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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 August 31, 1999
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
OAK TREE MEDICAL SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 02-0401674
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2797 OCEAN PARKWAY
BROOKLYN, NEW YORK 11235
(Address of principal executive offices)
(718) 769-6042
(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 6,095,703 shares
Class Outstanding at October 14, 1999
Transitional Small Business Disclosure Format (check one):
YES ___ NO _X_
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<PAGE>
Oak Tree Medical Systems, Inc. and Subsidiaries
Index
Part I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet as of August 31, 1999 and May 31, 1999
Consolidated Statement of Operations for the three months ended
August 31, 1999 and 1998
Consolidated Statement of Stockholders' Equity for the three
months ended August 31, 1999
Consolidated Statement of Cash Flows for the three months ended
August 31, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
Oak Tree Medical Systems, Inc. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
August 31, 1999 May 31, 1999
--------------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 234,888 $ 121,477
Patient care receivables, less allowance for contractual
allowances and doubtful accounts of $1,308,010 and
$1,314,238 as of August 31, 1999 and May 31, 1999 88,742 100,000
Other current assets 750 3,894
- -------------------------------------------------------------------------------------------------
Total Current Assets 324,380 225,371
Other Assets
Investment in gold ore and affiliated company 1,994,214 1,994,214
Fixed assets 9,171 10,826
Deferred acquisition costs 377,450 162,450
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TOTAL ASSETS $2,705,215 $2,392,861
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</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
Oak Tree Medical Systems, Inc. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
August 31, 1999 May 31, 1999
--------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses 973,877 864,063
- - ------------------------------------------------------------------------------------------------
Total Current Liabilities 973,877 864,063
Stockholders' Equity
Common stock, $.01 par value, 25,000,000 shares
authorized, 5,873,703 and 5,602,703 shares issued
and outstanding as of August 31, 1999 and May 31,1999,
respectively 58,736 56,026
Additional paid-in-capital 15,130,724 14,653,072
Deficit (13,458,122) (13,180,300)
- --------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,731,338 1,528,798
- --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,705,215 $2,392,861
==================================================================================================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
Oak Tree Medical Systems, Inc. and Subsidiaries
Consolidated Statement of Operations
(Unaudited)
For the Three Months
Ended August 31,
===================================
1999 1998
---- ----
REVENUE
Net patient services $ 58,946 $ 477,026
- --------------------------------------------------------------------------------
EXPENSES
Costs of patient services 23,071 252,492
Selling, general and administrative 312,042 481,313
Depreciation and Amortization 1,655 41,160
Interest -- 13,929
(Gain) on sale -- (170,270)
- --------------------------------------------------------------------------------
TOTAL EXPENSES 336,768 618,624
- --------------------------------------------------------------------------------
NET LOSS ($277,822) ($141,598)
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NET LOSS PER COMMON SHARE ($ 0.05) ($ 0.03)
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Weighted average number of common and
common equivalent shares outstanding 5,725,453 4,698,873
================================================================================
See notes to consolidated financial statements.
3
<PAGE>
Oak Tree Medical Systems, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
For the Three Months Ended August 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Total
Common Stock Additional Stockholders'
Shares Amount Paid-in-Capital Deficit Equity
==============================================================================================================
<S> <C> <C> <C> <C> <C>
BALANCE MAY 31, 1999 5,602,703 $56,026 $14,653,072 ($13,180,300) $1,528,798
Sale of common stock 261,000 2,610 433,439 436,049
Issuance of shares for services,etc. 10,000 100 44,213 44,313
Net Loss (277,822) (277,822)
==============================================================================================================
BALANCE August 31, 1999 5,873,703 $58,736 $15,130,724 ($13,458,122) $1,731,338
==============================================================================================================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
Oak Tree Medical Systems, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended August 31,
============================
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss ($277,822) ($141,598)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and Amortization 1,655 83,639
Gain on sale (170,270)
Common stock issued for services 44,313 --
Increase (decrease) in cash from
Patient care receivables 11,258 39,559
Other current assets 3,144 12,615
Other assets -- 41,536
Accounts payable and accrued payable 109,814 (57,146)
- -----------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES: (107,638) (191,665)
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INVESTING ACTIVITIES
Deferred acquisition costs (215,000) --
- -----------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES: (215,000) --
- -----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payments of notes payable and long-term debt -- (254,581)
Payments of capital lease obligations -- (65,200)
Proceeds from issuance of common stock 436,049 234,677
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES: 436,049 (85,104)
- -----------------------------------------------------------------------------------------------------
NET INCREASE ( DECREASE) IN CASH 113,411 (276,769)
CASH - Beginning of Period 121,477 455,391
- -----------------------------------------------------------------------------------------------------
CASH - End of Period $234,888 $178,622
=====================================================================================================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest Expense Paid $0 $17,433
=====================================================================================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
OAK TREE 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 one physical therapy care center in New
York.
2. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include all 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 consolidated financial statements. In the opinion of management,
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation have been included. Operating results for the three months
ended August 31, 1999 are not necessarily indicative of the results that may be
expected for the fiscal year ending May 31, 2000. These statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the fiscal year ended
May 31, 1999.
3. SALE OF PHYSICAL THERAPY CENTERS
On July 16, 1998, the Company sold substantially all the equipment and
operations of two physical therapy centers in exchange for $375,000, payable in
cash at closing. Proceeds of $365,000 were used to repay certain lease
obligations. The Company also incurred a brokerage fee of 10% of the sale price.
4. SUBSEQUENT EVENTS
Subsequent to August 31, 1999, stock options to acquire 222,000 shares
of Common Stock were exercised at an exercise price ranging from $1.69 to $2.00
per share.
6
<PAGE>
Item 2. 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 therapy care centers. The Company currently operates one facility in
Bronx, NY.
In September 1997, the Company entered into a letter of intent, subsequently
amended in December 1997, for the acquisition of the management and certain
assets of medical practices and MRI facilities located in the greater New York
metropolitan area. In July 1999, the Company entered into definitive written
agreements to complete the acquisition which included approximately 37 medical
practices and MRI facilities located in the greater New York metropolitan area,
subject to raising the capital necessary for the acquisitions and other
conditions.
RESULTS OF OPERATIONS
Three months ended August 31, 1999 compared to Three months ended August 31,
1998.
Patient revenues decreased by 87.6% from $477,026 for the three months
ended August 31, 1998 (the "1999 First Quarter") to $58,946 for the three months
ended August 31, 1999 (the "2000 First Quarter"). This reduction in revenue was
attributable to the Companies disposition of three New York City facilities
during the first and second quarters of Fiscal 1999.
Total expenses decreased by 45.6% from $618,624 in the 1999 First
Quarter to $336,768 for the 2000 First Quarter. Exclusive of the gain on sale of
$170,270 in the 1999 First Quarter, total expenses decreased by 53% or $452,126.
Cost of patient services decreased from $252,492 to $23,071 or 90.1%. This
decrease was attributed to the Companies disposition of the three facilities
mentioned above. Selling, general and administrative decreased from $481,313 to
$312,042 or 35.1% due to a significant reduction in legal expenses. The gain on
sale was related to the sale of two practices in July 1998. The above factors
contributed to a net loss of $277,822 ($0.05 per share) for the 2000 fiscal
Quarter as compared to a net loss of $141,598 ($0.03 per share) for the 1999
First Quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its capital requirements from operating cash
flow, sales of equity securities and the issuance of equity securities in
exchange for services rendered. 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.
7
<PAGE>
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.
In May 1993, the Company acquired 50,000 tons of gold ore from Nevada
Minerals Corporation in exchange for the issuance of 1,350,000 shares of Common
Stock. The ore was appraised as having a value of $5,000,000. The Company
subsequently formed a wholly-owned subsidiary, Aurum Mining Corporation, with
the gold ore as its only asset. In June 1995, the Company exchanged the stock of
Aurum for 6,000,000 shares of common stock of Accord Futronics Corp ("Accord").
The Company had the right to receive a royalty of 12.5% of the net mining
proceeds from the processing of the ore transferred to Accord. In November 1997,
the Company returned the 6,000,000 shares of common stock of Accord in exchange
for 100% of Aurum, because Accord had not commenced and did not anticipate
commencing mining operations and the Company desired to take action to realize
the value of the gold ore.
As of August 31, 1999, the Company (i) had been unsuccessful in its
attempts to sell the gold ore and (ii) did not have the capability or the
resources to commence the mining of the gold ore. For those reasons, and due to
the absence of current financial and other information for Accord, the Company
wrote down the value of its investment in the gold ore by $3,000,000 (from
$4,994,214 to $1,994,214) during the fiscal year ended May 31, 1998. The Company
intends to continue its attempt to sell the gold ore and anticipates a sale in
the near future, although there can be no assurance that it will be successful
in doing so.
During July and August 1998, the company closed an offshore placement
of 215,250 shares of common stock, for aggregate purchase prices of $495,190.
The Company incurred expenses of $260,513 in connection with such placement,
resulting in net proceeds of $234,677.
On July 16, 1998, the Company sold substantially all the equipment and
operations of two physical therapy centers in exchange for $375,000 in cash.
Proceeds of $365,000 were used to repay certain lease obligations. The Company
also incurred a brokerage fee of 10% of the sales price.
Working capital decreased from ($638,692) as of May 31, 1999 to
($649,497) as of August 31, 1999, as a result of weaker cash flow from the one
operating facility, accounting fees associated with the pending acquisition
offset by the exercise of stock options to acquire 261,000 shares of Common
Stock at an exercise price of $1.69 per share.
8
<PAGE>
YEAR 2000
The Company has completed its assessment of whether it will have to
modify or replace portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter. The
Company has implemented a plan and acquired and installed new computer hardware
and upgraded software in its facilities. The total year 2000 project cost is not
expected to be material. The Company believes that with the modifications to
existing software and conversions to new software the year 2000 issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
year 2000 issue could have a material adverse effect on the operations of the
Company.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived using numerous assumptions of future events,
including the continued availability of certain resources and factors. However,
there can be no assurance that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
It has been acknowledged by governmental authorities that year 2000
problems have the potential to disrupt global economies, that no business is
immune from the potentially far-reaching effects of year 2000 problems, and that
it is difficult to predict with certainty what will happen after December 31,
1999. Consequently, it is possible that year 2000 problems will have a material
effect on the Company's business even if the Company takes all appropriate
measures to ensure that it and its key suppliers are year 2000 compliant.
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including statements regarding the expectations, beliefs, intentions or
strategies regarding the future. The Company intends that all forward-looking
statements be subject to the safe-harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements reflect the
Company's views as of the date they are made with respect to future events and
financial performance, but are subject to many risks and uncertainties, which
could cause the actual results of the Company to differ materially from any
future results expressed or implied by such forward-looking 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. The Company does not undertake to update any
forward-looking statements.
9
<PAGE>
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
See "Submission of Matters to a Vote of Security Holders" in the Company's
Form 10-KSB for the fiscal year ended May 31, 1999.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K
None.
10
<PAGE>
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: October 14, 1999 OAK TREE MEDICAL SYSTEMS, INC.
By: /s/ Henry Dubbin
--------------------------------
Henry Dubbin
President
By: /s/Simon Boltuch
--------------------------------
Simon Boltuch
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-END> AUG-31-1999
<CASH> 234,888
<SECURITIES> 0
<RECEIVABLES> 1,396,752
<ALLOWANCES> 1,308,010
<INVENTORY> 0
<CURRENT-ASSETS> 324,380
<PP&E> 28,727
<DEPRECIATION> 19,556
<TOTAL-ASSETS> 2,705,215
<CURRENT-LIABILITIES> 973,877
<BONDS> 0
0
0
<COMMON> 58,736
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,705,215
<SALES> 58,946
<TOTAL-REVENUES> 58,946
<CGS> 23,071
<TOTAL-COSTS> 313,697
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (277,822)
<INCOME-TAX> 0
<INCOME-CONTINUING> (277,822)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (277,822)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
