specialty
clinics. It is management's belief that the control of patient flow to the
Company's ancillary medical facilities will both contribute to the benefit of
the patient's care as well as to corporate profitability.
The Company is actively engaged in evaluating several specific
practices ranging from orthopedic surgery and cancer treatment to additional
physical therapy centers and multi-specialty clinics. If any of the transactions
it is reviewing are determined to be suitable prospects for the Company, it
plans to enter into negotiations for their acquisition. The Company anticipates
that any acquisition it pursues will be for a consideration primarily based on
an exchange of Company common and/or preferred stock or other securities. In
order for it to be successful in any such acquisition, the Company believes it
must raise substantial amounts of capital for its proposed acquisitions and
operations. No assurance can be given that the Company will find any, or
adequate amounts of, capital to enable it to consummate any transactions or
expand its business at the levels proposed in its business plan.
2
<PAGE>
RECENT ACQUISITIONS
1ST COAST PHYSICAL MEDICINE ASSOCIATES, INC.
On January 17, 1995, the Company acquired certain of the assets of 1st
Coast Physical Medicine Associates, Inc. ("1st Coast"), a Jacksonville, Florida
based chain of five physical therapy centers and the attendant physiatry and
neurology medical practice, through its wholly-owned subsidiary, Acorn. After
the acquisition, in March 1995, Acorn closed one clinic office and consolidated
the services with other of its facilities in a cost savings measure. Further, in
May 1995, Acorn terminated an agreement with an external management company and
management of Acorn assumed full responsibility for the operation of the four
clinics. As of August 1, 1995, Acorn entered into a modification agreement to
the asset acquisition agreement to acquire additional assets of 1st Coast,
pursuant to which Acorn acquired the pre-January 17, 1995 accounts receivable
currently estimated to be approximately $318,000, net of allowance, and the
attendant Medicare provider number. Acorn also assumed responsibility for
various liabilities of 1st Coast, including the equipment and real estate leases
and long term bank debt of 1st Coast under a loan agreement with American
National Bank in Jacksonville, Florida, but, in connection with certain
potential liabilities of 1st Coast being assumed by Acorn, including tax
liabilities, Dr. Ronald W. Dennie, founder of the clinics and sole shareholder
of 1st Coast, has agreed to indemnify Acorn. As of August 1, 1995, the date of
the agreement by which the Company assumed the aforementioned liabilities, the
assumed liabilities aggregated approximately $343,186, plus future maturities of
operating and capital leases. As part of the acquisition, Acorn entered into a
three year employment agreement with Dr. Dennie pursuant to which he will be
paid $370,000 per annum, plus stock options and bonuses to be determined by the
board of directors of the Company depending on his personal productivity levels.
In addition, Dr. Dennie will be issued additional shares of Common Stock on the
36th and 48th month anniversaries of the consummation of the acquisition at the
then current trading values of the Common Stock and the pre-tax earnings
generated by the combined Acorn and CORF operations of the Company, which based
on the pre-tax earnings as of May 31, 1995, would require the Company to issue
approximately 145,000 additional shares of Common Stock valued at $444,565.
Because this formula is based on future values of the Common Stock and future
earnings, the Company's obligation is not calculable at this time. The adjusted
purchase price of all the assets acquired on January 17, 1995 was 400,000 shares
of Common Stock, which shares are restricted securities of the Company valued at
$962,000. In the event the fair market value of the 400,000 shares of Common
Stock is less than $1,000,000 within 30 days of January 16, 1997, the Company
has agreed to issue additional shares of Common Stock for the amount of the
shortfall.
CORF LICENSES
CORF licenses permit the licensed entity to provide specific
comprehensive rehabilitative services on an outpatient basis for Medicare
patients and seek reimbursement on the basis of reasonable cost. A CORF licensee
may provide services ranging from physical therapy to occupational therapy,
speech therapy, social and psychological services as well as nursing care,
respiratory therapy and home health services. Licenses in Florida are granted by
the United States Department of Health and Human Services (USHHS) in conjunction
with the Florida Department of Health and Rehabilitative Services (FHRS).
Licenses are granted for specific services for designated segments of the
population upon application and after review of compliance with various federal
and state statutes and regulations relating to the provision of health care
services as well as operations of the facility and various patient care
procedural requirements. The application and review process generally takes
approximately three months before a health care provider receives the CORF
license and may bill for patient care under Medicare. Once
3
<PAGE>
issued, a CORF license is a tangible asset of the licensed facility and may be
transferred for value to other organizations with DSHHS and FHRS approval and
review. Transfer generally requires an application and regulatory review without
an on-site inspection and takes approximately four weeks.
On December 21, 1994 and February 9, 1995, respectively, the Company
purchased two separate CORF licenses in consideration of 12,500 shares of Common
Stock each. The CORF operations of the Company were certified in March 1995 and
June 1995, respectively, and one was permitted to commence operations and
billing in late August 1995 for services since March 1995. A new corporation,
Riverside, was formed to conduct these operations.
AURUM MINING/ACCORD FUTRONICS
On May 28, 1993, the Company acquired 50,000 tons of gold ore reserve
from Nevada Minerals Corporation in exchange for the issuance of 1,350,000
shares of common stock. The ore was appraised as having a $5,000,000 value. On
June 28, 1994, the Company formed a wholly owned subsidiary, Aurum Mining
Corporation ("Aurum"), with the gold ore reserve as its only asset.
On June 21, 1995, an agreement was signed between the Company and
Accord Futronics Corp. ("Accord") of Bethesda, Maryland, whereby 100% of the
stock of Aurum Mining was exchanged for 6,000,000 shares of Accord. Accord is to
pay the Company a royalty equal to 12.5% of the net production income of the
Aurum Mining operations for the productive life of the property.
The Company has been informed by Accord that additional gold bearing
ore is being acquired and that Accord is seeking to consummate an initial public
offering before year end 1996. In that event, Accord has requested that some
portion of the Company's 6,000,000 shares be registered by Accord in order to be
distributed to the Company's shareholders as a liquidating dividend. No
assurance can be given by the Company that these events will take place, and
there is no contractual obligation on the part of Accord to do so.
On June 21, in an unrelated event, Accord granted a $100,000, 120 day
loan to the Company primarily for CORF start-up costs, which was personally
guaranteed by Henry Dubbin, Vice Chairman, with a supplementary guarantee to Mr.
Dubbin by Irwin Bosh Stack, Chairman. The Company also granted to Accord an
option on June 21, 1995 to purchase up to 50,000 shares of Common Stock, at an
exercise price of the lesser of $2.00 per share or 50% of the quoted market
price for the shares until June 21, 1997.
EXECUTIVE OFFICE
The executive offices of the Company are located at 16504 Stonehaven
Road, Miami Lakes, Florida 33014.
EMPLOYEES
As of May 31, 1995, Oak Tree had two employees, Messrs. Irwin Bosh
Stack and Henry Dubbin. The 37 personnel of Acorn are leased employees and,
hence, not direct employees of the Company.The officers of Riverside are
Messrs. Irwin Bosh Stack and Henry Dubbin.
4
<PAGE>
ITEM 2. PROPERTIES
The Company occupies an office at 16504 Stonehaven Road, Miami Lakes,
Florida. The Company currently is not obligated to pay rent. The office is
adequate for its current operations; if the Company, however, is successful in
implementing its business plan described above, it will have to seek alternative
office space. Such space will have to be rented at market rates. At this time
the Company is unable to predict the amount of office space it will need and the
rent it will have to pay.
In addition, Acorn rents space for the operation of its clinics at the
locations and on the terms listed below. The Company believes these facilities
are adequate for the operations of Acorn .
<TABLE>
<CAPTION>
SQUARE MONTHLY EXPIRATION
LOCATION FOOTAGE RENT OF LEASE
- -------- ------- ---- --------
<S> <C> <C> <C>
9802-8 Baymeadows Road 4,160 $5,353.40 11/30/95
Jacksonville, Florida
9802-13 Baymeadows Road 1,375 2,074.53 11/30/95
Jacksonville, Florida
1014-7A Margaret Street 4,135 3,486.33 01/31/96
Jacksonville, Florida
1950 Miller Street 2,200 1,961.66 Month to Month
Orange Park, Florida
1100 S. Ponce De Leon 3,100 3,286.00 10/31/97
St. Augustine, Florida
9770 Old Baymeadows Road 1,268 928.41 06/14/95
Jacksonville, Florida
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
There are no outstanding law suits pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's common
stock. The Company believes that its Common Stock is traded only in the
over-the-counter market. The following table sets
5
<PAGE>
forth, for the periods indicated, bid and asked prices for the Common Stock in
the over-the-counter market based on occasional trading information obtained by
the Company from time to time from various sources. The information below
reflects inter-dealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions.
BID ASKED
--- -----
Fiscal Year Ended May 31, 1994
First Quarter 1/32 3/32
Second Quarter 1/32 3/32
Third Quarter 1/32 3/32
Fourth Quarter 1/8 15/64
Fiscal Year Ended May 31, 1995
First Quarter 1-3/8 1-7/8
Second Quarter 3-1/4 4
Third Quarter 3-1/8 4
Fourth Quarter 2-1/2 3-1/2
As of September 1, 1995, there were approximately 130 holders of record
of the Company's Common Stock. The Company believes that, in addition, there are
in excess of 500 beneficial owners of its Common Stock whose shares are held in
"street name." The closing bid and asked prices for the Company's Common Stock
on September 1, 1995, was $7.625 and $8.00, respectively.
The Company has not paid any cash dividends on its Common Stock to
date, and the payment of cash dividends in the foreseeable future is not
contemplated by the Company. Future dividend policy will depend on the Company's
earnings, capital requirements, financial condition, and other factors
considered relevant to the Company's ability to pay dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Commencing on January 17, 1995, the Company acquired the assets and
operations in Jacksonville, Florida of five physical therapy clinics and the
attendant neurology and physiatry medical practice. In March 1995, the Company
elected to close one clinic office and accommodate patients at other locations.
The closing of the one clinic was accomplished with no significant expense to
the Company. Further, the Company purchased two CORF licenses (comprehensive
outpatient rehabilitation facility) one of which was cleared in August 1995 to
bill for services rendered since March 1, 1995.
Because the Company was engaged in searching for and investigating
acquisition candidates and conducted no health care services or other business
operations prior to its acquisitions of 1st Coast in January 1995 the comparison
of the fiscal years ended May 31, 1994 and 1995 is not meaningful.
6
<PAGE>
The Company believes that the current financial statements reflect
revenues and expenses that will be at comparable levels in the immediate future.
The principal cause for any immediate increase in revenues for the fiscal year
ending May 31, 1996 will be as a result of the acquisition of two CORF licenses
and the clearance for billing of patient care provided under them. The Company
cannot estimate the extent to which revenues will change during the fiscal year
ending May 31, 1996 from the CORF activities or whether there will be any
adverse affects as a result of the acquisition of the business by the Company.
The Company had no revenues during the fiscal year ended May 31, 1994.
During that period, the business activities of the Company concentrated on
corporate reorganization and the pursuit of acquisitions in the medical
business. As a result of the acquisition of 1st Coast in January 1995, the
Company had net patient revenues of $2,652,889 for the fiscal year ended May 31,
1995.
Expenses, including compensation, selling and general and
administrative expenses, for the fiscal year ended May 31, 1995 were $2,264,932.
Expenses for the fiscal year ended May 31, 1994 were $234,196 which were
primarily compensation expenses. The increase from fiscal year May 31, 1994 to
May 31, 1995 was due solely to the acquisition of therapy clinics and CORF
licenses.
For the fiscal year May 31, 1994, the Company had a net loss of
$234,196 and a net income of $260,957 for the fiscal year ended May 31, 1995.
The net income is attributable solely to the acquisition of the therapy clinics
and CORF licenses.
The income or loss per common share for the fiscal years ended May 31,
1994 and 1995 were ($.19) and $.11, respectively.
Although the Company is actively pursuing other acquisition
opportunities and financing, no assurance can be given that the Company will be
successful in consummating any of the business opportunities or obtaining any
capital to finance acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Company is currently funding its capital requirements with
operating cash flow and the issuance of equity securities in exchange for assets
acquired. These resources have been used during the periods reported upon to
acquire 1st Coast and two CORF licenses, and to the extent possible, to cover
operating deficits. For the year ended May 31, 1995, cash flow from operations
was a negative $167,821.
The Company believes, but gives no assurance, that the cash flow from
the operations of 1st Coast will be sufficient to meet its operating
requirements and debt service. The Company currently does not foresee any change
in its business or industry that would require it to curtail its operations. In
addition, the Company is pursuing additional forms of capital resources,
including, but not limited to, equity financing and additional bank financing.
The Company plans to use any additional capital it may obtain in its current
operations and to pursue additional acquisitions that provide an opportunity to
expand its business. No assurances can be given that the Company will be
successful in obtaining any capital or that any capital obtained will be
sufficient to implement its business plan.
Because the Company provides services that are paid by third party
payors, including insurance companies and Medicare, as is typical in the health
care industry, the Company receives payment after the services are rendered and
all billing is subject to review and possible adjustment. While waiting for
7
<PAGE>
payment from third party payors, the Company is required to fund its expenses
from internal, and to the extent available, from external, sources of cash. If
the Company is not fully reimbursed for services previously provided, it may
experience an adverse impact on its revenues and have to curtail its operations
or otherwise alter its business practices, including denying services to
patients covered by third party payors that effect adjustments. To date, the
Company has not experienced any significant adverse impact on its revenues or
operations as a result of third party payor review and payment practices.
In a transaction consummated in June 1995, the Company exchanged its
gold ore asset for 6,000,000 shares of common stock of Accord Futronics
Corporation ("Accord"). As part of the exchange agreement, the Company will
receive a royalty 12 1/2% of the net mining income from processing of the gold
ore which was subject to the exchange. Accord is not currently mining any of
such ore and is not currently obligated to pay any amounts to the Company. There
is no current effect on the financial condition of the Company as a result of
this exchange. Any future impact on the Company from this exchange will be the
result of whether Accord either sells or processes such gold ore and becomes
obligated to pay the royalty. Such amount cannot be determined at this time.
The Company acquired 1st Coast for the issuance of 400,000 shares of
its Common Stock which had a fair market value of $962,000. In the event the
fair market value of these shares of Common Stock is less than $1,000,000 within
30 days of January 16, 1997, the Company has agreed to issue additional shares
of Common Stock for the amount of the shortfall. Under the terms of the
agreements to acquire 1st Coast, the Company may be obligated to issue
additional shares of Common Stock. The additional shares will be issued on the
36th and 48th month anniversaries of the consummation of the acquisition and the
number will be based on the then current trading values of the Common Stock and
the amount of pretax earnings generated by the business of 1st Coast and its
successors in combination with the pre-tax earnings of the CORF operations of
the Company. The Company cannot calculate these amounts at this time; however,
based on the pre-tax earnings as of May 31, 1995, the Company believes it will
have to issue approximately 145,000 additional shares of Common Stock valued at
$444,565. Any additional consideration will be included in the financial
statements under goodwill and stockholders' equity.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and information required by Item 8 are
included in the Index shown at Item 13.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
(a) Puritz & Weintraub served as the independent auditors of the
Company for the fiscal years ended May 31, 1993 and 1994 and until September 6,
1995. On September 6, 1995, Puritz & Weintraub resigned their engagement upon
consultation with the Company because it was determined that the best interest
of the Company would be served by retaining BDO Seidman, LLP. The decision to
change auditors was approved by the Company's Board of Directors. There were no
disagreements between the Company and Puritz & Weintraub on any matters of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures.
8
<PAGE>
(b) BDO Seidman, LLP ("BDO") served as the independent auditors of the
Company for the period September 6, 1995 until January 4, 1996. During its term
of engagement, BDO advised the Company of its need to significantly expand its
audit of the cost and carrying values of certain gold ore reserve property,
which had been acquired by the Company in May 1993 in exchange for a controlling
interest in the Company, a portion of which shares were subject to an
immediately exercisable option by another shareholder of the Company.
Specifically, BDO requested a current, independent appraisal of the gold ore
reserve property and documentary evidence of the cost of the property to its
prior owner. The Company terminated BDO because, although an appraisal from a
qualified, licensed appraiser and other information was provided, the Company
was unable to provide the type of and level of appraisal or the documentary
evidence demanded by BDO. The gold ore reserve property had been transferred to
Accord Futronics Corporation ("Accord") on June 21, 1995 for 6,000,000 shares of
its common stock, representing approximately 30% of the outstanding common stock
of Accord. Additionally, Accord lent the Company $100,000, which was
collateralized and guaranteed by a principal stockholder of the Company. Because
BDO was terminated as auditors of the Company, it did not complete certain
procedures related to the gold ore reserve property, the result of which could
have materially impacted the fairness or reliability of the financial statements
for the year ended May 31, 1995 (the period covered by BDO's incomplete
engagement) and for the years ended May 31, 1994 and 1993 (with which BDO has no
association). The Company has permitted BDO to respond to the inquiries of Simon
Krowitz Bolin & Associates, PA concerning the gold ore reserve property. The
decision to change auditors was approved by the Company's Board of Directors.
(c) Since January 4, 1996 Simon Krowitz Bolin & Associates, PA has been
engaged by the Company as its principal independent auditors and served as the
independent auditors of the Company for the fiscal year ended May 31, 1995.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The directors and executive officers of the Company and their positions
at September 1, 1995 were as follows:
NAME AGE POSITION
Irwin Bosh Stack 67 Chairman of the Board, Chief Operating Officer
Secretary and Director
Michael J. Gerber 52 President and Director
Henry Dubbin 80 Vice Chairman of the Board, Vice President and
Director
IRWIN BOSH STACK has been the Chairman of the Board, Secretary and a
director of the Company since its incorporation in May 1986 and Chief Operating
Officer since May 15, 1995. From 1963 to March 1985, Mr. Stack was President of
Stack Associates, Inc. marketing consultants to a variety
9
<PAGE>
of companies, including hardware and software computer companies. From August
1985 to September 1986, Mr. Stack was also President of Owl Capital Corp., a
venture capital company.
MICHAEL J. GERBER has been President and a director of the Company
since September 1, 1995. Mr. Gerber was the president of Medical
Development Services, Inc., a subsidiary of Medcorp Consulting and Brokerage
Services, Inc. from February 1990 to September 1995. From November 1990 to
September 1993, Mr. Gerber was also Chief Executive Officer of Westchester
Healthcare Network. From July 1988 to February 1990, Mr. Gerber was Chief
Executive Officer of North Gables Hospital.
HENRY DUBBIN has been Vice Chairman of the Board, Vice President and
a director of the Company since May 1993. Mr. Dubbin currently is the
President of Nevada Minerals Corporation, Inc. Corporation. From 1955 to 1992,
Mr. Dubbin worked with Canaveral International, Inc., a diversified public
company, from which he retired after being Chairman of the Board of the Company.
Directors are elected by the stockholders at each annual meeting (or in
the case of a vacancy, are appointed by the directors then in office) to serve
until the next annual meeting or until their successors are elected and
qualified. Officers serve at the discretion of the Board of Directors.
During the last fiscal year the Board of Directors held 18 meetings and
all directors attended all meetings. The Company does not have standing audit,
nomination or compensation committees of the Board of Directors. The Board of
Directors is responsible for administering the 1986 Stock Option Plan and 1994
Performance Equity Plan.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's officers, directors and persons who beneficially own more
than 10% of a registered class of the Company's equity securities ("10%
stockholders") to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors and 10% stockholders
also are required to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on its review of the copies of such forms furnished to
it, during the past fiscal year, the Company is of the belief Messrs. Stack and
Dubbin did not file Forms 4 or 5 to report their holdings of Company securities
on the grant of options to each of them on January 11, 1995, and Mr. Dubbin did
not file a Form 4 to report the sale of securities by Nevada Minerals
Corporation, a company wholly-owned by Mr. Dubbin, to FYM, Inc., a company
wholly-owned by Mrs. Irene Stack, a holder of greater than 10% of the
outstanding Common Stock. In addition, Mrs. Stack did not file a Form 4 on a
timely basis to report the acquisition of Common Stock by FYM, Inc.
10
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following is a summary of compensation paid to the executive
officers of the Company during the last three fiscal years.
<TABLE>
<CAPTION>
========================================================================================================================
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------
ANNUAL
NAME AND PRINCIPAL POSITION COMPENSATION LONG TERM COMPENSATION
- ------------------------------------------------------------------------------------------------------------------------
SECURITIES
RESTRICTED UNDERLYING
YEAR SALARY STOCK AWARDS OPTIONS
========================================================================================================================
<S> <C> <C> <C> <C>
Irwin Bosh Stack 1993 -0- -0- -0-
Chairman of the Board, Chief 1994 $85,000 -0- -0-
Operating Officer and Secretary(1) 1995 $35,000 -0- 250,000
- ------------------------------------------------------------------------------------------------------------------------
Richard Slavin 1993 -0- -0- -0-
President(2) 1994 $100,000 625(3) -0-
1995 $95,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------
Henry Dubbin 1993 -0- -0- -0-
Vice Chairman and Vice President(1) 1994 $72,500 -0- -0-
1995 -0- -0- 250,000
========================================================================================================================
</TABLE>
(1) All salaries were accrued during the fiscal year. Salaries accrued in
the amounts of $63,500 and 54,372 for the year ended May 31, 1994 were
not paid and converted into notes payable to Messrs. Stack and Dubbin,
respectively.
(2) Mr. Slavin served as President of the Company from November 1, 1994 to
May 1, 1995. The salary earned by Mr. Slavin during his period of
employment was $51,458.28. In connection with his employment, Mr.
Slavin was issued 60,000 restricted shares of Common Stock which were
forfeited when his employment terminated.
(3) Represent shares issued to Mr. Slavin as compensation for serving as
an adviser to the Company prior to his being appointed President
of the Company.
Mr. Michael J. Gerber was appointed President of the Company on
September 1, 1995. Mr. Gerber's compensation will be 5,000 shares of Common
Stock for which he will pay a purchase price of $1.66 per share.
11
<PAGE>
The following tables set forth the individual option grants during the
last fiscal year to the named executive officers and the fiscal year end value
of such options.
<TABLE>
<CAPTION>
========================================================================================================================
OPTION GRANTS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE EXPIRATION
NAME OPTIONS EMPLOYEES PRICE DATE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Irwin Bosh Stack 250,000 50% $2.00 January 1, 1999
- ------------------------------------------------------------------------------------------------------------------------
Henry Dubbin 250,000 50% $2.00 January 1, 1999
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===================================================================================================================================
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL AND FISCAL YEAR-END OPTIONS/SAR VALUES
- -----------------------------------------------------------------------------------------------------------------------------------
SHARES ACQUIRED ON VALUE # OF UNEXERCISED OPTIONS/SARS VALUE OF UNEXERCISED IN-
EXERCISE REALIZED AT FISCAL YEAR END THE-MONEY OPTIONS/SARS AT
FISCAL YEAR END(1)
- ----------------------------------------------------- --------------------------------------
NAME EXERCISED UNEXERCISED EXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Irwin Bosh Stack 0 0 $ 0 250,000 0 $375,000
- -----------------------------------------------------------------------------------------------------------------------------------
Henry Dubbin 0 0 $ 0 250,000 0 $375,000
===================================================================================================================================
</TABLE>
(1) Value is calculated on the basis of the difference between the option
exercise price and the average of the bid and asked prices for the
Common Stock at May 31, 1995, as quoted on the over-the-counter market,
multiplied by the number of shares underlying the option.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Messrs.
Stack and Dubbin under which they were to be paid $92,500 and $80,000,
respectively, in the 1995 fiscal year. This agreement was modified and Mr. Stack
was paid $35,000 for all his services to the Company during the 1995 fiscal year
and Mr. Dubbin earned no salary for the 1995 fiscal year. For fiscal year ending
May 31, 1996, Messrs. Stack and Dubbin will be paid $100,000 and $87,500,
respectively. Each of the agreements expire on June 1998. All compensation
payable under these agreements was accrued during the fiscal years ended May 31,
1994 and 1995, and the compensation accrued in the fiscal year ended May 31,
1994 was converted into notes in the amount of $63,500 and $54,375 for Messrs.
Stack and Dubbin, respectively.
On January 11, 1995, the Company granted to each of Messrs. Stack and
Dubbin options to acquire 250,000 shares of Common Stock, exercisable at $2.00
per share until January 1, 1999.
Acorn, a subsidiary of the Company, has entered into an employment
agreement with Dr. Dennie in connection with its acquisition of 1st Coast. The
agreement is for a period of three years, and Dr. Dennie will be paid $370,000
per year. In addition, he will be granted stock options and paid bonuses
determined by the Board of Directors depending on his personal productivity
levels.
12
<PAGE>
1986 STOCK OPTION PLAN
The Company has a stock option plan (the "1986 Plan") which was adopted
in 1986, as a means to promote the growth and development of the Company and
encourage stock ownership by certain officers and employees and for persons
instrumental to the success of the Company, and give them a greater personal
interest in the success of the Company. Pursuant to the 1986 Plan 400,000 shares
of Common Stock were reserved for issuance upon options granted thereunder. All
options subject to the 1986 Plan are intended to qualify as incentive stock
options ("Incentive Options") within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code"), or non-qualified options
("Non-qualified Options").
The 1986 Plan is administered by the Board of Directors of the Company,
or a committee appointed by the Board of Directors, which determines among other
things, the persons to whom options may be granted under the 1986 Plan, the
number of shares subject to each option and the option price. Persons who are
directors of the Company are not eligible to receive options under the 1986
Plan. Incentive Options may be granted only to employees of the Company or its
subsidiaries, and Non-qualified Options may be granted to any persons, including
but not limited to, employees, independent agents, consultants, and attorneys.
The exercise price of any option granted to an eligible employee owning more
than 10% of the combined voting power of all classes of outstanding stock may
not be less than 110% of the fair market value of the shares underlying such
option at the date of grant.
The term of each option and the manner in which it may be exercised is
determined by the Board of Directors, or the committee, provided that no option
may be exercised more than 10 years after the date of grant and, in the case of
an Incentive Option granted to an eligible employee owning more than 10% of the
combined voting power of outstanding stock, not more than 5 years after the
grant. Unless otherwise determined by the Board of Directors or the committee,
no option granted to an employee may be exercised unless the grantee is a
regular employee of the Company, or a subsidiary of the Company, and has been so
employed for at least one year after the date of grant, except that in the event
of death, options may be exercised during a six-month period following such
event. The Company may not, in the aggregate, grant Incentive Options that are
first exercisable by any optionee during any calendar year (under all such plans
of the optionee's employer corporation and its "parent" and "subsidiary"
corporations, as those terms are defined in Section 425 of the Code) to the
extent that the aggregate fair market value of the underlying stock (determined
at the time the option is granted) exceeds $100,000.
The 1986 Plan contains anti-dilution provisions authorizing appropriate
adjustments in certain circumstances. Shares of Common Stock subject to options
which expire without being exercised or which are canceled as a result of the
cessation of employment are available for future grants. No shares of Common
Stock of the Company may be issued to any optionee until the full option price
has been paid. Each option not exercised expires 10 years from the date of grant
unless a shorter term is otherwise provided. Incentive Options are
non-transferrable except in the event of death of the optionee.
As of September 1, 1995, no options under the 1986 Plan were
outstanding.
1994 PERFORMANCE EQUITY PLAN
In February 1993, the Company adopted the 1994 Performance
Equity Plan ("1994 Plan") covering 600,000 shares of the Company's Common Stock
pursuant to which officers, directors, key employees and consultants of the
Company are eligible to receive incentive or non-qualified stock options,
13
<PAGE>
stock appreciation rights, restricted stock awards, deferred stock, stock reload
options and other stock based awards. The 1994 Plan will terminate at such time
no further awards may be granted and awards granted are no longer outstanding,
provided that incentive options may only be granted until February 16, 2004. The
1994 Plan is administered by the Board of Directors. To the extent permitted
under the provisions of the 1994 Plan, the Stock Options Committee has authority
to determine the selection of participants, allotment of shares, price, and
other conditions of purchase of awards and administration of the 1994 Plan in
order to attract and retain persons instrumental to the success of the Company.
As of September 1, 1995 no options under the 1994 Plan were
outstanding.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of
September 1, 1995, with respect to (i) those persons known to the Company to
beneficially own more than 5% of the Company's Common Stock, (ii) each director
of the Company, (iii) each executive officer whose compensation exceeded
$100,000 in the fiscal year ended May 31, 1995, and (iv) all directors and
executive officers of the Company as a group. The information is determined in
accordance with Rule 13d-3 promulgated under the Securities Exchange Act of
1934. Except as indicated below, the stockholders listed possess sole voting and
investment power with respect to their shares.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ---------------- -------------------- --------
<S> <C> <C>
Irwin Bosh Stack(1) 250,000 10.8
P.O. Box 4851
Hialeah, FL 33014
Henry Dubbin(2) 984,391 42.4
10155 Collins Avenue, Suite 607
Bar Harbor, FL 33154
Michael J. Gerber(3) 5,000 0.2
1544 Plasentia Avenue
Coral Gables, FL 33134
Irene Stack(4) 734,391 35.4
P.O. Box 4851
Hialeah, FL 33014
Nevada Minerals Corporation 734,391 35.4
10155 Collins Avenue, Suite 607
Bar Harbor, FL 33154
All officers and directors as a group 1,239,391 48.2
(3 persons)(5)
</TABLE>
____________
(1) Includes 250,000 shares of Common Stock subject to currently exercisable
options.
14
<PAGE>
(2) Includes 734,391 shares of Common Stock that Mr. Dubbin owns through
Nevada Minerals Corporation, a corporation of which he is the majority
stockholder and president. Includes 250,000 shares of Common Stock
subject to currently exercisable options.
(3) Represents 5,000 shares of Common Stock subject to an agreement to
issue such shares in connection with the employment of Mr. Gerber.
(4) Includes 515,625 shares of Common Stock that Mrs. Stack owns through
her wholly owned corporation, FYM, Inc.
(5) Includes 500,000 shares of Common Stock subject to currently
exercisable options and 734,391 shares of Common Stock held by Nevada
Minerals Corporation, Inc.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1993, Nevada Minerals Corporation, Inc. granted Mr. Bosh Stack
a transferable option to acquire 515,625 shares of Common Stock that it
owned at an aggregate purchase price of $25,000, exercisable until May 28, 1996.
Mr. Stack transferred the option to FYM, Inc. which exercised the option on
March 27, 1995. FYM, Inc. is a wholly-owned corporation of Mrs. Irene Stack, the
wife of Mr. Stack.
On May 31, 1994, Messrs. Stack and Dubbin converted $63,500 and
$54,375, respectively, of their accrued but unpaid salary in 1994 into
promissory notes of the Company due May 31, 1995, bearing interest at 10% per
annum. The notes and interest were unpaid when due and the holders have agreed
to extend the due date to May 31, 1996, and accrued but unpaid interest in the
amounts of $6,350 and $5,437.50 have been added to the principal amount due.
On May 28, 1993, the Company acquired 50,000 tons of gold ore reserve
from Nevada Minerals Corporation in exchange for the issuance of 1,350,000
shares of restricted common stock. The ore was appraised as having a $5,000,000
value. On June 28, 1994, the Company formed a wholly owned subsidiary, Aurum,
with the gold ore reserve as its only asset.
On June 21, 1995, an agreement was signed between the Company and
Accord whereby 100% of the stock of Aurum was exchanged for 6,000,000 shares of
Accord. Accord is to pay the Company a royalty equal to 12.5% of the net
production income of the Aurum operations for the productive life of the
property.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on
Form 10-KSB.
1. Financial Statements: Page
Report of Independent Certified Public Accountants on financial
statements for the year ended May 31, 1995........................F-1
15
<PAGE>
Report of Independent Certified Public Accountants on financial
statements for the year ended May 31, 1994........................F-2
Consolidated Balance Sheet as of May 31, 1995.....................F-3
Consolidated Statements of Operations for each of the two years
ended May 31, 1995 and 1994.......................................F-4
Consolidated Statements of Stockholders' Equity for each of the
two years ended May 31, 1995 and 1994.............................F-5
Consolidated Statements of Cash Flows for each of the two years
ended May 31, 1995 and 1994.......................................F-6
Summary of Significant Accounting Policies........................F-7
Notes to Consolidated Financial Statements........................F-9
(b) Reports on Form 8-K.
The Company filed Reports on Form 8-K for events on September 6, 1995
and January 4, 1996 reporting certain changes in accountants as
follows:
(a) Puritz & Weintraub served as the independent auditors of the Company
for the fiscal years ended May 31, 1993 and 1994 and until September
6, 1995. On September 6, 1995, Puritz & Weintraub resigned their
engagement upon consultation with the Company because it was
determined that the best interest of the Company would be served by
retaining BDO Seidman, LLP. The decision to change auditors was
approved by the Company's Board of Directors. There were no
disagreements between the Company and Puritz & Weintraub on any
matters of accounting principles or practices, financial statement
disclosure or auditing scope or procedures.
(b) BDO Seidman, LLP ("BDO") served as the independent auditors of the
Company for the period September 6, 1995 until January 4, 1996.
During its term of engagement, BDO advised the Company of its need
to significantly expand its audit of the cost and carrying values of
certain gold ore reserve property, which had been acquired by the
Company in May 1993 in exchange for a controlling interest in the
Company, a portion of which shares were subject to an immediately
exercisable option by another shareholder of the Company.
Specifically, BDO requested a current, independent appraisal of the
gold ore reserve property and documentary evidence of the cost of
the property to its prior owner. The Company terminated BDO because,
although an appraisal from a qualified, licensed appraiser and other
information was provided, the Company was unable to provide the type
of and level of appraisal or the documentary evidence demanded by
BDO. The gold ore reserve property
16
<PAGE>
had been transferred to Accord Futronics Corporation
("Accord") on June 21, 1995 for 6,000,000 shares of its common
stock, representing approximately 30% of the outstanding
common stock of Accord. Additionally, Accord lent the Company
$100,000, which was collateralized and guaranteed by a
principal stockholder of the Company. Because BDO was
terminated as auditors of the Company, it did not complete
certain procedures related to the gold ore reserve property,
the result of which could have materially impacted the
fairness or reliability of the financial statements for the
year ended May 31, 1995 (the period covered by BDO's
incomplete engagement) and for the years ended May 31, 1994
and 1993 (with which BDO has no association). The Company has
permitted BDO to respond to the inquiries of Simon Krowitz
Bolin & Associates, PA concerning the gold ore reserve
property. The decision to change auditors was approved by the
Company's Board of Directors.
(c) Since January 4, 1996 Simon Krowitz Bolin & Associates, PA has
been engaged by the Company as its principal independent
auditors and served as the independent auditors of the Company
for the fiscal year ended May 31, 1995.
(c) The following documents are filed as exhibits to this Annual Report
on Form 10-KSB.
3.1 Certificate of Incorporation, as amended.Incorporated by reference
from Registration Statement on Form S-18 - Commission File No.
33-8166B, August 20, 1986.
3.2 Amendments to Certificate of Incorporation dated August 1, 1994.*
3.3 By-Laws. Incorporated by reference from Registration Statement on
Form S-18 - Commission File No. 33-8166B, August 20, 1986.
4.1 Form of Common Stock Certificate. Incorporated by reference from
Form 10-KSB for the fiscal year ended May 1994.
4.2 Option Agreement, dated June 21, 1995, between Registrant and
Accord Futronics Corporation.*
10.1 1986 Incentive Stock Plan. Incorporated by reference from
Registration Statement on Form S-18 - Commission File No.
33-8166B, August 20, 1986.
10.2 Form of 1994 Equity Performance Plan. Incorporated by reference
from Information Statement dated July 11, 1994.
10.3 Form of Employment Agreement with Mr. Irwin Bosh Stack.
Incorporated by reference from Form 10-KSB for the Fiscal Year
Ended May 31, 1994.
17
<PAGE>
10.4 Form of Employment Agreement with Mr. Henry Dubbin. Incorporated
by reference from Form 10-KSB for the Fiscal Year Ended May 31,
1994.
10.5 Form of Acquisition Agreement between Registrant and 1st Coast
Physical Medicine Associates, Inc. Incorporated by reference from
Form 8-K, filed January 1995.
10.6 Amended Oak Tree Medical Systems, Inc. Extension Agreement for
Acquisition by Acorn I, Inc. from 1st Coast Physical Medicine
Associates Inc. of 1st Coast Rehabilitation Inc. and 1st Coast
Physical Therapy Inc.*
10.7 Employment Agreement between Registrant and Dr. Ronald W. Dennie.*
10.8 Form of purchase agreement between Registrant and Cassandra
Armstrong and Martha Nugent.*
10.9 Form of purchase agreement between Registrant and Vladimir
Kavchenko.*
22.1 Subsidiaries:*
Acorn CORF I, Inc. Nevada
Riverside CORF, Inc. Nevada
Oak Tree Financial Services, Inc. Florida
27 Financial Data Schedule (for SEC use only)
____________
* Previously filed.
18
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS'
Oak Tree Medical Systems, Inc.
Hialeah, Florida
We have audited the accompanying consolidated balance sheet of Oak Tree Medical
Systems Inc. as of May 31, 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Oak Tree Medical
Systems, Inc. at May 31, 1995, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
Simon, Krowitz, Bolin and Associates, P.A.
January 17, 1996
Rockville, Maryland
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
MAY 31, 1995
==============================================================================
ASSETS
CURRENT ASSETS
Cash $ 138,196
Patient care receivables, less allowance for possible
losses of $98,000(Note 2) 1,758,275
Prepaids and other 77,518
- ------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,973,989
OTHER ASSETS
Investment in gold ore (Note 4) 5,000,000
Property and equipment, net (Note 3) 333,735
Deposits and other 50,808
Excess of cost over fair value of net assets acquired,
Less accumulated amortization of $17,220 (Note 1) 1,362,755
- ------------------------------------------------------------------------------
TOTAL ASSETS $ 8,721,287
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,358,715
Current maturities of long-term debt (Note 5) 354,533
Income taxes payable (Note 7) 280,338
- ------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,993,586
OTHER LIABILITIES
Deferred income tax (Note 7) 22,662
Long-term debt, less current maturities (Note 5) 169,924
Obligation to issue shares of common stock (Note 1) 1,406,765
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 3,592,937
- ------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
STOCKHOLDERS' EQUITY (NOTE 6)
Common stock, $.01 par value, 25,000,000 shares
Authorized, 2,046,969 shares issued and outstanding 20,470
Additional paid-in capital 8,035,371
Deficit (2,927,491)
- ------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 5,128,350
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,721,287
==============================================================================
SEE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
<TABLE>
<CAPTION>
OAK TREE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR YEARS ENDED MAY 31,
1995 1994
======================================================================================
<S> <C> <C>
REVENUE
Net patient services (Note 2) $ 2,652,889 $ 0
- --------------------------------------------------------------------------------------
EXPENSES
Compensation and related benefits (Notes 5 and 8) 797,356 193,125
Selling, general and administrative 1,428,976 41,071
Interest 38,600 0
- --------------------------------------------------------------------------------------
TOTAL EXPENSES 2,264,932 234,196
- --------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 387,957 (234,196)
PROVISION FOR INCOME TAXES (NOTE 7) 127,000 0
- --------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 260,957 $ (234,196)
- --------------------------------------------------------------------------------------
INCOME (LOSS) PER COMMON SHARE $ .11 $ (.19)
- --------------------------------------------------------------------------------------
Weighted average number of common and common equivalent
shares outstanding 2,460,000 1,248,469
======================================================================================
</TABLE>
SEE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
OAK TREE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR YEARS ENDED MAY 31,
==================================================================================================================
Additional Total
Common Stock Paid-in Stockholders'
Shares Amount Capital Deficit Equity
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, MAY 31, 1993 1,248,469 $ 12,485 $ 7,920,443 $ (2,954,252) $ 4,978,676
NET LOSS 0 0 0 (234,196) (234,196)
- ------------------------------------------------------------------------------------------------------------------
BALANCE, MAY 31, 1994 1,248,469 12,485 7,920,443 (3,188,448) 4,744,480
SHARES ISSUED IN COMPLETION OF
ACQUISITION OF GOLD ORE 693,750 6,938 (6,938) 0 0
(NOTE 4)
ISSUANCE OF SHARES OF COMMON
STOCK (NOTE 6) 104,750 1,047 121,866 0 122,913
NET INCOME 0 0 0 260,957 260,957
- ------------------------------------------------------------------------------------------------------------------
BALANCE MAY 31, 1995 2,046,969 $ 20,470 $ 8,035,371 $ (2,927,491) $ 5,128,350
==================================================================================================================
</TABLE>
SEE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
<TABLE>
<CAPTION>
OAK TREE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR YEARS ENDED MAY 31,
1995 1994
============================================================================================
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 260,957 $ (234,196)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 65,451 0
Bad debt expense 98,000 0
Expenses paid in shares of common stock 35,038 0
Change in assets and liabilities, net of effects from
Purchase of business:
Increase in patient care receivables (1,856,275) 0
Increase in prepaids and other (21,484) 0
Increase in deposits and other (5,670) 0
Increase in accounts payable and accrued expenses 1,138,162 9,251
Increase in income tax payable 280,338 0
Decrease in deferred income tax (153,338) 0
- ------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (158,821) (224,945)
- ------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Cash acquired in purchase of business, including
collection of purchased receivables 309,577 0
Purchase of property and equipment (5,966) 0
- ------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 303,611 0
- ------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Principal payments on borrowings (43,547) 0
Increase in borrowings 25,500 229,861
- ------------------------------------------------------------------------------------------------
NET CASH (USED IN ) PROVIDED BY FINANCING ACTIVITIES (18,047) 229,861
- ------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 126,743 4,916
CASH - BEGINNING OF YEAR 11,453 6,537
- ------------------------------------------------------------------------------------------------
CASH - END OF YEAR $ 138,196 $ 11,453
================================================================================================
</TABLE>
SEE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MAY 31, 1995
DESCRIPTION Oak Tree Medical Systems, Inc. and subsidiary
OF OPERATIONS (the Company) is principally engaged in providing
medical and physical therapy care to patients
under the direction of licensed physicians.
Substantially all of the Company's operations are
conducted in northeastern Florida. As of May 31,
1995, the Company's investment in gold ore
constitutes over 50% of total assets.
PRINCIPLES The consolidated financial statements include the
OF CONSOLIDATION accounts of Oak Tree Medical Systems, Inc. and
its wholly owned subsidiaries. All material
inter-company balances and transactions have been
eliminated.
ACQUISITION The acquisition of 1st Coast Physical Medicine
Associates, Inc. (1st Coast) has been accounted
for as a purchase and, accordingly, the
accompanying consolidated financial statements
include the results of its operations from the
date of acquisition. The excess of cost over fair
value of net assets acquired is included in the
balance sheet as "excess of cost over fair value
of net assets acquired." Such amount is being
amortized over 20 years on a straight-line basis
and is evaluated for potential impairment on an
ongoing basis. Potential impairment is checked
annually by a comparison of actual operating
results against the projected results on which
part of the valuation was based. Contingent
payments required under the earn-out provision of
the acquisition agreement are recorded, when
earned, as "excess of cost over fair value of net
assets acquired."
PROPERTY Property and equipment is recorded
AND EQUIPMENT at cost. Depreciation and amortization are
computed using the MACRS method over the three to
five years estimated lives of the assets.
REVENUE RECOGNITION Net patient services revenue is recorded at the
estimated net realizable amounts from patients,
third-party payors and others for services
rendered. Approximately 54% of 1995 revenues were
derived under a Medicare reimbursement program.
These revenues are based, in part, on cost
reimbursement principles and are subject to audit
and retroactive adjustment by the third-party
intermediaries. Settlements based on audit of
such amounts, if any, are recorded in the year
they become known.
STOCK OPTIONS To the extent that options to acquire shares of
the Company's common stock are exercisable based
upon future events or criteria, the Company will
measure and record compensation expense based
upon the fair market value of the underlying
securities until such time as the events or
criteria are met.
F-7
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MAY 31, 1995
TAXES ON INCOME The Company accounts for income taxes pursuant to
the provisions of the Financial Accounting
Standards Board Statement No. 109, "Accounting
for Income Taxes," which requires, among other
things, the asset and liability approach to
calculating deferred income taxes. The asset and
liability approach requires the recognition of
deferred tax liabilities and assets for the
expected future tax consequences of temporary
differences between the carrying amounts and the
tax bases of assets and liabilities.
NET INCOME (LOSS) PER Net income (loss) per common share is computed
COMMON SHARE based on the weighted average number of shares of
common stock outstanding each year, including the
weighted average effect of the 545,000 shares to
be issued in connection with the acquisition of
1st Coast for 1995, after giving effect to stock
options and warrants considered to be dilutive
common stock equivalents.
STATEMENTS OF CASH The Company considers short-term investments with
FLOWS an original maturity of three months or less to
be cash equivalents.
F-8
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995
1. ACQUISITION On January 1, 1995, the Company purchased all of
the assets (Including patient care receivables of
$318,487, net of allowances) and assumed certain
liabilities of 1st Coast. The consideration for
the transaction, as amended subsequent to May 31,
1995, of 400,000 shares of the Company's common
stock (valued at $962,000) is included in the
accompanying consolidated balance sheet as an
obligation to issue shares of common stock.
In the event that the fair market value of the
400,000 shares of the Company's common stock
issued in connection with the acquisition is less
than $1,000,000 within 30 days of January 16,
1997, the Company has agreed to issue additional
shares of common stock for the amount of
shortfall.
The acquisition agreement, as amended, also
provides for the Company to pay additional
consideration (in shares of common stock) equal
to the pre-tax earnings of the acquired business
at the annual anniversary date for the subsequent
four years, price of the stock will be computed
based on the average market price of the previous
fifteen days of each anniversary date. As of May
31, 1995, the Company is obligated to issue
additional shares of common stock valued at
$444,565, approximately 145,000 shares.
The excess of cost over fair value of net assets
acquired aggregated $1,362,975, including $86,967
of payments on liabilities of the acquired
business by the Company subsequent to the date of
acquisition.
The following table summarizes pro forma
consolidated results of operations (unaudited) of
the Company and 1st Coast as though the
acquisition was made at the beginning of each
period presented. The pro forma amounts give
effect to appropriate adjustments for
amortization of excess of cost over fair value of
net assets acquired and depreciation expense.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, 1995 1994
-----------------------------------------------------------------
<S> <C> <C>
Revenues $ 4,059,981 $ 3,037,392
Net income (loss) $ 273,045 $ (76,409)
Net income (loss) per
common share $ .10 $ (.05)
</TABLE>
F-9
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995
2. MEDICARE Patient care revenues and receivables for 1995
RECEIVABLES includes approximately $1,420,000 due from
Medicare for services rendered to patients by the
Company's licensed Comprehensive Outpatient
Rehabilitation Facilities (CORF) which are
subject to approval by Medicare under the cost
limitation guidelines. In the opinion of
management, any difference between the amounts
recorded and final determination by Medicare will
not materially affect the consolidated financial
statements.
3. PROPERTY AND Property and equipment consists of the following:
EQUIPMENT
<TABLE>
<CAPTION>
===================================================================
<S> <C>
Furniture and fixtures $ 42,114
Office and medical equipment 246,295
Leasehold improvements and signage 93,557
-------------------------------------------------------------------
381,966
Less accumulated depreciation and amortization 48,231
-------------------------------------------------------------------
$ 333,735
===================================================================
</TABLE>
4. INVESTMENT IN GOLD In May 1993, the Company acquired ownership of
ORE 50,000 tons of untreated gold ore located in
Nevada County, California, in exchange for
1,350,000 shares of common stock (of which
693,750 were later issued in 1995). The seller
had previously purchased the gold ore for cash
consideration of $5,000,000 and fair market value
at May, 1993, exceeded cost. Accordingly, the
Company accounted for acquisition of the gold ore
at the seller's carryover basis of $5,000,000.
Upon consummation of the transaction, the seller
held control of approximately 70% of the then
outstanding shares of the Company's common stock.
The Company's principal operations are in the
medical care field and it has not undertaken
mining of the gold ore. In June 1995, the Company
exchanged its gold ore for 6,000,000 shares of
common stock of Accord Futronics Corporation
(Accord). Additionally, Accord agreed to lend the
Company $100,000 for 120 days at 12% interest per
annum, collateralized by 200,000 shares of common
stock held by the Company's principal stockholder
and guaranteed by the stockholder, and to pay the
Company a royalty of 12.5% of net production
income from processing the ore. The Company
granted to Accord options to acquire 50,000
shares of the Company's common stock, exercisable
at the lower of $2 per share or 50% of quoted
market price for the shares, for the later of two
years or the period ending six months subsequent
to the Company registering the options. Following
the exchange, the Company held approximately 30%
of the outstanding shares of common stock of
Accord. No gain or loss was recognized on the
exchange.
F-10
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995
4. INVESTMENT IN GOLD The Company does not yet have complete current
ORE (CONTINUED) financial information with respect to Accord but
believes that the fair market value of Accord's
net assets supports the $5,000,000 carrying value
of the Company's investment.
5. LONG-TERM DEBT Long-term debt consists of the following:
<TABLE>
<S> <C>
Bank notes, interest at prime plus 1% (9.75% at
May 31, 1995), principal and interest payable
monthly through 1999, collateralized by
substantially all assets other than gold ore $ 232,549
Unsecured demand notes payable to officers/stockholders,
bearing interest at 10%, $193,125 representing 1994 officers'
compensation is due May 1996 268,238
Obligations under capital leases, interest at 16.5% to 18%,
principal and interest payable monthly through 1996,
collateralized by equipment 23,670
=================================================================================
524,457
Less current maturities 354,533
---------------------------------------------------------------------------------
$ 169,924
=================================================================================
Future maturities are as follows:
1996 $ 354,533
1997 66,150
1998 56,604
1999 47,170
---------------------------------------------------------------------------------
$ 524,457
=================================================================================
</TABLE>
6. STOCKHOLDERS' During the year ended May 31, 1995, the Company
EQUITY issued 25,000 unregistered shares of common stock
in exchange for two Comprehensive Outpatient
Rehabilitation Facility licenses valued at
licenses' estimated fair market value of $40,000
and 25,500 unregistered shares of common stock in
prepayment of certain advertising and legal
services valued at the services' estimated fair
market value of $47,875. Also during the year
ended May 31, 1995, the
F-11
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995
6. STOCKHOLDERS' Company issued 54,250 unregistered shares of
EQUITY common stock in payment of services to unrelated
(CONTINUED) parties and recorded expenses of $35,038 to value
the services at estimated fair market value. In
connection with the acquisition of 1st Coast, the
Company granted the seller options to acquire an
aggregate of 160,000 shares of the Company's
common stock that vest 40,000 shares per year
upon the achievement for that year of pretax
income in excess of $850,000 by the acquired
business as follows:
YEAR ENDING MAY 31, Exercise Price
===============================================
1996 $ 2.50
1997 $ 2.50
1998 $ 3.50
1999 $ 4.50
-----------------------------------------------
The options expire one year subsequent to vesting
or upon the seller no longer being employed by
the Company.
In May 1995, in connection with a $5,250 loan to
the Company, the Company granted a stockholder
options to acquire 7,500 shares of common stock
exercisable at approximate fair market value of
$2.00 per share through April 1, 2000.
In June 1993, the Company, in connection with the
employment agreements of two executives, granted
options to each executive to acquire 250,000 of
the Company's common stock exercisable at $.03
per share, increased to approximate fair market
value of $2.00 per share in May 1995, through
January 1, 1999.
The Company's 1986 Stock Option Plan (the Plan)
provides for the issuance of both incentive stock
options and non-qualified stock options. The Plan
is administered by the Board of Directors. The
Company has reserved up to 400,000 shares of its
common stock for issuance under the Plan to
employees, consultants, or others at exercise
prices not less than fair market value at the
date of grant. No options have been granted under
the Plan.
In February 1994, the Company adopted the 1994
Performance Equity Plan ("1994 Plan") covering
600,000 shares of common stock pursuant to which
officers, directors, key employees and
consultants are eligible to receive incentive or
non-qualified stock options, stock appreciation
rights, restricted stock awards, deferred stock,
stock reload options and other stock based
awards. No options have been granted under the
1994 Plan.
F-12
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996
7. INCOME TAXES The provision for income taxes is comprised of
the following:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, 1995
==================================================================
<S> <C>
Current:
Federal $ 240,338
State 40,000
------------------------------------------------------------------
Total current income taxes payable 280,338
------------------------------------------------------------------
Deferred:
Federal (131,338)
State (22,000)
------------------------------------------------------------------
Total deferred (153,338)
------------------------------------------------------------------
Provision for income taxes $ 127,000
==================================================================
</TABLE>
The following is a reconciliation of income taxes
computed at the 34% statutory rate to the
provision for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, 1995
==================================================================
<S> <C>
Tax at statutory rate $ 132,000
State tax, net of federal effect 13,000
Benefit of net operating loss carryforward (23,000)
Other 5,000
------------------------------------------------------------------
Provision for income taxes $ 127,000
==================================================================
</TABLE>
The Company's deferred income tax liability at
May 31, 1995, represents the income tax effect,
computed at the statutory rate, of the excess of
the Company's basis for accounting purposes in
the assets acquired from 1st Coast over the basis
for income tax purposes.
F-13
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996
7. INCOME TAXES Deferred taxes are determined based on the
(CONTINUED) estimated future tax effects of differences
between the financial reporting and tax bases of
assets and liabilities given the provisions of
the enacted tax laws. The net deferred tax asset
(liability) is comprised of the following:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
1995
---------------------------------------------------------------------------
<S> <C>
Current deferred tax asset:
Gross assets $ 235,714
Gross assets 0
---------------------------------------------------------------------------
Net Current deferred tax asset 235,714
---------------------------------------------------------------------------
Noncurrent deferred tax liability:
Gross assets 9,822
Gross liabilities (268,198)
---------------------------------------------------------------------------
Net noncurrent deferred tax liability (258,376)
---------------------------------------------------------------------------
Total net deferred tax asset (liability) $ (22,662)
===========================================================================
</TABLE>
The tax effects of significant temporary
differences representing deferred tax assets and
liabilities are as follows:
<TABLE>
---------------------------------------------------------------------------
<S> <C>
Accounts Receivable $ 110,403
Bad debt 36,801
Depreciation and amortization 6,134
Business Purchase (176,000)
---------------------------------------------------------------------------
Net Deferred Tax Asset (liability) $ (22,662)
===========================================================================
</TABLE>
As of May 31, 1995, the Company has net operating
loss carryforwards of approximately $2,100,000
for income tax purposes which expire through May
31, 2006. As a result of the change in control in
ownership of the Company's common stock which
occurred in May 1993, utilization of the net
operating loss carryforward for years subsequent
to May 31, 1995 is limited to approximately
$26,000 per year (an aggregate of $277,000
through 2006). Realization of any portion of the
Company's deferred tax asset at May 31, 1995
resulting from the net operating loss
carryforwards is not considered more likely than
not and accordingly, a $105,000 valuation
allowance has been established for the full
amount of the deferred tax asset.
F-14
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995
8. COMMITMENTS The Company leases its office facilities and
AND certain equipment under operating leases which
CONTINGENCIES expire through 1998. Approximate future annual
minimum rental payments under agreements with
initial or remaining non-cancelable terms in
excess of one year are as follows:
==================================
1996 $ 100,000
1997 41,000
1998 15,000
----------------------------------
$ 156,000
==================================
Rent expense for the years ended May 31, 1995 and
1994 aggregated approximately $93,000 and $0,
respectively.
The Company's principal executive officers are
employed under the terms of agreements which
expire in 1998. As a result of changes in the
responsibilities of two officers during the year
ended May 31, 1995, their compensation was
modified from an aggregate of $172,500 to $35,000
for the year. Compensation expense pursuant to
all employment agreements aggregated
approximately $230,000 and $193,000 for the years
ended May 31, 1995 and 1994, respectively. The
agreements provide for aggregate base
compensation of approximately $560,000 for the
year ending May 31, 1996, escalating
approximately $15,000 per year thereafter, plus
bonuses based upon revenues and earnings.
On September 1, 1995, Medbrook Corporation
(Medbrook) filed a lawsuit against 1st Coast
asserting: (1) breach of contract for failure to
pay amounts due under management service
contracts (2) breach of contract by improper
termination of those contracts and (3) breach of
a non-compete agreement by the physician who was
the former sole stockholder of 1st Coast and is
the Company's chief medical officer. Commencing
April 30, 1994, Medbrook provided management
services to certain of 1st Coast's operations
under the terms of contracts that provided for
Medbrook to receive one-half of the net profits
of those operations, which has been expensed in
the accompanying financial statements. The
contracts with Medbrook were terminated in May,
1995.
The Company did not acquire the common stock of
1st Coast and did not assume 1st Coast's
liabilities, if any, to Medbrook. Accordingly, in
the opinion of management, the ultimate outcome
of this matter will not have a material adverse
effect on the Company's financial condition or
results of operations.
F-15
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995
9. SUPPLEMENTAL On January 17, 1995, the Company purchased all of
CASH FLOW the assets and assumed certain liabilities of 1st
INFORMATION Coast. In connection with the acquisition,
liabilities were incurred and assumed, as
follows:
==================================================
Fair value of assets acquired $ 1,448,733
Common stock to be issued (962,000)
--------------------------------------------------
Liabilities incurred and assumed $ 486,733
==================================================
During the year ended May 31, 1995, the Company
issued 104,750 shares of unregistered common
stock, valued at $122,913 for current and future
services and to purchase assets.
During the years ended May 31, 1995 and 1994,
cash payments for interest were approximately
$10,000 and $0, respectively.
F-16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amended report to be
signed on its behalf by the undersigned thereunto duly authorized.
Dated: May 6, 1996 OAK TREE MEDICAL SYSTEMS, INC.
By: /s/ IRWIN BOSH STACK
---------------------------------
Irwin Bosh Stack,
Chairman of the Board
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
<CASH> 138,196
<SECURITIES> 0
<RECEIVABLES> 1,856,275
<ALLOWANCES> 98,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,973,989
<PP&E> 381,966
<DEPRECIATION> 48,231
<TOTAL-ASSETS> 8,721,287
<CURRENT-LIABILITIES> 1,993,586
<BONDS> 0
0
0
<COMMON> 20,470
<OTHER-SE> 5,107,880
<TOTAL-LIABILITY-AND-EQUITY> 8,721,287
<SALES> 2,652,889
<TOTAL-REVENUES> 2,652,889
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,226,332
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,600
<INCOME-PRETAX> 0
<INCOME-TAX> 127,000
<INCOME-CONTINUING> 260,957
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 260,957
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
