SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                   FORM 10-KSB

[X]     Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
        Act of 1934

        For the fiscal year ended May 31, 1997

[ ]     Transition report pursuant to 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 Registrant as specified in its charter)

                 DELAWARE                                    02-0401674
       (State or other jurisdiction                       (I.R.S. Employer
     of incorporation or organization)                 Identification Number)

           163-03 Horace Harding Expressway, Flushing, New York 11365
              (Address of principal executive offices and zip code)

       Registrant's telephone number, including area code: (718) 460-8400

           Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.01 Par Value
                                (Title of Class)

         Check whether the Registrant (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: [ ] No: [X]

         Check if there is no  disclosure  of  delinquent  filers in response to
Item  405 of  Regulation  S-B  contained  herein,  and  no  disclosure  will  be
contained,  to the  best of  Registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|

The Registrant's revenues for its most recent fiscal year were $3,344,559.

Number of shares of Common Stock, $.01 par value,  outstanding as of January 14,
1998: 4,419,025

Aggregate market value of voting and non-voting Common Stock (3,001,259  shares)
held by non-affiliates  computed by reference to the average bid and asked price
of the Common Stock as of January 14, 1998: $12,842,791

Transactional Small Business Disclosure Format:   Yes: [ ]   No: [X]


<PAGE>

                                     PART I

Item 1.        Business

        Oak Tree Medical Systems,  Inc., a Delaware corporation (the "Company"),
was  incorporated  in  Delaware  on  May  27,  1986,  as Oak  Tree  Construction
Computers,  Inc. From 1986 through 1990,  the Company was engaged in the sale of
computer  systems  for  the  construction   industry.  For  a  number  of  years
thereafter,  the Company was inactive.  The Company changed its name to Oak Tree
Medical  Systems,  Inc. in August 1994. Since January 1995, the Company has been
engaged in the business of operating and managing  physical therapy care centers
and related medical practices. Currently, all of the Company's operations are in
the greater New York  metropolitan  area. The Company through its subsidiary Oak
Tree Medical Management, Inc. operates four New York City based physical therapy
care centers,  the management of which the Company  acquired in October 1996 and
July 1997.  Prior to April 1997,  the Company  also had  operations  in Florida.
Unless otherwise  indicated by the text,  reference herein to the term "Company"
will  be  deemed  to  refer  to Oak  Tree  Medical  Systems,  Inc.  and  all its
subsidiaries.

Medical Business

        The  primary  focus of the  Company  to date has been the  provision  of
physical therapy and related rehabilitative  services.  Physical therapy aids in
the  restoration  of patients who have been disabled by injury or disease or are
recovering  from  surgery.  The  Company's  physical  therapy care centers offer
preventive,  rehabilitative and pre- and  post-operative  care for neuromuscular
and musculoskeletal  injury.  These may include a variety of  orthopedic-related
disorders,  sports-related  injuries,  neurologically  related  injuries,  motor
vehicle injuries and work-related injuries.

        Patients  are  primarily   referred  to  the  Company's   rehabilitation
facilities by physicians. Licensed physical therapists evaluate each patient and
develop a program of  rehabilitation  to achieve  the  patient's  rehabilitation
goals.  Treatments may include  traction,  ultrasound,  electrical  stimulation,
therapeutic  exercise,  heat  treatment and  hydrotherapy.  Patients are usually
treated  for one hour per day,  three days per week over a period of two to five
weeks. Where appropriate,  patients are provided post treatment home maintenance
and exercise programs.

        Certain of the  Company's  clinics offer  specific  programs for injured
workers  compensation  patients.  The clinic will evaluate the worker's physical
condition  and  capacity to perform the  requirements  of his  employment.  This
evaluation  may be used by  insurers to  estimate  the extent of  rehabilitation
treatment or as a basis for  settlement of disability  claims.  Thereafter,  the
clinic will prescribe and implement a course of "work conditioning" (hardening),
which includes graduated exercise and work stimulation therapies.

        The  Company  believes  that  purchasers  and  providers  of health care
services  such  as  employers,   insurance   companies  and  health  maintenance
organizations  who are seeking to save on traditional  health care services view
physical therapy and rehabilitation services as cost- effective in that they may
prevent  short-term  disabilities  from  becoming  chronic  conditions,  and may
accelerate recovery from surgery and neuromuscular and musculoskeletal injuries.
In


                                      - 2 -

<PAGE>

addition, changes in both public and private health insurance reimbursement have
encouraged early hospital  discharge,  another trend which promotes the need for
outpatient physical therapy services. Also, the aging of the U.S. population has
increased demand for rehabilitation  programs to treat chronic conditions of the
elderly.

        The  Company's  strategy  has been to take  advantage of these trends by
acquiring  and  integrating  a network of physical  therapy  and  rehabilitation
centers,  particularly in the  Northeastern  region of the United States and the
greater  New York  metropolitan  area.  The  Company  believes  that  attractive
acquisition opportunities exist in its industry because of health care's current
cost  containment  economics,  laws  that bar  health  care  practitioners  from
referring to entities in which they have an  ownership  interest and the general
sense of insecurity  among health care  practitioners  resulting  from the great
amount  of  change  being  experienced  by  the  profession.  New  reimbursement
schedules  and  conventions  have put  particular  pressure  on the  traditional
private practice of medicine and allied health care services.  Government health
programs,  private insurers and health  maintenance type  organizations  have in
many cases reduced payments to health care  professionals and in some cases have
substituted  capitation  or fixed  reimbursement  for the  traditional  "fee for
service" payments.

        In this environment, the importance of conducting health care practices,
including physical therapy services,  in an efficient and cost-effective  manner
has increased. By centralizing  non-medical activities,  such as administration,
accounting,  billing,  marketing,  procurement and human resources,  health care
providers can reduce unit costs, enhance efficiencies and promote profitability.
Centralized  management of medical  practices also  facilitates  identification,
negotiation  and  consummation of advantageous  contractual  relationships  with
health maintenance organizations,  preferred provider organizations,  hospitals,
nursing homes, school systems and similar  institutions.  Referrals and contract
work from such  organizations and institutions may be essential to the long-term
viability of providers of outpatient rehabilitative services.

Existing Facilities

        In October 1996, the Company acquired the management and assets of three
New York City based  physical  therapy care  centers for cash and assumed  debt,
totaling $900,000 and 10,000 shares of Common Stock (with aggregate value of not
less than $100,000) issuable in October 1998.  Included in the acquisition was a
contract for the provision of physical  therapy services to a county hospital in
Westchester,  New York. In connection with the acquisition,  the Company entered
into a  three-year  employment  agreement  with the  seller  of the  clinics,  a
licensed physical therapist who continues to serve as the director of operations
of the New York City clinics.

        In July  1997,  the  Company  acquired  the  management  and  assets  an
additional  center  in New York  City for a  purchase  price  of  $400,000.  The
purchase price may be reduced by $100,000 if the acquired center does not attain
a certain level of billings.  In connection  with the  acquisition,  the Company
entered into a lease for the acquired  center  through August 2003. In addition,
the seller  entered into a four-year  noncompetition  agreement  and a six-month
consulting  agreement  with the Company  continuing  on a  month-to-month  basis
thereafter at


                                      - 3 -

<PAGE>

$150,000  per annum.  The  Company  also  entered  into a  six-month  consulting
agreement with the physical therapy care center administrator, a relative of the
seller, continuing on a month-to-month basis thereafter at $50,000 per annum.

        In  compliance  with the laws of the  State of New York,  all  treatment
related  activities  at the Company's New York City clinics are conducted by Oak
Tree  Medical  Practice,   P.C.  ("Oak  Tree  P.C."),  an  independently   owned
professional corporation.  The Company has entered into agreements with Oak Tree
P.C. pursuant to which the Company provides to Oak Tree P.C. all  administrative
and  management  services and leases to Oak Tree P.C.  facilities and equipment.
Because of the significant  influence and control  exercised by the Company over
Oak Tree P.C.  (other than with  respect to patient  treatment),  the  financial
results of Oak Tree P.C. are consolidated with those of the Company.

Acquisition and Rescission

        In December 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, plus other consideration.

        Effective  February 28, 1997, the Company  rescinded the acquisition and
the former  sellers  returned all stock and notes issued to them in the original
transaction. In addition, the former sellers agreed to pay the Company $448,935,
representing the cash purchase price of the original transaction, the net amount
expended by the Company on the  facilities  for the period from December 1996 to
February  1997, and the purchase price of 12,000 shares of Common Stock acquired
by the former  sellers  for  $15,000.  Of this  amount,  $50,000 was paid at the
closing,  $25,000  was paid in May 1997 and the  balance  was to be paid over an
18-month   period.   In  December   1997,   the  Company  agreed  to  the  early
extinguishment  of the remaining  amount owed by the former sellers and received
$325,000 in full  settlement.  The Company  remained  obligated  to issue 14,286
shares of Common  Stock to the  landlord of one of the  acquired  facilities  in
satisfaction  of  certain  pre-existing   obligations.   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.

Sales of Florida Centers

        Following the Company's  October 1996 acquisition of three New York City
based physical therapy care centers and the hospital  contract for the provision
of physical  therapy  services,  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
operations  of its  clinics  in  Jacksonville  and  Orange  Park,  Florida.  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.   In  addition,  the  Company  sold  all  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


                                      - 4 -

<PAGE>

receivables  of the  North  Florida  facilities  and  an  obligation  under  the
receivables  funding facility secured thereby.  The purchase price was $200,000,
consisting  of  $100,000  in cash paid at  closing  and a note in the  amount of
$100,000 payable in two installments in April and May 1997. As collection of the
remaining amount is not probable, the Company has provided for a reserve against
the  entire  amount  of the note.  In  connection  with the sale of the  Florida
centers,  the  purchaser  agreed to assume  $86,150 of accounts  payable and the
balance of the obligation of the receivables  funding  facility in the amount of
$1,812,500.  In  exchange  for the  consent  of the lender of the  patient  care
receivables  funding  facility,  the Company pledged as collateral to the lender
additional  accounts  receivable  in the amount of  $700,000.  The Company  also
terminated  the  employment  agreement with the  facilities'  medical  director,
received  the return of 400,000  shares of Common Stock which had been issued in
connection  with the  Company's  acquisition  of the  facilities in 1995 and was
relieved from its  obligation to issue an  additional  145,000  shares of Common
Stock.

        Continuing  the  divestiture  of its  Florida  operations,  the  Company
disposed of its  remaining  North  Florida  facility  located in St.  Augustine,
Florida in April 1997. The sale price was $25,000 in cash,  with $15,000 paid at
closing and $10,000 paid in April and May 1997.

Proposed Acquisition

        In September  1997, the Company  entered into a letter of intent for the
acquisition of the management and assets of 21 medical  practice and MRI centers
located in the  greater  New York  metropolitan  area.  The letter of intent was
further amended in December 1997.  These centers are owned by certain  companies
controlled  directly or  indirectly by Pierce  Neuman,  M.D.  Collectively,  the
centers had revenues of approximately  $65 million and estimated pre-tax profits
in excess of $19  million  in  calendar  year  1997.  Pursuant  to the  proposed
transaction,  which shall take effect, if at all, upon execution of a definitive
written  agreement,  Dr.  Neuman  will own or control  approximately  60% of the
Company's  outstanding  shares  of  Common  Stock.  There  can be no  assurance,
however,  that the Company will successfully  negotiate such definitive  written
agreement  or  meet  its   obligations  of  raising   capital  to  complete  the
acquisition,  or that all the other  conditions to closing will be met by any of
the parties to the transaction.

Marketing

        Because  physicians are the primary source of referrals to the Company's
clinics,  the  clinics  individually  focus  their  marketing  efforts  on local
orthopedic  surgeons,   neurosurgeons,   physiatrists,   occupational   medicine
practitioners,  and general  practitioners.  On a corporate  level,  the Company
seeks to establish referral relationships with health maintenance organizations,
preferred  provider  organizations,  industry and case  managers  and  insurance
companies.  The  Company  is also  pursuing  contractual  relationships  for the
provision of rehabilitative services with medical institutions, schools, nursing
homes and home health care companies.

Government Regulation

        The  health  care  industry  is  subject  to  federal,  state  and local
regulations.  The Company is also  subject to laws and  regulations  relating to
business corporations generally. The Company


                                      - 5 -

<PAGE>

believes  its  operations  are  in  material  compliance  with  applicable  law.
Nevertheless,  because of the complexity of the statutes and  regulations in the
health care area,  many of which have not been subject to judicial or regulatory
interpretation,  there  can  be no  assurance  that  aspects  of  the  Company's
operations will not be subject to legal or administrative  challenge.  Also, the
health care regulatory  environment has been in the past, and is likely to be in
the future, subject to substantial and ongoing change. Accordingly, there can be
no  assurance  that future  changes in the law will not  restrict  or  otherwise
adversely affect the Company's business.

        The laws of a number of states,  including  New York where the Company's
clinics are located,  prohibit a  corporation  from engaging in the provision of
health care,  including physical therapy, or from exercising direct control over
professionals  engaged in the health care field.  The Company  believes that its
ownership  of physical  therapy care  centers and the  provision  of  equipment,
location,  managerial,  administrative  and non-medical  support services to the
clinics does not constitute the corporate  practice of physical  therapy,  since
licensed physical therapists exercise complete control over the provision of all
physical  therapy  services.  Nevertheless,  there can be no assurance  that the
statutes  prohibiting the corporate  practice of physical  therapy services will
not be  construed or modified in the future to prohibit  the  operations  of the
Company as they are presently being conducted.

        There also exist federal and state statutes that impose civil  sanctions
and substantial criminal penalties on health care providers that fraudulently or
wrongfully  bill  governmental  and other  third-party  payors for  health  care
services.  The federal statute prohibiting false billing permits private persons
to bring a civil action in the name of the United States to remedy violations of
the statute. The Company believes that it is in compliance with these fraudulent
billing  statutes.  However,  billing for health care  services is technical and
complex, and there can be no assurance that the Company's billing practices will
not be challenged or scrutinized by government authorities.

Competition

        The health care industry  generally and the physical therapy business in
particular   are   highly   competitive.   In   addition   to   corporate-owned,
physician-owned and other private physical therapy clinics, the Company competes
with the  physical  therapy  departments  of  hospitals  and  area  chiropractic
practices.  The competitive factors in the physical therapy business are quality
of care, cost,  treatment outcomes,  convenience of location and ability to meet
the needs of referral and payor  sources.  Certain of the Company's  competitors
may have  substantially  greater financial,  marketing,  developmental and other
resources  than the  Company.  Both  larger  and  smaller  competitors  may have
individual   facilities  with  greater  treatment   resources  than  individual,
competing  facilities operated by the Company.  Also, the industry is subject to
continuous changes regarding the provision of services and the selection of care
providers,  and certain  competitors  may be more successful than the Company in
adapting to these changes in a timely and effective manner.


                                      - 6 -

<PAGE>

Investment in Gold Ore

        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  $5,000,000  value.  The  Company
subsequently  formed  a  wholly-owned   subsidiary,   Aurum  Mining  Corporation
("Aurum"),  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"),  an unaffiliated  privately-held company with other
mining related assets. The Company had the right to receive a royalty of 12 1/2%
of the net mining income from processing of the gold ore transferred to Accord.

        In June 1995, the Company granted Accord  options,  until June 21, 1997,
to acquire  50,000  shares of Common  Stock at an  exercise  price  equal to the
lesser of $2.00 per share or 50% of the quoted market price. Accord subsequently
transferred  the options to a third party,  and these options were  exercised by
L.M.  Spencer & Associates,  Inc., for 50,000 shares of Common Stock at $.50 per
share in  exchange  for a note  receivable  due on April 15, 1999 at an interest
rate of 8.5% per annum.

        The  Company  previously  announced  its  intention  to  write-down  its
investment in Accord at the end of the fiscal  quarter ended  February 28, 1997,
because  of  the  absence  of  current  financial  information  for  Accord  and
management's  inability to otherwise determine the value of the Accord interest.
The Company  subsequently  received requested financial  information from Accord
and an updated  appraisal  report  which valued the gold ore at  $5,181,000.  In
November  1997,  the Company  returned the  6,000,000  shares of common stock of
Accord in  exchange  for 100% of the common  stock of Aurum.  At the time of the
return of the Accord stock, Accord had not yet commenced mining operations.  The
Company  intends to continue to review  possibilities  of realizing the value of
the gold ore,  although  there can be no assurance that it will be successful in
doing so.

Employees

        As of December 31, 1997,  the Company had 32 full-time  employees and 10
part-time  employees.  The Company also hires  independent  consultants  for its
medical service operations from time to time and at December 31, 1997,  employed
four persons under consulting arrangements.

Item  2.       Properties

        The  Company's  headquarters  office is currently  located in one of the
Company's  physical  therapy  care  centers  located  at 163-03  Horace  Harding
Expressway,  Flushing,  New York  11365.  The  Company  believes  this office is
adequate for its current operations.

        Set forth below is certain  information  concerning the Company's leased
facilities for its rehabilitative and medical service operations, as of December
31, 1997. The Company believes these facilities are adequate for its operations.


                                      - 7 -

<PAGE>

                                        Square       Monthly        Expiration
Location                                Footage       Rent           of Lease
--------                                -------      -------        ----------

1725 Tenbroeck Avenue                   2,200          $2,240     month-to-month
Bronx, New York

163-03 Horace Harding Expressway        7,200         $16,950        10/31/02
Flushing, New York

250 West 100th Street                   2,200          $4,012        11/30/03
New York, New York

130 William Street                      2,850          $3,978         8/31/03
New York, New York


Item 3.        Legal Proceedings

        Medbrook  Corporation  v. Ronald W. Dennie,  M.D. and 1st Coast Physical
Medicine  Associates,  Inc., Case No.  95-4524-CA (4th Judicial  Circuit,  Duval
County,  Florida).  Plaintiffs in this action sued 1st Coast  Physical  Medicine
Associates,  Inc. ("1st Coast"),  the former owner of the Jacksonville,  Florida
physical  therapy care centers and Dr. Ronald W. Dennie,  the medical manager of
the  Jacksonville  operations,  alleging  that Dr.  Dennie was in violation of a
covenant not to compete with  Medbrook  Corporation  ("Medbrook").  Medbrook had
managed the  Jacksonville  operations  prior to their sale to the Company by Dr.
Dennie.  Plaintiff sought damages and injunctive  relief. The matter was settled
in December 1997 without material effect on the Company.

        Westcap  Corporation  v. Oak  Tree  Medical  Systems,  Inc.,  Index  No.
604059/97  (Supreme  Court of the  State of New York,  County  of New York,  New
York). A former  consultant of the Company  recently filed an action against the
Company  alleging  breach of contract and other  claims.  The  plaintiff  sought
$50,000 in monetary  damages and  warrants to acquire  250,000  shares of Common
Stock.  In December  1997,  the Company  settled the matter by agreeing to issue
22,000 shares of Common Stock to the plaintiff (and, if a certain stock value is
not met,  an  additional  2,500  shares of Common  Stock) and a cash  payment of
$3,000.

        Irwin Bosh Stack and Irene Stack v. Oak Tree Medical  Systems,  Inc. and
Henry  Dubbin,  Case No.  97-17996 CA 13 (11th  Judicial  Circuit,  Dade County,
Florida).  In August  1997,  a  stockholder,  the wife of the  Company's  former
Chairman  of the  Board of  Directors,  filed a  lawsuit  against  the  Company,
alleging  unreasonable  restraint  on the  alienability  of her shares of Common
Stock of the  Company  and  breach of  fiduciary  duty on the part of Mr.  Henry
Dubbin. The stockholder  claimed that the Company has unjustifiably  refused her
request for a opinion  letter from counsel to remove a restrictive  legend.  The
plaintiff  is  seeking   unspecified   compensatory  and  punitive  damages  and
injunctive  relief.  Management  believes  this matter is without merit and will
result in no material adverse effect to the Company.


                                      - 8 -

<PAGE>

        U.S.  Consultancy,  Inc. and FYM, Inc. v. Henry Dubbin,  Burton  Dubbin,
Fred Singer,  William  Kedersha,  Michael  Gerber,  Ellis Group,  Inc.,  Liberty
International,  Inc., NFC (Service)Ltd. and Oak Tree Medical Systems, Inc., C.A.
No.  15994  (Court of  Chancery  of the State of  Delaware,  New Castle  County,
Delaware). Plaintiffs filed an action on October 20, 1997, alleging, among other
things,  (i) the  Company's  failure to hold an annual  meeting of  stockholders
within the time  prescribed by Section 211 of Delaware  General  Corporation Law
(the "DGCL") and (ii) breach of fiduciary  duties by current and former officers
and  directors  of the  Company in (a)  issuing  shares of Common  Stock for the
purpose of  entrenchment,  (b) rejecting  potential  investment and  acquisition
opportunities  for personal  reasons,  (c) engaging in self-dealing and wasteful
transactions,  (d)  failing  to file  annual  and  quarterly  reports  with  the
Securities  and Exchange  Commission and (e) issuing  unregistered  stock of the
Company.  Plaintiffs sought, among other things, an order compelling the Company
to hold an annual meeting of stockholders, rescission of all issuances of shares
of  Common  Stock  and  options  to  certain  individuals  pursuant  to Form S-8
registration statements filed in June 1997, and unspecified damages.  Plaintiffs
also sought to inspect  certain  books and  records of the  company  pursuant to
Section 220 of the DGCL.


Item 4.        Submission of Matters to a Vote of Security Holders

        Not applicable.


                                     PART II

Item 5.        Market for Registrant's Common Equity and Related Stockholder 
               Matters

        The Company's Common Stock is currently  traded in the  over-the-counter
market on the OTC  Electronic  Bulletin  Board of the  National  Association  of
Securities Dealers (the "NASD"). The following table sets forth, for the periods
indicated,  high and low bid prices for the Common Stock in the over-the-counter
market as reported by the NASD.  The  information  below  reflects  inter-dealer
prices, without retail mark-up,  mark-down or commission and may not necessarily
represent actual transactions.

                                           Low Bid              High Bid
Fiscal Year Ended May 31, 1996             -------              --------

        First Quarter                      2-3/4                8
        Second Quarter                     7                    8-1/2
        Third Quarter                      6-1/8                9
        Fourth Quarter                     6                    8-7/16


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<PAGE>

Fiscal Year Ended May 31, 1997

        First Quarter                              4-5/8                7-3/4
        Second Quarter                             4                    7-7/8
        Third Quarter                              3                    5-1/2
        Fourth Quarter                               7/8                2-9/16

        As of January 14, 1998, there were  approximately  140 holders of record
of the  Company's  Common  Stock.  The  closing  bid and  asked  prices  for the
Company's   Common  Stock  on  January  14,  1998,   was  $2-7/8  and  $2-15/16,
respectively.

        The Company has not paid any cash dividends on its Common Stock to date,
and the payment of cash dividends in the foreseeable  future is not contemplated
by the  Company.  The  future  dividend  policy  will  depend  on the  Company's
earnings,   capital  requirements,   financial  condition,   and  other  factors
considered relevant to the Company's ability to pay dividends.

Recent Sales of Unregistered Securities

        A. In  connection  with the  Company's  acquisition  of  three  physical
therapy care centers in October 1996, the Company issued 54,237 shares of Common
Stock.  These shares were issued in settlement of  indebtedness in the amount of
$400,000 owed by the seller of the clinics and assumed by the Company.

        B. In connection with the Company's acquisition of four physical therapy
care centers and related assets in December  1996, and in partial  consideration
for such  acquisition,  the Company issued to the sellers 6,000 shares of Common
Stock.  The Company agreed to issue to the sellers an additional  111,904 shares
of Common Stock on the eighteen month anniversary of the acquisition (increasing
to 142,105 shares if the price per share of Common Stock did not equal or exceed
$7.00 at any time prior to such eighteen  month  anniversary).  The Company also
agreed to issue on the eighteen  month  anniversary  of the  acquisition  14,286
shares  of  Common  Stock to the  landlord  of one of the  acquired  centers  in
satisfaction of certain pre-existing  obligations.  Effective February 28, 1997,
the Company rescinded its December 1996 acquisition. The former sellers returned
all stock and notes issued to them in the original transaction,  and the Company
was relieved from its obligation to issue  additional  shares of Common Stock to
such former  sellers.  In connection  with the  rescission,  the former  sellers
acquired  12,000  shares of  Common  Stock for an  aggregate  purchase  price of
$15,000.

        C. In  December  1996,  the Company  issued ten year  options to acquire
375,000  shares to  William  Kedersha,  the  Company's  former  Chief  Executive
Officer.  The options have an exercise price of $1 11/16 per share and vest upon
the  earlier  to  occur  of  the  Company's  achievement  of  certain  financial
benchmarks, the five year anniversary of the issuance of the options or a change
of  control  (as  defined).  In  September  1997,  the  Company  entered  into a
settlement  agreement  with Mr.  Kedersha,  whereby the Company  cancelled  such
options and issued to Mr. Kedersha 22,500 shares of Common Stock.


                                     - 10 -

<PAGE>

        D. In December  1996,  the Company  granted ten year  options to acquire
375,000 shares to Burton  Dubbin,  the son of Mr. Henry Dubbin and the Company's
former Vice President.  The options have an exercise price of $1 11/16 per share
and vest upon the  earlier  to occur of the  Company's  achievement  of  certain
financial  benchmarks,  the five year anniversary of the issuance of the options
or a change  of  control  (as  defined).  In  August  1997,  Mr.  Burton  Dubbin
terminated  his  employment  with  the  Company  and  entered  into  a  two-year
consulting  agreement  at a fee of $150,000 per annum,  plus  125,000  shares of
Common Stock, of which 25,000 shares were immediately  issuable and 5,000 shares
are issuable  monthly (in an aggregate  amount not to exceed 100,000 shares) for
the duration of Mr. Burton Dubbin's service with the Company.  In addition,  the
Company  amended  the terms of the  options,  making  such  options  immediately
exercisable and extending the expiration date until August 2007.

        E. In December 1996, the Company issued options to acquire 17,500 shares
of  Common  Stock  to  Frederick  C.  Veit,  a  consultant  of the  Company,  in
consideration of past services.  The options have an exercise price of $1.75 per
share and expire on December 1, 2001.

        F. In January  1997,  the Company  issued  warrants  to acquire  200,000
shares of Common Stock to Gotham City Corporate  Relations Group,  Inc. ("Gotham
City") in consideration of public relations  consulting  services to be rendered
to the Company by Gotham City. Warrants to acquire 66,667 shares are exercisable
at $5.00 per share,  warrants to acquire 66,667 shares are  exercisable at $6.00
per share,  and warrants to acquire  66,667 shares are  exercisable at $7.00 per
share.  All such warrants  were to expire on January 1, 1998.  In addition,  the
Company  had agreed to issue  Gotham  City  10,000  shares of Common  Stock.  On
February 21, 1997, the Company terminated its agreement with Gotham City, and no
warrants or shares of Common Stock were issued.

        G. 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.

        H. In April 1997, the Company issued options to acquire 20,000 shares of
Common  Stock to Fred L. Singer,  a director and Vice  President of the Company.
The options are immediately exercisable and have an exercised price of $1.00 per
share. In January 1998, Mr. Singer exercised  options to acquire 5,000 shares of
Common Stock. The remaining options expire on April 16, 1999.

        I. In April 1997, L.M. Spencer & Associates,  Inc.  exercised options to
acquire  50,000  shares of Common  Stock at $.50 per share.  These  options were
acquired from Accord.

        J. In April and May 1997, the Company entered into three  agreements for
financial consulting services. Under the first of these agreements,  the Company
agreed to issue to a  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 a 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  agreed to issue to a  consultant  50,000  shares  of  Common  Stock and
options to acquire an


                                     - 11 -

<PAGE>

additional  250,000  shares at prices of between $2.00 and $4.75.  Subsequent to
May 31, 1997,  options for 110,250 shares, at prices ranging from $2.00 to $3.00
per share, have been exercised.

        K. In May 1997,  the Company  issued  24,419  shares of Common  Stock to
Kramer, Levin,  Naftalis & Frankel,  counsel of the Company, in consideration of
past services.

        L. Effective May 31, 1997, the Company issued options to acquire 350,000
shares of Common  Stock to Gary  Danziger,  a director  and the Chief  Operating
Officer of the Company.  The options  have an exercise  price of $1.00 per share
and expire on October 1, 1998.

        The issuance set forth above were issued pursuant to Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"), as transactions by an
issuer not involving any public  offering,  and,  alternatively,  in the case of
employee options, on a no-sale theory.

Sales of Equity Securities Pursuant to Regulation S

        On January  29,  1997,  the  Company  closed an  offshore  placement  of
1,500,000  shares of Common  Stock with gross  proceeds  of  approximately  $3.3
million  and  incurred  expenses  of  approximately  $1.5  million,  leaving net
proceeds  to the  Company of  approximately  $1.8  million.  Signature  Equities
Agency, G.m.b.H. served as introducing agent in connection with such placement.

        The placement was a private  transaction not involving a public offering
and was exempt from the registration  provisions of the Securities Act, pursuant
to Section 4(2)  thereof,  and pursuant to  Regulation S  promulgated  under the
Securities Act.

Item 6.        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 operates four facilities in New York
City acquired in October 1996 and July 1997.

        In December 1996, the Company acquired four Long Island,  New York based
physical therapy care centers. This acquisition was rescinded in March 1997.

        In February 1997, the Company sold the assets and certain liabilities of
1st  Coast  Rehabilitation,  Inc.  and 1st Coast  Physical  Therapy  Inc.  ("1st
Coast"),  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


                                     - 12 -

<PAGE>

connection  with  the  sale  of  these  facilities,  the  Company  also  sold  a
wholly-owned financing subsidiary, effectively terminating its obligations under
a  receivables  funding  facility.  In April 1997,  the Company  disposed of its
physical therapy care center in St. Augustine, Florida, completing its exit from
the North Florida area in order to focus its operations in the Northeast.

Results of Operations

        1996 Fiscal Year Compared to 1995 Fiscal Year

        The Company  acquired the assets and assumed certain  liabilities of 1st
Coast in January 1995. Because of the timing of the 1st Coast  acquisition,  the
later acquisition of two CORF licenses in 1995 and amendments to the acquisition
agreements  relating to 1st Coast in August  1995,  a strict  comparison  of the
results of operations for the fiscal year ended May 31, 1996 ("Fiscal  1996") to
the results of operations for the fiscal year ended May 31, 1995 ("Fiscal 1995")
is not meaningful. The later year includes results for a 12 month period and the
former year includes results for only four months. Thus, the following analysis,
where there are  comparisons,  assume the difference in the time the Company has
pursued its operations during the periods.

        During Fiscal 1996 the Company  consolidated  certain of its  activities
and moved some of its  operations to a new location with expanded  facilities in
the  Jacksonville,  Florida  area.  The  activities  related to the move  caused
disruption  in the  treatment  of patients  which had a minor impact on revenues
during Fiscal 1996.

        Revenues  for Fiscal 1996 were  $4,663,792  compared to  $2,652,989  for
Fiscal 1995,  representing an increase of $2,010,903 or 75%. The increase is due
to the difference in the periods of operations covered as discussed above and an
increase  in the number of  patient  visits  which is a result of the  differing
periods of operations and an actual improvement in the number of patient visits.

        Expenses  for Fiscal 1996 were  $3,257,931  compared to  $2,402,945  for
Fiscal 1995, representing an increase of $854,986 or 36%. Expenses increased for
the same reasons as revenues.  Because of the  difference in the  operations for
the periods,  a strict  comparison of overall margins are not meaningful for the
two fiscal years, however the Company reduced its operating expenses from 91% of
net patient  service income in Fiscal 1995 to 70% of net patient  service income
in Fiscal 1996. Expenses include various compensation expenses, selling, general
and administrative expenses, interest expenses and depreciation and amortization
expenses.  Compensation  expense  increased  from  $797,356  in  Fiscal  1995 to
$1,910,452  in Fiscal  1996  because of changes in the  compensation  of current
employees,  and undertaking  the direct  management of its business from outside
sources  and hiring  employees  directly  rather  than using  leased  personnel.
Selling,  general  and  administrative  expenses  declined  from  $1,501,538  to
$1,035,782  because of the closing of two  locations  during Fiscal 1996 and the
concomitant reduction of certain personnel,  supply and rent expenses.  Interest
expenses  increased  from $38,600 to $130,920  because of  increased  borrowings
under  a  number  of  credit  arrangements  for  different  purposes,  the  most
significant  of which was a receivables  funding  arrangement  from A-R Funding,
Ltd., which included a broker's fee for amounts borrowed.


                                     - 13 -

<PAGE>

        Net income for Fiscal  1996 was  $1,081,753  compared  to  $145,606  for
Fiscal 1995. Income before income taxes for Fiscal 1996 was $140,581 compared to
$249,947  for Fiscal  1995.  The Company  reported  income taxes of $346,770 for
Fiscal 1996 and $104,338 for Fiscal 1995.

        1997 Fiscal Year Compared to 1996 Fiscal Year

        Patient revenues decreased by 28.3% to $3,344,559 from $4,663,792 in the
fiscal year ended May 31, 1997 ("Fiscal  1997")  compared with Fiscal 1996.  The
decrease in revenues was  attributable  to the disposition in Fiscal 1997 of the
Company's North Florida  facilities,  as well as a fall off in revenues at these
facilities  during that year,  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 effective  February 28, 1997, are not included in the Company's revenues
for Fiscal 1997.

        Total  expenses  increased by 99.8% from  $3,257,931  for Fiscal 1996 to
$6,510,448 for Fiscal 1997. The increase in expenses was due to higher operation
expenses  incurred  in the New  York  City  facilities  and  costs  incurred  in
connection with the disposition of the North Florida facilities.  Total expenses
include costs of patient services, selling, general and administrative expenses,
losses  on  sales  and  rescission,   interest  expenses  and  depreciation  and
amortization  expenses.  Costs of patient  services as a  percentage  of patient
revenues  increased  from 41% in Fiscal 1996 to 56.1% in Fiscal 1997  because of
the  Company's  discontinuation  of  operations  in North Florida and the higher
costs of  doing  business  in New  York.  Selling,  general  and  administrative
expenses  increased to $3,283,010 in Fiscal 1997 from $1,035,782 in Fiscal 1996.
Selling, general and administrative expenses for Fiscal 1997 included allowances
and write-offs of uncollectible  accounts receivable,  compensation of executive
officers and travel  expenses of  executives  between the Company's New York and
Florida  facilities.  The increase was also  attributable to expenses related to
the improvement of the Company's  financial  controls and accounting system, and
increased legal and accounting  expenses during Fiscal 1997 primarily due to the
transactional  activities of the Company  during the fiscal year, the settlement
of certain litigation matters and preparation of reports filed with the SEC. The
Company  recognized  interest  costs of  $403,724  in Fiscal 1997 as compared to
$130,920 in Fiscal 1996.  Interest  increased  during Fiscal 1997 as a result of
higher interest rates on the Company's bank  borrowings and increased  financing
expenses associated with the receivables  funding facility.  During Fiscal 1997,
the Company  also  recognized  a loss in  connection  with the sale of the North
Florida  facilities and the rescission of the Long Island,  New York facilities,
of $777,054.  Total expenses as a percentage of income  increased from 69.9% for
Fiscal  1996 to 194.7%  for  Fiscal  1997 as a result of these  factors  and the
decrease in revenues for these periods.

        Income  tax  (benefit)  expenses  for  Fiscal  1997 and  Fiscal  1996 of
($546,677) and $346,770,  respectively,  are not  representative of an effective
tax rate. For Fiscal 1997,  the deferred  income tax benefit has been reduced by
an increase in the allowance for the  realization of deferred  income tax assets
of $610,000,  because,  as of May 31, 1997,  it is more likely than not that the
deferred  tax  assets  will not be  realized  as they  relate  primarily  to net
operating loss carryforwards and the Company may not generate  sufficient future
taxable income for their


                                     - 14 -

<PAGE>

utilization.   As  of  May  31,  1996,   there  were  less  net  operating  loss
carryforwards  as compared to Fiscal 1997,  and the Company  utilized  these net
operating losses as a reduction of deferred income tax payable. For Fiscal 1996,
the income tax expense has been  reduced by the  reversal of an  overaccrual  of
prior year's taxes of $230,655.

        The above factors  contributed  to a net loss of  $2,554,212  for Fiscal
1997, compared with net income of $1,081,753 for the Fiscal 1996.

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 Fiscal 1997,  the Company  undertook a number of
actions to  consolidate  its  geographic  focus.  Together  with  other  actions
undertaken  following the close of the fiscal year, 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  care  centers,  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  and
Orange Park,  Florida,  together with all of the shares of OT Receivables.  (See
Item 1. Business.  Sales of Florida  Centers.) The purchase  price  consisted of
$200,000  in cash,  with  $100,000  paid at closing  and a note in the amount of
$100,000 payable in two installments in April and May 1997. As collection of the
note is not probable,  the Company has provided a reserve  against the remaining
amount owed. In connection with the sale of OT Receivables,  the Company pledged
as collateral to the lender under the receivables  funding  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  funding  facility.  The Company
currently does not anticipate  any such excess.  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


                                     - 15 -

<PAGE>

Company's North Florida facilities in 1995 and was relieved of its obligation to
issue an additional  145,000 shares of common stock incurred in connection  with
such acquisition.

        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.

        Effective  February 28, 1997, the Company  rescinded its  acquisition of
four Long Island, New York based physical therapy care centers,  together with a
related management  company.  (See Item 1. Business.  Acquisition and Recision.)
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 and $25,000 was
paid in May 1997. The remaining  amount was to be paid over an 18-month  period.
In December  1997,  the Company  received  $325,000  in full  settlement  of the
outstanding amount owed by the former sellers. 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 that 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.  The
results of operations of the Long Island  facilities  have not been reflected in
the consolidated financial statements.

        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  $1,900,000 of uncollected
receivables from the Florida operations.  The Company has written off the entire
amount,  based upon the Company's assessment of the probability of collection in
light of current circumstances.

        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 have been used for working  capital.  Also, in April and May 1997,
the Company  entered into three  agreements for financial  consulting  services.
Under the first of these agreements, the Company agreed to issue to a 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 a 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  agreed to issue to a
consultant 50,000 shares of Common Stock and


                                     - 16 -

<PAGE>

options to acquire an additional  250,000  shares at prices of between $2.00 and
$4.75. Subsequent to May 31, 1997, options for 110,250 shares, at prices ranging
from $2.00 to $3.00 per share, have been exercised.

        In September 1996, the Company entered into a loan agreement with a bank
for a line of credit of $200,000 and a term loan in the amount of $400,000.  The
loan had interest at the lender's prime rate plus one percent and had a maturity
date of March 31, 1998. The line of credit and the term loan were collateralized
by the  accounts  receivable  and fixed  assets  of the New York  City  physical
therapy care centers.  The Company paid off the line of credit and term loans in
September 1997.

        In March 1997, the Company  purchased  physical therapy  equipment which
were subject to existing operating leases for an aggregate cost of $250,230. The
Company then sold the  equipment and other fixed assets with a net book value of
$239,862 for $450,230 and leased such  equipment and assets back for a period of
five years with monthly  payments of $11,226.  In August 1997,  the Company sold
the equipment of the New York City physical therapy center acquired in July 1997
for $171,335 and leased it back for a period of five years with monthly payments
of $4,215.

        In September  1997, the Company entered into an agreement to sell all of
its existing and future patient care  receivables for the next two years.  Under
the  agreement,  the purchaser will advance to the Company 75% of under 180-day,
eligible  receivables  (as  defined).  Upon each sale,  the  Company  will pay a
discount  equal to prime  plus 5% per annum  and,  at the  initial  closing,  an
origination  fee of $17,457.  The Company and Mr.  Henry Dubbin  guaranteed  the
collection of these  receivables.  On September 10, 1997,  the Company closed on
the first sale of eligible receivables of $775,867 for $547,304.

        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, 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. The Company had 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  quarter ended
February 28, 1997 because of the absence of current  financial  information  for
Accord and management's inability to otherwise determine the value of the Accord
interest.  The Company has subsequently received requested financial information
for  Accord  and an  updated  appraisal  report  which  valued  the  gold ore at
$5,181,000.  In November  1997,  the Company  returned the  6,000,000  shares of
common  stock of Accord in exchange  for 100% of Aurum.  The Company  intends to
continue to pursue  possibilities  of realizing  value on the gold ore interest,
although there can be no assurance that it will be successful in doing so.

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


                                     - 17 -


<PAGE>

differ   materially  from  those  indicated  in  such   statements.   Additional
information on factors that may affect the business and financial results of the
Company can be found in the other filings of the Company with the Securities and
Exchange Commission.


Item 7.        Financial Statements

        The financial statements and information required by Item 7 are included
in the Index shown at Item 13.


Item 8.        Changes in and  Disagreements  with  Accountants  on  Accounting
               and Financial Disclosure

        (a) Puritz & Weintraub served as the independent auditors of the Company
for the fiscal years ended May 31, 1993 and 1994 and until September 6, 1995. On
September  6,  1995,   Puritz  &  Weintraub   resigned  their   engagement  upon
consultation  with the Company  because it was determined that the best interest
of the Company  would be served by retaining  BDO Seidman,  LLP. The decision to
change auditors was approved by the Company's Board of Directors.  There were no
disagreements  between  the  Company  and Puritz &  Weintraub  on any matters of
accounting  principles or practices,  financial statement disclosure or auditing
scope or procedures.

        (b) BDO Seidman,  LLP ("BDO") served as the independent  auditors of the
Company for the period from September 6, 1995 until January 4, 1996.  During its
term of engagement,  BDO advised the Company of its need to significantly expand
its audit of the cost and carrying  values of the gold ore  property,  which had
been acquired by the Company in May 1993 in exchange for a controlling  interest
in the  Company,  a portion  of which  shares  were  subject  to an  immediately
exercisable  option by another  stockholder  of the Company.  Specifically,  BDO
requested  a  current,  independent  appraisal  of the  gold  ore  property  and
documentary evidence of the cost of the property to its prior owner. The Company
terminated  BDO  because,  although  an  appraisal  from a  qualified,  licensed
appraiser and other information was provided,  the Company was unable to provide
the type and level of appraisal or the documentary evidence demanded by BDO. The
gold ore property had been  transferred  to a wholly-owned  subsidiary  which in
turn was sold to  Accord on June 21,  1995 for  6,000,000  shares of its  common
stock, representing approximately 30% of the outstanding common stock of Accord.
Additionally,  Accord lent the Company $100,000,  which was  collateralized  and
guaranteed  by a principal  stockholder  of the Company,  and received  two-year
options to acquire  50,000 shares of Common Stock at an exercise  price equal to
the lesser of $2.00 per share or 50% of the quoted market price. Because BDO was
terminated as auditors of the Company,  it did not complete  certain  procedures
related  to the gold ore  property,  the result of which  could have  materially
impacted the fairness or  reliability  of the financial  statements for the year
ended May 31, 1996 (the period covered by BDO's  incomplete  engagement) and for
the years ended May 31, 1994 and 1993 (with which BDO has no  association).  The
Company  permitted  BDO to respond to the  inquiries  of Simon  Krowitz  Bolin &
Associates,  P.A.  concerning  the gold ore  property.  The  decision  to change
auditors was approved by the Company's Board of Directors.


                                     - 18 -

<PAGE>

        (c) Simon Krowitz Bolin & Associates,  P.A. ("Simon  Krowitz") served as
the  independent  auditors  from  January  4, 1996 to April 29,  1997 and as the
independent  auditors of the  Company  for the fiscal  year ended May 31,  1996.
Effective April 29, 1997,  Simon Krowitz  resigned as the Company's  independent
auditors.  The report of Simon Krowitz on the Company's financial statements for
the fiscal year ended May 31, 1996 contained no adverse opinion or disclaimer of
opinion and was not  qualified  or modified  as to  uncertainty,  audit scope or
accounting  principle.  In connection with the audit of the Company's  financial
statements  for the fiscal year ended May 31, 1996 and through  April 29,  1997,
there were no disagreements between the Company and Simon Krowitz on any matters
of accounting  principles  or  practices,  financial  statement  disclosure,  or
auditing scope or procedure.

        (d)  Effective  June 6, 1997,  the  Company  appointed  Most  Horowitz &
Company, LLP, as its independent auditors.

                                    PART III

Item 9.        Directors,  Executive  Officers,  Promoters  and  Control  
               Persons;  Compliance with Section 16(a) of the Exchange Act

        The directors and executive  officers of the Company and their positions
at January 14, 1998 were as follows:

        Name                 Age                   Position
        ----                 ---                   --------

        Henry Dubbin         82             President and Director
        Gary Danziger        58             Chief  Operating   Officer,   Vice
                                            President and Director
        Fred L. Singer       64             Vice President and Director

        HENRY DUBBIN has been  President  of the Company  since April 1997 and a
director of the Company since May 1993.  From May 1993 to April 1997,  Mr. Henry
Dubbin served as Vice  Chairman of the Board and Vice  President of the Company.
Mr. Henry Dubbin currently is the President of Nevada Minerals Corporation. From
1955 to 1992,  Mr. Henry Dubbin  worked with  Canaveral  International,  Inc., a
diversified  public  company,  from which he retired after being Chairman of the
Board of the Company.

        GARY DANZIGER has served as Chief  Operating  Officer and Vice President
of the Company since April 1997 and as a member of the Board of Directors  since
July 1997. From 1979 to 1996 Mr.  Danziger  practiced and  administered  various
physical therapy centers.  From 1994 to 1996, Mr. Danziger  operated and managed
srthopedic & Sports Therapy Services of Queens,  L.P.,  Parkside of Queens, Inc.
and PTSR, Inc.

        FRED L.  SINGER has served as a member of the Board of  Directors  since
April 1997 and as Vice  President of the Company since August 1997.  Since 1963,
Mr.  Singer has served as director,  producer and  cinematographer  for Coronado
Productions, a/k/a Coronado Studios, a video production company.


                                     - 19 -

<PAGE>

        Burton Dubbin,  the son of Mr. Henry Dubbin,  resigned as Vice President
of the Company in August  1997.  Mr.  Burton  Dubbin was Vice  President  of the
Company from April 1997.

        On April 16, 1997, Michael J. Gerber resigned his various positions with
the  Company.  Mr.  Gerber was  President  and a director  of the  Company  from
September 1995 and was Secretary of the Company from August 1996.

        William Kedersha resigned as a director of the Company in March 1997 and
as the Chief  Executive  Officer in April  1997.  Mr.  Kedersha  served as Chief
Executive  Officer and a director of the Company  from  September  1996 and as a
consultant to the Company from March 1996.

        On August 29, 1996, Irwin Bosh Stack resigned his various positions with
the Company.  Mr. Stack was the Chairman of the Board,  Secretary and a director
of the Company from its  incorporation  in May 1986 until August 1996, and Chief
Operating Officer of the Company from May 1993 until August 1996.

        Directors may be elected by the  stockholders  at an annual meeting or a
special  meeting  called  for that  purpose  (or in the case of a  vacancy,  are
appointed  by the  directors  then in  office)  to serve  until the next  annual
meeting, until their successors are elected and qualified or until their removal
or resignation. Officers serve at the discretion of the Board of Directors.

Section 16(a) Beneficial Ownership Reporting Compliance

        Section  16(a) of the  Securities  and Exchange Act of 1934,  as amended
(the "Exchange Act"), requires the Company's officers, directors and persons who
beneficially  own more than 10% of a registered  class of the  Company's  equity
securities  ("10%  stockholders")  to file reports of  ownership  and changes in
ownership with the Securities and Exchange Commission.  Officers,  directors and
10%  stockholders  also are  required to furnish the Company  with copies of all
Section 16(a) forms they file.  Based solely on its review of the copies of such
forms furnished to it, during the past fiscal year, the Company is of the belief
that all such reports were filed on a timely basis, except as follows: Mr. Henry
Dubbin  did not file a Form 4 on a timely  basis to report  his  disposition  of
shares of Common Stock of the Company,  and Mr. Singer did not file a Form 3 and
a Form 4 on a timely  basis to  report  his  appointment  as a  director  of the
Company and his acquisition of shares of Common Stock.

Item 10.       Executive Compensation

        The  Summary  Compensation  Table below sets forth  certain  information
concerning the annual and long-term  compensation for services in all capacities
to the Company for the 1997,  1996 and 1995 fiscal  years,  of those persons who
were the Chief  Executive  Officer  during  fiscal  1997 and other  most  highly
compensated  executive  officers of the Company who earned over $100,000  during
the last three fiscal years.


                                     - 20 -

<PAGE>

<TABLE>


============================================================================================================
                           SUMMARY COMPENSATION TABLE
------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                        Annual                       Long-Term
                                                      Compensation                   Compensation
                                              --------------------------------------------------------------
                                                                 Other                          Common
                                                                Annual       Restricted         Stock
                                      Fiscal                    Compen-         Stock         Underlying
Name and Principal Position            Year       Salary        sation        Award(s)         Options
------------------------------------------------------------------------------------------------------------
<S>                                    <C>       <C>           <C>             <C>             <C>
Henry Dubbin                           1995         -0-           -0-            -0-           250,000
President                              1996         -0-           -0-            -0-             -0-
                                       1997       $15,414         -0-            -0-             -0-
------------------------------------------------------------------------------------------------------------
Irwin Bosh Stack                       1995       $35,000         -0-            -0-           250,000
Chairman of the Board, Chief           1996         -0-           -0-            -0-             -0-
Operating Officer and Secretary(1)     1997         -0-           -0-            -0-             -0-
------------------------------------------------------------------------------------------------------------
William Kedersha                       1997       $76,192         -0-          $55,547         375,000
Chief Executive Officers(2)
------------------------------------------------------------------------------------------------------------
Michael J. Gerber                      1996         -0-           -0-            -0-            55,000
President(3)                           1997         -0-           -0-            -0-             -0-
------------------------------------------------------------------------------------------------------------
Gary Danziger(4)                       1997      $120,641      $100,000          -0-           350,000
Chief Operating Officer
------------------------------------------------------------------------------------------------------------
Burton Dubbin(5)                       1997         -0-           -0-            -0-           375,000
Vice President
============================================================================================================
</TABLE>

(1)  Mr.  Stack  resigned all of his  positions  with the Company on August 29,
     1996,  and options to acquire  250,000 shares of Common Stock expired upon
     his resignation.

(2)  Mr. Kedersha resigned all of his positions with the Company effective April
     30, 1997.  Includes the market value,  as of May 30, 1997, of 22,500 shares
     of  restricted  stock  issued to Mr.  Kedersha  pursuant to his  settlement
     agreement with the Company and options to acquire  375,000 shares of Common
     Stock which were cancelled as of May 1, 1997.

(3)  Mr.  Gerber  resigned  all of his  positions  with the Company on April 16,
     1997.  Options to acquire 5,000 shares of Common Stock expired on September
     7, 1997, and the remaining options to acquire 50,000 shares of Common Stock
     expired upon Mr. Gerber's resignation in April 1997.

(4)  Includes deferred  compensation of $100,000 as of May 31, 1997, pursuant to
     Mr. Danziger's amended employment agreement with the Company.

(5)  Mr. Burton Dubbin  resigned as Vice  President of the Company on August 29,
     1997.

        The following  tables set forth  certain  information  concerning  stock
option grants made during the last fiscal year to the named  executive  officers
and the fiscal year-end value of such options.


                                     - 21 -

<PAGE>

<TABLE>
==========================================================================================================
                        OPTION GRANTS IN LAST FISCAL YEAR
----------------------------------------------------------------------------------------------------------
<CAPTION>
                           Number of           Percent of
                          Securities         Total Options
                          Underlying           Granted to           Exercise
        Name                Options            Employees              Price           Expiration Date
----------------------------------------------------------------------------------------------------------
<S>                          <C>                  <C>                 <C>             <C>    
Gary Danziger                350,000              32%                 $1.00           October 1, 1998
----------------------------------------------------------------------------------------------------------
Burton Dubbin                375,000              34%                 $1.69           August 31, 2007
----------------------------------------------------------------------------------------------------------
William Kedersha             375,000              34%                 $1.69             May 1, 1997
==========================================================================================================
</TABLE>
<TABLE>
=================================================================================================================
              AGGREGATED OPTIONS EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS VALUES
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                     Value of Unexercised In-
                     Shares Acquired on      Value     # of Unexercised Options    the-Money Options at Fiscal
                          Exercise         Realized       at Fiscal Year End                 Year End
------------------------------------------          -------------------------------------------------------------
Name                                                  Exercisable   Unexercisable  Exercisable   Unexercisable
-----------------------------------------------------------------------------------------------------------------
<S>                     <C>        <C>        <C>        <C>          <C>              <C>            <C>
Henry Dubbin            0          0          $0         250,000            0          $121,094              $0
-----------------------------------------------------------------------------------------------------------------
Michael J. Gerber       0          0          $0           5,000            0            $4,122              $0
-----------------------------------------------------------------------------------------------------------------
Gary Danziger           0          0          $0         350,000            0          $519,531              $0
-----------------------------------------------------------------------------------------------------------------
Burton Dubbin           0          0          $0               0      375,000                $0        $297,891
=================================================================================================================
</TABLE>


(1)     Value is  calculated on the basis of the  difference  between the option
        exercise  price  and the  average  of the bid and asked  prices  for the
        Common Stock at May 30, 1997 as quoted on the  over-the-counter  market,
        multiplied by the number of shares underlying the option.

Employment Agreements

        The Company has an employment  agreement  with Henry Dubbin,  as amended
September  1997,  expiring  June 1998 and  providing for a salary of $50,000 per
year.  For  fiscal  1994,  salary due Mr.  Dubbin in the  amount of $54,375  was
converted  into a note,  which was  subsequently  cancelled by Mr.  Dubbin.  Mr.
Dubbin waived his salary for the 1995 and 1996 fiscal years.

        Gary Danziger has a three-year employment agreement with the Company, as
amended in July 1997,  expiring in October 1999 which provides for (i) an annual
salary of $260,000,  (ii) deferred  compensation for the year ended May 31, 1997
of either $100,000 or 50,000 shares,  (iii)  incentive  bonuses of up to $30,000
per quarter, (iv) options to acquire 350,000 shares of Common Stock, exercisable
at $1.00 per share  until  October 1, 1998,  (v) a loan  facility  of  $350,000,
payable in three  years from the date of  borrowing  at interest of 7% per annum
and (vi) severance  equal to 200% or 100% of annual salary if terminated  during
twelve months ended September 30, 1998 or 1999, respectively.


                                     - 22 -

<PAGE>

        The Company had an employment agreement with William Kedersha, effective
as of December 3, 1996.  Under the agreement,  Mr.  Kedersha  received an annual
salary of $150,000 and incentive bonuses. In addition, the agreement granted Mr.
Kedersha  ten year options to purchase  375,000  shares of Common Stock at a per
share  exercise price equal to $1 11/16.  In September  1997, the Company issued
22,500 shares of Common Stock to Mr. Kedersha as part of a settlement  agreement
and, as of May 31, 1997, recorded the shares of Common Stock at $29,531.

        The  Company had an  employment  agreement  with Irwin Bosh  Stack,  the
Company's former Chief Executive Officer,  providing for a salary of $85,000 per
year.  For  fiscal  1994,  salary due Mr.  Stack in the  amount of  $63,500  was
converted into a note, which was subsequently  cancelled by Mr. Stack. Mr. Stack
took a reduced  salary of $35,000 for the 1995 fiscal year and waived his salary
for the 1996 fiscal year.  Mr. Stack  resigned all positions with the Company on
August 29, 1996.

        In January 1995, in consideration of past services,  the Company granted
to each of Messrs.  Stack and Henry Dubbin options to acquire  250,000 shares of
Common  Stock,  exercisable  at $2.00 per share until  January 1, 1999.  Options
granted to Mr. Stack expired upon his  resignation as an officer and director of
the Company in August 1996.

1994 Performance Equity Plan

        In February 1994, the Company adopted the 1994  Performance  Equity Plan
("1994 Plan") covering  600,000 shares of the Company's Common Stock pursuant to
which  officers,  directors,  key employees and  consultants  of the Company are
eligible to receive incentive or non-qualified stock options, stock appreciation
rights,  restricted stock awards, deferred stock, stock reload options and other
stock based awards.  The 1994 Plan will terminate at such time no further awards
may be granted  under the plan and  awards  granted  are no longer  outstanding,
provided that incentive options may be granted only until February 16, 2004. The
1994  Plan is  administered  by the Board of  Directors,  which  determines  the
selection of participants,  allotment of shares,  price, and other conditions of
purchase of awards and administration of the 1994 Plan.

        As of January 15, 1998, no options under the 1994 Plan were outstanding.

Non-Plan Options

        As of January 14, 1997, the Company has outstanding  non-plan options to
purchase an aggregate  of  1,532,500  shares of Common  Stock.  The  outstanding
options  granted to current and former officers and directors of the Company are
as set forth below.

                      Number of
Name                  Option Shares       Exercise Price     Expiration Date
----                  -------------       --------------     ---------------
                                                           
Gary Danziger             350,000              $1.00         October 1, 1998
Burton Dubbin             375,000              $1.69         August 31, 2007
Henry Dubbin              250,000              $2.00         January 1, 1999
Fred L. Singer             15,000              $1.00         April 16, 1999


                                           - 23 -

<PAGE>

                                                       
Expenses and Meetings                               

        All officers and directors are reimbursed  for any expenses  incurred on
behalf of the Company.  Directors,  other than Company officers,  are reimbursed
for expenses  pertaining to  attendance  at meetings of the  Company's  Board of
Directors, including travel, lodging and meals.

Indemnification of Officers and Directors

        Under the Bylaws of the Company,  officers and  directors of the Company
and former  officers  and  directors  are entitled to  indemnification  from the
Company  to the full  extent  permitted  by law.  The  Company's  Bylaws and the
Delaware General Corporation Act generally provide for such  indemnification for
claims  arising out of the acts or omissions of Company  directors  and officers
(and certain other persons) in their capacity as such,  undertaken in good faith
and in a manner  reasonably  believed  to be in,  or not  opposed  to,  the best
interests  of  the  Company  and,  with  respect  to  any  criminal   action  or
proceedings, had no reasonable cause to believe that such conduct was unlawful.

Item 11.       Security Ownership of Certain Beneficial Owners and Management

        The  following  table sets forth certain  information  as of January 14,
1998 with respect to (i) those persons known to the Company to beneficially  own
more than 5% of the Company's  Common Stock,  (ii) each director of the Company,
(iii) each executive officer whose compensation  exceeded $100,000 in the fiscal
year ended May 31, 1997,  and (iv) all directors  and executive  officers of the
Company as a group.  The information is determined in accordance with Rule 13d-3
promulgated  under the Securities  Exchange Act. Except as indicated  below, the
stockholders  listed  possess sole voting and  investment  power with respect to
their shares.


                                          Amount and Nature of          Percent
Beneficial Owner                          Beneficial Ownership          of Class
----------------                          --------------------          --------

Gary Danziger(1)                                350,000                   7.3%
1 Crooked Mile Road
West Port, CT  06880

Burton Dubbin(2)                                420,000                   7.8%
21394 Marina Cove Circle, Unit H11
North Miami Beach, FL  33180

Henry Dubbin(3)                                 978,375                  21.0%
10155 Collins Avenue, Suite 607
Bar Harbor, FL  33154


                                     - 24 -

<PAGE>

William Kedersha                                  22,500                   *
2 Gannett Drive, Suite 215
White Plains, NY  10604

Nevada Minerals Corporation                      728,375                 16.5%
10155 Collins Avenue, Suite 607
Bar Harbor, FL  33154

Fred L. Singer(4)                                 20,000                   *
9240 West Bay Harbor Dr., Apt. 3-C
Bay Harbor Islands, FL  33154

Irene Stack(5)                                   684,391                 15.5%
P.O. Box 4851
Hialeah, FL  33014

All officers and directors as a group           1,348,375                26.8%
(3 persons)(6)

-------------------------------
* Less than 1%.

(1)  Consists of 350,000 shares of Common Stock subject to currently exercisable
     options.

(2)  Includes  375,000  shares of Common Stock subject to currently  exercisable
     options.

(3)  Includes (i) 728,375  shares of Common Stock that Mr.  Dubbin  beneficially
     owns through Nevada Minerals Corporation,  a corporation of which he is the
     majority stockholder and president, and (ii) 250,000 shares of Common Stock
     subject to currently exercisable options.

(4)  Includes  15,000  shares of Common Stock  subject to currently  exercisable
     options.

(5)  Includes 465,625 shares of Common Stock that Mrs. Stack  beneficially  owns
     through her wholly owned corporation, FYM, Inc.

(6)  Includes  615,000  shares of Common Stock subject to currently  exercisable
     options and 728,375 of Common Stock held by Nevada Minerals Corporation.

Change in Control


                                     - 25 -

<PAGE>

        In  September  1997,  the  Company  entered  into a letter  of intent to
acquire certain  companies  controlled  directly or indirectly by Pierce Neuman,
M.D. The assets of these companies  consist primarily of 21 medical practice and
MRI centers  located in the greater New York  metropolitan  area.  The letter of
intent was  further  amended in  December  1997.  Collectively,  the centers had
revenues of approximately $65 million and estimated pre-tax profits in excess of
$19 million in calendar year 1997. Pursuant to the proposed  transaction,  which
shall take effect, if at all, upon execution of a definitive  written agreement,
Dr. Neuman will own or control  approximately  60% of the Company's  outstanding
shares of Common  Stock.  There can be no assurance,  however,  that the Company
will successfully  negotiate such definitive  written agreement for the purchase
of these  centers or meet its  obligations  of raising  capital to complete  the
acquisition  or that all the other  conditions  to closing will be met by any of
the parties to the transaction.


Item 12.       Certain Relationships and Related Transactions

        On May 28,  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
restricted  Common  Stock.  The gold ore was  appraised  as having a  $5,000,000
value.  On June 28, 1994,  the Company formed a wholly owned  subsidiary,  Aurum
Mining Corporation, with the gold ore as its only asset.

        On June 21, 1995, an agreement was signed between the Company and Accord
whereby 100% of the stock of Aurum was exchanged for 6,000,000  shares of common
stock of Accord.  Accord was to pay the Company a royalty  equal to 12.5% of the
net mining income for the productive life of the property.

        On November  15, 1997,  the Company  returned  the  6,000,000  shares of
common stock of Accord in exchange for 100% of the common stock of Aurum.

        In November 1996, Mr. Fred L. Singer  produced a marketing video for the
Company and received $25,000 in compensation.

        On December 3, 1996, the Company  granted an option to purchase  375,000
shares of Common Stock to Burton  Dubbin,  Mr. Henry Dubbin's son. The option is
exercisable at $1.69 per share until December 2006.

        In August 1997, Mr. Burton Dubbin  terminated  his  employment  with the
Company and entered into a consulting  agreement  for a period of two years at a
fee of $150,000  per year,  plus  125,000  shares of Common  Stock,  with 25,000
shares issued  immediately  and 5,000 shares issued  monthly.  In addition,  the
option to acquire 375,000 shares of Common Stock has been amended to provide for
immediate exercisability and extension until August 2007.


                                     - 26 -

<PAGE>

                                     PART IV

Item 13.       Exhibits, Financial Statements and Reports on Form S-K

         The following documents are filed as part of this Annual Report on Form
10-KSB.

(a)      Financial Statements:                                              Page

         Report of Independent Certified Public Accountants on 
         consolidated financial statements for the year ended 
         May 31, 1997..................................................      F-1

         Report of Independent Certified Public Accountants on 
         consolidated financial statements for the year ended 
         May 31, 1996..................................................      F-2

         Consolidated Balance Sheet as of May 31, 1997 and 1996..........    F-3

         Consolidated Statement of Operations for the years ended
         May 31, 1997 and 1996 ..........................................    F-5

         Consolidated Statement of Stockholders' Equity for the years 
         ended May 31, 1997 and 1996 ....................................    F-6

         Consolidated Statement of Cash Flows for the years ended
         May 31, 1997 and 1996...........................................    F-7

         Notes to Consolidated Financial Statements......................    F-9

(b)      Reports on Form 8-K.

         An  amendment to a Form 8-K,  filed on February 27, 1997,  was filed on
         March 10, 1997 to include pro forma financial  statements giving effect
         to the  disposition  of the clinics in  Jacksonville  and Orange  Park,
         Florida and a press  release  announcing  the  Company's  intention  to
         write-down its investment in Accord Futronics Corp.

         A report  on Form  8-K,  dated  March  19,  1997,  was  filed  with the
         Securities  and Exchange  Commission  on April 3, 1997  disclosing  the
         rescission of the Company's  acquisition  of the four Long Island,  New
         York based physical therapy care centers.

         A report  on Form  8-K,  dated  April  29,  1997,  was  filed  with the
         Securities  and  Exchange  Commission  on May 6,  1997  disclosing  the
         resignation of Simon Krowitz Bolin & Associates,  P.A. as the Company's
         independent auditors.

(c)      The following documents are filed as exhibits to this Annual Report on
         Form 10-KSB.

3.1      Certificate of Incorporation, as amended. Incorporated by reference 
         from Registration Statement on Form S-18 - Commission File No. 
         33-8166B, August 20, 1986.


                                     - 27 -

<PAGE>

3.2      Amendments  to  Certificate  of  Incorporation  dated  August 1,  1994.
         Incorporated by reference from Exhibit 3.2 of the Annual Report on Form
         10-KSB for the fiscal year ended May 31, 1995.

3.3      By-Laws. Incorporated by reference from Registration Statement on Form
         S-18 - Commission File No. 33-8166B, August 20, 1986.

4.1      Form of Common Stock  Certificate.  Incorporated by reference from Form
         10-KSB for the fiscal year ended May 31, 1994.

4.2      Option Agreement,  dated June 21, 1995,  between  Registrant and Accord
         Futronics  Corporation.  Incorporated by referenced from Exhibit 4.2 of
         the Annual  Report on Form  10-KSB  for the  fiscal  year ended May 31,
         1995.

4.3      Term Loan Agreement, dated September 30, 1996, between Oak Tree Medical
         Management,  Inc.  and  First  Union  National  Bank.  Incorporated  by
         referenced from Quarterly  Report on Form 10-QSB for the fiscal quarter
         ended August 31, 1996.

4.4      Security Agreement,  dated September 30, 1996, between Oak Tree Medical
         Management,  Inc.  and  First  Union  National  Bank.  Incorporated  by
         referenced from Quarterly  Report on Form 10-QSB for the fiscal quarter
         ended August 31, 1996.

4.5      Promissory  Note,  dated  September 30, 1996,  between Oak Tree Medical
         Management,  Inc.  and  First  Union  National  Bank.  Incorporated  by
         referenced from Quarterly  Report on Form 10-QSB for the fiscal quarter
         ended August 31, 1996.

4.6      Unconditional Guaranty, dated September 30, 1996, among Registrant, Oak
         Tree  Medical   Management,   Inc.  and  First  Union   National  Bank.
         Incorporated by referenced from Quarterly Report on Form 10-QSB for the
         fiscal quarter ended August 31, 1996.

4.7*     Purchase Agreement, dated July 23, 1997, between Oak Tree Medical
         Practice, P.C. and PFS VI, Inc.

10.1     Form of 1994 Equity  Performance  Plan.  Incorporated by reference from
         Information Statement dated July 11, 1994.

10.2     Form of Employment Agreement with Mr. Irwin Bosh Stock. Incorporated by
         reference from Form 10-KSB for the Fiscal Year Ended May 31, 1994.

10.3     Form of Employment Agreement with Mr. Henry Dubbin. Incorporated by 
         reference from Form 10-KSB for the Fiscal Year Ended May 31, 1994.

10.4     Form of Acquisition Agreement between Registrant and 1st Coast Physical
         Medicine  Associates,  Inc.  Incorporated  by reference  from Form 8-K,
         filed January 1995.


                                           - 28 -

<PAGE>

10.5 Amended Oak Tree Medical Systems,  Inc. Extension Agreement for Acquisition
     by Acorn I, Inc. from 1st Coast Physical  Medicine  Associates  Inc. of 1st
     Coast Rehabilitation Inc. and 1st Coast Physical Therapy Inc.  Incorporated
     by reference from Form 10-KSB filed for the fiscal year ended May 31, 1995.

10.6 Employment   Agreement  between   Registrant  and  Dr.  Ronald  W.  Dennie.
     Incorporated  by reference from Form 10-KSB filed for the fiscal year ended
     May 31, 1995.

10.7 Form of purchase agreement between  Registrant and Cassandra  Armstrong and
     Martha  Nugent.  Incorporated  by reference  from Form 10-KSB filed for the
     fiscal year ended May 31, 1995.

10.8 Form of purchase  agreement  between  Registrant  and  Vladimir  Kavchenko.
     Incorporated  by reference from Form 10-KSB filed for the fiscal year ended
     May 31, 1995.

10.9 Agreement  of  Sale,   dated  October  1,  1996,  among  Oak  Tree  Medical
     Management,  Inc. and Orthopedic & Sports Therapy Services of Queens,  L.P.
     and Parkside of Queens,  Inc.  Incorporated  by reference  from Form 10-QSB
     filed for the fiscal quarter ended August 31, 1996.

10.10 Agreement of Sale,  dated October 1, 1996,  between New Medical  Practice,
      P.C.  and  Parkside  Physical  Therapy  Services,   P.C.  Incorporated  by
      reference  from Form 10- QSB filed for the fiscal quarter ended August 31,
      1996.

10.11 Agreement  of  Sale,  dated  October  1,  1996,  among  Oak  Tree  Medical
      Management,  Inc. Gary Danziger and PTSR,  Inc.  Incorporated by reference
      from Form 10-QSB filed for the fiscal quarter ended August 31, 1996.

10.12* Employment  Agreement,  dated as of October 1, 1996,  between New Medical
       Practice, P.C. and Gary Danziger.

10.13 Executive  Employment  Agreement,  dated as of December  3, 1996,  between
      Registrant  and William  Kedersha.  Incorporated  by  reference  from Form
      10-QSB filed for the fiscal quarter ended November 30, 1996.

10.14 Stock Option Agreement,  dated as of December 3, 1996,  between Registrant
      and Burton  Dubbin.  Incorporated  by reference from Form 10-QSB filed for
      the fiscal quarter ended November 30, 1996.

10.15 Purchase Agreement, dated as of February 6, 1997, among Registrant,  Acorn
      CORF I, Inc.,  Riverside CORF, Inc. and MB Data Corporation.  Incorporated
      by reference from Form 8-K filed on February 27, 1997.

10.16 Letter  Agreement  of  Rescission,  dated  March 19,  1997,  from Oak Tree
      Medical Management,  Inc. to James O'Neill,  Mark Gentile and Maple Health
      Inc. Incorporated by reference from Form 8-K filed on April 3, 1997.


                                     - 29 -

<PAGE>

10.17*   Agreement  of Sale,  dated  July 16,  1997,  between  Oak Tree  Medical
         Practice, P.C. and Peter B. Saadeh, M.D.

10.18*   Consulting  Agreement,  dated as of August 29, 1997, between Registrant
         and Burton Dubbin.

16.1     Letter from Simon Krowitz Bolin & Associates,  P.A., dated May 6, 1997,
         addressed to the Securities and Exchange  Commission.  Incorporated  by
         reference from Form 8-K, filed May 6, 1997.

22.1     Subsidiaries:

         Acorn CORF, Inc.                                 Florida
         Acorn CORF I, Inc.                               Nevada
         Aurum Mining Corporation                         Nevada
         1st Coast Rehabilitation, Inc.                   Florida
         Oak Tree Financial Services, Inc.                Florida
         Oak Tree Medical Management, Inc.                New York
         Riverside CORF, Inc.                             Florida

27.1*    Financial Data Schedule.

-------------------------------
* Filed herewith.


                                     - 30 -

<PAGE>

                         OAK TREE MEDICAL SYSTEMS, INC.

                                AND SUBSIDIARIES

                        ---------------------------------

                        CONSOLIDATED FINANCIAL STATEMENTS

                        YEARS ENDED MAY 31, 1997 AND 1996





<PAGE>



                         OAK TREE MEDICAL SYSTEMS, INC.

                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                        YEARS ENDED MAY 31, 1997 AND 1996



                                      INDEX



INDEPENDENT AUDITORS' REPORT - Year ended May 31, 1997                       F-1

INDEPENDENT AUDITORS' REPORT - Year ended May 31, 1996                       F-2

CONSOLIDATED FINANCIAL STATEMENTS

     CONSOLIDATED BALANCE SHEET                                              F-3

     CONSOLIDATED STATEMENT OF OPERATIONS                                    F-5

     CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY                          F-6

     CONSOLIDATED STATEMENT OF CASH FLOWS                                    F-7

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                              F-9


<PAGE>

Board of Directors
Oak Tree Medical Systems, Inc.
Flushing, New York


                          INDEPENDENT AUDITORS' REPORT

         We have audited the accompanying consolidated balance sheet of Oak Tree
Medical  Systems,  Inc. and  Subsidiaries  as of May 31,  1997,  and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
the  year  then  ended.   These  consolidated   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

         We conducted our audit in accordance with generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
consolidated  financial  statement  presentation.  We  believe  that  our  audit
provides a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Oak Tree Medical  Systems,  Inc. and  Subsidiaries  as of May 31, 1997,  and the
consolidated  results of its operations and its consolidated  cash flows for the
year then ended in conformity with generally accepted accounting principles.


/S/ MOST HOROWITZ & COMPANY, LLPs

New York, New York
November 21, 1997 (December 31, 1997,
  as to Notes 13 and 14)


<PAGE>

Report of Independent Certified Public Accountants

S
Oak Tree Medical Systems, Inc.
Hialeah, Florida

We have audited the accompanying restated consolidated balance sheet of Oak Tree
Medical Systems Inc. as of May 31, 1996, and the related  restated  consolidated
statements of operations,  stockholders' equity and cash flows for the year then
ended.  Theses  financial  statements  are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management as well as evaluating the overall financial  statement  presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Oak Tree Medical
Systems, Inc. as of May 31, 1996, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted  accounting
principles




/s/ Simon, Krowitz. Bolin and Associates, P.A.


August 13, 1996
August 29, 1996 as to Note 12

<PAGE>

                         OAK TREE MEDICAL SYSTEMS, INC.

                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                              MAY 31, 1997 AND 1996

                                     ASSETS

                                                  1997               1996
                                               ----------       -----------
CURRENT ASSETS
  Cash (Note 17)                               $  125,919      $   292,315
  Patient care receivables (net of
    allowance for contractual allowances
    and doubtful accounts of $860,123
    in 1997 and $1,486,270 in 1996)
    (Notes 4, 6 and 9)                            848,269        3,158,325
  Other current assets                            141,622           68,621
  Note receivable - current
    portion (Note 14)                             264,401
                                               ----------

         TOTAL CURRENT ASSETS                   1,380,211        3,519,261

  NOTE RECEIVABLE (Note 14)                       109,534
  INVESTMENT IN AFFILIATED COMPANY
    (Note 7)                                    4,994,214        5,000,000
  FIXED ASSETS (Notes 8 and 9)                    507,163          394,145
  OTHER ASSETS                                     80,666           58,657
  GOODWILL (Note 3)                                37,141        1,252,143
                                               ----------      -----------

         TOTAL ASSETS                          $7,108,929      $10,224,206
                                               ==========      ===========


                                   (CONTINUED)

                        See notes to financial statements


                                       F-3

<PAGE>

                         OAK TREE MEDICAL SYSTEMS, INC.

                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                              MAY 31, 1997 AND 1996

                                   (CONTINUED)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                  1997                  1996
                                               ------------         -----------
CURRENT LIABILITIES
  Note payable - bank (Note 9)                  $  197,305
  Accounts payable and accrued expenses          1,071,843         $   920,363
  Deferred compensation (Note 13)                  100,000
  Note payable (Note 6)                                                310,623
  Current portion of long-term
    debt (Note 10)                                 294,445              62,073
  Current portion of capitalized lease
    obligations (Note 11)                          147,756              85,773
  Deferred income taxes payable
    (Note 12)                                                          558,782
                                                ----------         -----------

         TOTAL CURRENT LIABILITIES               1,811,349           1,937,614

LONG-TERM DEBT (NOTE 10)                            92,667             128,481
CAPITALIZED LEASE OBLIGATIONS (Note 11)            311,587
OBLIGATION TO ISSUE SHARES OF COMMON
  STOCK (Note 4)                                                       349,765
                                                ----------         -----------

         TOTAL LIABILITIES                       2,215,603           2,415,860
                                                ----------         -----------

COMMITMENTS AND CONTINGENCIES (Note 13)

STOCKHOLDERS' EQUITY (Note 5)
  Common stock, $.01 par value;
    authorized: 25,000,000 shares;
    issued and outstanding: 2,888,144
    shares, as of May 31, 1997, and
    2,619,869 shares as of May 31, 1996             28,881              26,199
  Additional paid-in capital                     9,772,472           9,766,573
  Deficit                                      ( 4,726,638)       (  1,984,426)
  Less: prepaid consulting and stock
    subscription receivable                    (   181,389)
                                               -----------         ------------

         TOTAL STOCKHOLDERS' EQUITY              4,893,326           7,808,346
                                                ----------         -----------

         TOTAL LIABILITIES AND
                  STOCKHOLDERS' EQUITY          $7,108,929         $10,224,206
                                                ==========         ===========

                        See notes to financial statements


                                       F-4

<PAGE>

                         OAK TREE MEDICAL SYSTEMS, INC.

                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS

                        YEARS ENDED MAY 31, 1997 AND 1996

                                                       1997             1996
                                                    ----------       ----------
REVENUE
  Patient services (Note 6)                         $3,344,559       $4,663,792
                                                    ----------       ----------

EXPENSES
  Costs of patient services                          1,875,770        1,910,452
  Selling, general and administrative                3,283,010        1,035,782
  Depreciation and amortization                        170,890          180,777
  Interest - net                                       403,724          130,920
  Losses on sales and rescission
    (Notes 4 and 14)                                   777,054
                                                    ----------       ----------

         TOTAL EXPENSES                              6,510,448        3,257,931
                                                    ----------       ----------

         (LOSS) INCOME BEFORE INCOME TAXES
           AND EXTRAORDINARY INCOME                ( 3,165,889)       1,405,861

INCOME TAX BENEFIT (EXPENSE) (Note 12)                 546,677         (346,770)
                                                    ----------       ----------

         (LOSS) INCOME BEFORE
           EXTRAORDINARY INCOME                    ( 2,619,212)       1,059,091

CANCELLATION OF INDEBTEDNESS (Note 16)                  65,000
                                                    ----------       ----------

         NET (LOSS) INCOME                         ($2,554,212)      $1,081,753
                                                    ==========       ==========


(LOSS) INCOME PER COMMON SHARE
  Before extraordinary income                           ($1.02)            $.42
  Extraordinary income                                     .03
                                                         -----

         NET (LOSS) INCOME PER COMMON SHARE             ($ .99)            $.42
                                                         =====             ====

WEIGHTED AVERAGE NUMBER OF COMMON AND
  COMMON EQUIVALENT SHARES OUTSTANDING               2,575,361        2,550,456
                                                     =========        =========


                        See notes to financial statements


                                       F-5

<PAGE>

                 OAK TREE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                        YEARS ENDED MAY 31, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                                                       Prepaid
                                                        Common Stock                                   Consulting
                                                   ----------------------    Additional                and Stock      Total
                                                                             Paid-in                   Subscription   Stockholders'
                                                    Shares        Amount     Capital        Deficit    Receivable     Equity
                                                    ------        ------     -------        -------    ----------     ------

<S>                                                <C>           <C>         <C>           <C>          <C>            <C>       
Balance - May 31, 1995, as reported                2,046,969     $20,470     $8,035,371    ($2,927,491)                $5,128,350

Restatements (Note 5)                                467,500       4,675      1,206,013    (   116,026)                 1,094,662
                                                  ----------     -------    -----------   ------------                 ----------

     Balance - May 31, 1995, as restated           2,514,469      25,145      9,241,384    ( 3,043,517)                 6,223,012

Sales of common stock                                 82,200         822        405,178                                   406,000

Issuance of shares for services (Note 5)              23,200         232        120,011                                   120,243

Net income for year ending May 31, 1996                                                       1,059,091                 1,059,091
                                                   ---------    --------     ----------     -----------                ----------

     Balance - May 31, 1996, as restated           2,619,869      26,199      9,766,573     ( 1,984,426)                7,808,346

Sales of common stock                                325,333       3,253        251,747                                   255,000

Issuance of common stock upon acquisition             54,237         542        399,458                                   400,000

Reacquisition of shares upon sale of Florida        (400,000)     (4,000)    (1,068,000)    (   188,000)               (1,260,000)
 
Issuance of common stock on acquisition
  and rescission                                      14,286         143         99,857                                   100,000

Exercise of options                                   50,000         500         24,500                     (25,000)

Issuance of shares for services                      224,419       2,244        298,337                    (170,750)      129,831

Amortization of prepaid consulting                                                                           14,361        14,361

Net loss for year ending May 31, 1997                                                       ( 2,554,212)               (2,554,212)
                                                   ---------     -------    -----------      -----------   ---------   -----------

     Balance - May 31, 1997                        2,888,144     $28,881     $9,772,472     ($4,726,638)  ($181,389)   $4,893,326
                                                   =========     =======     ==========      ==========    ========    ===========
</TABLE>

                        See notes to financial statements


                                       F-6

<PAGE>

                         OAK TREE MEDICAL SYSTEMS, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                        YEARS ENDED MAY 31, 1997 AND 1996

                                                      1997            1996
                                                     ------          -----
OPERATING ACTIVITIES
    Net (loss) income                             ($2,554,212)     $1,059,091
    Adjustments to reconcile net (loss)
        income to net cash used in operating
        activities
           Bad debts                                1,390,276
           Losses on sales and rescission             777,054
           Depreciation and amortization              464,943        180,777
           Common stock issued for services           128,081        120,243
           Deferred compensation                      100,000
           Equity in loss of investment                 5,786
           Capitalization of deferred
               interest and other financing fees     (662,500)
           Deferred income taxes                     (558,782)       558,782
           Cancellation of indebtedness               (65,000)
           Abandonment of leasehold
               improvements                                           93,557
           Increase (decrease) in cash from
               Patient care receivables            (1,780,591)    (1,400,050)
               Other current assets                   (68,001)         8,897
               Other assets                            (4,531)        32,151
               Accounts payable and
                 accrued expenses                     762,245       (438,352)
               Income taxes payable                                 (280,338)
                                                     ----------    ----------

        NET CASH USED IN OPERATING ACTIVITIES      (2,065,232)       (65,242)
                                                     ----------    ----------

INVESTING ACTIVITIES
    Proceeds from sales of fixed assets               450,230
    Proceeds from sales of Florida centers
        (net of expenses of $13,451)                  101,549
    Collection of note receivable                      85,000
    Acquisition (net of notes payable of
        $189,000, accounts payable of $65,000
        and common stock issued of $400,000)         (436,911)
    Advances on rescission                           (412,506)
    Purchases of fixed assets (net of
        capitalized lease obligations of
        $466,444 in 1997 and $80,223 in 1996)        (275,293)      (181,670)
    Expenses of rescission                             (5,866)
    Purchases of licenses                                            (40,000)
    Other                                                             37,761
                                                    ----------     ----------

        NET CASH USED IN INVESTING ACTIVITIES        (493,797)      (183,909)
                                                    ----------     ----------



                                   (CONTINUED)

                        See notes to financial statements


                                       F-7

<PAGE>

                         OAK TREE MEDICAL SYSTEMS, INC.

                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                        YEARS ENDED MAY 31, 1997 AND 1996

                                   (CONTINUED)


                                                    1997         1996
                                                  ------        -----
FINANCING ACTIVITIES
    Proceeds of notes payable - other        $ 2,561,261    $  44,975
    Proceeds of long-term debt                   450,000      310,623
    Proceeds from issuance of common stock       241,750      421,000
    Proceeds of note payable - bank              200,000
    Payments of notes payable - other           (614,979)
    Payments of long-term debt                  (421,134)    (355,208)
    Payments of capitalized lease
        obligation                               (21,570)     (18,120)
    Payments of note payable - bank               (2,695)
                                               ----------

        NET CASH PROVIDED BY
           FINANCING ACTIVITIES                2,392,633      403,270
                                              ----------     --------

        NET (DECREASE) INCREASE IN CASH         (166,396)     154,119

CASH - Beginning of year                         292,315      138,196
                                              ----------     --------

Cash - End of year                           $   125,919     $292,315
                                              ==========     ========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION
        Interest paid                        $  394,559      $130,928
                                             ----======      ========

                        See notes to financial statements


                                       F-8

<PAGE>

                         OAK TREE MEDICAL SYSTEMS, INC.

                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       NATURE OF OPERATIONS

         Oak Tree Medical  Systems,  Inc.  and  Subsidiaries  (Company)  operate
physical  therapy care  centers in  northeastern  Florida  (Note 4) and New York
(Note 3).


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         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.

         Use of Estimates

         The preparation of consolidated financial statements in conformity with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of contingent  assets and liabilities at the date of the consolidated
financial  statements and the reported  amounts of revenues and expenses  during
the reporting period. Actual results could differ from those estimates.

         Investment In Affiliated Company

         Investment in affiliated Company was reported on the equity method.

         Fixed Assets

         Physical  therapy  equipment and office  equipment  and furniture  were
stated at cost and are being  depreciated on the  straight-line  method over the
estimated   useful  lives  of  the  assets  which  are  five  years.   Leasehold
improvements were stated at cost and were amortized over the terms of the leases
or the estimated  useful lives of the assets which is seven years,  whichever is
less.

         Goodwill

         Goodwill  resulting from  acquisitions of established  physical therapy
care centers, represents costs in excess of net assets


                                       F-9

<PAGE>

acquired and is being  amortized  on a  straight-line  basis over twenty  years.
Annually,  the Company evaluates goodwill for impairment by comparing  estimated
discounted future cash flows to net book value.

         Patient Service Revenue

         Patient  service  revenue is reported at the estimated  net  realizable
amounts from patients, third-party payers and others for services rendered.

         Stock Based Compensation

         Stock  based  compensation  to  employees  and  nonemployees  has  been
recorded on the fair value method.

         Income Taxes

         Deferred  income  taxes have been  provided for  temporary  differences
between  consolidated  financial  statement and income tax reporting,  resulting
primarily  from the use of the cash basis method for income tax purposes and net
operating loss carryforwards.

         Earnings Per Share

         Earnings per share were computed  based on the weighted  average number
of common shares and common share equivalents outstanding during the year.

         The Company adopted FASB Statement No. 128, "Earnings Per Share", which
changed the  calculations  and  disclosures  of earnings  per share for the year
ended May 31, 1997 without a material effect.


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 (Note 10) and (c) the issuance of 54,237 shares
of common  stock to a creditor  of the  seller.  In  addition,  the seller  will
receive  10,000 shares of common stock  issuable on October 1, 1998, but no less
than $100,000.

         In connection with the acquisition,  the Company  incurred  expenses of
$101,911,  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 by the Company.  The finder's fee was paid $25,000
in cash and the balance was due in a note payable due on January 15, 1998,  with
interest at 12.5%, per annum (Note 16).


                                      F-10



<PAGE>




         In addition, the Company assumed three leases for physical therapy care
centers (Note 13).

         The results of operations of the acquired centers have been included in
the  consolidated  statement of operations from October 1, 1996, the date of the
acquisition.  The  acquisition was recorded on the purchase method and the total
purchase  price,  including  related  costs (and net of the imputed  interest of
$11,000 on the amount due to seller),  was  allocated  to the fair values of the
assets acquired and the excess to goodwill, as follows:

         Patient care receivables (net of
           allowances for doubtful accounts)          $  750,000
         Supplies                                          5,000
         Physical therapy equipment                      261,689
         Deposits                                         35,800
         Goodwill                                         38,422
                                                      ----------

                                                      $1,090,911
                                                      ==========


4.       SALES OF FLORIDA CENTERS

         On February 12, 1997,  certain  subsidiaries sold  substantially all of
the assets and operations of the physical  therapy care centers in  Jacksonville
and Orange  Park,  Florida.  In addition,  the Company sold all the  outstanding
shares of another subsidiary which held the receivables of the two centers,  and
was the debtor under the receivables funding facility (Note 6).

         In exchange for the assets and subsidiary  sold,  the Company  received
$100,000 in cash and a note in the amount of $100,000 and the purchaser  assumed
$86,150 of accounts  payable and a note payable of  $1,812,500.  In exchange for
the consent of the lender of the patient care receivables funding facility (Note
6), the Company  transferred to the lender  $700,000 of additional  patient care
receivables.

         In addition, the Company reacquired 400,000 shares of common stock from
an  employee,  valued at $3.15,  per share,  and then  retired the  shares.  The
Company was also released of an obligation to issue additional  shares of common
stock.

         In April 1997, the Company sold its physical therapy care center in St.
Augustine, Florida, completing its exit from Florida. The sale price was $25,000
in cash, of which $15,000 was paid at the closing,  $5,000 on April 26, 1997 and
$5,000 on May 29, 1997.



                                      F-11



<PAGE>



         A summary of the aggregate loss on the sales of the Florida  centers is
as follows:

         Reacquisition of common stock                      $1,260,000
         Purchase prices                                       225,000
         Assumption of note payable                          1,812,500
         Cancellation of obligation to
           issue shares of common stock                        349,765
         Assumption of accounts payable                         86,150
         Costs of assets sold                              ( 2,958,623)
         Additional allowance for
           doubtful patient care receivables               (   967,500)
         Write-off of deferred interest and
           other financing fees (Note 6)                   (   386,458)
         Allowance for collection of
           note receivable                                 (   100,000)
         Expenses of sales                                 (    13,451)
                                                            ----------

                  Loss on sales                            ($  692,617)
                                                            ==========



5.       COMMON STOCK

         Prior Period Adjustments

         The Company's  consolidated  financial statements have been restated as
of May 31, 1995 to reflect the issuance of 400,000 shares of common stock,  with
a fair value of  $1,072,000,  issued in  connection  with the  acquisition  of a
Florida  physical  therapy care center acquired in January 1995,  which had been
reported as issued during the year ended May 31, 1996.

         The Company's  consolidated financial statements as of May 31, 1995 and
1996 have also been  restated to reflect the  issuance of shares of common stock
in exchange  for various  services.  These shares have been valued at their fair
values on their respective dates of issuance, as follows:

         Years Ending
            May 31,                     Shares                 Value
         ------------                   ------                --------

             1995                       67,500                $138,688
             1996                       23,200                 120,243
                                        ------                --------

                                        90,700                $258,931
                                        ======                ========



         The effect of the  restatement was to decrease net income for the years
ended May 31, 1996 and 1995 by $72,146 ($.03, per share) and $116,026 ($.05, per
share), respectively, net of income taxes of $22,662 and $48,097, respectively.


                                      F-12



<PAGE>



         Exercise of Options

         On April 9, 1997,  options were  exercised to acquire  50,000 shares of
common stock at $.50, per share,  in exchange for a note receivable due on April
15, 1999, with interest at 8.5%, per annum. These options had been acquired from
Accord (Note 7).

         Issuance of Common Stock

         Through May 31, 1997,  the Company issued an aggregate of 26,919 shares
of common  stock in exchange  for legal  services.  The shares were valued at an
average price of $3.66, per share.

         On September 3, 1997, the Company  entered into a settlement  agreement
with its former chief executive officer and issued 22,500 shares of common stock
and, as of May 31, 1997, recorded the shares of common stock at $29,531.

         Options

         On December  31,  1996,  in exchange  for legal  services,  the Company
granted options to purchase 17,500 shares of common stock, exercisable at $1.75,
per share, through May 1, 2001.

         Public Relations Consulting Agreements

         In April and May 1997, the Company entered into three public  relations
consulting  agreements,  two for a  period  of one year  and the  other  through
December  31,  1997,  for an aggregate  compensation  of: (a) 175,000  shares of
common stock for an aggregate  purchase price of $1,750,  (b) $3,000, per month,
for one year and (c)  options to acquire  525,000  shares of common  stock.  The
options are  exercisable at $2 to $5, per share,  through  December 31, 1998, as
extended.  The shares were recorded at $.75 to $1.69,  per share.  The aggregate
consulting  fees of $170,750 have been  capitalized and are being amortized over
the terms of the agreements.

         Subsequent  to May 31,  1997,  options  for 110,250  shares,  at prices
ranging from $2 to $3, per share, respectively, have been exercised.

         Stock Option Plans

         As of May 31, 1996, the Company  terminated its 1986 stock option plan.
No options were granted under the plan.

         The Company  has a  Performance  Equity Plan (Plan)  under which it may
grant incentive and  non-qualified  stock options,  stock  appreciation  rights,
restricted  stock awards,  deferred stock,  stock reload options and other stock
based  awards to  purchase  up to 600,000  shares of common  stock to  officers,
directors, key employees and consultants.  The Company may not grant any options
with a purchase price less than fair market value of common stock

                                      F-13



<PAGE>



as of the date of the grant.  Through May 31, 1997,  the Company had not granted
any options under the Plan.

         Reserved Shares

         As of May 31, 1997,  the Company has reserved the  following  shares of
common stock:

         Plan                                            600,000
         Options to consultants (a)                      917,500
         Options to directors/officers (b)               620,000
         Options to former employee  (c)                   5,000
                                                       ---------

                                                       2,142,500
                                                       =========

         (a)      exercisable from $1.69 to $5, per share, through December
                  2001

         (b)      exercisable from $1 to $2, per share, through April 1999

         (c)      exercisable at $1.66, per share, through September 1997

         The value of all options  issued by the Company has been  assumed to be
immaterial.


6.       PATIENT CARE RECEIVABLES

         In December 1995, the Company entered into a borrowing  agreement under
which the Company  borrowed  funds  utilizing  its patient care  receivables  as
collateral. The agreement required loan discounts of 1.5%, per advance, interest
of 1.5% on monthly outstanding balances and a fee of 2%, per advance.

         In September  1996, the Company  refinanced its patient care receivable
agreement,  whereby  approximately  $2,613,000 of patient care  receivables were
provided as collateral  for a loan of  $1,912,500.  In the event that the lender
collects  funds in excess  of the  original  $1,912,500,  such  excess  shall be
refunded to the Company,  less collection  charges. As collection of any amounts
is not probable,  the Company has  written-off  these patient care  receivables.
Upon closing, the Company paid interest and other financing fees of $662,500.

         As of  May  31,  1997  and  1996,  patient  care  receivables  included
approximately 13% and 37%, respectively, due from Medicare.


                                      F-14



<PAGE>


7.       INVESTMENT IN AFFILIATED COMPANY

         As of May 31, 1997, investment in affiliated company consisted of:

                  Investment                $5,000,000
                  Equity in loss           (     5,786)
                                            ----------
                                            $4,994,214
                                            ==========

         In June 1995,  the  Company  exchanged  100% of the  common  stock of a
subsidiary,  which only  owned an  interest  in gold ore  (which was  previously
acquired  for  common  stock of the  Company,  with a value of  $5,000,000)  for
6,000,000   shares  of  common  stock  of  Accord   Futronics  Corp.   (Accord),
approximately  30%,  and Accord was to pay the Company a royalty of 12.5% of net
production income from processing the ore. No gain or loss was recognized on the
exchange.

         On November 15, 1997,  the Company  returned  the  6,000,000  shares of
common  stock  to  Accord  in  exchange  for  100% of the  common  stock  of the
subsidiary.  Accord had not yet commenced  mining nor anticipated  commencing in
the near  future,  and the  Company  desired to  commence  such  mining or other
provision for the gold. No gain or loss was recognized on the exchange.

         As  of  May  31,  1996,  the  latest  date  available,   the  unaudited
consolidated condensed financial statements of Accord were:

                                  BALANCE SHEET

         CASH, CASH EQUIVALENTS, AND
           MARKETABLE SECURITIES             $ 1,365,591
         INVESTMENT IN GOLD RESERVES          42,875,000
         OTHER ASSETS                          1,115,122
                                             -----------

                  TOTAL ASSETS               $45,355,713
                                             ===========

         LIABILITIES                                NONE
         SHAREHOLDERS' EQUITY                $45,355,713
                                             -----------
                  TOTAL LIABILITIES AND
                    STOCKHOLDERS' EQUITY     $45,355,713
                                             ===========


                             STATEMENT OF OPERATIONS

         REVENUES                               $195,007
         EXPENSES                              ( 214,294)
                                                --------

                  NET LOSS                     ($ 19,287)
                                                ========




                                      F-15



<PAGE>



8.       FIXED ASSETS

         As of May 31, 1997 and 1996, fixed assets consisted of the following:

                                                1997               1996
                                              --------           --------

         Physical therapy equipment           $499,437           $334,435
         Office equipment and furniture         40,258            166,870
         Leasehold improvements                                    50,923
                                              --------           --------

                                               539,695            552,228

         Less: accumulated depreciation and
                           amortization         32,532            158,083
                                              --------           --------

                                              $507,163           $394,145
                                              ========           ========


         As of May 31, 1997, fixed assets included  capitalized  lease assets of
$514,632.


9.       NOTE PAYABLE - BANK

         On September 30, 1996, the Company entered into a loan agreement with a
bank for a line of credit of $200,000 and a term loan of $400,000 (Note 10). The
term loan is payable in equal monthly installments of $22,222,  plus interest at
1% above the prime rate,  per annum,  through March 31, 1998.  The term loan and
line of credit loan are collateralized by the accounts receivable, fixed assets,
etc. of the New York City  physical  therapy care  centers.  The proceeds of the
term loan were used in connection with the New York City acquisition (Note 3).

         As of May 31, 1997, interest on the loans was 9.5%, per annum.

         On September 10, 1997,  the line of credit and term loans were paid-off
(Note 19).




                                      F-16



<PAGE>



10.      LONG-TERM DEBT

         As of May 31, 1997 and 1996, long-term debt consisted of the following:

                                                   1997                1996
                                                 --------            --------

         Note payable to bank (Note 9)           $244,445

         Due to officer (a) (Note 3)               92,667

         Note payable assumed, paid in
           November 1997, with interest
           at 6.07%, per annum (Note 3)            50,000

         Note payable to bank, with
           interest at prime plus 1%, per
           annum                                                     $155,579

         Note payable, without interest                                34,975
                                                 --------            --------

                                                  387,112             190,554

         Less: current portion                    294,445              62,073
                                                 --------            --------

                                                 $ 92,667            $128,481
                                                 ========            ========



         (a)      Chief operating officer of the Company (Note 13).


11.      CAPITALIZED LEASE OBLIGATIONS

         In  March  1997,  the  Company  purchased  primarily  physical  therapy
equipment which were subject to existing  operating leases for an aggregate cost
of  $250,230.  This  equipment  and other fixed  assets with a net book value of
$239,862 were then sold for $450,230 and leased back for a period of five years.
The leaseback has been accounted for as a capitalized lease. The loss of $39,862
realized on the sale and leaseback has been deferred and is being amortized over
the term of the lease.

         Obligations  under the  capitalized  leases and the related assets were
recorded at the lower of the present value of the minimum lease  obligations  or
the fair market value of the assets.  The implicit interest rates on the capital
leases were approximately 11% to 17%, per annum.



                                      F-17



<PAGE>



         As of May 31, 1997, the future minimum annual lease  obligations  under
the capital leases were as follows:

         Years Ended
           May 31,
         -----------
             1998                                     $147,756
             1999                                      132,677
             2000                                      129,747
             2001                                      125,405
             2002                                      100,482
                                                      --------

         Total minimum lease obligations               636,067

         Less: amount representing interest            176,724
                                                      --------

         Present value of minimum lease
           obligations                                 459,343

         Less: current portion of capitalized
           lease obligations                           147,756
                                                      --------
                                                      $311,587
                                                      ========


12.      INCOME TAXES

         For the years ended May 31, 1997 and 1996, income tax benefit (expense)
consisted of the following:

                                                   1997                 1996
                                                --------              --------

          Current:   State                     ($ 12,105)             $  4,019
                     Reversal of prior
                       year's overaccrual                              230,655
                                                --------              --------
                                               (  12,105)              234,674
                                                --------              --------

          Deferred:  Federal                     458,782             ( 463,782)
                     State                       100,000             (  95,000)
                                                --------              --------
                                                               
                                                 558,782             ( 558,782)
                                                --------              --------
                                                               
                                                $546,677             ($324,108)
                                                ========              ========
                                                               
                                                             


                                      F-18



<PAGE>



         For the years  ended May 31,  1997 and 1996,  the tax effects of timing
differences which gave rise to deferred income taxes were as follows:

                                                 1997                1996
                                              ----------           -------

         Net operating loss
           carryforwards                      $  100,000           $300,000
         Cash basis                            1,068,782          ( 918,782)
         Less valuation allowance            (   610,000)            60,000
                                              ----------          ---------

                                              $  558,782          ($558,782)
                                              ==========          =========


         As of May 31,  1997 and 1996,  the tax  effects  of the  components  of
deferred income tax were as follows:

                                                  1997                1996
                                                --------            -------

         Net operating loss carryforwards       $600,000           $500,000
         Cash basis                              100,000          ( 968,782)
         Less valuation allowance              ( 700,000)         (  90,000)
                                                --------           --------

                                                    None          ($558,782)
                                                ========           ========

         The following is a  reconciliation  of income taxes computed at the 34%
statutory rate to the provision for income taxes:

                                                 1997                1996
                                              ----------           --------

         Tax at statutory rate                $1,060,000          ($463,000)
         State income tax                         87,895          (  50,981)
         Reversal of prior year's
           Federal overaccrual                                      194,674
         Valuation allowance                 (   610,000)            60,000
         Other                                     8,782          (  64,801)
                                              ----------           --------

                                              $  546,677          ($324,108)
                                              ==========           ========


         As of May 31, 1997, realization of the Company's deferred tax assets of
$700,000,  resulting  from the net operating  loss  carryforwards  and temporary
differences,  is not  considered  more  likely  than  not,  and  accordingly,  a
valuation allowance of $700,000 has been established.

         As of May 31, 1997, the Company had net operating loss carryforwards of
approximately  $1,800,000  to reduce future  Federal  taxable  income,  expiring
through May 31,  2012.  As a result of a prior change in control in ownership of
the Company,  utilization of approximately  $225,000 of these net operating loss
carryforwards,  expiring  through May 31,  2006,  are  limited to  approximately
$26,000, per year.

         The Company's  consolidated  financial statements have been restated to
reflect the utilization of the income tax effect of net

                                      F-19



<PAGE>



operating losses of $162,000  against  deferred income taxes payable,  as of May
31, 1996. The effect of this restatement was to increase net income for the year
ended May 31, 1996 by $162,000 ($.06, per share).


13.      COMMITMENTS AND CONTINGENCIES

         Leases

         The Company is committed  under  noncancellable  leases for centers and
office space through  November 2003,  requiring  minimum rents,  plus additional
rent for increases in real estate taxes and operating expenses.

         As of May 31, 1997, the future minimum  aggregate annual payments under
these leases were as follows:

         Years Ending
           May 31,
         ------------
              1998                                            $  321,801
              1999                                               336,778
              2000                                               349,702
              2001                                               367,494
              2002                                               362,536
         Thereafter                                              256,655
                                                              ----------
                                                              $1,994,966
                                                              ==========

         For the years ended May 31, 1997 and 1996,  rent  expense was  $382,954
and $169,837, respectively.

         Employment Agreement

         The Company is committed under an employment agreement, as amended July
1997, to its chief operating officer through September 30, 1999, requiring:  (1)
an annual salary of $260,000;  (2) deferred  compensation for the year ended May
31, 1997 of either  $100,000 or 50,000 shares of common stock;  (3) bonuses,  as
defined, up to $30,000,  per quarter;  (4) options to purchase 350,000 shares of
common stock,  exercisable at $1, per share, through October 1, 1998; (5) a loan
of $350,000, payable three years from the date of the loan, in cash or shares of
common  stock,  at $1,  per share,  with  interest  at 7%,  per  annum,  payable
quarterly  and  (6)  severance  equal  to 200%  and  100% of  annual  salary  if
termination,  as defined,  during the twelve months ended  September 30, 1998 or
1999,  respectively.  The loan will be  collateralized  by the 50,000  shares of
common stock received and the option or shares acquired under the option.



                                      F-20



<PAGE>



         Litigation

         On  September  1,  1995,  a former  owner of a center  filed a  lawsuit
against a subsidiary  (Note 4) asserting:  (1) breach of contract for failure to
pay amounts due under management  service  contracts,  (2) breach of contract by
improper termination of those contracts and (3) breach of a noncompete agreement
by the physician who was the former sole  stockholder  of the subsidiary and was
the Company's chief medical officer. Commencing April 30, 1994, and through May,
1995, the former owner provided  management  services for certain  operations of
the subsidiary. In December 1997, the matter was settled without material effect
on the Company.

         During the year ended May 31, 1996,  management  provided  $100,000 for
legal  costs and  settlement,  if any,  and for the years ended May 31, 1997 and
1996, approximately $12,000 and $36,000, respectively, of costs were incurred.

         A   subsidiary   (Note   4)   had   filed   suit   against   a   former
physician/employee  to recover damages relating to the former employee's conduct
in attempting to wrongfully  bill and collect in his  individual  capacity,  for
medical  services  which he rendered  while  employed  with the  subsidiary.  In
December 1996, the matter was settled without a material effect on the Company.

         Subsequent to May 31, 1997, the Company and a former consultant settled
a matter requiring the Company to issue 22,000 (and, if a certain stock value is
not met, an additional  2,500) shares of common stock and pay $3,000 in cash. As
of May 31, 1997, the Company accrued $75,000, the estimated settlement and legal
fees.

         In April 1996, a former patient  commenced a malpractice  claim against
the Company,  certain  subsidiaries  and an  employee.  The claim was settled in
November 1996 and the Company's insurance company paid the settled amount.

         In  August  1997,  the wife of a former  chairman  of the  board of the
Company  commenced an action,  as a  stockholder,  against the Company  alleging
unreasonable  restraint on the transferability of certain shares of common stock
of the Company  and for breach of  fiduciary  duty on the part of the  Company's
chairman and is seeking unspecified damages and relief. Management,  upon advise
of counsel,  believes the matter is without merit and will result in no material
effect to the Company.

        In October 1997, an action was  commenced  against the Company,  certain
current and former  directors,  officers and consultants  alleging,  among other
things,  breach of fiduciary duties and seeks, among other things, the recission
of the issuance of certain shares of common stock and related options to acquire
shares of common  stock.  Management  does not believe this action will have any
material adverse effect on the Company.  

         Insurance

         Upon the  sales of the  Company's  physical  therapy  care  centers  in
Florida  (Note  4),  the  Company  has  self-insured  for  medical   malpractice
liabilities, if any, which may still arise from the Florida operations.  Through
November  21,  1997,  the  Company  has not  been  notified  of any  claims  for
malpractice.  The  Company is unable to  determine  the  effect,  if any, of its
self-insurance.

                                      F-21



<PAGE>





14.      ACQUISITION AND RESCISSION

         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,  plus other  consideration.  In connection with the
acquisition,  the Company  incurred a finder's fee, equal to 10% of the purchase
price, to a related company (Note 3).

         Effective  February 28, 1997, the Company rescinded the acquisition and
the sellers returned all stock and notes originally issued to them. The payments
of the purchase  price and the net revenues and expenses of these  centers,  for
the period from December 11, 1996 to February 28, 1997, were converted to a note
receivable of $448,935,  including  $15,000 for the purchase of 12,000 shares of
common stock. The note was receivable $50,000 at closing, $25,000 on May 5, 1997
and the balance in eighteen  equal monthly  installments,  with interest at 10%,
per annum. In addition, the finder's fee was also cancelled.

         In addition, the Company was required to pay a landlord $100,000, which
was  settled  by the  issuance  of  14,286  shares  of  common  stock.  Upon the
rescission,  the Company  received  $21,429 from the seller as a repayment,  and
such amount was included in the note receivable.

         The results of operations of the Long Island  centers from December 11,
1996  through  February  28,  1997 have not been  included  in the  consolidated
statement of operations.

         The Company recognized a loss on the rescission of $84,437.

         On December 11, 1997, the Company received  $325,000 in full settlement
of the remaining amount of the note receivable.


15.      RELATED PARTY TRANSACTIONS

         On December 3, 1996, the Company granted an option to purchase  375,000
shares of common  stock to an employee who was a relative of the chairman of the
board of  directors.  The option is  exercisable  at $1.69,  per share,  through
December 2006. The options were to become  exercisable  upon the earlier of: (1)
the Company meeting  certain revenue and/or earnings  criteria or (2) five years
and being an employee of the Company.

         In August 1997,  the above  employee's  employment  terminated  and the
Company  entered into a consulting  agreement for a period of two years at a fee
of $150,000,  per year,  plus 125,000  shares of common stock,  issuable  25,000
shares  immediately  and 5,000 shares,  per month, as long as the consultant has
not been terminated, as defined.

                                      F-22



<PAGE>




         In addition,  the option agreement to purchase 375,000 shares of common
stock has been amended to provide for immediate  exercisability and an extension
until August 2007.


16.      FORGIVENESS OF INDEBTEDNESS

         During the year ended  December  31, 1997,  the related  party (Note 3)
forgave the balance due on the finder's fee of $65,000.


17.      CONCENTRATION OF CASH

         From time to time,  the Company had cash in financial  institutions  in
excess of insured  limits.  In assessing its risk,  the  Company's  policy is to
maintain funds only with reputable financial institutions.


18.      RECLASSIFICATION

         Certain  1996  amounts  have  been  reclassified  to  conform  to  1997
classifications.


19.      SUBSEQUENT EVENTS

         Acquisition

         On July 16, 1997, the Company  acquired an additional  physical therapy
care center in New York City for a purchase price of $400,000,  payable $100,000
in cash,  which was paid at closing,  and a note of $300,000 due in 18 quarterly
installments  of  $18,343,  including  interest  at 8%,  per  annum,  commencing
November 1, 1997.  The note is  collateralized  by all the assets  acquired.  In
addition,  the seller, a physician,  has entered into a noncompete agreement for
four years.  The  purchase  price may be reduced by  $100,000,  if the  acquired
center does not attain certain billings.

         In connection  with the  acquisition,  the Company  entered into a: (1)
lease for the center  requiring  minimum  annual rents of $47,738  increasing to
$53,438  through August 2003,  plus additional rent for increases in real estate
taxes, operating expenses,  etc., (2) consulting agreement with the seller for a
six-month period and then on a month-to-month basis, at $150,000, per annum, and
(3) consulting agreement with the physical therapy care center administrator,  a
relative of the  seller,  for a  six-month  period and then on a  month-to-month
basis, at of $50,000, per annum.

         Sale and Leasebacks

         In August  1997,  the Company sold the  equipment  acquired on July 16,
1997 for  $171,335  and  leased  back the  equipment  for a period of five years
requiring equal monthly payments of $4,215.

                                      F-23



<PAGE>




         Financing Arrangement

         In September  1997,  the Company  entered into an agreement to sell all
existing and future patient care  receivables  for a period of two years.  Under
the  agreement,  the  purchaser  will  advance  75% of under  180 day,  eligible
receivables,  as defined.  Upon each sale, the Company will pay a discount equal
to prime plus 5%, per annum,  and, at the initial  closing,  paid an origination
fee of $17,457. The Company has guaranteed the collection of these receivables.

         On  September  10,  1997,  the Company  closed on the  initial  sale of
accepted  receivables  of $775,867  and used  proceeds of $547,304 to payoff the
notes payable - bank (Notes 9 and 10).

        Sale of Common Stock (Unaudited)

        On January 29, 1998,  the company  completed an offering for the sale of
1,500,000   shares  of  common  stock  for  an  aggregate   purchase   price  of
approximately  $3,300,000 and incurred  expenses of approximately  $1,500,000 in
connection with the offering.


                                      F-24

<PAGE>

                                   SIGNATURES

        Pursuant to the  requirements  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

Dated:  February 2, 1998                      OAK TREE MEDICAL SYSTEMS, INC.


                                              By:   /s/ HENRY DUBBIN
                                                  -------------------------
                                                  Henry Dubbin, President


        Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.


Name                            Title                           Date

  /s/ HENRY DUBBIN              President and Director          February 2, 1998
----------------------------
Henry Dubbin


  /s/ GARY DANZIGER             Chief Operating Officer,        February 2, 1998
----------------------------
Gary Danziger                   Vice President and Director


  /s/ FRED L. SINGER            Vice President and Director     February 2, 1998
----------------------------
Fred L. Singer