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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 0-16206
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OAK TREE MEDICAL SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 02-0401674
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
163-03 HORACE HARDING EXPRESSWAY
FLUSHING, NEW YORK 11365
(Address of principal executive offices)
(718) 460-8400
(Issuer's telephone number, including area code)
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Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES [x] NO [ ]
Indicate number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practical date:
Common Stock, $.01 par value 2,370,981 shares
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Class Outstanding at May 30, 1997
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [x]
<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
INDEX
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet as of February 28, 1997 and
May 31, 1996
Consolidated Statement of Operations for the three and nine
months ended February 28, 1997 and February 29, 1996
Consolidated Statement of Stockholders' Equity for the nine
months ended February 28, 1997
Consolidated Statement of Cash Flows for the nine months
ended February 28, 1997 and February 29, 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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<PAGE>
OAK TREE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS February 28, May 31,
1997 1996
CURRENT ASSETS
<S> <C> <C>
Cash $ 35,861 $ 292,315
Patient care receivables, less allowance for doubtful accounts of
$1,150,000 and $1,486,270 as of February 28, 1997 and
May 31, 1996, respectively 2,498,867 3,158,325
Notes receivable 354,989
Prepaids and other current assets 38,200 68,621
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TOTAL CURRENT ASSETS 2,927,917 3,519,261
OTHER ASSETS
Notes receivable 193,946 -
Investment 5,000,000 5,000,000
Property and equipment, net 277,040 394,145
Other assets 17,392 58,657
Excess of cost over fair value of net assets acquired,
Less accumulated amortization of $7,000 and $90,071
as of February 28, 1997 and May 31, 1996, respectively 78,000 1,252,143
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TOTAL ASSETS $ 8,494,295 $ 10,224,206
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 745,346 $ 920,363
Notes payable 200,000 310,623
Current maturities of long-term debt 407,168 147,846
Deferred income taxes payable - 720,782
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TOTAL CURRENT LIABILITIES 1,352,514 2,099,614
OTHER LIABILITIES
Notes payable 125,000
Long-term debt, less current maturities 144,444 128,481
Obligation to issue shares of common stock 21,429 349,765
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TOTAL LIABILITIES 1,643,387 2,577,860
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STOCKHOLDERS' EQUITY
Common stock, $.01 par value,25,000,000 shares authorized,
2,183,406 and 2,529,169 shares issued and outstanding
as of February 28, 1997 and May 31, 1996, respectively 21,834 25,292
Additional paid-in capital 9,212,007 9,508,549
Deficit (2,382,933) (1,887,495)
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TOTAL STOCKHOLDERS' EQUITY 6,850,908 7,646,346
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,494,295 $ 10,224,206
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</TABLE>
See notes to consolidated financial statements.
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<PAGE>
OAK TREE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Ended
February February February February
28, 1997 29, 1996 28, 1997 29, 1996
REVENUE
<S> <C> <C> <C> <C>
Net patient services $ 440,297 $ 1,172,237 $ 2,679,442 $ 3,175,829
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EXPENSES
Selling, general and administrative 774,526 757,282 2,077,152 1,959,397
Depreciation and amortization 64,285 47,250 172,090 139,750
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TOTAL EXPENSES 838,811 804,352 2,249,242 2,099,147
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(LOSS) INCOME FROM CONTINUING
OPERATIONS (398,514) 367,705 430,200 1,076,682
INTEREST AND OTHER FINANCING COSTS (233,155) (314,956)
LOSS ON SALE OF FLORIDA OPERATIONS (1,321,068) (30,505) (1,321,068) (35,505)
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(LOSS) INCOME BEFORE INCOME
TAXES (1,952,737) 337,200 (1,205,824) 1,041,177
INCOME TAXES (971,575) 135,243 (710,386) 393,343
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NET (LOSS) INCOME $ (981,162) $ 201,957 $ (495,438) $ 647,834
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NET (LOSS) INCOME PER COMMON
SHARE $ (.36) $ .09 $ (.18) $ .25
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Weighted average number of common and
common equivalent shares outstanding 2,733,261 2,324,344 2,748,836 2,580,719
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</TABLE>
See notes to consolidated financial statements.
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<PAGE>
OAK TREE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in- Stockholders'
Shares Amount Capital Deficit Equity
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<S> <C> <C> <C> <C> <C>
Balance May 31, 1996 2,529,169 $ 25,292 $ 9,508,549 $(1,887,495) $ 7,646,346
Issuance of shares upon acquisition 54,237 542 399,458 400,000
Cancellation of shares upon disposition (400,000) (4,000) (696,000) (700,000)
Net (Loss) (495,438) (495,438)
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Balance February 28, 1997 2,183,406 $ 21,834 $ 9,212,007 $(2,382,933) $ 6,850,908
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</TABLE>
See notes to consolidated financial statements.
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<PAGE>
OAK TREE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months
Ended
February 28, February 29,
1997 1996
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OPERATING ACTIVITIES
<S> <C> <C>
Net (Loss) Income $ (495,438) $ 647,834
Adjustments to reconcile net (loss) income to
net cash (used) provided by operating activities:
Depreciation and amortization 172,090 139,750
Loss on sale of Florida operations 1,321,068
Deferred income taxes (710,386) 385,000
Change in assets and liabilities:
(Increase) in patient care receivables (1,406,905) (792,335)
(Increase) in prepaids and other current assets (3,200) (101,035)
(Increase) in other assets (14,082)
(Decrease) in accounts payable and accrued payable (100,017) (757,299)
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NET CASH (USED) BY OPERATING ACTIVITIES (1,236,870) (478,085)
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INVESTING ACTIVITIES
Payments on acquisition (455,000)
Increase in note receivable (448,935)
Purchases of property and equipment (69,598) (9,282)
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NET CASH (USED) BY INVESTING ACTIVITIES (973,533) (9,282)
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FINANCING ACTIVITIES
Proceeds from obligations to issue shares of common stock 21,429 190,000
Proceeds of notes payable and long-term debt 2,774,735 389,292
Payments of notes payable and long-term debt (842,215) (199,912)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 1,953,949 379,380
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NET (DECREASE) IN CASH (256,454) (107,987)
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CASH - Beginning of Period 292,315 138,196
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CASH - End of Period $ 35,861 $ 30,209
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest Expense Paid $ 64,956 $ 35,505
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</TABLE>
See notes to consolidated financial statements.
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<PAGE>
OAK TREE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. OPERATIONS
Oak Tree Medical Systems, Inc., a Delaware corporation, and its
subsidiaries (the "Company") operate physical therapy and rehabilitation care
clinics and related medical practices in the New York metropolitan area.
2. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of Oak Tree
Medical Systems, Inc. and its wholly-owned subsidiaries and Oak Tree Medical
Practice, P.C., a professional practice entity over which the Company exercises
significant influence and control. All material intercompany balances and
transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all the information and footnotes required by generally accepted accounting
principles for financial statements. For further information, refer to the
audited consolidated financial statements and notes thereto for the fiscal year
ended May 31, 1996, included in the Company's Form 10-KSB filed with the
Securities and Exchange Commission on September 12, 1996.
In the opinion of management, all adjustments necessary for a fair
statement of: (a) financial position as of February 28, 1997 and May 31, 1996,
(b) results of operations for the three months and nine months ended February
28, 1997 and February 29, 1996, (c) cash flows for the nine months ended
February 28, 1997 and February 29, 1996 and (d) changes in stockholders' equity
for the nine months ended February 28, 1997, have been made.
The results for the three months and nine months ended February 28,
1997 are not necessarily indicative of the results to be expected for the entire
fiscal year ending May 31, 1997.
3. ACQUISITION
On October 1, 1996, the Company acquired the operations of three
physical therapy care centers and a hospital service contract located primarily
in New York City for $900,000, payable: (a) $400,000 in cash, (b) $100,000 by
the assumption of a note payable and (c) the issuance of 54,237 shares of common
stock to a creditor of the seller. The note payable is due in four installments
of $25,000 through May 19, 1997, with interest at 6.07% per annum.
In connection with the acquisition, the Company incurred expenses of
$120,000, including a finder's fee of $90,000 to a company in which the wife of
the former chief executive officer of the Company is an owner and which was
agreed to prior to employment of the chief executive officer by the Company. The
finder's fee was paid $25,000 in cash and the balance in a note payable due on
January 15, 1998, with interest at 10% per annum. As of February 28, 1997, the
note has been cancelled, and all obligations to the related company have been
waived.
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<PAGE>
The acquisition was recorded on the purchase method and the purchase
price and related expenses have been allocated as follows:
Accounts receivable $ 750,000
Equipment 261,689
Supplies 5,000
Deposits 3,311
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$1,020,000
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The consolidated financial statements include the acquired operations
as of October 1, 1996.
4. NOTE RECEIVABLE
On December 11, 1996, the Company acquired certain assets of four
physical therapy care centers and a management company located in Long Island,
New York for an aggregate purchase price of $650,000 and 132,190 shares of
common stock of the Company, of which 126,190 shares were issuable in 18 months.
The $650,000 was payable: (a) $250,000 in cash and (b) $400,000 in a note
payable due in 32 monthly installments of $14,763, including interest. If a
certain market price was not achieved, an additional 34,097 shares would be
issued. In addition, if certain performance levels were achieved, contingent
cash payments would be required.
In connection with the acquisition, the Company incurred a finder's fee
to a related company (Note 3) equal to 10% of the purchase price. This
obligation has been cancelled due to the subsequent rescission of the
acquisition (see below).
On March 19, 1997, the Company rescinded its December 1996 acquisition.
The former sellers returned all stock and notes issued to them in the original
transaction. In addition, the former sellers will pay the Company $448,935,
representing the cash purchase price of the original transaction and the net
amount expended by the Company on the Long Island facilities since the original
acquisition. Of this amount, $50,000 was paid at the closing, $25,000 was paid
on May 5, 1997, and the balance will be paid over eighteen months. The
consolidated financial statements of the Company have been prepared as if the
rescission of the purchase of the Long Island facilities had occurred on
February 28, 1997. The results of operations of the Long Island facilities from
December 11, 1996 through February 28, 1997 are not included in the consolidated
statement of operations of the Company for the three and nine months ended
February 28, 1997.
5. NOTE PAYABLE
On September 30, 1996, a subsidiary of the Company entered into a loan
agreement with a bank for a term loan of $400,000 and a line of credit of
$200,000. The proceeds of the term loan were used to finance the acquisition
referred to in Note 3. The term loan is payable in equal monthly installments of
$22,222 through March 31, 1998, plus interest at 1% above the prime rate, per
annum. All borrowings under the line of credit will become due on September 30,
1997.
The term loan and line of credit are collateralized by the accounts
receivable and fixed assets of the subsidiary and are guaranteed by Oak Tree
Medical Systems, Inc.
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<PAGE>
6. DISPOSITIONS
On February 12, 1997, the Company completed the sale of the assets and
operations of its clinics in Jacksonville and Orange Park, Florida to MB Data
Corporation (the "Purchaser"). The Jacksonville assets were held by the
Company's ACORN CORF I, Inc. subsidiary, and the Orange Park assets were held by
the Company's Riverside CORF, Inc. subsidiary. The assets included the physical
assets located at the clinic facilities, the comprehensive outpatient
rehabilitation facility (CORF) license relating to such facilities, the right to
use the names formerly used by the Company in conducting business at these
facilities and certain accounts receivable. In addition, the Company sold to the
Purchaser the outstanding shares of its subsidiary Oak Tree Receivables, Inc., a
Florida corporation ("OT Receivables"). OT Receivables holds receivables of the
two North Florida clinics sold by the Company, and is a party to a receivables
funding facility in the original amount of $1,912,500 (the "Receivables
Facility").
The purchase price for the assets and the shares included $100,000 in
cash, a note in the amount of $100,000 and the Purchaser's assumption of $75,000
in accounts payable. In consideration of the consent of the lender under the
Receivables Facility to the sale, the Company transferred to the lender the
$100,000 cash consideration and pledged to the lender an additional $700,000 in
face amount of receivables of the disposed operations. The Company may be
entitled to receive a portion of the amounts collected on such receivables, to
the extent collections exceed the amount owed to the lender. As a result of the
sale, the Company and its affiliates have ceased to have any liability under the
Receivables Facility.
In April 1997, the Company disposed of its physical therapy clinic in
St. Augustine, Florida, completing its exit from the North Florida area in order
to focus its operations in the Northeast. The sale price for this facility was
$25,000 in cash, of which $15,000 was paid at the closing, $5,000 was paid on
April 26, 1997 and $5,000 was paid on May 29, 1997.
7. SALE OF ACCOUNTS RECEIVABLE
The Company entered into the Receivables Facility referred to in Note
6, whereby approximately $2,613,000 in face amount of accounts receivable were
provided as collateral for a $1,912,500 borrowing. Due to uncollectability of
many of these accounts, and as a condition of the consent of the lender under
the Receivables Facility to the sale of the Company's two North Florida clinics,
an additional $700,000 in accounts receivable were transferred to the lender. In
the event that the factor collects funds in excess of the original $1,912,500
borrowing, such excess, if any, shall be refunded to the Company, less
applicable collection charges.
8. SALE/LEASEBACK TRANSACTION
In March 1997, the Company purchased equipment subject to operating
leases for a cost of $220,000. This equipment, along with other fixed assets of
the Company, was used to enter into sale/leaseback transactions. Terms of these
transactions provide for 60 monthly payments of $11,226, including interest.
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<PAGE>
OAK TREE MEDICAL SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is engaged in the business of operating and managing physical
medicine and physical therapy clinics. The Company operates four facilities in
New York City, including one facility operated under a contract with a hospital.
In December 1996, the Company acquired four Long Island, New York based physical
therapy centers. This acquisition was rescinded in March 1997. In February 1997,
the Company sold the assets and certain liabilities of two physical therapy
facilities and related rehabilitative medicine practices in Jacksonville and
Orange Park, Florida, together with a related comprehensive outpatient
rehabilitation facility (CORF) license. In connection with the sale of these
facilities, the Company also sold a wholly-owned financing subsidiary,
effectively terminating its obligations under the Receivables Facility. In April
1997, the Company disposed of its physical therapy clinic in St. Augustine,
Florida, completing its exit from the North Florida area in order to focus its
operations in the Northeast.
RESULTS OF OPERATIONS
Nine and Three Months Ended February 28, 1997 Compared to Nine and Three Months
Ended February 29, 1996
Patient revenues decreased by 15.6% to $2,679,442 from $3,175,829 in the nine
months ended February 28, 1997 (the "Fiscal 1997 Nine Month Period") compared
with the nine months ended February 29, 1996 (the "Fiscal 1996 Nine Month
Period"). Revenues decreased 62.4% to $440,297 from $1,172,237 in the three
months ended February 28, 1997 (the "Fiscal 1997 Quarter") compared with the
three months ended February 29, 1996 (the "Fiscal 1996 Quarter"). The decrease
in revenues was attributable to the disposition in the 1997 Fiscal Quarter of
two of the Company's North Florida facilities, as well as a fall off in revenues
at these facilities during that quarter, offset in part by revenues from the
Company's New York City clinics acquired in October 1996. Revenues from the four
Long Island, New York clinics acquired in December 1996 whose purchase was
rescinded by the Company subsequent to the end of the Fiscal 1997 Quarter are
not included in the Company's revenues for the Fiscal 1997 Nine Month Period or
the Fiscal 1997 Quarter.
Total expenses were $2,249,242 or 83.9% of revenues for the Fiscal 1997 Nine
Month Period, compared with expenses of $2,099,147 or 66.1% of revenues for the
Fiscal 1997 Nine Month Period. Total expenses were $838,811 for the Fiscal 1997
Quarter or 190.5% of revenues for the Fiscal 1997 Quarter, compared with
expenses of $804,352 or 68.6% during the 1996 Fiscal Quarter. The increase in
expenses is due to operation expenses incurred in the New York City facilities
which were acquired by the Company in October 1996. The increase was also
attributable to increased legal and accounting expenses during the Fiscal 1997
Quarter. These expenses were primarily due to the transactional activities of
the Company during the quarter, the filing of an amended registration statement
with the Securities and Exchange Commission (the "SEC") on Form SB-2 for the
secondary registration of shares owned by certain selling stockholders and
preparation of other reports filed with the SEC. In addition, selling, general
and administrative expenses for the Fiscal 1997 Quarter included extensive
executive travel between the Company's New York and Florida facilities,
primarily in connection with the disposition of the two North Florida
facilities, and expenses related to the improvement of the Company's financial
controls and accounting system, some of which were previously incurred but were
recognized only in the fiscal quarter ended February 28, 1997. Total expenses as
a percentage of income increased for both the
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<PAGE>
Fiscal 1997 Nine Month Period and the Fiscal 1997 Quarter as a result of these
factors and the decrease in revenues for these periods.
As a result of these factors, the Company recognized income from continuing
operations of $430,200 and a loss of $398,514 for the Fiscal 1997 Nine Month
Period and the Fiscal 1997 Quarter, respectively, as compared to income from
continuing operations of $1,076,682 and $367,705 for the Fiscal 1996 Nine Month
Period and the Fiscal 1996 Quarter, respectively.
The Company recognized interest and other financing expenses of $233,155 and a
loss in connection with the sale of two North Florida facilities of $1,321,068.
Interest and other financing expenses increased during the Fiscal 1997 Nine
Month Period and the Fiscal 1997 Quarter as compared to the comparable periods
in fiscal 1996 as a result of increased expenses associated with the Receivables
Facility and bank borrowings. The loss on sale and financing expenses
contributed to a net loss of $495,438 and $981,162 for the Fiscal Ninth Month
Period and the Fiscal 1997 quarter, respectively, compared with net income of
$647,834 and $201,957 for the 1996 Fiscal Ninth Month Period and the 1996 Fiscal
Quarter, respectively.
LIQUIDITY AND CAPITAL RESOURCES
In the past, the Company has funded its capital requirements from operating cash
flow, loans against its accounts receivable, the sale of equity securities and
the issuance of equity securities in exchange for assets acquired and services
rendered. During the Fiscal 1997 Quarter, the Company undertook a number of
actions to consolidate its geographic focus and revalue certain balance sheet
assets to more realistically reflect their value to the Company. Together with
other actions undertaken following the close of the 1997 Fiscal Quarter, the
Company hopes that these actions will enable it to attract new investment
capital, which the Company believes will be necessary to sustain its ongoing
operations and to facilitate growth. The Company continues to explore
opportunities to raise private equity capital and, in conjunction therewith, to
provide credit support for the Company's operations and potential acquisitions.
Although the Company has in the past been and continues to be in discussions
with potential investors there can be no assurance that its efforts to raise any
substantial amount of private capital will be successful. Any substantial
private equity investment in the Company will result in voting dilution of the
Company's existing stockholders and could also result in economic dilution. If
the Company is unable to obtain new capital, the Company will be unable to carry
out its strategy of growth through acquisitions and the long-term ability of the
Company to continue its operations may be in doubt.
Following the Company's acquisition of three New York City based physical
therapy clinics, together with a hospital contract for the provision of physical
therapy services, in October 1996, the Company determined to shift its
geographic focus from North Florida to the New York City area. Consistent with
this approach, in February 1997, the Company sold substantially all of the
assets and assigned certain liabilities of the physical therapy and
rehabilitation care centers and related medical practices in Jacksonville,
Florida and Orange Park, Florida. The Company also sold all of the shares of Oak
Tree Receivables, Inc. ("OT Receivables"), a wholly-owned subsidiary of the
Company whose assets consisted of certain of the patient care receivables of the
North Florida facilities and the Receivables Facility secured thereby. The
purchase price consisted of $200,000 in cash, with $100,000 paid at closing and
$100,000 payable in two installments in April and May 1997. In connection with
the sale of OT Receivables, the Company pledged as collateral to the lender
under the Receivables Facility additional accounts receivable in the amount of
$700,000. The Company will be entitled to receive 40% of any collections on the
receivables transferred to the lender in excess of the amount owed under the
Receivables Facility. In connection with the sale of the two North Florida
facilities, the Company terminated the employment agreement with the facilities'
medical director, received a return of 400,000 shares of the Company's common
stock that had been issued in connection with the acquisition of the Company's
North Florida facilities in 1995 and was relieved of its obligation to issue an
additional 145,000 shares of common stock
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<PAGE>
incurred in connection with such acquisition. In connection with the sale of the
Jacksonville and Orange Park facilities in February 1997, the Company also sold
one of its CORF licenses.
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 services
are rendered. Such payment is based, in part, on established cost reimbursement
principles and is subject to audit and retroactive adjustment. While waiting for
payment from third party payors, the Company is required to fund its expenses
from internal, and to the extent available, external financing sources. The
Company continues to hold approximately $1,500,000 of uncollected receivables
from the Florida operations. The Company has determined that an allowance of
$500,000 with respect to these receivables is sufficient, based upon the
Company's assessment of the probability of collection in light of current
circumstances.
Continuing the divestiture of its Florida operations, the Company sold its
remaining North Florida facility located in St. Augustine, Florida in April
1997. The sale price for this facility was $25,000 in cash, with $15,000 paid at
the closing, $5,000 paid on April 26, 1997 and $5,000 paid on May 29, 1997.
In March 1997, the Company rescinded its acquisition of four Long Island, New
York based physical therapy centers, together with a related medical billing
company. The acquisition of these businesses had been made in December 1996. In
unwinding the transaction, the former sellers returned all shares of Company
common stock and promissory notes issued to them in connection with the
acquisition. In addition, the former sellers agreed to pay the Company $448,935,
representing the cash portion of the purchase price in the original transaction
and the net amount expended by the Company on the Long Island facilities since
the December 1996 acquisition. Of this amount, $50,000 was paid at closing,
$25,000 was paid in May 1997 and the balance is payable over eighteen months.
The rescission of the Long Island facilities is reflected in the consolidated
financial statements as of February 28, 1997. Although the original acquisition
of the Long Island clinics was consistent with the Company's strategy of
focusing its operations in the New York area, the cash flow from these
facilities to the Company was insufficient to support the operations of these
facilities by the Company at this time. Assuming the availability of capital
and/or suitable financing, the Company intends to explore the possible
acquisition of other physical therapy facilities in the New York area.
In April 1997, the Company agreed to issue 300,000 shares of common stock to a
private investor at a price of $.67 per share. Proceeds of the sale of the
shares, of which approximately $127,000 have been received, have been or will be
used for working capital. Also, in April 1997, the Company entered into three
agreements for financial consulting services. Under the first of these
agreements, the Company has agreed to issue to the consultant 50,000 shares of
common stock and options to acquire an additional 200,000 shares at exercise
prices of between $2.50 and $4.25. The second agreement provides for the
issuance to the consultant of 75,000 shares of common stock and options to
acquire an additional 75,000 shares at exercise prices of between $4.50 and
$5.00. Under the third agreement, the Company has agreed to issue to the
consultant 50,000 shares of common stock and options to acquire an additional
200,000 shares at prices of between $2.00 and $4.75.
In June 1995, the Company exchanged gold ore valued at $5,000,000 for 6,000,000
shares of common stock of Accord Futronics Corporation ("Accord"). The gold ore
was acquired in May 1993 from one of the Company's principal stockholders in
exchange for 1,350,000 shares of the Company's common stock. The Company has the
right to receive a royalty of 12 1/2% of the net mining proceeds from the
processing of the gold ore transferred to Accord. The Company previously
announced an intention to write-down its investment in Accord as of the end of
the Fiscal 1997 Quarter because of the absence of current financial information
for Accord and management's inability to otherwise determine the Accord
interest. The Company has subsequently received requested financial information
for Accord, which is consistent with the carrying value of the Accord interest
on the Company's financial statements. The
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<PAGE>
Company intends to continue to review the valuation of the Accord interest for
financial reporting purposes and to pursue possibilities of realizing value on
the Accord interest, although there can be no assurance that it will be
successful in doing so.
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<PAGE>
PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Effective April 16, 1997, the Company announced the election of
Henry Dubbin as President, Gary Danziger as Chief Operating Officer and Vice
President, Fred Singer as a Director and Burton Dubbin, the son of Henry Dubbin,
as Vice President of the Company. Additionally the Company accepted the
resignation of Michael Gerber as President and as a member of the Board of
Directors. In March 1997, William Kedersha resigned as a Director, and in April
1997, Mr. Kedersha resigned as Chief Executive Officer of the Company.
The firm of Simon Krowitz Bolin & Associates, P.A., resigned as the
Company's auditor on April 29, 1997. Reference is made to the Company's Current
Report on Form 8-K, dated May 6, 1997. Effective June 6, 1997, the Company
appointed the accounting firm of Most Horowitz & Company, LLP, as independent
accountants for the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) REPORTS ON FORM 8-K
In a Current Report on Form 8-K, dated December 11, 1996, the
Company disclosed the acquisition of four Long Island, New York,
based physical therapy centers and one medical billing company.
This acquisition was subsequently rescinded on March 19, 1997.
In a Current Report on Form 8-K, dated February 12, 1997, the
Company disclosed (i) the disposition of its clinics in
Jacksonville and Orange Park, Florida and the outstanding shares of
its subsidiary Oak Tree Receivables, Inc. and (ii) the intention to
write-down its investment in Accord Futronics, Inc.
(B) EXHIBITS
Exhibit 27. Financial Data Schedule.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereto duly authorized.
OAK TREE MEDICAL SYSTEMS, INC.
By:/s/Henry Dubbin
------------------
Henry Dubbin
President
Dated: June 6, 1997
- 15 -
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