SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
[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, 1996
[ ] 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)
1111Park Centre Boulevard, Suite 340, Miami, Florida 33169
(Address of principal executive office and zip code)
Registrant's telephone number including area code: (305) 624-0007
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. [X]
The issuer's revenues for its most recent fiscal year were $4,663,972.
Number of shares of Common Stock, $.01 par value, outstanding as of August 29,
1996: 2,537,696
Market value of voting stock (1,473,782 shares) held by non-affiliates as of
August 29, 1996: $11,606,033.25
Documents incorporated by reference: None.
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PART I
ITEM 1. BUSINESS
Oak Tree Medical Systems, Inc. ("Company") is engaged in the business
of owning, operating and managing physical therapy clinics, comprehensive
outpatient rehabilitation facilities and related medical practices. Currently,
all of the Company's operations are in the Jacksonville, Florida area. The
Company operates its various facilities and practices through wholly owned
subsidiaries as required or practical for licensing, operating and managing the
various aspects of its business. In addition, the Company wholly-owns Oak Tree
Financial Services, Inc., a Florida corporation ("Financial"), 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 to refer to Oak
Tree Medical Systems, Inc. and all its subsidiaries other than Financial.
MEDICAL BUSINESS
The Company is implementing a business plan of acquiring and operating
clinics, rehabilitation practices and other specialized businesses in the
medical services industry. The Company has recruited a team of medical advisers
whose career-long contacts 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 engaged in evaluating several specific practices
including 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.
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JACKSONVILLE, FLORIDA THERAPY CENTERS
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. Since its acquisition of 1st Coast, the Company
closed two of the clinic offices and consolidated the services with other of its
facilities in a cost savings measure. Further, in May 1995, the Company
terminated the agreement with an external management company and management of
the centers and practice was assumed by the Company. During the fiscal year
ended May 31, 1996, these centers handled approximately 16,000 patient visits
which represents an increase of approximately 40% from the prior fiscal year, on
an annualized basis. Because the Company is aggressively seeking opportunities
to provide services under managed care contracts and obtain or open additional
facilities in the Jacksonville, Florida area, the Company believes, but can give
no assurance, that the number of patient visits and income will continue to
grow.
As of August 1, 1995, the Company entered into a modification
agreement to the asset acquisition agreement to acquire additional assets of 1st
Coast, pursuant to which the Company acquired the pre-January 17, 1995 accounts
receivable currently estimated to be approximately $318,000, net of allowances,
and the attendant Medicare provider number. The Company 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 the Company,
including tax liabilities, Dr. Ronald W. Dennie, founder of the clinics and sole
shareholder of 1st Coast, has agreed to indemnify the Company. 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,
the Company 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, 1st Coast may issue additional
shares of Common Stock as additional consideration in the future based on a
formula using pre-taxed earnings of 1st Coast as owned by the Company. Because
this formula is based on future values of the Common Stock and future earnings
of 1st Coast as owned by the Company, 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 Agency for Health Care Administration ("AHCA"). 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 issued, a CORF
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license is a tangible asset of the licensed facility and may be transferred for
value to other organizations with USHHS and AHCA 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 commenced operations and billing in late August
1995 for services since March 1995. On March 15, 1996, the Company opened a
12,000 square foot facility in Jacksonville, Florida to expand and enhance the
medical and physical therapy operations previously conducted elsewhere in
Jacksonville, Florida and the Medicare comprehensive outpatient rehabilitation
services provided by the Company under the CORF license.
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 Mining"), 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.
On June 21, 1995, 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 Mr. Henry Dubbin, with a supplementary guarantee to Mr. Dubbin by
Mr. Irwin Bosh Stack, the then Chairman of the Board. This loan was repaid in
full on December 9, 1995. 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 1111 Park Centre
Boulevard, Suite 340, Miami, Florida 33169 (Tel. 305/624-0007).
EMPLOYEES
As of May 31, 1996, Oak Tree had three employees, Messrs. Irwin Bosh
Stack, Michael Gerber and Henry Dubbin. On August 29, 1996, Mr. Irwin Bosh Stack
resigned all his positions with the Company. Subsequent to year end, the
employees of the Company that were leased employees became direct employees of
the Company, and the Company hired office staff for its Miami office.
Consequently, at August 29, 1996, the Company had 27 employees. The Company also
hires independent consultants for its medical service operations from time to
time and at August 29, 1996, employed nine persons under consulting agreements.
ITEM 2. PROPERTIES
The Company's headquarters office, with 1,685 square feet is located at
1111 Park Centre Blvd., Miami, Florida 33169. The Company rents this space
pursuant to a lease expiring in June 1997 at an
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annual rent of $26,758. The Company has the option to renew the lease on one
occasion for an additional term of three years at an initial rate of $15 per
square foot. The Company believes that the office is adequate for its current
operations.
In addition, the Company rents space for its medical service operations
at the locations and on the terms listed below. The Company believes these
facilities are adequate for these operations.
SQUARE MONTHLY EXPIRATION
LOCATION FOOTAGE RENT OF LEASE
- -------- ------- ---- --------
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
9143 Philips Highway 11,606 $12,463.00 4/01/03
Jacksonville, Florida
ITEM 3. LEGAL PROCEEDINGS
There are no material 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 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, 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
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Fiscal Year Ended May 31, 1996
First Quarter 3-7/16 5-3/4
Second Quarter 7-1/8 8-1/8
Third Quarter 6-7/8 8-3/8
Fourth Quarter 6-5/8 8-1/8
As of August 29, 1996, there were approximately 130 holders of record
of the Company's Common Stock. The Company believes that, in addition, there are
in excess of 400 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 August 29, 1996, was $7.625 and $8.125, 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. The 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
GENERAL
Prior to January 1995, the Company's primary focus was identifying
physical therapy centers and practices for acquisition, and the Company had no
operations relating to its current business. In January 1995, the Company
completed the acquisition of 1st Coast. In August 1995, the acquisition terms
were modified and the Company acquired some additional receivables. During 1995,
the Company acquired two CORF licenses. On August 28, 1996, the Company
announced the potential acquisition of three physical therapy practices in the
greater New York area on which the Company expects to close during the next 60
days, pending completion of its due diligence review and fulfillment of certain
conditions precedent. The Company is also pursuing an acquisition in Maryland,
of which no assurance can be given that it will be completed.
1996 FISCAL YEAR COMPARED TO 1995 FISCAL YEAR
The Company acquired the assets and assumed certain liabilities of 1st
Coast in January 1995. Because of the timing of the 1st Coast acquisition and
the later acquisition of two CORF licenses in 1995 and amendments to the
acquisition agreements relating to 1st Coast in August 1995 a strict comparison
of the results of operations for the fiscal year ended May 31, 1996 to the
results of operations for the fiscal year ended May 31, 1995 is not meaningful.
The former year includes results for a 12 month period and the later year
includes results for only four months. Thus, the following analysis, where there
are comparisons, assume the difference in the time the Company has pursued its
operations during the periods.
During the 1996 fiscal year the Company consolidated certain of its
activities and moved some of its operations to a new location with expanded
facilities in the Jacksonville, Florida area. The activities related to the move
caused disruption in the treatment of patients which had a minor impact on
revenues during the 1996 fiscal year.
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Revenues for the 1996 fiscal year were $4,663,792 compared to
$2,652,889 for the 1995 fiscal year, representing an increase of $2,010,903 or
75%. The increase is due to the difference in the periods of operations covered
as discussed above and an increase in the number of patient visits which is a
result of the differing periods of operations and an actual improvement in the
number of patient visits.
Expenses for the 1996 fiscal year were $3,419,184 compared to
$2,264,932 for the 1995 fiscal year, representing an increase of $1,154,252 or
51%. Expenses increased for the same reasons as revenues. Because of the
difference in the operations for the periods, a strict comparison of overall
margins are not meaningful for the two fiscal years, however, the Company
reduced its operating expenses from 89% of net patient service income in the
1995 fiscal year to 73% of net patient service income in the 1996 fiscal year.
Expenses include various compensation expenses, selling, general and
administrative expenses, interest expenses and depreciation and amortization
expenses. Compensation expense increased from $797,356 in the 1995 fiscal year
to $1,910,452 in the 1996 fiscal year because of changes in the compensation of
current employees, and undertaking the direct management of its business from
outside sources and hiring employees directly rather than using leased
personnel. Selling, general and administrative expenses declined from $1,363,525
to $1,197,027 because of the closing of two locations during the 1996 fiscal
year and the concomitant reduction of certain personnel, supply and rent
expenses. Interest expenses increased from $38,600 to $130,928 because of
increase borrowings under a number of credit arrangements for different
purposes, the most significant of which is a receivables funding from A/R
Funding, Ltd., which includes a broker's fee for amounts borrowed. For the two
periods, the Company had depreciation and amortization expenses only in the 1996
fiscal year as a separate financial statement item.
Net income for the 1996 fiscal year was $1,039,996 compared to $260,959
for the 1995 fiscal year. Income from operations for the 1996 fiscal year were
$869,690 compared to $260,957 for the 1995 fiscal year. In addition, in the 1996
fiscal year there were other items of income including interest and cancellation
of debts which were not separately reported items in the 1995 fiscal year. The
Company reported income taxes of $111,190 for the 1996 fiscal year. Income taxes
are accrued as a deferred liability as a result of the increase in net income
and of the cash basis accounting methods currently used for determining income
taxes. When the revenues exceed $5,000,000, the Company will be required to
change its method of accounting for income tax purposes to the same method used
for book value purposes, which will be the accrual method. The Company
anticipates such change will result in a reverse of the deferred tax liability
which will be taken as an expense over a three year period. It is anticipated,
but no assurance can be given, that the Company will reach this $5,000,000
threshold during the fiscal year ending May 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company is currently funding its capital requirements with
operating cash flow, the sale of equity securities and the issuance of equity
securities in exchange for assets acquired and services rendered. In January and
March 1996, the Company completed the sale of an aggregate of 82,200 shares of
Common Stock for an aggregate of $439,000 which generated net proceeds of
approximately $400,000. The sale of these shares was made on the basis of
federal and state private offering exemptions. These resources have been used
during the periods reported upon to acquire 1st Coast and two CORF licenses, and
to the extent necessary, to fund operating deficits.
At May 31, 1996, the Company had working capital of $2,140,389. For the
1995 fiscal year the cash flow from operations was a negative $167,821. The
increase in working capital is as a result of a significant increase in patient
receivables from $1,758,275 for the 1995 fiscal year to $3,158,325 for the 1996
fiscal year, after provision for doubtful accounts.
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A significant portion of the revenues of the Company are for 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. Such billing is based, in part, on established cost
reimbursement principles and is subject to audit and retroactive adjust. While
waiting for payment from third party payors, the Company is required to fund its
expenses from internal, and to the extent available, from external, financing
sources. To date, external financing for these purposes has been provided by A/R
Funding, Ltd. of Orange Park, Florida ("A/R Funding"). A/R Funding advances
amounts to the Company on an as needed basis to cover cash flow under a
revolving line of credit secured by the Company's accounts receivable. The
credit facility bears interest at the rate of 1-1/2% per month on the
outstanding balance, provides for a maximum amount borrowable under the credit
facility of $425,000 and expires on November 30, 1996. The credit facility also
requires payment of a broker fee of 2% per advance. Advances are repaid as
receivables are collected.
The Company was notified on June 26, 1996 that Medicare Part A was
reviewing its CORF facility for Medicare Part A service recipients. This review
is for all of the CORF claims submitted by the Company from May 6, 1996 forward,
and is to verify and assure compliance with all Medicare documentation
requirements. This review has caused a slowdown on Medicare Part A claims
payments. The Company has submitted a written corrective action plan to Medicare
Part A which was accepted on August 7, 1996. The Company has implemented this
plan and currently is submitting claims and documentation in accordance with it.
The Company anticipates the review to be lifted in October 1996. As a
consequence of the review, the Company has experienced certain cash-flow
difficulties, but it does not believe there will be any adjustments that will
have a material adverse effect on the overall profitability of the Company or in
its operations.
The Company believes, but gives no assurance, that the cash flow from
its operations 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 attempting to locate additional sources of capital, including, but
not limited to, equity financings and additional bank financings. The Company
plans to use any additional capital it may obtain to fund 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.
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 as additional consideration for 1st Coast
based on a formula using pre-taxed earnings of 1st Coast as owned by the
Company. Because the formula is based on future values of the Common Stock and
future earnings of 1st Coast as owned by the Company, the Company's obligation
is not calculable at this time.
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FORWARD LOOKING STATEMENTS
Certain statements in this report set forth management's intentions,
plans, beliefs, expectations or predictions of the future based on current facts
and analyses. Actual results may differ materially from those indicated in such
statements. Additional information on factors that may affect the business and
financial results of the Company can be found in the other filings of the
Company with the Securities and Exchange Commission.
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.
(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.
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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 August 29, 1996 were as follows:
NAME AGE POSITION
Michael J. Gerber 53 President, Secretary and Director
Henry Dubbin 81 Vice President and Director
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 President and a director of the Company
since May 1993. From May 1993 to August 1996, Mr. Dubbin was Vice Chairman of
the Board. 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.
On August 29, 1996, Mr. Irwin Bosh Stack resigned his various positions
with the Company. Mr. Stack was the Chairman of the Board, Secretary and a
director of the Company from its incorporation in May 1986 until August 1996,
and Chief Operating Officer of the Company from May 1993 until August 1996.
Directors may be elected by the stockholders at an annual meeting or a
special meeting called for that purpose (or in the case of a vacancy, are
appointed by the directors then in office) to serve until the next annual
meeting, until their successors are elected and qualified or until their removal
or resignation. Officers serve at the discretion of the Board of Directors.
During the last fiscal year the Board of Directors held nine meetings
and Mr. Stack attended all the meetings and Messrs. Gerber and Dubbin attended
eight of the 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 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 that all such
reports were filed on a timely basis, except as follows: Mr. Gerber did not
report his becoming an
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officer and director of the Company on September 7, 1995 or his acquisition of
options on November 6, 1995, to acquire common stock of the Company.
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
COMPENSATION LONG TERM COMPENSATION
------------ ------------------------------------
COMMON STOCK
FISCAL RESTRICTED UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY STOCK AWARDS OPTIONS
- --------------------------- ------ ------ ------------ ------------
<S> <C> <C> <C> <C>
Irwin Bosh Stack 1994 $85,000 -0- -0-
Chairman of the Board, Chief 1995 $35,000 -0- 250,000
Operating Officer and Secretary(1)(2) 1996 -0- -0- -0-
Henry Dubbin 1994 $72,500 -0- -0-
Vice Chairman and Vice President(1) 1995 -0- -0- 250,000
1996 -0- -0- -0-
Michael J. Gerber 1996 -0- -0- 55,000
President (3)
</TABLE>
- ------------
(1) Salaries for the fiscal year ended May 31, 1994 were accrued and
$63,500 and 54,372 were not paid and converted into notes payable to
Messrs. Stack and Dubbin, respectively. The notes were subsequently
canceled by the note holders. For additional disclosure on the salaries
of Messrs. Stack and Dubbin, see "Employment Agreements" below.
(2) Mr. Stack resigned all of his positions with the Company on
August 29, 1996.
(3) Mr. Gerber was appointed President of the Company on September 7, 1995.
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
NAME OPTIONS EMPLOYEES PRICE EXPIRATION DATE
---- ---------- -------------- -------- ---------------
<S> <C> <C> <C> <C>
Michael J. Gerber 5,000 25% $1.66 September 7, 1997
50,000 $2.00 November 6, 2002
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL AND FISCAL YEAR-END OPTIONS/SAR VALUES
SHARES ACQUIRED ON # OF UNEXERCISED OPTIONS/SARS
EXERCISE AT FISCAL YEAR END VALUE OF UNEXERCISED IN-
------------------------- VALUE ------------------------------ THE-MONEY OPTIONS/SARS AT
NAME EXERCISED UNEXERCISED REALIZED EXERCISABLE UNEXERCISABLE FISCAL YEAR END(1)
- ---- --------- ----------- -------- ----------- ------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Irwin Bosh Stack 0 0 $ 0 250,000 0 $1,375,000
Henry Dubbin 0 0 $ 0 250,000 0 $1,375,000
Michael J. Gerber 0 0 $ 0 5,000 50,000 $27,500
</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, 1996 as quoted on the over-the-counter market,
multiplied by the number of shares underlying the option.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Mr. Henry Dubbin which
expires June 1998. Under this agreement, salary in the amount of $80,000 was
accrued in the fiscal year ending May 31, 1994 which was converted into a note
in the principal amount of $54,375 bearing interest at 10% per annum. This note
was canceled by Mr. Dubbin. Mr. Dubbin's agreement also provided for salaries to
be paid in the fiscal year ended on May 31, 1995 and 1996 which amounts were
waived and not accrued. Mr. Dubbin has waived all future amounts to be paid
under this agreement.
The Company had an employment agreement with Mr. Irwin Bosh Stack.
Under the agreement, the Company accrued salary in the amount of $92,500 for the
fiscal year ended May 31, 1994 which was converted into a note in the principal
amount of $63,500 bearing interest at 10% per annum. This note was canceled by
Mr. Stack. The salaries stated in the agreement for the fiscal year ended May
31, 1996 and to be paid during the fiscal year ending May 31, 1997 were waived
and were not accrued. Mr. Stack resigned all his positions with the Company on
August 29, 1996 and the employment agreement terminated as to future
obligations.
On January 11, 1995, for past services, 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.
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. See Item 1,
"Business -Jacksonville, Florida Therapy Centers" and Item 6, "Management's
Discussion and Analysis of Financial Results" above.
1994 PERFORMANCE EQUITY PLAN
In February 1994, 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, 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,
12
<PAGE>
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 August 20, 1996 no options under the 1994 Plan were outstanding.
NON PLAN OPTIONS
The Company has granted various non-plan options to purchase an
aggregate of 767,500 shares of Common Stock. The options granted to current and
former officers and directors of the Company as set forth below.
NUMBER OF
NAME OPTION SHARES EXERCISE PRICE EXPIRATION DATE
- ---- ------------- -------------- ---------------
Michael J. Gerber 5,000 $1.66 September 7, 1997
50,000 $2.00 November 6, 2002
Henry Dubbin 250,000 $2.00 January 1, 1999
Irwin Bosh Stack 250,000 $2.00 January 1, 1999
In connection with the acquisition of 1st Coast, the Company's
subsidiary, Acorn CORF I, Inc., entered into an employment agreement with Dr.
Dennie on August 28, 1995, pursuant to which the Company granted to Dr. Dennie
an option to purchase up to 160,000 shares of Common Stock at exercise prices
ranging from $2.50 to $4.50. The option vests in four equal amounts of 40,000
shares of Common Stock on August 28, 1996, 1997, 1998 and 1999 if the Company's
subsidiary, Acorn CORF I, Inc. has $850,000 in pre-tax earnings related to Dr.
Dennie's efforts in each such year. The portion of the option, once vested, is
exercisable for only one year. The option expires in its entirety upon the
termination of Dr. Dennie's employment.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of August 29,
1996 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, 1996, 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.
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ---------------- -------------------- --------
Michael J. Gerber(1) 17,500 0.6
1544 Plasentia Avenue
Coral Gables, FL 33134
Henry Dubbin(2) 984,391 35.3
10155 Collins Avenue, Suite 607
Bar Harbor, FL 33154
13
<PAGE>
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ---------------- -------------------- --------
Irene Stack(3) 734,391 28.9
P.O. Box 4851
Hialeah, FL 33014
Nevada Minerals Corporation 734,391 28.9
10155 Collins Avenue, Suite 607
Bar Harbor, FL 33154
Dr. Ronald Dennie(4) 400,000 15.7
1708 Lakeshore Drive
Austin, TX 78746
Irwin Bosh Stack(5) 250,000 9.0
P.O. Box 4851
Hialeah, FL 33014
All officers and directors as a group 1,001,891 35.8
(2 persons)(5)
- ------------
(1) Includes 17,500 shares of Common Stock subject to currently exercisable
options. Excludes 37,500 shares of Common Stock which may be issued
pursuant to an option that may become exercisable in the future.
(2) Includes 734,391 shares of Common Stock that Mr. Dubbin beneficially
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. (See Item 12 -
Certain Relationships and Related Transactions.)
(3) Includes 515,625 shares of Common Stock that Mrs. Stack beneficially
owns through her wholly owned corporation, FYM, Inc. (See Item 12 -
Certain Relationships and Related Transactions.)
(4) Excludes options to acquire up to 160,000 shares of Common Stock.
(5) Includes 250,000 shares of Common Stock subject to currently
exercisable options.
(6) Includes 262,500 shares of Common Stock subject to currently
exercisable options and 734,391 shares of Common Stock held by Nevada
Minerals Corporation, Inc. Excludes 37,500 shares of Common Stock which
may be issued pursuant to an option that may become exercisable in the
future.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1993, Nevada Minerals Corporation, Inc. granted Mr. Irwin Bosh Stack
a transferable option to acquire 515,625 shares of Common Stock that it owed 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. The exercise consideration was not paid at the date of transfer or
thereafter and
14
<PAGE>
certain obligations under the terms of the option have not been fulfilled. 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 for the fiscal year
ended May 31, 1994 into promissory notes of the Company due May 31, 1995,
bearing interest at 10% per annum. The principal and interest due on these notes
were canceled by the note holders.
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
Mining, 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 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.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
The following documents are filed as part of this Annual Report on Form
10-KSB.
<TABLE>
<CAPTION>
(a) Financial Statements: Page
<S> <C>
Report of Independent Certified Public Accountants on financial statements for the year
ended May 31, 1995 and 1996............................................................................F-1
Consolidated Balance Sheet as of May 31, 1996..........................................................F-2
Consolidated Statements of Operations for each of the two years ended May 31, 1996 and
1995...................................................................................................F-3
Consolidated Statements of Cash Flows for each of the two years ended May 31, 1996
and 1995...............................................................................................F-5
Summary of Significant Accounting Policies.............................................................F-6
Notes to Consolidated Financial Statements.............................................................F-8
</TABLE>
(b) Reports on Form 8-K.
The Company did not file any Reports on Form 8-K during the last
quarter of the period covered by this report.
(c) The following documents are filed as exhibits to this Annual Report
on Form 10-KSB.
15
<PAGE>
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. Incorporated by reference from Exhibit 3.2 of the Annual
Report on Form 10-KSB for the fiscal year ended May 31, 1995.
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. Incorporated by referenced from
Exhibit 4.2 of the Annual Report on Form 10-KSB for the fiscal
year ended May 31, 1995.
10.1 Form of 1994 Equity Performance Plan. Incorporated by
reference from Information Statement dated July 11, 1994.
10.2 Form of Employment Agreement with Mr. Irwin Bosh Stack.
Incorporated by reference from Form 10-KSB for the Fiscal Year
Ended May 31, 1994.
10.3 Form of Employment Agreement with Mr. Henry Dubbin.
Incorporated by reference from Form 10-KSB for the Fiscal Year
Ended May 31, 1994.
10.4 Form of Acquisition Agreement between Registrant and 1st
Coast Physical Medicine Associates, Inc. Incorporated by
reference from Form 8-K, filed January 1995.
10.5 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. Incorporated by reference from
Form 10-KSB filed for the fiscal year ended May 31, 1995.
10.6 Employment Agreement between Registrant and Dr. Ronald W.
Dennie. Incorporated by reference from Form 10-KSB filed for
the fiscal year ended May 31, 1995.
10.7 Form of purchase agreement between Registrant and Cassandra
Armstrong and Martha Nugent. Incorporated by reference from
Form 10-KSB filed for the fiscal year ended May 31, 1995.
10.8 Form of purchase agreement between Registrant and Vladimir
Kavchenko. Incorporated by reference from Form 10-KSB filed
for the fiscal year ended May 31, 1995.
22.1 Subsidiaries:
16
<PAGE>
Acorn Corf, Inc. Florida
Acorn CORF I, Inc. Nevada
Riverside CORF, Inc. Florida
1st Coast Rehabilitation, Inc. Florida
Oak Tree Medical Management, Inc. New York
Oak Tree Financial Services, Inc. Florida
23.1 Consent of Simon Krowitz Bolin & Associates, P.A.
27.1 Financial Data Schedule.
17
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
MAY 31, 1996 AND 1995
TABLE OF CONTENTS
AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheet 2
Consolidated Statement of Operations 3 - 4
Consolidated Statement of Cash Flows 5
Summary of Significant Accounting Policies 6 - 7
Notes to Consolidated Financial Statements 8 - 15
<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, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years 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. as of May 31, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
SIMON, KROWITZ, BOLIN AND ASSOCIATES, P.A.
August 13, 1996
August 29, 1996 as to Note 12
Rockville, Maryland
<PAGE>
<TABLE>
<CAPTION>
OAK TREE MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
MAY 31,
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS
Cash $ 292,315 $ 138,196
Patient care receivables, less allowance for
possible losses of $1,486,270(Note 2) 3,158,325 1,758,275
Prepaids and other 68,621 77,518
- ------------------------------------------------------------------------------------- --------------- ---------------
TOTAL CURRENT ASSETS 3,519,261 1,973,989
- ------------------------------------------------------------------------------------- --------------- ---------------
OTHER ASSETS
Investment (Note 4) 5,000,000 5,000,000
Property and equipment, net (Note 3) 394,145 333,735
Deposits and other 18,657 50,808
CORF licenses 40,000 0
Excess of cost over fair value of net assets acquired,
Less accumulated amortization of $90,071 (Note 1) 1,252,143 1,362,755
- ------------------------------------------------------------------------------------- --------------- ---------------
TOTAL OTHER ASSETS 6,704,945 6,747,298
- ------------------------------------------------------------------------------------- --------------- ---------------
TOTAL ASSETS $ 10,224,206 $ 8,721,287
===================================================================================== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 920,363 $ 1,358,715
Loan payable - other (Note 6) 310,623 0
Current maturities of debt (Note 5) 147,846 354,533
Income taxes payable (Note 8) 0 280,338
- ------------------------------------------------------------------------------------- --------------- ---------------
TOTAL CURRENT LIABILITIES 1,378,832 1,993,586
- ------------------------------------------------------------------------------------- --------------- ---------------
OTHER LIABILITIES
Deferred income tax (Note 8) 720,782 22,662
Long-term debt, less current maturities (Note 5) 128,481 169,924
Obligation to issue shares of common stock (Note 1) 349,765 1,406,765
- ------------------------------------------------------------------------------------- --------------- ---------------
TOTAL OTHER LIABILITIES 1,199,028 1,599,351
- ------------------------------------------------------------------------------------- --------------- ---------------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS' EQUITY (NOTE 7)
Common stock, $.01 par value, 25,000,000 shares
authorized, 2,529,169 shares issued and outstanding 25,292 20,470
Additional paid-in capital 9,508,549 8,035,371
Deficit (1,887,495) (2,927,491)
- ------------------------------------------------------------------------------------- --------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 7,646,346 5,128,350
- ------------------------------------------------------------------------------------- --------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,224,206 $ 8,721,287
===================================================================================== =============== ===============
</TABLE>
SEE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
<TABLE>
<CAPTION>
OAK TREE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED MAY 31,
1996 1995
<S> <C> <C>
REVENUE
Net patient services (Note 2) $ 4,663,792 $ 2,652,889
- --------------------------------------------------------------------------------- ----------------- -----------------
EXPENSES
Personnel leasing, subcontract labor and related costs 1,910,452 797,356
Selling, general and administrative 1,197,027 1,363,525
Interest 130,928 38,600
Depreciation and Amortization 180,777 65,451
- --------------------------------------------------------------------------------- ----------------- -----------------
TOTAL EXPENSES 3,419,184 2,264,932
- --------------------------------------------------------------------------------- ----------------- -----------------
INCOME FROM CONTINUING OPERATIONS 1,244,608 387,957
BEFORE PROVISION FOR INCOME TAXES
PROVISION FOR INCOME TAXES (NOTE 8) 374,918 127,000
- --------------------------------------------------------------------------------- ----------------- -----------------
NET INCOME FROM OPERATIONS 869,690 260,957
- --------------------------------------------------------------------------------- ----------------- -----------------
OTHER INCOME
Interest 8 0
Cancellation of Debts 281,488 0
Less related income taxes (111,190) 0
- --------------------------------------------------------------------------------- ----------------- -----------------
TOTAL OTHER INCOME 170,306 0
- --------------------------------------------------------------------------------- ----------------- -----------------
NET INCOME $ 1,039,996 $ 260,957
================================================================================= ================= =================
INCOME PER COMMON SHARE $ .39 $ .11
================================================================================= ================= =================
Weighted average number of common and common equivalent
shares outstanding 2,679,375 2,460,000
================================================================================= ================= =================
</TABLE>
SEE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
<TABLE>
<CAPTION>
OAK TREE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1996 AND 1995
Additional Total
Common Stock Paid-in Stockholders'
Shares Amount Capital Deficit Equity
- -------------------------------- --------------- ----------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance May 31, 1994 1,248,469 $ 12,485 $ 7,920,443 $ (3,188,448) $ 4,744,480
Shares issued in completion of
acquisitions of gold ore
(Note 4) 693,750 6,938 (6,938) 0 0
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
Issuance of shares of common
stock (Notes 1 & 7) 482,200 4,822 1,473,178 0 1,478,000
Net Income 0 0 0 1,039,996 1,039,996
- -------------------------------- --------------- ----------------- ---------------- --------------- -----------------
Balance May 31, 1996 2,529,169 $ 25,292 $ 9,508,549 $ (1,887,495) $ 7,646,346
================================ =============== ================= ================ =============== =================
</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 STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED MAY 31,
1996 1995
- --------------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,039,996 $ 260,957
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 180,777 65,451
Expenses paid in shares of stock 0 35,038
Bad debts expense 0 98,000
Change in assets and liabilities:
Increase in patient receivables (1,400,050) (1,856,275)
Decrease (Increase) in prepaids and other 8,897 (21,484)
Decrease (Increase) in deposits and other 32,151 (5,670)
(Decrease) Increase in accounts payable and accrued expenses (438,352) 1,138,162
(Decrease) Increase in income tax payable (280,338) 280,338
Increase (Decrease) in deferred income tax 698,120 (153,338)
- --------------------------------------------------------------------------------- ----------------- -----------------
NET CASH USED IN OPERATING ACTIVITIES (158,799) (158,821)
- --------------------------------------------------------------------------------- ----------------- -----------------
INVESTING ACTIVITIES
Issuance of common stock 421,000 0
Increase in leasehold improvements (50,923) 0
Purchase of property and equipment (210,970) (5,966)
Purchase of CORF licenses (40,000) 0
Increase in excess of cost over fair value of assets acquired 37,761 0
Book value of leasehold improvements abandoned 93,557 0
Cash acquired in purchase of business, including collection of purchased
receivables 0 309,577
- --------------------------------------------------------------------------------- ----------------- -----------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 250,425 303,611
- --------------------------------------------------------------------------------- ----------------- -----------------
FINANCING ACTIVITIES
Principal payments on borrowings (283,105) (43,547)
Increase in borrowings 345,598 25,500
- --------------------------------------------------------------------------------- ----------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 62,493 (18,047)
- --------------------------------------------------------------------------------- ----------------- -----------------
NET INCREASE IN CASH 154,119 126,743
CASH - BEGINNING OF YEAR 138,196 11,453
- --------------------------------------------------------------------------------- ----------------- -----------------
CASH - END OF YEAR $ 292,315 $ 138,196
================================================================================= ================= =================
</TABLE>
SEE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MAY 31, 1996 AND 1995
DESCRIPTION OF Oak Tree Medical Systems, Inc. and subsidiaries
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
PRINCIPLES OF The consolidated financial statements include
CONSOLIDATION the accounts of Oak Tree Medical Systems, Inc.
and its wholly owned subsidiaries. All material
inter-company balances and transactions have been
eliminated.
EXCESS OF COST OVER The excess of cost over fair value of net assets
FAIR VALUE OF NET acquired is being amortized over 20 years on a
ASSETS ACQUIRED 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 AND Property, leasehold improvements and equipment
EQUIPMENT are recorded at cost. Depreciation is computed
using the MACRS method over the three to five
year estimated lives of the assets. Amortization
is computed using a twenty year life.
REVENUE RECOGNITION Net patient services revenue is recorded at
the estimated net realizable amounts from
patients, third-party payers and others for
services rendered. A significant portion of the
period's 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-6
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MAY 31, 1996 AND 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 PER Net income per common share is computed based on
COMMON SHARE the weighted average number of shares of common
stock outstanding each year, including the
weighted average effect of the 145,000 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 diluted
common stock equivalents.
STATEMENTS OF CASH The Company considers short-term investments
FLOWS with an original maturity of three months or
less to be cash equivalents.
CONCENTRATION OF The Company maintains its cash in bank deposit
CREDIT RISK accounts at high credit financial institutions.
The balances may, at times, exceed the FDIC
insured limits.
F-7
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 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. Consideration
for the transaction, as amended, included issuing
400,000 shares of the Company's common stock
(valued at $962,000). 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 (15) days of each anniversary date. As of
May 31, 1996 and 1995, the Company is obligated
to issue additional shares of common stock valued
at $349,765, approximately 145,000 shares.
The excess of cost over fair value of net assets
acquired aggregated $1,407,013, including
$219,540 of payments on liabilities of the
acquired business by the Company subsequent to
the date of acquisition. This amount is being
amortized over twenty (20) years.
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 the
period presented. The proforma 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
------------------------------------------------------------------ -------------------
<S> <C>
Revenues $ 4,059,981
Net income (loss) $ 273,045
Net Income (loss) per common share $ .10
</TABLE>
2. MEDICARE Patient care revenues and receivables at May 31,
RECEIVABLES 1996 and 1995, includes approximately $1,703,292
and $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 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.
F-8
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
3. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
<TABLE>
<CAPTION>
------------------------------------------------------ --------------- ---------------
1996 1995
<S> <C> <C>
Office furniture and equipment $ 166,870 $ 42,114
Physical therapy and rehabilitation equipment 334,435 246,295
Leasehold improvements and signage 50,923 93,557
------------------------------------------------------ --------------- ---------------
Total 552,228 381,966
Less accumulated depreciation and amortization 158,083 48,231
------------------------------------------------------ --------------- ---------------
$ 394,145 $ 333,735
====================================================== =============== ===============
</TABLE>
4. INVESTMENT In June, 1995, the Company exchanged its
interest in 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 loan was
repaid on December 9, 1995. 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.
As of May 31, 1996 and 1995, no current financial
information is available on Accord. This
investment constitutes almost 50% of the
Company's assets.
5. LONG-TERM DEBT Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Bank notes, interest at prime plus 1% principal and
interest payalbe monthly through 1999,
collateralized by substantially all assets other
than the investment $ 155,579 $ 232,549
Note payable - note dated March, 1996, for
$44,975, no interest, payable eight monthly
payments of $5,000 and one of $4,975.
34,975 0
Unsecured demand notes payable to officers
stockholders, bearing interest at 10%, $193,125
representing 1994 officers' compensation is due
May 1996. 0 268,238
F-9
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
5. LONG-TERM DEBT Obligations under capital leases, interest at
(CONTINUED) 16.5% to 18%, principal and interest
payable monthly through 1996, collateralized
by equipment. 85,773 23,670
===================================================== =============== ================
276,327 524,457
Less current maturities 147,846 354,533
----------------------------------------------------- --------------- ----------------
Total $ 128,481 $ 169,924
===================================================== =============== ================
</TABLE>
Future maturities are as follows for years
starting June 1:
1996 $ 147,846
1997 85,082
1998 34,181
1999 9,218
-------------------- ---------------
$ 276,327
==================== ===============
6. LOAN PAYABLE - In December, 1995, the Company entered into
OTHER an agreement for the collateralization of its
patient receivables in return for funds. The
advances are repaid as the receivables are
collected. All collections are sent to the
funding company. Fees charged are a loan discount
of 1.5% per advance, interest of 1.5% on monthly
outstanding balance and a broker fee of 2% per
advance.
7. 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 Company
issued 54,250 unregistered shares of common stock
in payment of services to unrelated 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 due solely to the
efforts of Dr. Ronald Dennie (seller) as follows:
F-10
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
7. STOCKHOLDERS' YEAR ENDED MAY 31, 1996 AND 1995 Exercise
EQUITY (CONTINUED) 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. The Plan terminated as of May 31, 1996
and 1995.
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-11
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
8. INCOME TAXES The provision for income taxes is comprised of
the following:
<TABLE>
<CAPTION>
--------------------------------------------------- ----------------- ----------------
MAY 31, 1996 1995
--------------------------------------------------- ----------------- ----------------
<S> <C> <C>
Current:
Federal $ (255,454) $ (240,338)
State (44,019) (40,000)
--------------------------------------------------- ----------------- ----------------
Total current income taxes payable (299,473) (288,338)
--------------------------------------------------- ----------------- ----------------
Deferred:
Federal 570,770 131,338
State 97,413 22,000
--------------------------------------------------- ----------------- ----------------
Total deferred 668,183 153,338
--------------------------------------------------- ----------------- ----------------
Provision for income taxes $ 368,710 $ 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>
--------------------------------------------------- ----------------- ----------------
<S> <C> <C>
Tax at statutory rate $ 365,523 $ 132,000
State tax, net of federal effect 67,497 13,000
Benefit of net operating loss carryforward (64,310) (23,000)
Other 0 5,000
--------------------------------------------------- ----------------- ----------------
Provision for income taxes $ 368,710 $ 127,000
=================================================== ================= ================
</TABLE>
The Company's deferred income tax liability at
May 31, 1996 and 1995, represents the income tax
effect, computed at the statutory rate in the
accounting for income and expenses for financial
purposes (accrual method) and for income tax
purposes (cash basis).
F-12
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
8. INCOME TAXES Deferred taxes are determined based on
(CONTINUED) the 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>
MAY 31, 1996 1995
------------------------------------------------ ------------------ ------------------
<S> <C> <C>
Noncurrent deferred tax liability:
Gross assets 0 9,822
Gross liabilities (668,182) (268,198)
------------------------------------------------ ------------------ ------------------
Net noncurrent deferred tax liability (668,182) 258,376
------------------------------------------------ ------------------ ------------------
The tax effects of significant temporary
differences representing deferred tax assets and
liabilities are as follows:
------------------------------------------------ ------------------ ------------------
Computed income tax-cash basis $ (651,001) $ (22,662)
Other (17,182) 0
------------------------------------------------ ------------------ ------------------
Net deferred tax asset (liability) $ (668,183) $ 22,662
================================================ ================== ==================
</TABLE>
As of May 31, 1996 and 1995, the Company has net
operating loss carryforwards of approximately
$862,272 for income tax purposes which expire
through May 31, 2011. 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
prior to May 31, 1993, is limited to
approximately $26,000 per year (an aggregate of
$313,877 through 2006). The remaining
carryforward of $548,395 may be used without
restriction. Realization of any portion of the
Company's deferred tax asset at May 31, 1996 and
1995, resulting from the net operating loss
carryforwards is not considered more likely than
not and accordingly, a $340,597 valuation
allowance has been established for the full
amount of the deferred tax asset.
F-13
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
9. COMMITMENTS The Company leases its office facilities and
AND certain equipment under operating leases
CONTINGENCIES which expire through 1999. Approximate future
annual minimum rental payments under agreements
with initial or remaining non-cancelable
terms in excess of one year are as follows:
================================
1996 $ 188,993
1997 174,689
1998 149,561
1999 149,561
--------------------------------
$ 662,804
================================
Rent expense for the year ended May 31, 1996 and
1995, aggregated approximately $159,303. (See
also Note 11)
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, 1996 and 1995, their compensation
was modified from an aggregate of $172,500 to
$35,000 for the year. The agreements provide for
aggregate base compensation of approximately
$560,000 for the year ending May 31, 1996 and
1995, escalating approximately $15,000 per year
thereafter, plus bonuses based upon revenues and
earnings. Any compensation due under these
agreements has been rescinded.
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. The contracts with Medbrook
were terminated in May, 1995.
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. A reserve of
$100,000 was established for legal costs and of
any settlement. As of May 31, 1996 and 1995,
approximately $36,000 of costs had been incurred.
F-14
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
9. COMMITMENTS A company subsidiary, Acorn CORF I, d/b/a 1st
AND Coast Rehabilitation, has filed suit against a
CONTINGENCIES former physician-employee to recover damages
(CONTINUED) relating to the former employee's conduct in
attempting to wrongfully bill and collect, in his
individual capacity, for medical services which
he rendered while employed with Acorn. Trial is
scheduled for December, 1996, but management
feels this case will be settled without
substantial cost to Acorn.
A former employee has filed a complaint with EEOC
alleging sexual harassment. 1st Coast has filed a
written response denying the alleged acts. This
complaint is presently under review by the
Jacksonville Equal Opportunity Commission. No
civil action has been filed against 1st Coast
Rehabilitation. It is premature to evaluate the
outcome of this action.
10. SUPPLEMENTAL During the year ended May 31, 1996 and 1995,
CASH FLOW cash payments for interest were approximately
INFORMATION $130,928.
11. OTHER In March, 1996, Oak Tree's Riverside CORF,
Inc. moved to a new and larger facility
significantly increasing its ability to provide
physical therapy and rehabilitative services.
In the new facility and in the St. Augustine
facility, Riverside CORF has established one of
the few programs in its service area for patients
suffering from Chronic Obstructive Pulmonary
Disease (C.O.P.D.). In this program patients
learn how to utilize many different resources to
achieve their functional respiratory goals.
12. SUBSEQUENT EVENTS On July 1, 1996, the Company entered into
a one year lease for executive office space. The
annual rent is $25,128.
On August 29, 1996, Irwin Bosh Stack resigned as
Chairman and CEO of the Company.
F-15
<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 report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: September 13, 1996 OAK TREE MEDICAL SYSTEMS, INC.
By: /s/ Michael J. Gerber
------------------------------
Michael J. Gerber, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
- ---- ----- ----
/s/ Michael J. Gerber President and Director September 13, 1996
- ---------------------
Michael J. Gerber
/s/ Henry Dubbin Vice President and Director September 13, 1996
- ---------------------
Henry Dubbin
18
Exhibit 23.1
Consent of Accountants'
We hereby consent to the incorporation by reference of the financial statements
included in Form 10KSB for the fiscal year end May 31, 1996 into the
registration statement of the Company on Form S-8 Registration Statement No.
333-11275
Simon Krowitz Bolin & Associates, P.A.
September 10, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 292,315
<SECURITIES> 0
<RECEIVABLES> 4,644,595
<ALLOWANCES> 1,486,270
<INVENTORY> 0
<CURRENT-ASSETS> 3,519,261
<PP&E> 552,228
<DEPRECIATION> 158,083
<TOTAL-ASSETS> 10,224,206
<CURRENT-LIABILITIES> 1,378,832
<BONDS> 0
0
0
<COMMON> 25,292
<OTHER-SE> 7,621,054
<TOTAL-LIABILITY-AND-EQUITY> 10,224,206
<SALES> 4,663,792
<TOTAL-REVENUES> 4,945,288
<CGS> 1,910,452
<TOTAL-COSTS> 1,377,804
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 130,928
<INCOME-PRETAX> 1,526,104
<INCOME-TAX> 486,108
<INCOME-CONTINUING> 1,039,996
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,039,996
<EPS-PRIMARY> .39
<EPS-DILUTED> .38
</TABLE>
