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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, 2000
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.)
1725 TENBROECK AVENUE
BRONX, NEW YORK 10461
(Address of principal executive offices)
(718) 828-6996
(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 6,703,803 shares
Class Outstanding at October 16, 2000
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, 2000 and May 31, 2000
Consolidated Statement of Operations for the three months ended
August 31, 2000 and 1999
Consolidated Statement of Stockholders' Equity for the three
months ended August 31, 2000
Consolidated Statement of Cash Flows for the three months ended
August 31, 2000 and 1999
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 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
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Oak Tree Medical Systems, Inc. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
August 31, 2000 May 31, 2000
--------------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 8,470 $ 145,369
Patient care receivables - 20,000
Other current assets 500 13,500
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Total Current Assets 8,970 178,869
Other Assets
Investment in gold ore 1,994,214 1,994,214
Fixed assets - 1,962
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TOTAL ASSETS $2,003,184 $2,175,045
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses 894,799 914,868
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Total Current Liabilities 894,799 914,868
Stockholders' Equity
Common stock, $.01 par value, 25,000,000 shares
authorized, 6,703,803 and 6,617,703 shares issued
and outstanding as of August 31, 2000 and May 31, 2000,
respectively 67,037 66,176
Additional paid-in-capital 17,719,748 17,511,404
Deficit (16,678,400) (16,317,403)
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Total Stockholders' Equity 1,108,385 1,260,177
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,003,184 $2,175,045
==================================================================================================
</TABLE>
See notes to consolidated financial statements.
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Oak Tree Medical Systems, Inc. and Subsidiaries
Consolidated Statement of Operations
(Unaudited)
For the Three Months
Ended August 31,
-------------------------------
2000 1999
---- ----
REVENUE
Net patient services $ -- $ 58,946
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EXPENSES
Costs of patient services -- 23,071
Selling, general and administrative 188,997 259,542
Consulting 172,000 52,500
Depreciation and Amortization -- 1,655
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TOTAL EXPENSES 360,997 336,768
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NET LOSS ($360,997) ($277,822)
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NET LOSS PER COMMON SHARE ($ 0.05) ($ 0.05)
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Weighted average number of common and
common equivalent shares outstanding 6,677,419 5,725,453
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See notes to consolidated financial statements.
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Oak Tree Medical Systems, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
For the Three Months Ended August 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Total
Common Stock Additional Stockholders'
Shares Amount Paid-in-Capital Deficit Equity
=================================================================================================================================
<S> <C> <C> <C> <C> <C>
BALANCE MAY 31, 2000 6,617,703 $66,176 $17,511,404 ($16,317,403) $1,260,177
Sale of common stock 61,100 611 94,094 94,705
Issuance of shares for services 25,000 250 34,250 34,500
Issuance of stock options
to consultants 80,000 80,000
Net Loss (360,997) (360,997)
=================================================================================================================================
BALANCE AUGUST 31, 2000 6,703,803 $67,037 $17,719,748 ($16,678,400) $1,108,385
=================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
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Oak Tree Medical Systems, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended August 31,
-----------------------------
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss ($360,997) ($277,822)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and Amortization -- 1,655
Common stock and options
issued for services 114,500 44,313
Increase (decrease) in cash from
Patient care receivables 20,000 11,258
Other current assets 13,000 3,144
Accounts payable and accrued payable (20,069) 109,814
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NET CASH USED IN OPERATING ACTIVITIES: (233,566) (107,638)
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INVESTING ACTIVITIES
Deferred acquisition costs -- (215,000)
Proceeds from sale of fixed assets 1,962 --
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES: 1,962 (215,000)
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FINANCING ACTIVITIES
Proceeds from issuance of common stock 94,705 436,049
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NET CASH PROVIDED BY FINANCING ACTIVITIES: 94,705 436,049
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NET INCREASE ( DECREASE) IN CASH (136,899) 113,411
CASH - Beginning of Period 145,369 121,477
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CASH - End of Period $ 8,470 $234,888
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SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest Expense Paid $0 $0
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</TABLE>
See notes to consolidated financial statements.
6
<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") have closed their one medical facility in New York
City as of May 31, 2000. The Company has no operating revenue for the current
quarter.
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, 2000 are not necessarily indicative of the results that may be
expected for the fiscal year ending May 31, 2001. 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, 2000.
3. LIQUIDITY
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate continuation of the
Company as going concern. The Company has incurred substantial losses in 2000
and 1999, used cash from operating activities in 2000 and 1999, and has negative
working capital at August 31, 2000.
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's President has agreed to
personally support the Company's cash requirements to meet its current
obligations through September 1, 2001 and fund future operations. The Company
believes that its ability to raise private equity and support from the Company's
President will provide sufficient liquidity to fund current operations.
4. COMMON STOCK
During July 2000, the Company closed an offshore placement of 61,100 shares
of the Company's common stock, for aggregate purchase prices of $94,705. The
Company incurred expenses of $32,383 in connection with such placement,
resulting in net proceeds of $62,322.
In June 2000, the Company entered into a consulting agreement with
American Financial Communications, Inc. (AFC) for a six month period. AFC will
act as a public and financial relations advisor and consultant to the Company.
AFC received 25,000 shares of the Company's common stock. These shares are
"restricted securities" within the meaning of Rule 144 under the Securities Act
of 1933, as amended (the "Securities Act") and were valued at a price of $ 1.38
per share.
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5. CONSULTING AGREEMENTS
In June 2000, the Company entered into a consulting agreement with EBI
Securities Corporation (EBI) for a one year term. EBI will act as a public
relations advisor and consultant to the Company. EBI received options to acquire
25,000 shares of the Company's common stock with an exercise price of $1.75 per
share and 25,000 shares of the Company's common stock with an exercise price of
$2.00 per share.
In July 2000, the Company entered into a consulting agreement with Timothy
(Stoakes) for a one year term. Stoakes will act as a public relations advisor
and consultant to the Company outside the United States. Stoakes received
options to acquire 150,000 shares of the Company's common stock with an exercise
price of $0.60 per share.
In July 2000, the Company entered into a consulting agreement with The
Group LLC (Titan) for a one year term. Titan will provide consulting and
advisory services relating to business management and marketing. Titan received
options to acquire 70,000 shares of the Company's common stock with an exercise
price of $0.60 per share , 50,000 shares of the Company's common stock with an
exercise price of $2.25 per share, 50,000 shares of the Company's Common Stock
with an exercise price of $3.00 per share and an additional 50,000 shares with
an exercise price of $6.00 per share. These options will expire on July 1,2002.
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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. As of May 31,2000, the Company closed the one
remaining facility which was acquired in October 1996 because the cash flows
from this facility was insufficient to support its operations.
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 as of May 31, 2000,
included approximately 41 medical practices and MRI facilities located in the
greater New York metropolitan area. Collectively, the centers had revenues of
approximately $66 million and estimated earnings before interest, taxes,
depreciation and amortization of approximately $27 million in calendar year
1998(subject to audit). The Company intends to finance the pending acquisition
through issuance of debt and equity securities of the Company, which, if
consummated, will result in a substantial change to the Company's current debt
and equity structure. Although the agreements by their terms may be currently
terminated by either the Company or the sellers upon written notice, no such
notice has been delivered by any of the parties and they are continuing to
attempt to satisfy their various conditions to closing. There can be no
assurance, however, that the Company will successfully meet its obligations of
raising capital to complete the acquisition or that all the other conditions to
the closing of the transaction will be met.
RESULTS OF OPERATIONS
Three months ended August 31, 2000 compared to three months ended August 31,
1999.
Patient revenues decreased by 100% from $58,946 for the three months
ended August 31, 1999 (the "2000 First Quarter") to $0 for the three months
ended August 31, 2000 (the "2001 First Quarter"). This reduction in revenue was
attributable to the Company's closing of its one remaining facility as of May
31, 2000.
Total expenses increased by 7.19% from $336,768 in the 2000 First Quarter
to $360,997 for the 2001 First Quarter. Cost of patient services decreased from
$23,071 to $0 due to the closing of the one remaining medical facility. Selling,
general and administrative expenses decreased from $259,542 to $188,997 or 27.2%
due to reductions in legal and accounting expenses. Consulting expenses
increased from $52,500 to $172,000 or 228.6% due to a Black Scholes stock option
adjustment in the 2001 First Quarter. The above factors contributed to a net
loss of $360,997 ($0.05 per share) for the 2001 First Quarter as compared to a
net loss of $277,822 ($0.05 per share) for the 2000 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's President has agreed to
personally support the Company's cash requirements to meet its current
obligations through September 1, 2001 and fund future operations. The Company
believes that its ability to raise private equity and support from the Company's
President will provide sufficient liquidity to fund current operations.
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<PAGE>
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
the Company's 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 Accord
common stock 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, 2000, 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 2000, the Company closed an offshore placement of 61,100
shares of the Company's common stock, for aggregate purchase prices of $94,705.
The Company incurred expenses of $32,383 in connection with such placement,
resulting in net proceeds of $62,322.
In June 2000, the Company entered into a consulting agreement with
American Financial Communications, Inc. (AFC) for a six month period. AFC will
act as a public and financial relations advisor and consultant to the Company.
AFC received 25,000 shares of the Company's common stock. These shares are
"restricted securities" within the meaning of Rule 144 under the Securities Act
and were valued at a price of $ 1.38 per share.
Working capital decreased from ($735,999) as of May 31, 2000 to
($885,829) as of August 31, 2000, as a result of continued operating costs with
no operating income partially offset by an offshore placement.
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.
10
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PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on September 15,
2000. The matter submitted to a vote of the Company's stockholders was the
election of five directors of the Company's Board of Directors.
The Company's stockholders elected Messrs. Henry Dubbin, Fred L.
Singer, Jerry D. Klepner, Maxwell M. Rabb and Scott Rosenblum to the Company's
Board of Directors, to hold office until the next annual meeting of stockholders
and until their respective successors are duly elected and qualified. The
results of the voting were as follows:
Mr. Henry Dubbin
Voted For.................................................5,100,067
Voted Against ........................................... 0
Authority Withheld ....................................... 21,165
Abstained ................................................ 0
Broker non-votes ......................................... 0
Mr. Fred L. Singer
Voted For.................................................5,114,982
Voted Against ........................................... 0
Authority Withheld ....................................... 6,250
Abstained ................................................ 0
Broker non-votes ......................................... 0
Mr. Jerry D. Kleppner
Voted For ................................................5,115,232
Voted Against ........................................... 0
Authority Withheld ....................................... 6,000
Abstained ................................................ 0
Broker non-votes ......................................... 0
Mr. Maxwell M. Rabb
Voted For ................................................5,114,632
Voted Against ........................................... 0
Authority Withheld ....................................... 6,600
Abstained ................................................ 0
Broker non-votes ......................................... 0
Mr. Scott S. Rosenblum
Voted For ................................................5,115,232
Voted Against ........................................... 0
Authority Withheld ....................................... 6,000
Abstained ................................................ 0
Broker non-votes ......................................... 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K
On August 24, 2000, the Company filed a Current Report on Form 8-K to
report the dismissal of Grant Thornton LLP and the engagement of Wiss &
Company, LLP as the Company's independent accountants as of August 17,
2000.
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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 16, 2000 OAK TREE MEDICAL SYSTEMS, INC.
By: /s/ Henry Dubbin
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Henry Dubbin
President
By: /s/Simon Boltuch
--------------------------------
Simon Boltuch
Chief Financial Officer
(Principal Financial and
Accounting Officer)
12
