================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-QSB
----------------------------------
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 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)
----------
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 6,180,203 shares
Class Outstanding at January 12, 2000
Transitional Small Business Disclosure Format (check one):
YES ___ NO X
================================================================================
<PAGE>
Oak Tree Medical Systems, Inc. and Subsidiaries
Index
Part I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet as of November 30, 1999 and May 31, 1999
Consolidated Statement of Operations for the three and six months
ended November 30, 1999 and 1998
Consolidated Statement of Stockholders' Equity for the six months
ended November 30, 1999
Consolidated Statement of Cash Flows for the six months ended
November 30, 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 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
Oak Tree Medical Systems, Inc. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
November 30, 1999 May 31, 1999
----------------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 36,677 $ 121,477
Patient care receivables, less allowance for contractual
allowances and doubtful accounts of $1,308,010 and
$1,314,238 as of November 30, 1999 and May 31, 1999 92,992 100,000
Other current assets 500 3,894
---------- ----------
Total Current Assets 130,169 225,371
Other Assets
Investment in gold ore and affiliated company 1,994,214 1,994,214
Fixed assets 7,516 10,826
Deferred acquisition costs 614,450 162,450
---------- ----------
TOTAL ASSETS $2,746,349 $2,392,861
========== ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
Oak Tree Medical Systems, Inc. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
November 30, 1999 May 31, 1999
----------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses 857,356 864,063
------- -------
Total Current Liabilities 857,356 864,063
Stockholders' Equity
Common stock, $.01 par value, 25,000,000 shares
authorized, 6,075,203 and 5,602,703 shares issued
and outstanding as of November 30, 1999 and May 31, 1999,
respectively 60,751 56,026
Additional paid-in-capital 15,624,829 14,653,072
Deficit (13,796,587) (13,180,300)
------------ -----------
Total Stockholders' Equity 1,888,993 1,528,798
------------ -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,746,349 $2,392,861
========== ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
Oak Tree Medical Systems, Inc. and Subsidiaries
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended August 31, Ended November 30,
---------------- ------------------
1999 1998 1999 1998
----- ----- ----- -----
REVENUE
<S> <C> <C> <C> <C>
Net patient services $ 59,628 $ 225,657 118,574 $702,683
- -------------------------------------------------------------------------------------------------------------------
EXPENSES
Costs of patient services 64,368 122,928 87,439 375,420
Selling, general and administrative 332,070 476,512 644,112 957,825
Depreciation and Amortization 1,655 427,525 3,310 68,685
Interest -- 374 -- 14,303
Loss (Gain) on sale -- 156,406 -- (13,864)
- -------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 398,093 783,745 734,861 1,402,369
- -------------------------------------------------------------------------------------------------------------------
NET LOSS ($338,465) ($558,088) ($616,287) ($699,686)
===================================================================================================================
NET LOSS PER COMMON SHARE ($ 0.06) ($ 0.11) ($ 0.11) ($0.14)
===================================================================================================================
Weighted average number of common and
common equivalent shares outstanding 5,998,044 5,032,003 5,862,243 4,899,737
===================================================================================================================
</TABLE>
See notes to consolidated financial statements
<PAGE>
Oak Tree Medical Systems, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
For the Six Months Ended November 30, 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
Exercise of stock options 462,500 4,625 827,544 832,169
Issuance of shares for services,etc. 10,000 100 44,213 44,313
Issuance of stock options
to consultants 100,000 100,000
Net Loss (616,287) (616,287)
=================================================================================================================================
BALANCE November 30, 1999 6,075,203 $60,751 $15,624,829 ($13,796,587) $1,888,993
=================================================================================================================================
</TABLE>
See notes to consolidated financial statements
<PAGE>
Oak Tree Medical Systems, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended November 30,
==============================
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss ($616,287) ($699,686)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and Amortization 3,310 153,595
Gain on sale -- (13,864)
Common stock issued for services 44,313 --
Stock options issued for services 100,000
Provision for doubtful accounts -- 50,000
Increase (decrease) in cash from
Patient care receivables 7,008 86,050
Other current assets 3,394 81,015
Other assets -- 29,788
Accounts payable and accrued payable (6,707) (57,595)
- -----------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES: (464,969) (370,697)
- -----------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Deferred acquisition costs (452,000) (19,643)
Refund on security deposits -- 3,180
- -----------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES: (452,000) (16,463)
- -----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payments of notes payable and long-term debt -- (301,625)
Payments of capital lease obligations -- (50,179)
Proceeds from issuance of common stock 832,169 654,381
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES: 832,169 302,577
- -----------------------------------------------------------------------------------------------------
NET INCREASE ( DECREASE) IN CASH (84,800) (84,583)
CASH - Beginning of Period 121,477 455,391
- -----------------------------------------------------------------------------------------------------
CASH - End of Period $36,677 $370,808
======================================================================================================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest Expense Paid $0 $34,580
======================================================================================================
</TABLE>
NONCASH TRANSACTIONS:
During the six months ended November 30, 1998, as a result of contractual
provisions, the Company reduced a note payable by $85,000 and further reduced
goodwill by $85,000. Also, in connection with the July 1998 sale of two physical
therapy centers and the November 1998 sales of a third, certain capital lease
obligations of the Company totaling $365,000 and $194,000, respectively, were
either paid off by the company with proceeds or assumed by the purchaser.
See notes to consolidated financial statements
<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 six months ended
November 30, 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.
On November 2, 1998, the Company sold all the assets (excluding
accounts receivable) of its Lower Manhattan, New York physical therapy facility
for $250,000 in cash plus the assumption of outstanding equipment lease
obligations of $194,000. Proceeds of $200,000 were used to repay a note payable
to the previous owner of the facility.
4. LIQUIDITY
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles which contemplate continuation of
the Company as a going concern. The company has incurred substantial losses in
1999 and 1998, used cash from operating activities in 1999 and 1998, and has
negative working capital at November 30, 1999.
In the past, the Company has funded its capital requirements from
operating cash flow loans against it account receivables, sales of equity
securities and the issuance of equity securities in exchange for assets acquired
and services rendered. During fiscal 1998, the Company undertook a number of
actions to consolidate its geographic focus, and with other actions undertaken
during 1999, the Company hopes to attract new investment capital, which the
Company believes will be necessary to sustain it 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 pending acquisitions. Although the Company has
in the past been and continues to be in discussions the 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
May 31, 2000 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.
5. SUBSEQUENT EVENTS
Subsequent to November 30, 1999, stock options to acquire 70,000 shares
of Common Stock were exercised at an exercise price of $1.50 per share.
<PAGE>
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
Six and Three months ended November 30, 1999 compared to Six and Three months
ended November 30, 1998.
Patient revenues decreased by 83.1% to $118,574 from $702,683 in the
six months ended November 30, 1999 (the Fiscal 2000 Six Month Period) compared
with the six months ended November 30, 1998 (the Fiscal 1999 Six Month Period).
Revenues decreased by 73.6% to $59,628 from $225,657 in the three months ended
November 30, 1999 (the Fiscal 2nd Quarter) compared with the three months ended
November 30, 1998 (the Fiscal 1999 2nd Quarter). This reduction in revenue was
attributable to the Company's disposition of three New York City facilities
during the first and second quarters of Fiscal 1999.
Total expenses decreased by 48.1% to $734,861 from $1,416,233 for the
Fiscal 2000 Six Month Period compared with the Fiscal 1999 Six Month period.
Total expenses decreased by 36.5% to $398,093 from $627,339 for the Fiscal 2000
2nd Quarter compared with the Fiscal 1999 2nd Quarter. This reduction in
expenses was attributable to the Company's disposition of three New York City
facilities during the first and second quarters of Fiscal 1999. The loss on sale
for the Fiscal 1999 2nd Quarter was related to the sale of one facility in
November 1998. Selling, general and administrative expenses decreased during
Fiscal 2000 as compared to Fiscal 1999 periods due to reductions in legal and
accounting expenses partially offset by consulting service expenses.
The above factors contributed to a net loss $616,287 for the Fiscal
2000 Six Month Period as compared to the net loss of $699,686 for the Fiscal
1999 Six Month Period, and a net loss of $338,465 for the Fiscal 2000 2nd
Quarter as compared to the net loss of $558,088 for the Fiscal 1999 2nd 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 May 31, 2000 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.
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
<PAGE>
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 November 30, 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.
On November 2, 1998, the Company sold all the assets (excluding
accounts receivable) of its Lower Manhattan, New York physical therapy facility
for $250,000 in cash plus the assumption of outstanding equipment lease
obligations of $194,000. Proceeds of $200,000 were used to repay a note payable
to the previous owner of the facility.
Working capital decreased from ($638,692) as of May 31, 1999 to
($727,187) as of November 30, 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 462,5000 shares of Common
Stock at an exercise price ranging from $1.69 to $2.00 per share.
YEAR 2000
The Company has assessed its financial accounting and reporting system
and considers it to be fully Year 2000 compliant. Subsequent to December 31,
1999 all systems are operating effectively with no apparent Y2K issues.
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.
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K
None.
<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: January 12, 2000 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> 6-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-END> NOV-30-1999
<CASH> 36,677
<SECURITIES> 0
<RECEIVABLES> 1,401,002
<ALLOWANCES> 1,308,010
<INVENTORY> 0
<CURRENT-ASSETS> 130,169
<PP&E> 28,727
<DEPRECIATION> 21,211
<TOTAL-ASSETS> 2,746,349
<CURRENT-LIABILITIES> 857,356
<BONDS> 0
0
0
<COMMON> 60,751
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,746,349
<SALES> 118,574
<TOTAL-REVENUES> 118,574
<CGS> 87,439
<TOTAL-COSTS> 647,422
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (616,287)
<INCOME-TAX> 0
<INCOME-CONTINUING> (616,287)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (616,287)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
