SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                   FORM 10-KSB

[X]      Annual report under Section 13 or 15(d) of the Securities  Exchange Act
         of 1934 For the fiscal year ended: May 31, 1999

[        ]  Transition  report  under  Section  13 or  15(d)  of the  Securities
         Exchange  Act of 1934  For  the  transition  period  from  ________  to
         ________.

                         Commission File Number: 0-16206

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

                         OAK TREE MEDICAL SYSTEMS, INC.
             (Exact name of Registrant as specified in its charter)

               DELAWARE                                         02-0401674
     (State or other jurisdiction                            (I.R.S. Employer
   of incorporation or organization)                        Identification No.)

                               2797 Ocean Parkway
                            Brooklyn, New York 11235
                                 (718) 769-6042
          (Address, including zip code, and telephone number, including
            area code, of Registrant's principal executive offices)

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, par value $0.01 per share
                                (Title of Class)


         Check whether the Registrant (1) filed all reports required to be filed
by  Section  13 or 15(d) of the  Exchange  Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports),  and
(2) has been subject to such filing  requirements  for the past 90 days.
Yes: X   No: ___

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the best of the  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:  $750,690.

         The  number  of  shares of Common  Stock,  par value  $0.01 per  share,
outstanding as of August 31 , 1999: 5,936,022.

         The  aggregate  market  value of voting  and  non-voting  Common  Stock
(5,213,147 shares) held by non-affiliates  computed by reference to the closing
price of the Common Stock as of August 31, 1999: $14,987,798.

         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,  the Company,  through its subsidiary
Oak Tree Medical  Management,  Inc.,  operates one New York City based  physical
therapy care center.  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.

         The  Company's  clinics  offer  specific  programs for injured  workers
compensation  patients.  Each  clinic  first  evaluates  the  worker's  physical
condition  and capacity to perform the  requirements  of his or her  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 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.

                                       2

<PAGE>

         The  Company's  strategy has been to take  advantage of these trends by
acquiring and  integrating a network of health care  practices,  particularly in
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
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 Facility

         In October  1996,  the Company  acquired the  management  and assets of
three New York  City  based  physical  therapy  care  centers  for an  aggregate
purchase  price of  $900,000  (in cash and  assumed  debt) and 10,000  shares of
Common Stock (with a guaranteed  value of not less than $100,000 and 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 served as the director of operations of the New York City clinics
and Chief Operating Officer of the Company until February 1998. The Company also
assumed three leases for the physical  therapy care centers.  In July 1998,  the
Company sold  substantially  all of the equipment  and  operations of two of the
three  facilities it acquired in 1996 to a subsidiary of SMR  Management  Corp.,
Nesconset Sports, Inc. ("Nesconset  Sports"),  because the cash flows from these
facilities were  insufficient to support their  operations.  The aggregate sales
price was $375,000 in cash,  of which  $365,000 was used to repay certain of the
Company's lease obligations. The purchaser assumed the outstanding leases.

               In July 1997,  the Company  acquired the management and assets of
an  additional  center in New York City for a purchase  price of  $400,000.  The
purchase price was reduced by $100,000 since the center did not attain a certain
level  of  billings  as of  the  end  of  July  1998.  In  connection  with  the
acquisition,  the Company  entered into a lease for the acquired  center through
August 2003, and the seller entered into a four-year  noncompetition  agreement.
In addition,  the seller entered into a six-month  consulting agreement with the
Company continuing  thereafter on a month-to-month basis, at $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
thereafter on

                                       3

<PAGE>

a month-to-month basis, at $50,000 per annum. On November 2, 1998, the Company
sold all the assets (excluding accounts receivable) of this facility for
$250,000 in cash plus the assumption of outstanding equipment lease obligations
of $194,000. Proceeds of $200,000 were used to repay a note payable to the
previous owner of the facility. On December 22, 1998, the Company sold the
accounts receivable relating to the facility for 50% value of subsequent cash
receipts.

           As of May 31, 1999, the Company has one remaining  facility which was
acquired in October 1996.

         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 flows from
these  facilities to the Company were  insufficient to support the operations of
these facilities by the Company.

Sales of Physical Therapy Care Centers

         Florida Centers:

         Following the Company's October 1996 acquisition of three New York City
based

                                       4

<PAGE>

physical  therapy  care centers and the hospital  service  contract,  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,  which  helped  finance the  operations  of the two
facilities  by buying  certain of their  receivables  and financing the purchase
through a receivables funding facility which used the receivables as collateral.
The aggregate  sales 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. Neither  installment has been paid and, as collection is not
probable,  the Company has  established  a reserve in the amount of the note. In
connection  with the sale of the North Florida  centers,  the purchaser  assumed
$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,  was given back  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 sales price was $25,000 in cash,  with $15,000 paid
at closing and $10,000 paid in April and May 1997.

           New York City Centers:

         On July 16, 1998, the Company sold substantially all the equipment and
operations of two physical therapy centers in exchange for $375,000, payable in
cash at closing. Proceeds of $365,000 were used to repay certain lease
obligations. The Company also incurred a brokerage fee of 10% of the sale price.

         On November 2, 1998, the Company sold all the assets (excluding
accounts receivable) of its Lower Manhattan, New York physical therapy facility
for $250,000 in cash plus the assumption of outstanding equipment lease
obligations of $194,000. Proceeds of $200,000 were used to repay a note payable
to the previous owner of the facility. On December 22, 1998, the Company sold
the accounts receivable relating to this facility for 50% value of subsequent
collections.

Pending Acquisition

         In September 1997, the Company entered into a letter of intent,
subsequently amended in December 1997, for the acquisition of the management and
certain assets of medical practices and MRI facilities located in the greater
New York metropolitan area. In July 1999, the Company entered into definitive
written agreements to complete the acquisition which as of May 31, 1999,
included approximately 37 medical practices and MRI facilities located in

                                       5

<PAGE>

the greater New York metropolitan area.  Collectively,  the centers had revenues
of  approximately  $66 million and estimated  earnings before  interest,  taxes,
depreciation and amortization of approximately $27 million in calendar year 1998
(subject  to audit).  The Company  intends to finance  the  pending  acquisition
through  issuance  of debt and  equity  securities  of the  Company,  which,  if
consummated,  will result in a substantial  change to the Company's current debt
and equity structure. There can be no assurance,  however, that the Company will
successfully meet its obligations of raising capital to complete the acquisition
or that all the other conditions to the closing of the transaction will be met.

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  extensive  and  increasing
federal,  state and local  regulation.  The Company is also  subject to laws and
regulations relating to business  corporations  generally.  The Company 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 the physical therapy care center 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

                                       6

<PAGE>

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 the facility
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.

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 12.5%
of the net mining income from processing of the gold ore transferred to Accord.

         In November 1997, the Company  returned the 6,000,000  shares of common
stock of Accord in exchange for 100% of the common  stock of Aurum.  At the time
of the return of the Accord stock,  Accord had neither commenced nor anticipated
commencing mining operations,  and the Company desired to take action to realize
the value of the gold ore. Due to (i) the absence of current financial and other
information  for Accord,  as to both the subsidiary and the underlying gold ore,
(ii) the Company's lack of resources to commence mining, and (iii) the Company's
inability to sell the ore, the Company  wrote down its  investment in the ore by
$3,000,000,  based on its experience  marketing the ore, as of May 31, 1998. The
Company  intends to continue its attempt to sell the gold ore and  anticipates a
sale in the near  future,  although  there can be no  assurance  that it will be
successful in doing so.

Employees

         As of May 31,  1999,  the  Company  had 7  full-time  employees  and no
part-time  employees.  The Company also hires  independent  consultants  for its
medical service  operations from time to time and at May 31, 1999,  employed one
person under consulting arrangements.

                                       7

<PAGE>

Item  2. Properties

         The Company's  headquarters office is temporarily located in one of the
MRI centers included in the pending acquisition,  located at 2797 Ocean Parkway,
Brooklyn, New York 11235.

         Set forth below is certain information  concerning the Company's leased
facility for its rehabilitative and medical service  operations,  as of July 31,
1999. The Company believes the facility is adequate for its operations.

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

1725 Tenbroeck Avenue                2,200            $2,560        11/30/01
Bronx, New York

                                       8

<PAGE>

Item 3.  Legal Proceedings

         The  Company  is  not a  party  to any  material  litigation  or  other
proceedings that management  believes would result in judgements that would have
a material adverse effect on the Company.


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

         The Company held its Annual Meeting of Stockholders on July 21, 1999.
The matter submitted to a vote of the Company's stockholders was the election of
five directors of the Company's Board of Directors.

         The  Company's  stockholders  elected  Messrs.  Henry  Dubbin,  Fred L.
Singer,  Jerry D. Klepner,  Maxwell M. Rabb and Scott Rosenblum to the Company's
Board of Directors, to hold office until the next annual meeting of stockholders
and until  their  respective  successors  are duly  elected and  qualified.  The
results of the voting were as follows:

Mr. Henry Dubbin

            Voted For.................................................4,393,592
            Voted Against ............................................        0
            Authority Withheld .......................................    2,763
            Abstained ................................................        0
            Broker non-votes .........................................        0

            Mr. Fred L. Singer

            Voted For.................................................4,393,592
            Voted Against .............................................       0
            Authority Withheld ........................................   2,763
            Abstained .................................................       0
            Broker non-votes ..........................................       0

            Jerry D. Klepner

            Voted For.................................................4,393,592
            Voted Against .............................................       0
            Authority Withheld ........................................   2,763
            Abstained .................................................       0
            Broker non-votes ..........................................       0

                                       9

<PAGE>

            Maxwell M. Rabb

            Voted For.................................................4,393,592
            Voted Against .............................................       0
            Authority Withheld ........................................   2,763
            Abstained .................................................       0
            Broker non-votes ..........................................       0

            Scott S. Rosenblum

            Voted For.................................................4,393,592
            Voted Against .............................................       0
            Authority Withheld ........................................   2,763
            Abstained .................................................       0
            Broker non-votes ..........................................       0


                                     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 fiscal
quarters indicated,  high and low closing 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 Quarter Ended May 31, 1998:
          First Quarter.............................       $2.125       $4.469
          Second Quarter............................        1.875        4.641
          Third Quarter.............................        1.750        2.938
          Fourth Quarter............................        1.063        2.406


     Fiscal Quarter Ended May 31, 1999:
          First Quarter.............................       $1.500       $2.750
          Second Quarter............................        1.000        2.750
          Third Quarter.............................        2.310        5.880
          Fourth Quarter............................        3.130        5.060

         As of August 31, 1999, there were approximately 140 holders of record
of the Company's

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<PAGE>

Common Stock. The closing bid and asked prices for the Company's Common Stock on
August 31, 1999, was $2.69 and $2.94, 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 December 1996, the Company granted ten year options to acquire 375,000
shares of Common Stock to Burton Dubbin, the son of Mr. Henry Dubbin, in
exchange for consulting services. These options had an exercise price of $1.6875
per share and were to vest upon the earlier to occur of (i) the Company's
achievement of certain financial benchmarks, (ii) the five year anniversary of
the issuance of the options and Mr. Burton's being an employee with the Company
or (iii) a change of control (as defined). Mr. Burton Dubbin became an employee
of the Company in April 1997. 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 2007. In June 1998, the Company extended Mr. Burton
Dubbin's consulting agreement until August 31, 2002. In addition, the Company
granted Mr. Burton Dubbin options to purchase 500,000 shares of Common Stock at
an exercise price of $2.17 per share and were exercisable six months from date
of grant. As of May 31, 1999, an aggregate of 225,000 shares of Common Stock
have been issued to Mr. Burton Dubbin.

B. In  August,  1998,  the  Company  added  three  new  members  to the Board of
Directors:  Mr. Scott Rosenblum,  Mr. Jerry Klepner and Ambassador Maxwell Rabb.
The Company  issued  options to acquire 20,000 shares of Common Stock to each of
the  three  new  members  at an  exercise  price of  $2.00  per  share  and were
exercisable 90 days from date of grant. As of May 31, 1999, no options have been
exercised by the three new members. The options expire on October 31, 2003.

C. On September 1, 1998, the Company employed Mr. Simon Boltuch as its Chief
Financial Officer for a three year term expiring on August 31, 2001. In
connection with his employment, the Company issued options to acquire 20,000
shares of Common Stock to Mr. Simon Boltuch at an exercise price of $2.00 per
share and were exercisable on the one year anniversary from date of grant. All
options will expire on the earlier of (i) 10 years from date of grant, (ii) 90
days after termination of employment for any reason other than cause, or (iii)
immediately upon termination of employment for cause.

D. In March, 1999, Mr. Fredrick Veit, counsel to the Company, exercised options
to acquire 15,000 shares of Common Stock at an exercise price of $1.69 per
share. As of May 31, 1999, Mr. Fredrick Veit has remaining options to acquire
2,500 shares of Common Stock which expire on December 1, 2001.

                                       11

<PAGE>

E. 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 additional 250,000 shares at prices of between $2.00 and
$4.75. During fiscal year ended May 31, 1998, options for 110,250 shares, at
prices ranging from $2.00 to $3.00 per share, were exercised. During fiscal year
ended May 31, 1999, the Company extended the options to acquire 143,750 shares
and 75,000 shares an additional year in exchange for consulting services valued
at $10,000. As of May 31, 1999, the options have not been exercised.

F. During the fiscal year ended May 31, 1999,  the Company  issued 20,000 shares
of Common Stock to Bouchard,  Friedlander &  Maloneyhuss,  in  consideration  of
legal services. These shares were valued at a price of $2.00 per share.

G. During the fiscal year ended May 31, 1999,  the Company  issued 28,708 shares
of Common Stock to Mr. William Kedersha in consideration of consulting services.
These shares were valued at a price of $2.00 per share.

H. During the fiscal year ended May 31, 1999, the Company issued 55,000 shares
of Common Stock to NFC Service LTD at a price of $1.43 per share, with net
proceeds to the Company of $78,650.

I. During the fiscal year ended May 31, 1999,  the Company issued 100,000 shares
of Common  Stock to NFC  Service LTD as  satisfaction  for a loan he made to the
Company. These shares were valued at a price of $1.30 per share.

J. During the fiscal year ended May 31, 1999, the Company issued 26,242 shares
of Common Stock to Kramer Levin Naftalis & Frankel LLP, counsel of the Company,
in consideration of legal services. These shares were valued at an average price
of $3.80 per share.

K. In July 1998, the Company agreed to issue 400,000 shares of Common Stock in a
private placement to "accredited investors" at an offering price of $2.30 per
share, with net proceeds to the Company of $1.09 per share. Signature Equities
Agency, G.m.b.H served as placement agent in connection with the offering. The
Company subsequently amended the agreement by increasing the Common Stock issued
to 600,000 shares from 400,000 shares. The Company incurred expenses of $725,619
and received net proceeds of $654,380.

The  issuance  set forth  above were  issued  pursuant  to  Section  4(2) of the
Securities Act of 1933,

                                       12

<PAGE>

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.


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 currently operates one facility in
New York City.

         In July 1998,  the  Company  sold  substantially  all of the assets and
operations of its facilities located in Flushing and Upper Manhattan,  New York,
due to insufficient cash flows from such facilities.

         In November and December 1998, the Company sold all the assets of its
Lower Manhattan, New York physical therapy facility due to insufficient cash
flows from such facility.

         In September 1997, the Company entered into a letter of intent,
subsequently amended in December 1997, for the acquisition of the management and
certain assets of medical practices and MRI facilities located in the greater
New York metropolitan area. In July 1999, the Company entered into definitive
written agreements to complete the acquisition which as of May 31, 1999,
included approximately 37 medical practices and MRI facilities located in the
greater New York metropolitan area. There can be no assurance, however, that the
Company

                                       13

<PAGE>

will  successfully  meet its  obligations  of raising  capital to  complete  the
acquisition or that all the other  conditions to the closing of the  transaction
will be met.


Results of Operations

         1999 Fiscal Year Compared to 1998 Fiscal Year

         Patient revenues  decreased by 66.8% from $2,258,186 to $750,690 in the
fiscal year ended May 31, 1999  ("Fiscal  1999")  compared  with the fiscal year
ended May 31, 1998  ("Fiscal  1998").  The  decrease in revenues  was  primarily
attributable  to the Company's  sale of three  physical care centers in New York
City.

         Total expenses decreased by 43.3% to $4,146,787 for Fiscal 1999 from
$7,315,751 for Fiscal 1998, primarily attributable to the Company's sale of
three physical care centers in New York City resulting in $1,200,000 lower
expenses offset by $1,300,000 million in expenses attributable to the grant of
stock options during the Fiscal 1999 and the $3,000,000 write-down of the gold
ore that was taken in Fiscal 1998. Costs of patient services, selling, and
administrative expenses, consulting, depreciation and amortization and interest
expense (recurring operating expenses) decreased by 9.6% from $4,524,335 to
4,087,782. Costs of patient services, as a percentage of patient revenues,
increased from 52.1% in Fiscal 1998 to 74.7% in Fiscal 1999 primarily because of
gradual staffing adjustments relating to the sale of the three New York City
physical care centers. Selling, general and administrative expenses decreased
30.8% from $2,485,934 in Fiscal 1998 to $1,719,464 in Fiscal 1999, primarily due
to the sale of the three physical care centers in New York City and a
significant reduction in legal expenses due to large non recurring settlements
made in Fiscal 1998. Consulting expenses increased by 308.2% from $417,329 in
Fiscal 1998 to $1,703,455 in Fiscal 1999 due to recognition of expenses
attributable to stock options granted during Fiscal 1999. Interest expense
decreased 78.7% from $170,700 in Fiscal 1998 to $36,369 in Fiscal 1999 due to
the Company's decision in December 1998 to terminate its agreement with a
finance company to factor patient care receivables. During Fiscal 1998, the
Company recognized a gain in connection with the sale of the North Florida
facilities and the rescission of the Long Island, New York facilities, of
$208,584, while recognizing a loss of $59,005 in connection with the sale of
three physical care centers in New York City during Fiscal 1999. Total expenses
as a percentage of revenues increased to 552.4% for Fiscal 1999 from 324.0% for
Fiscal 1998 as a result of these factors.

          Income  taxes for Fiscal  1999 and 1998 are not  representative  of an
effective tax rate. For Fiscal 1999 and 1998,  deferred income tax benefits have
been reduced by  increases  in the  allowance  for the  realization  of deferred
income tax assets of $1,044,760 and  $2,000,000,  respectively,  because,  as of
both May 31, 1999 and 1998,  it was more likely than not that the  deferred  tax
assets would not be realized.  The deferred  tax assets  result  primarily  from
impairment of the gold ore and net operating loss  carryforwards and the Company
may not generate  sufficient future taxable income for their utilization.  As of
May 31, 1999 and 1998,  net  operating  loss  carryforwards  of  $5,077,000  and
$3,500,000,  respectively,  increased due to the increases in taxable losses for
each year.

         The above factors contributed to a net loss of $3,396,097 ($.65 per
share) for Fiscal 1999 compared with a net loss of $5,057,565 ($1.49 per share)
for Fiscal 1998.

                                       14

<PAGE>

         1998 Fiscal Year Compared to 1997 Fiscal Year

         Patient  revenues  decreased by 32.5% from  $3,344,559 to $2,258,186 in
the fiscal year ended May 31, 1998 ("Fiscal 1998") compared with the fiscal year
ended May 31, 1997  ("Fiscal  1997").  The  decrease in revenues  was  primarily
attributable  to the sale of the Company's  North  Florida  facilities in Fiscal
1997, offset in part by a full year of revenues from the Company's New York City
clinics  acquired in Fiscal 1997.  Revenues from the four Long Island,  New York
clinics  acquired in December 1996,  whose purchase was rescinded by the Company
effective  February 28, 1997,  were not included in the  Company's  revenues for
Fiscal 1997.

         Total  expenses  increased by 12.4% to $7,315,751  for Fiscal 1998 from
$6,510,448 for Fiscal 1997,  primarily due to the  $3,000,000  write-down of the
gold ore, from  $4,994,213 to  $1,994,213.  On the other hand,  costs of patient
services, selling, general and administrative expenses, consulting, depreciation
and amortization and interest expense (recurring  operating  expenses) decreased
by 21.1%  from  $5,733,391  to  $4,524,335.  Costs  of  patient  services,  as a
percentage of patient revenues,  decreased from 56.1% in Fiscal 1997 to 52.1% in
Fiscal 1998  primarily  because of a decrease in the provision  for  contractual
allowances.  Selling,  general and administrative  expenses including consulting
expenses  decreased 11.6% from $3,283,010 in Fiscal 1997 to $2,903,263 in Fiscal
1998,   primarily  due  to  decreases  in  the  provision  for  bad  debts,  the
compensation of executive officers and the travel expenses of executives between
the Company's New York and Florida  facilities in Fiscal 1998.  The decrease was
partially  offset by increased legal and accounting  expenses during Fiscal 1998
due to the  settlement  of certain  litigation  matters and the  preparation  of
reports filed with the  Securities  and Exchange  Commission.  Interest  expense
decreased 57.7% from $403,724 in Fiscal 1997 to $170,700 in Fiscal 1998 due to a
refinancing  and lower  interest  rates.  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,  while
recognizing a gain of $208,584 on similar items in Fiscal 1998.  Total  expenses
as a percentage of revenues  increased to 324.0% for Fiscal 1998 from 194.7% for
Fiscal 1997 as a result of these  factors and the decrease in revenues for these
periods.

         Income  taxes for  Fiscal  1998 and 1997 are not  representative  of an
effective tax rate. For Fiscal 1998 and 1997,  deferred income tax benefits have
been reduced by  increases  in the  allowance  for the  realization  of deferred
income tax assets of $2,000,000 and $610,000, respectively,  because, as of both
May 31, 1998 and 1997,  it was more likely than not that the deferred tax assets
would not be realized.  The deferred tax assets result primarily from impairment
of the gold ore and net  operating  loss  carryforwards  and the Company may not
generate  sufficient future taxable income for their utilization.  As of May 31,
1998 and 1997, net operating loss  carryforwards  of $3,500,000 and  $1,800,000,
respectively, increased due to the increases in taxable losses for each year.

         The above factors  contributed  to a net loss of $5,057,565  ($1.49 per
share) for Fiscal 1998 compared with a net loss of $2,554,212  ($0.99 per share)
for Fiscal 1997.

                                       15

<PAGE>

Liquidity and Capital Resources

         In the past,  the  Company  has funded its  capital  requirements  from
operating  cash flow,  loans  against its accounts  receivable,  sales of equity
securities and the issuance of equity securities in exchange for assets acquired
and services  rendered.  During Fiscal 1998,  the Company  undertook a number of
actions to consolidate its geographic  focus, and with other actions  undertaken
during Fiscal 1999, the Company hopes 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 pending 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.

         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 options to acquire an additional
250,000 shares at prices of between $2.00 and $4.75. During Fiscal 1998, options
for 110,250 shares, at prices ranging from $2.00 to $3.00 per share, were
exercised. During Fiscal 1999, the Company extended the options to acquire
143,750 shares and 75,000 shares an additional year in exchange for consulting
services valued at $10,000. As of May 31, 1999, the options have not been
exercised.

                                       16

<PAGE>

         In May 1993, the Company  acquired  50,000 tons of gold ore from Nevada
Minerals  Corporation in exchange for the issuance of 1,350,000 shares of Common
Stock. (See Item 1. Business.  Investment in Gold Ore.) 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 12.5% of the net
mining  proceeds  from the  processing  of the ore  transferred  to  Accord.  In
November  1997,  the Company  returned the  6,000,000  shares of common stock of
Accord in exchange for 100% of Aurum,  because  Accord had not commenced and did
not anticipate  commencing  mining  operations  and the Company  desired to take
action to realize the value of the gold ore.

         The Company (i) has been  unsuccessful in its attempts to sell the gold
ore and (ii) does not have the  capability  or the  resources  to  commence  the
mining of the gold ore.  For these  reasons,  and due to the  absence of current
financial  and other  information  for Accord,  the Company in Fiscal 1998 wrote
down the value of its investment in the gold ore by $3,000,000  (from $4,994,214
to $1,994,214).  As of May 31, 1999, the Company intends to continue its attempt
to sell the gold ore and  anticipates a sale in the near future,  although there
can be no assurance that it will be successful in doing so.

          In July 1998,  the Company  agreed to issue  400,000  shares of Common
Stock in a private  placement to "accredited  investors" at an offering price of
$2.30 per share,  with net  proceeds  to the  Company  of $1.09 per  share.  The
Company subsequently amended the agreement by increasing the Common Stock issued
to 600,000 shares from 400,000 shares. The Company incurred expenses of $725,619
and received net proceeds of $654,380.

            On July 16, 1998, the Company sold  substantially  all the equipment
and operations of two physical therapy centers in exchange for $375,000, payable
in cash at  closing.  Proceeds  of  $365,000  were used to repay  certain  lease
obligations. The Company also incurred a brokerage fee of 10% of the sale price.

         On November 2, 1998, the Company sold all the assets (excluding
accounts receivable) of

                                       17

<PAGE>

its Lower  Manhattan,  New York physical  therapy  facility for $250,000 in cash
plus the  assumption of  outstanding  equipment  lease  obligations of $194,000.
Proceeds of $200,000 were used to repay a note payable to the previous  owner of
the  facility.  On December 22, 1998,  the Company sold the accounts  receivable
relating  to  the  Lower   Manhattan   facility  for  50%  value  of  subsequent
collections.  As of May 31, 1999, the Company has received $27,200 from the sale
of the  receivables.  The Company  expects total future receipts to be less than
what has already been collected.  Accordingly,  the Company recorded a provision
for doubtful accounts of $300,000.

         In September 1997, the Company entered into a letter of intent,
subsequently amended in December 1997, for the acquisition of the management and
assets of medical practices and MRI facilities located in the greater New York
metropolitan area. In May 1999, the Company entered into definitive written
agreements to complete the acquisition which as of May 31, 1999, included
approximately 37 medical practices and MRI facilities located in the greater New
York metropolitan area (See Item 1. Business. Pending Acquisition.)

         As of May 31, 1999, negative working capital increased from $26,008 to
$638,692 primarily due to the Company's increase in the reserve of doubtful
accounts and increase in accrued professional fees from $642,000 to $1,314,238.
The additional reserve related primarily to the receivables of the three New
York City facilities sold during Fiscal 1999.


Year 2000

         The Company has completed its assessment of whether it will have to
modify or replace portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter. The
Company has implemented a plan and acquired and installed new computer hardware
and upgraded software in its facilities. The total year 2000 project cost is not
expected to be material. The Company believes that with the modifications to
existing software and conversions to new software the year 2000 issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
year 2000 issue could have a material adverse effect on the operations of the
Company.


         The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived using numerous assumptions of future events,
including the continued availability of certain resources and factors. However,
there can be no assurance that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.

         It has been acknowledged by governmental authorities that year 2000
problems have the potential to disrupt global economies, that no business is
immune from the potentially far-reaching effects of year 2000 problems, and that
it is difficult to predict with certainty what will happen after December 31,
1999. Consequently, it is possible that year 2000 problems will have a material
effect on the Company's business even if the Company takes all appropriate
measures to ensure that it and its key suppliers are year 2000 compliant.

                                       18

<PAGE>

Forward Looking Statements

         This Annual Report on Form 10-KSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Exchange Act, including statements regarding the
expectations, beliefs, intentions or strategies regarding the future. The
Company intends that all forward-looking statements be subject to the
safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements reflect the Company's views as of the date they
are made with respect to future events and financial performance, but are
subject to many risks and uncertainties, which could cause the actual results of
the Company to differ materially from any future results expressed or implied by
such forward-looking statements. Additional information on factors that may
affect the business and financial results of the Company can be found in the
other filing of the Company with the Securities and Exchange Commission. The
Company does not undertake to update any forward-looking statements.


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) 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.

         (b) Effective June 6, 1997, the Company appointed Most Horowitz &
Company, LLP, as its independent auditors of the Company for the Fiscal Years
ended May 31, 1997 and May 31, 1998. On August 13, 1999, Most Horowitz resigned
as the Company's independent auditors. The report of Most Horowitz on the
Company's financial statements for the two most recent fiscal years did not
contain an adverse opinion or disclaimer of opinion, and were not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
Company's two most recent fiscal years and for the interim periods thereafter
there were no disagreements between the Company and Most Horowitz on any matter
of accounting principles or practices, financial statement disclosure, or
auditing or procedure, which disagreements, if not resolved to the satisfaction
of Most Horowitz, would have caused it to make reference to the subject matter
of the disagreement in connection with its reports. On August 16, 1999, the
Company's Board of Directors appointed Grant Thornton, LLP as the Company's
independent accountants for the fiscal year ended May 31, 1999.


                                    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 August 31, 1999 were as follows:

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

         Henry Dubbin                  83        President and Director
         Fred L. Singer                65        Vice President and Director
         Maxwell M. Rabb               89        Director
         Jerry D. Klepner              54        Director
         Scott S. Rosenblum            50        Director
         Simon Boltuch                 51        Chief Financial Officer

                                       19

<PAGE>

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

         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.

         SIMON BOLTUCH has served as Chief Financial Officer of the Company
since September 1998. Prior to joining the Company, Mr. Boltuch served as Chief
Financial Officer of News America In-Store from 1996 to 1998. Mr. Boltuch served
as Vice President of Taxation for News America Publishing, Inc. from 1992 to
1995. From 1980 to 1991, Mr. Boltuch served as Vice President Controller of News
America Publishing, Inc. Mr. Boltuch is a certified public accountant.

         JERRY D. KLEPNER has served as a member of the Board of Directors since
October 1998 and has served as Managing Director at Black, Kelly, Scruggs &
Healey since February 1998. From June 1996 to February 1998, Mr. Klepner was a
Senior Vice President at Ketchum Public Relations, a public relations firm. From
January 1993 to June 1996, he served as Assistant Secretary for Legislation at
the U.S. Department of Health and Human Services under Secretary Donna Shalala
as an advocate before the U.S. Congress on health and human services
initiatives. He also served as Acting Chief of Staff and Transition Director for
Secretary of Labor Alexis Herman during the spring of 1997, and was a Senior
Advisor for Domestic Policy to the Clinton-Gore Transition Team from November
1992 to January 1993. From 1987 to 1992, Mr. Klepner was Director of Legislation
for the American Federation of State, County and Municipal Employees, a health
care and public sector union.

         MAXWELL M. RABB has served as a member of the Board of Directors since
October 1998 and has served as of counsel to the law firm of Kramer Levin
Naftalis & Frankel LLP since 1991 and was a partner at Stroock & Stroock & Lavan
from 1958 to 1981 and 1989 to 1991. Ambassador Rabb served as the United States
Ambassador to Italy from 1981 to 1989. Ambassador Rabb is a member of the board
of directors of Sterling National Bank, MIC Industries, Inc., Data Systems and
Software, Inc. and Preferred Employers Holdings, Inc. Ambassador Rabb also
serves as a trustee or director of the Cardinals Cooke and O'Connor Inter City
Scholarship Fund, the Lighthouse, the Eisenhower Institute, the George Marshall
International Center and Seaman's Church Institute.

         SCOTT S. ROSENBLUM has served as a member of the Board of Directors
since October 1998 and has been a partner of Kramer Levin Naftalis & Frankel LLP
since 1991 and its Managing Director since 1994. Mr. Rosenblum is a member of
the board of directors of several public companies, including Greg Manning
Auctions, Inc., a collectibles auction house, Temco Services Industries, Inc.,
an industrial maintenance company, and I.T. International Theatres, Ltd., a
leading motion picture distributor in Israel and central Europe.

         Gary Danziger served as Chief  Operating  Officer and Vice President of
the Company  from April 1997 to February  1998,  and as a member of the Board of
Directors from July 1997 to February 1998.

         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.

         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

                                       20

<PAGE>

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:  (a) Mr. Jerry Klepner,
Mr.  Maxwell  Rabb,  and Mr. Scott  Rosenblum  did not file a Form 4 on a timely
basis to report stock options granted to them when they became  Directors of the
Company;  and (b) Mr.  Simon  Boltuch did not file a Form 4 on a timely basis to
report stock options  granted to him when he became Chief  Financial  Officer of
the Company.


Item 10. Executive Compensation

         Summary Compensation Table. The following table sets forth compensation
earned,  whether paid or deferred,  by the Company's Chief Executive Officer and
its other most highly  compensated  executive  officers who earned over $100,000
during the fiscal year ended May 31, 1999  (collectively,  the "named  executive
officers")  for services  rendered in all  capacities to the Company  during the
fiscal years ended May 31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>

=====================================================================================================================
                                           SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------------------------------------------------------
                                                              Annual                    Long-Term Compensation
                                                           Compensation
                                                        -------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
Name and Principal Position                  Fiscal      Salary     Other Annual     Restricted      Common Stock
                                              Year                  Compensation   Stock Award(s)     Underlying
                                                                                                       Options
<S>                                           <C>       <C>               <C>            <C>              <C>
Henry Dubbin                                  1997      $15,414          -0-            -0-              -0-
President                                     1998      $32,000          -0-            -0-              -0-
                                              1999      $48,000          -0-            -0-              -0-
---------------------------------------------------------------------------------------------------------------------
Simon Boltuch (1)                             1999      $143,249         -0-            -0-             20,000
Chief Financial Officer
---------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  On September 1, 1998,  the Company  employed Mr. Simon Boltuch as its Chief
     Financial  Officer for a three

                                       21

<PAGE>

     year term expiring on August 31, 2001. In connection with his employment,
     the Company issued options to acquire 20,000 shares of Common Stock to Mr.
     Simon Boltuch at an exercise price of $2.00 per share and were exercisable
     on the one year anniversary from date of grant. All options will expire on
     the earlier of (i) 10 years from date of grant, (ii) 90 days after
     termination of employment for any reason other than cause, or (iii)
     immediately upon termination of employment for cause.

         Option Grants. Other than to Simon Boltuch, as noted above, the Company
did not make any stock option grants to the named executive  officers during the
last fiscal year.

         Aggregated  Option  Exercises and Fiscal  Year-End  Option Values.  The
following table sets forth certain information relating to the exercise of stock
options  during  the  fiscal  year  ended  May 31,  1999 for  each of the  named
executive officers and the fiscal year-end value of the unexercised options held
by the named executive officers.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
AGGREGATED  OPTIONS  EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS
                                     VALUES
----------------------------------------------------------------------------------------------------------------------
                                                                                           Value of Unexercised In-
                  Shares Acquired on      Value            # of Unexercised Options      The-Money Options at Fiscal
                       Exercise         Realized              At Fiscal Year End                 Year End (1)
Name                                                   Exercisable    Unexercisable      Exercisable     Unexercisble
                                                       ---------------------------------------------------------------
<S>                       <C>              <C>           <C>               <C>            <C>                <C>
Henry Dubbin              0                $0            250,000           0              $312,500           $0
Fred L. Singer            0                 0             15,000           0              $33,750            $0
Simon Boltuch             0                 0                              0              $25,000            $0
                                                          20,000
----------------------------------------------------------------------------------------------------------------------
</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 29, 1999 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 on  September 1, 1999 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. In January 1995, in consideration of past services,  the Company granted
to Mr. Dubbin options to acquire 250,000 shares of Common Stock,  exercisable at
$2.00 per share until January 1, 2000. Mr. Dubbin waived his salary for the 1995
and 1996 fiscal years.

         Gary Danziger had a three-year  employment  agreement with the Company,
as amended in July 1997,  expiring  in October  1999 which  provided  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%

                                       22

<PAGE>

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.
In February 1998, Mr.  Danziger  resigned all positions with the Company and his
employment  agreement  was  terminated,  including  his right to receive  50,000
shares of Common Stock (which was recorded as deferred compensation of $100,000)
and his  options to  acquire  350,000  shares of Common  Stock in  exchange  for
$60,000 in cash. In addition,  the Company forgave  outstanding net loans to Mr.
Danziger in the amount of $34,924.

         On September 1, 1998, the Company entered into an employment agreement
with Mr. Simon Boltuch as its Chief Financial Officer for a three year term
expiring on August 31, 2001 and providing for a salary of $175,000 per year. In
connection with his employment, the Company issued options to acquire 20,000
shares of Common Stock to Mr. Simon Boltuch at an exercise price of $2.00 per
share and were exercisable on the one year anniversary from date of grant. All
options will expire on the earlier of (i) 10 years from date of grant, (ii) 90
days after termination of employment for any reason other than cause, or (iii)
immediately upon termination of employment for cause.

                                       23

<PAGE>

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 August 31, 1999, no options under the 1994 Plan were outstanding.

Non-Plan Options

         As of August 31, 1999, the Company had outstanding non-plan options to
purchase an aggregate of 1,296,250 shares of Common Stock. The outstanding
options granted to the named executive officers are as set forth below.

                          Number of
Name                      Option Shares      Exercise Price    Expiration Date
----                      -------------      --------------    ---------------

Henry Dubbin                 250,000             $2.00         January 1, 2003
Fred L. Singer                10,000             $1.00         April 16, 2000
Simon Boltuch                 20,000             $2.00         August 31, 2001

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

                                       24

<PAGE>

         The  following  table sets forth certain  information  as of August 31,
1999 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  named  executive  officer,  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 beneficial  owners have sole voting and dispositive  power
with respect to the shares beneficially owned.

                                                             Common Stock
                                                          Beneficially Owned(1)
Name of Beneficial Owner                               Shares            Percent
------------------------                               ------            -------

Burton Dubbin                                          721,500(2)         11.2%
         5189 Alton Rd.
            Miami Beach, FL 33140

Henry Dubbin                                           772,875(3)         12.5%
         10155 Collins Avenue, Suite 607
         Bal Harbor, FL 33154

Simon Boltuch                                           20,000(4)            0
         c/o Oak Tree Medical Systems, Inc.
         2797 Ocean Parkway
         Brooklyn, New York 11235

Fred L. Singer                                          15,000(4)            *
         9240 West Bay Harbor Dr., Apt. 3-C
         Bal Harbor Island, FL 33154

Jerry D. Klepner                                        20,000(4)            *
         c/o Black Kelley Scruggs & Healey
         1801 K Street, N.W. Suite 201L
         Washington, D.C. 20006

Maxwell M. Rabb                                         20,000(4)(5)         *
         c/o Kramer Levin Naftail & Frankel LLP
         919 Third Avenue
         New York, NY 10022

Scott S. Rosenblum                                      20,000(4)(5)         *
         c/o Kramer Levin Naftail & Frankel LLP
         919 Third Avenue
         New York, NY 10022

Signature Equities Agency GMBH                         598,000            10.1%
         100 Bush Street
         San Francisco, CA 94101

All directors and executive officers
         As a group (6 persons)                        867,875(6)         23.4%

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

*        Less than one percent

(1)      Based on 5,936,022 shares of Common Stock outstanding as of August 31,
         1999. Pursuant to the rules of the Securities and Exchange Commission
         (the

                                       25

<PAGE>

         "Commission"),  certain  shares of Common  Stock which a person has the
         right to acquire  within 60 days of August  31,  1999  pursuant  to the
         exercise of stack options are deemed to be outstanding  for the purpose
         of computing the percentage ownership of such person but are not deemed
         outstanding  for the purpose of computing the  percentage  ownership of
         any other person.
(2)      Includes (i) 21,500 shares of Common Stock subject to currently
         exercisable options, (ii) 500,000 shares subject to currently
         exercisable options held in the name of Progressive Planning
         Associates, Inc., (iii) 150,000 shares held directly and (iv) 50,000
         shares held indirectly.
(3)      Includes (i) 522,875 shares of Common Stock that Mr. Dubbin
         beneficially owns through Nevada Mineral Corporation of which he is the
         majority stockholder and president, and (ii) 250,000 shares of Common
         Stock subject to currently exercisable options.
(4)      Represents  shares of Common  Stock  subject to  currently  exercisable
         options.
(5)      Mr. Rabb is of counsel to and Mr. Rosenblum is a partner at the law
         firm of Kramer Levin Naftalis & Frankel LLP ("Kramer Levin"). While the
         reporting person owns directly no securities of the Company, Kramer
         Levin owns securities of the Company. Messrs. Rabb and Rosenblum
         disclaim beneficial ownership of the securities held by Kramer Levin,
         except to the extent of his pecuniary interest therein, if any.
(6)      Includes 866,500 shares subject to presently exercisable options.

Change in Control

         In September 1997, the Company entered into a letter of intent,
subsequently amended in December 1997, for the acquisition of the management and
certain assets of medical practices and MRI facilities located in the greater
New York metropolitan area. In July 1999, the Company entered into definitive
written agreements to complete the acquisition which as of May 31, 1999,
included approximately 37 medical practices and MRI facilities located in the
greater New York metropolitan area. Collectively, the centers had revenues of
approximately $66 million and estimated earnings before interest, taxes,
depreciation and amortization of approximately $27 million in calendar year 1998
(subject to audit). The Company intends to finance the pending acquisition
through issuance of debt and equity securities of the Company, which, if
consummated, will result in a substantial change to the Company's current debt
and equity structure. There can be no assurance, however, that the Company will
successfully meet its obligations of raising capital to complete the acquisition
or that all the other conditions to the closing of the transaction will be met.


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.

         In  December  1996,  the Company  granted  ten year  options to acquire
375,000 shares of Common Stock to Burton Dubbin, the son of Mr. Henry Dubbin, in
exchange for consulting services. These options had an exercise price of $1.6875
per  share  and were to vest  upon  the  earlier  to occur of (i) the  Company's
achievement of certain financial  benchmarks,  (ii) the five

                                       26

<PAGE>

year  anniversary  of the  issuance  of the options  and Mr.  Burton's  being an
employee with the Company or (iii) a change of control (as defined).  Mr. Burton
Dubbin  became an employee of the Company in April  1997.  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 2007. In June
1998, the Company extended Mr. Burton Dubbin's consulting agreement until August
31, 2002. In addition, the Company granted Mr. Burton Dubbin options to purchase
500,000  shares of Common Stock at an exercise price of $2.17 per share and were
exercisable six months from date of grant. .


                                     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

          Independent Auditor's Report consolidated financial
          statements for the years ended May 31, 1999 and 1998..............F-1

          Consolidated Balance Sheet as of May 31, 1999 and 1998............F-2


          Consolidated Statement of Operations for the years ended
          May 31, 1999 and 1998 ............................................F-4

          Consolidated Statement of Stockholders' Equity for the
          years ended May 31, 1999 and 1998 ................................F-5

          Consolidated Statement of Cash Flows for the years ended
          May 31, 1999 and 1998.............................................F-6

          Notes to Consolidated Financial Statements........................F-8

(b)       Reports on Form 8-K.

          None.

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

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

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

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

4.6       Purchase  Agreement,  dated July 23,  1997,  between Oak Tree  Medical
          Practice, P.C. and PFS VI, Inc. Incorporated by reference from Exhibit
          4.7 of the Annual  Report on form 10-KSB for the fiscal year ended May
          31, 1997 (the "1997 Form 10-KSB").

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. Henry Dubbin.  Incorporated  by
          reference from Form 10-KSB for the Fiscal Year Ended May 31, 1994.

10.3      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-Q filed for the fiscal quarter ended August 31, 1996.

10.4      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-Q filed for the fiscal quarter
          ended August 31, 1996.

10.5      Agreement  of Sale,  dated  October  1, 1996,  among Oak Tree  Medical
          Management,   Inc.  Gary  Danziger  and  PTSR,  Inc.  Incorporated  by
          reference from Form 10-Q filed for

                                       28

<PAGE>

          the fiscal quarter ended August 31, 1996.

10.6      Employment Agreement, dated as of October 1, 1996, between New Medical
          Practice,  P.C. and Gary  Danziger.  Incorporated  by  reference  from
          Exhibit 10.12 of the 1997 Form 10-KSB.

10.7      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.

10.8      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.

10.9      Consulting Agreement,  dated as of August 29, 1997, between Registrant
          and Burton Dubbin. Incorporated by reference from Exhibit 10.18 of the
          1997 Form 10-KSB.

10.10     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.

10.11     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.

10.12     Agreement  of Sale,  dated July 16,  1997,  between  Oak Tree  Medical
          Practice,  P.C. and Peter B. Saadeh,  M.D.  Incorporated  by reference
          from Exhibit 10.17 of the 1997 Form 10-KSB.

10.13     Agreement  of  Sale,  dated  July 16,  1998,  among  Oak Tree  Medical
          Management,  Inc.,  Oak Tree  Medical  Practice,  P.C.  and  Nesconset
          Sports, Inc.

10.14     Agreement  of Sale,  dated  November 2, 1998,  between  Rehabilitation
          Medicine Practice of N.Y.,  P.L.L.C.  and Oak Tree Medical Management,
          Inc.

10.15     Agreement  of Sale,  dated  November 2, 1998,  between  Rehabilitation
          Medicine  Practice of N.Y.,  P.L.L.C.  and Oak Tree Medical  Practice,
          P.C.

10.16     Agreement of Sale,  dated December 23, 1998,  between Oak Tree Medical
          Practice, P.C. and Rehabilitation Medicine Practice of N.Y., P.L.L.C.

10.17     Acknowledgment  Letter  from  Most  Horowitz  &  Company,  LLP  to the
          Company,  dated  August 13, 1999,  regarding  its  resignation  as the
          Company's independent accountants.

21        Subsidiaries:

                                       29

<PAGE>

          Acorn CORF, Inc.                                     Florida
          Acorn CORF, Inc.                                     Nevada
          Aurum Mining Corporation                             Nevada
          Oak Tree Financial Services, Inc.                    Florida
          Oak Tree Medical Management, Inc.                    New York
          Riverside CORF, Inc.                                 Florida

27        Financial Data Schedule.

                                       30

<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:  September 13, 1999                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       September 13, 1999
------------------------
Henry Dubbin


 /s/ SIMON BOLTUCH              Chief Financial Officer      September 13, 1999
------------------------        (Principal Financial and
Simon Boltuch                   accounting Officer)


/s/ FRED L. SINGER              Vice President and           September 13, 1999
________________________        Director
Fred L. Singer


________________________        Director
Jerry D. Klepner


________________________        Director
Maxwell M. Rabb


/s/ SCOTT S. ROSENBLUM          Director                     September 13, 1999
________________________
Scott S. Rosenblum

<PAGE>

                                    I N D E X


                                                                 Page
                                                                 ----


Report of Independent Certified Public Accountants               F-2


Independent Auditors' Report                                     F-3


Consolidated Financial Statements

      Consolidated Balance Sheets                             F-4 - F-5

      Consolidated Statements of Operations                      F-6

      Consolidated Statement of Stockholders' Equity             F-7

      Consolidated Statements of Cash Flows                   F-8 - F-9

      Notes to Consolidated Financial Statements             F-10 - F-25


                                      F-1
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
    Oak Tree Medical Systems, Inc.

We have audited the accompanying consolidated balance sheet of Oak Tree Medical
Systems, Inc. and Subsidiaries as of May 31, 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years 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, 1999, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with generally accepted accounting
principles.




/S/ GRANT THORNTON LLP


New York, New York
September 3, 1999


                                      F-2
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


Board of Directors
    Oak Tree Medical Systems, Inc.


We have audited the accompanying consolidated balance sheet of Oak Tree Medical
Systems, Inc. and Subsidiaries as of May 31, 1998, 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, 1998, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended in conformity with generally accepted accounting principles.




/S/ MOST HOROWITZ & COMPANY, LLP


New York, New York
August 7, 1998


                                      F-3
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                     May 31,



          ASSETS                                             1999          1998
                                                         ----------   ----------

CURRENT ASSETS
    Cash                                                 $  121,477   $  455,391
    Patient care receivables (net of allowances of
       $1,314,238 and $642,000, respectively)               100,000      788,121
    Other current assets                                      3,894      107,403
                                                         ----------   ----------

              Total current assets                          225,371    1,350,915

INVESTMENT IN GOLD ORE                                    1,994,214    1,994,214

FIXED ASSETS                                                 10,826      502,339

DEFERRED ACQUISITION COSTS                                  162,450       98,804

OTHER ASSETS                                                              97,740

GOODWILL                                                                 226,888
                                                         ----------   ----------
                                                         $2,392,861   $4,270,900
                                                         ==========   ==========


The accompanying notes are an integral part of these statements.


                                      F-4
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                     May 31,


<TABLE>
<CAPTION>
                                                           1999             1998
                                                       ------------    ------------

                     LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                    <C>             <C>
CURRENT LIABILITIES
    Accounts payable and accrued expenses              $    864,063    $    844,726
    Notes payable                                                --         334,769
    Current portion of capitalized lease obligations             --         130,572
    Current portion of long-term debt                            --          66,856
                                                       ------------    ------------

              Total current liabilities                     864,063       1,376,923

LONG-TERM DEBT                                                   --         208,201

CAPITALIZED LEASE OBLIGATIONS                                    --         458,414

ACCOUNTS PAYABLE                                                 --          61,551

COMMITMENTS AND CONTINGENCIES


STOCKHOLDERS' EQUITY
    Common stock, $.01 par value; authorized,
       25,000,000 shares; issued and
       outstanding, 5,602,703 and 4,657,753 shares,
       respectively                                          56,026          46,577
    Additional paid-in capital                           14,653,072      12,140,841
    Deficit                                             (13,180,300)     (9,784,203)
    Less prepaid consulting and stock
       subscription receivable                                   --        (237,404)
                                                       ------------    ------------

                                                          1,528,798       2,165,811
                                                       ------------    ------------


                                                       $  2,392,861    $  4,270,900
                                                       ============    ============

</TABLE>

The accompanying notes are an integral part of these statements.


                                      F-5
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                               Year ended May 31,


                                                    1999           1998
                                                -----------    -----------

Revenue
    Patient services                               $750,690     $2,258,186

Expenses
    Costs of patient services                       561,025      1,177,005
    Selling, general and administrative           1,721,583      2,485,934
    Consulting services                           1,703,455        417,329
    Depreciation and amortization                    65,350        273,367
    Interest - net                                   36,369        170,700
    Write-down of investment in gold ore                 --      3,000,000
    Loss (gain) on sales of facilities               59,005       (208,584)
                                                -----------    -----------

              Total expenses                      4,146,787      7,315,751
                                                -----------    -----------

              NET LOSS                          $(3,396,097)   $(5,057,565)
                                                ===========    ===========

Net loss per common share - basic and diluted         $(.65)        $(1.49)
                                                       ====          =====

Weighted-average number of common
    shares outstanding - basic and diluted        5,209,013      3,389,574
                                                ===========    ===========


The accompanying notes are an integral part of these statements.


                                      F-6
<PAGE>

                                          Oak Tree Medical Systems, Inc.
                                                 and Subsidiaries

                                  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                         Years ended May 31, 1999 and 1998


<TABLE>
<CAPTION>

                                                                                                           Prepaid
                                                                                                          consulting
                                                       Common stock           Additional                   and stock      Total
                                                  ----------------------       paid-in                   subscription  stockholders'
                                                  Shares          Amount       capital       Deficit       receivable     equity
                                                  ------          ------       -------       -------       ----------     ------
<S>                                             <C>          <C>            <C>           <C>             <C>          <C>
Balance at June 1, 1997                         2,888,144    $    28,881    $ 9,772,472   $ (4,726,638)   $(181,389)   $4,893,326

Sales of common stock (net of expenses of       1,500,000         15,000      1,708,157                                 1,723,157
$1,600,868)
Issuance of shares for services                   154,359          1,544        394,364                    (339,844)       56,064
Exercises of options                              115,250          1,152        265,848                                   267,000
Amortization of prepaid consulting                                                                          283,829       283,829
Net loss                                                                                    (5,057,565)                (5,057,565)
                                               ----------    -----------    -----------   ------------    ---------    ----------

Balance at May 31, 1998                         4,657,753         46,577     12,140,841     (9,784,203)    (237,404)    2,165,811
                                               ----------    -----------    -----------   ------------    ---------    ----------

Sales of common stock (net of expenses of         655,000          6,550        726,348                                   732,898
$  725,619)
Issuance of shares for services                    74,950            749        163,783                                   164,532
Issuance of shares for payoff of loan payable     100,000          1,000        129,000                                   130,000
Exercises of options                              115,000          1,150        193,100                                   194,250
Amortization of prepaid consulting                                                                          237,404       237,404
Issuance of stock options to
  consultants                                                                 1,300,000                                 1,300,000
Net loss                                                                                    (3,396,097)                (3,396,097)
                                               ----------    -----------    -----------   ------------    ---------    ----------

Balance at May 31, 1999                         5,602,703    $    56,026    $14,653,072   $(13,180,300)   $      --    $1,528,798
                                               ==========    ===========    ===========   ============    =========    ==========
</TABLE>

The accompanying notes are an integral part of this statement.


                                      F-7
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                               Year ended May 31,

<TABLE>
<CAPTION>
                                                              1999           1998
                                                          -----------    -----------
<S>                                                       <C>            <C>
Cash flows from operating activities
    Net loss                                              $(3,396,097)   $(5,057,565)
    Adjustments to reconcile net loss to net cash
        used in operating activities
         Write-down of investment in gold ore                      --      3,000,000
         Depreciation and amortization                         65,350        560,397
         Bad debts                                            223,108         65,935
         Stock options issued for services                  1,831,936         56,064
         Loss (gains) on sales of facilities                   59,005       (208,584)
         Gain on termination of employment agreement               --         (5,076)
         Increase (decrease) in cash from
           Patient care receivables                           165,121         17,150
           Other current assets                               103,509           (705)
           Other assets                                        97,740         (5,260)
           Accounts payable and accrued expenses               19,337         20,371
           Other liabilities                                  (61,551)            --
           Deferred compensation                                   --        (60,000)
                                                          -----------    -----------

                  Net cash used in operating activities      (892,542)    (1,617,273)

Cash flows from investing activities
    Proceeds from sale of facilities                          625,000
    Collections of note receivable                                           325,000
    Proceeds from sales of fixed assets                                      171,335
    Acquisition                                                             (100,000)
    Costs of proposed acquisition                             (63,646)       (98,804)
    Purchases of fixed assets                                      --        (50,824)
                                                          -----------    -----------

                  Net cash provided by (used in)
                     investing activities                     561,354        246,707
                                                          -----------    -----------
</TABLE>


                                      F-8
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

                               Year ended May 31,

<TABLE>
<CAPTION>
                                                                          1999           1998
                                                                        ---------    -----------
<S>                                                                     <C>          <C>
Cash flows from financing activities
   Proceeds from issuance of common stock, net                          $ 927,148    $ 1,990,157
   Proceeds of notes payable                                                   --        334,769
   Payments of long-term debt                                            (200,000)      (319,388)
   Payment of note payable                                               (334,769)      (197,305)
   Payments of capitalized lease obligations                             (395,096)      (108,195)
                                                                        ---------    -----------

                  Net cash (used in) provided by financing activities      (2,717)     1,700,038
                                                                        ---------    -----------

                  NET (DECREASE) INCREASE IN CASH                        (333,914)       329,472

Cash at beginning of year                                                 455,391        125,919
                                                                        ---------    -----------

Cash at end of year                                                     $ 121,477    $   455,391
                                                                        =========    ===========

Supplemental disclosures of cash flow information:
   Cash paid during the year for
      Interest                                                          $  36,639    $   202,288
                                                                        =========    ===========

Summary of noncash item:
   Capitalized lease obligations                                        $      --    $   190,610
                                                                        =========    ===========
</TABLE>

The accompanying notes are an integral part of these statements.


                                      F-9
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              May 31, 1999 and 1998

NOTE A - BACKGROUND OF THE COMPANY

     Oak Tree Medical Systems, Inc. (the "Company), a Delaware corporation, 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. As of May 31, 1999, the
     Company, through its subsidiary, Oak Tree Medical Management Inc., operates
     one New York City-based physical therapy care center.

      Liquidity

     The accompanying financial statements have been prepared in conformity with
     generally accepted accounting principles which contemplate continuation of
     the Company as a going concern. The Company has incurred substantial losses
     in 1999 and 1998, used cash from operating activities in 1999 and 1998, and
     has negative working capital at May 31, 1999.

     In the past, the Company has funded its capital requirements from operating
     cash flow loans against its accounts receivables, sales of equity
     securities and the issuance of equity securities in exchange for assets
     acquired and services rendered. During fiscal 1998, the Company undertook a
     number of actions to consolidate its geographic focus, and with other
     actions undertaken during fiscal 1999, the Company hopes 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
     pending acquisitions. Although the Company has in the past been and
     continues to be in discussions the potential investors, there can be no
     assurance that its efforts to raise any substantial amount of private
     capital will be successful. Any substantial private equity investment in
     the Company will result in voting dilution of the Company's existing
     stockholders and could also result in economic dilution. If the Company is
     unable to obtain new capital, the Company's President has agreed to
     personally support the Company's cash requirements to meet its current
     obligations through May 31, 2000 and fund future operations. The Company
     believes that its ability to raise private equity and support from the
     Company's President will provide sufficient liquidity to fund current
     operations.


                                      F-10
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              May 31, 1999 and 1998



NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     1.  Basis of Presentation

         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.

     2.  Revenue Recognition

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

     3.  Use of Estimates

         In preparing financial statements in conformity with generally accepted
         accounting principles, management is required 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
         financial statements, as well as the reported amounts of revenues and
         expenses during the reporting period. Actual results could differ from
         those estimates.

     4.  Fixed Assets

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

     5.  Deferred Acquisition Costs

         Deferred acquisition costs incurred in connection with the Company's
         comtemplated acquisitions of ten medical practice management companies
         amounted to approximately $63,646 and $98,804 for the years ended May
         31, 1999 and 1998, respectively.


                                      F-11
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998



NOTE B (continued)

     6.  Income Taxes

         Deferred tax assets and liabilities are recognized for the estimated
         future tax consequences attributable to differences between the
         financial statement carrying amounts of existing assets and liabilities
         and their respective tax bases. Deferred tax assets and liabilities are
         measured using enacted tax rates in effect for the years in which those
         temporary differences are expected to be recovered or settled. A
         valuation allowance has been established to reduce deferred tax assets
         as it is more likely than not that such deferred tax assets will not be
         realized. The effect on deferred tax assets and liabilities of a change
         in tax rates is recognized in income in the period that includes the
         enactment date.

     7.  Net Loss Per Share

         Net loss per common share is based on the weighted-average number of
         common shares outstanding during the periods.

         Basic earnings per share exclude dilution and are computed by dividing
         income (loss) available to common shareholders by the weighted-average
         common shares outstanding for the period. Diluted earnings per share
         reflect the weighted-average common shares outstanding plus the
         potential dilutive effect of securities or contracts which are
         convertible to common shares, such as options, warrants, and
         convertible preferred stock.

         Options to purchase shares of common stock of 1,401,250 and 936,250
         remain outstanding at May 31, 1999 and 1998, respectively, but were not
         included in the computation of diluted EPS because to do so would have
         been antidilutive for the periods presented.

     8.  Impairment of Long-Lived Assets

         The Company reviews long-lived assets and certain identifiable
         intangibles held and used for possible impairment whenever events or
         changes in circumstances indicate that the carrying amount of an asset
         may not be recoverable. The Company has determined that no additional
         provision is necessary for the impairment of long-lived assets at May
         31, 1999.


                                      F-12
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998



NOTE B (continued)

     9.  Certain Reclassifications

         Certain reclassifications have been made to prior year's financial
         statements in order to conform to the May 31, 1999 presentation.


NOTE C - ACQUISITION

     On July 16, 1997, the Company acquired a 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 payable in the amount of $300,000. In
     addition, the seller, a physician, entered into a noncompete agreement for
     four years. Furthermore, since the acquired physical therapy care center
     did not achieve certain billings, the purchase price was reduced by
     $100,000.

     In connection with the acquisition, the Company entered into a: (1) lease
     for a facility, (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 $50,000 per annum.

     The results of operations of the acquired physical therapy care center have
     been included in the consolidated statement of operations from July 16,
     1997, the date of the acquisition. The acquisition was recorded on the
     purchase method and the total purchase price was allocated to the fair
     values of the assets acquired and the excess to goodwill, as follows:

           Physical therapy equipment                          $171,335
           Office furniture and equipment                         3,665
           Covenant not-to-compete                               25,000
           Goodwill                                             200,000
                                                                -------

                                                               $400,000
                                                               ========


                                      F-13
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998



NOTE D - SALES OF NEW YORK CITY CENTERS

     On July 16, 1998, the Company sold substantially all the equipment and
     operations of two physical therapy centers in exchange for $375,000,
     payable in cash at closing. Proceeds of $365,000 were used to repay certain
     lease obligations. The Company also incurred a brokerage fee of 10% of the
     sale price.

     On November 2, 1998, the Company sold all the assets (excluding accounts
     receivable) of its Lower Manhattan, New York, physical therapy facility for
     $250,000 in cash plus the assumption of outstanding equipment lease
     obligations of $193,890. Proceeds of $200,000 were used to repay a note
     payable to the previous owner of the facility. On December 22, 1998, the
     Company sold the accounts receivable relating to the Lower Manhattan
     facility for 50% value of subsequent collections. Accordingly, the Company
     recorded a provision for doubtful accounts of $300,000, which is included
     in the "loss on sale of facilities."

     A summary of the aggregate loss on the sales of the New York City centers
is as follows:

         Proceeds                                                     $ 625,000
         Expenses related to sales                                       (6,855)
         Assumption of capitalized leases                               193,890
         Costs of assets sold                                          (428,331)
         Provision for doubtful accounts                               (300,000)
         Write-off of goodwill                                         (142,709)
                                                                       --------

         Loss on sales of facilities                                  $ (59,005)
                                                                      =========


NOTE E - COMMON STOCK

     1.  Issuance of Common Stock

         Through May 31, 1999 and 1998, the Company issued an aggregate of
         46,242 and 6,359 shares, respectively, of common stock in exchange for
         legal services. The shares were valued at an average price of $3.02 and
         $2.50, per share, respectively.


                                      F-14
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998



NOTE E (continued)

         During the fiscal year ended May 31, 1999, the Company issued 28,708
         shares of Common Stock to Mr. William Kedersha in consideration of
         consulting services. These shares were valued at a price of $2.00 per
         share.

         During the fiscal year ended May 31, 1999, the Company issued 55,000
         shares of Common Stock to NFC Service LTD at a price of $1.43 per
         share.

         During the fiscal year ended May 31, 1999, the Company issued 100,000
         shares of Common Stock to NFC Service LTD as satisfaction for a loan
         made to the Company. These shares were valued at a price of $1.30 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.

         On January 29, 1998, the Company completed an off-shore offering for
         the sale of 1,500,000 shares of common stock for an aggregate purchase
         price of approximately $3,324,025 and incurred expenses of $1,600,868
         in connection with the offering.

         In July 1998, the Company agreed to issue 400,000 shares of Common
         Stock in a private placement to "accredited investors" at an offering
         price of $2.30 per share, with net proceeds to the Company of $1.09 per
         share. Signature Equities Agency, G.m.b.H., served as placement agent
         in connection with the offering. The Company subsequently amended the
         agreement by increasing the Common Stock issued to 600,000 shares from
         400,000 shares. The Company incurred expenses of $725,619 and received
         net proceeds of $654,380.

     2.  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, in exchange 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.


                                      F-15
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998



NOTE E (continued)

         The options are exercisable at $2 to $5, per share, through December
         31, 1997, 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.

         During the year ended May 31, 1998, options for 110,250 shares of
         common stock were exercised at prices ranging from $2 to $3, per share,
         and options to acquire 143,750 and 75,000 shares were extended to
         December 31, 1998 and February 29, 1999, respectively, in exchange for
         consulting services valued at $10,000.

         During the year ended May 31, 1999, the Company extended the expiration
         dates of 218,750 options issued in a prior year to consultants. The
         Company recorded consulting expense relating to such extension totaling
         approximately $82,000. 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 2007. In June 1998, the Company extended Mr.
         Burton Dubbin's consulting agreement until August 31, 2002. In
         addition, the Company granted Mr. Burton Dubbin options to purchase
         500,000 shares of Common Stock at an exercise price of $2.17 per share
         and were exercisable six months from date of grant. The Company
         recorded consulting expenses in 1999 of approximately $925,000 relating
         to these options. During the fiscal year ended May 31, 1999, Mr. Burton
         Dubbin exercised options to acquire 100,000 shares of Common Stock.

     3.  Options

         In August,  1998,  the Company  added three new members to the Board of
         Directors:  Mr.  Scott  Rosenblum,  Mr.  Jerry  Klepner and  Ambassador
         Maxwell Rabb.  The Company  issued  options to acquire 20,000 shares of
         Common  Stock to each of the three new members at an exercise  price of
         $2.00 per share and were  exercisable  90 days from date of grant.  The
         options expire on October 31, 2003.


                                      F-16
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998



NOTE E (continued)

     3.  Options

         In August,  1998,  the Company  added three new members to the Board of
         Directors:  Mr.  Scott  Rosenblum,  Mr.  Jerry  Klepner and  Ambassador
         Maxwell Rabb.  The Company  issued  options to acquire 20,000 shares of
         Common  Stock to each of the three new members at an exercise  price of
         $2.00 per share and were  exercisable  90 days from date of grant.  The
         options expire on October 31, 2003.

         On September 1, 1998, the Company employed Mr. Simon Boltuch as its
         Chief Financial Officer for a three-year term commencing as of August
         31, 1998, and expiring on August 31, 2001. The Company issued options
         to acquire 20,000 shares of Common Stock to Mr. Simon Boltuch at an
         exercise price of $2.00 per share and will vest and become exercisable
         on the one-year anniversary from date of grant.

         In March, 1999, Mr. Fredrick Veit, counsel to the Company, exercised
         options to acquire 15,000 shares of Common Stock. As of May 31, 1999,
         Mr. Fredrick Veit has remaining options to acquire 2,500 shares of
         Common Stock which expire on December 1, 2001.

         For the years ended May 31, 1999 and 1998, a summary of the status of
stock options was as follows:

<TABLE>
<CAPTION>
                                                                  1999                                1998
                                                     -------------------------------      -----------------------------
                                                                        Weighted-                            Weighted-
                                                        Number           average            Number            average
                                                          of            exercise              Of             exercise
                                                        shares            price             shares             price
                                                        ------            -----             ------             -----
         <S>                                           <C>             <C>               <C>                <C>
         Outstanding - beginning of year                 936,250         $2.30             1,542,500          $2.24

         Granted                                         580,000          2.15                60,000           1.59
         Exercised                                      (115,000)         1.69              (115,250)          2.32
         Forfeited                                            --                            (350,000)          1.00
         Expired                                              --                            (201,000)          3.84
                                                       ---------                          ----------

         Outstanding - end of year                     1,401,250         $2.29               936,250          $2.30
                                                       =========                          ==========
</TABLE>

        As of May 31, 1999, options to purchase 1,381,250 shares of common stock
        were exercisable, with a weighted-average exercise price of $2.29, per
        share. As of May 31, 1998, all options were exercisable.


                                      F-17
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998



NOTE E (continued)


        The following table summarizes option data as of May 31, 1999:

<TABLE>
<CAPTION>
                                                    Weighted-
                                                     average             Weighted-                              Weighted-
              Range of                              remaining             average                                average
              exercise            Number           contractual           exercise             Number            exercise
               prices           outstanding            life                 price           Exercisable            price
               ------           -----------            ----                 -----           -----------            -----

            <S>                <C>                    <C>                 <C>           <C>                       <C>
            $1 to $1.99           352,500             8.59                $1.66               352,500             $1.66
            $2 to $3.50           898,750             8.45                 2.19               878,750             2.19
           $3.51 to $5.00         150,000             3.59                 4.38               150,000             4.38
                              ----------------                                           ------------------
                               $1,401,250                                                 $1,381,250
                              ================                                           ==================
</TABLE>

     Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
     "Accounting for Stock-Based Compensation," establishes financial accounting
     and reporting standards for stock-based employee compensation plans. The
     financial accounting standards of SFAS No. 123 permit companies to either
     continue accounting for stock-based compensation under existing rules or
     adopt SFAS No. 123 and reflect the fair value of stock options and other
     forms of stock-based compensation in the results of operations as
     additional expense. The disclosure requirements of SFAS No. 123 require
     companies which elect not to record the fair value in the statement of
     operations to provide pro forma disclosures of net income and earnings per
     share in the notes to the financial statements as if the fair value of
     stock-based compensation had been recorded.

     The Company  follows  Accounting  Principles  Board  Opinion No. 25 and its
     related  interpretations  in accounting  for its  stock-based  compensation
     plan.

     The Company utilized the Black-Scholes option pricing model to quantify the
     expense of options issued to nonemployees and the pro forma effects on net
     loss and net loss per share for the value of the options granted to
     employees during the fiscal year ended May 31, 1999.

     The following assumptions were made in estimating fair value:

                 Risk-free interest rate                         6%
                 Expected volatility                            50%
                 Expected option life                           10 years


                                      F-18
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998



NOTE E (continued)

     Had compensation cost been determined under SFAS No. 123 for the year ended
     May 31, 1999, net loss and net loss per share would have been increased as
     follows:

                 Net loss
                     As reported                                $(3,396,097)
                     Pro forma for stock options                $(3,483,097
                 Net loss per share
                     As reported                                      $(.65)
                     Pro forma for stock options                      $(.67)

    4.   Stock Option Plan

         The Company has a Performance Equity Plan (the "Plan") under which it
         may grant incentive and nonqualified 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 as of the date of the grant. Through May
         31, 1999, the Company had not granted any options under the Plan.

     5.  Reserved Shares

         As of May 31, 1999, the Company has reserved the following shares of
         common stock:

              Options                                         1,401,250
              Plan                                              600,000

                                                              2,001,250


NOTE F - PATIENT CARE RECEIVABLES

     In September 1997, the Company entered into a financing agreement to borrow
     on all existing and future patient care receivables for a period of two
     years. Under the agreement, the Company may borrow up to 75% of under 180
     day, eligible patient care receivables, as defined. Upon each advance, the
     Company will pay a discount equal to 5% above the prime rate, per annum,
     subject to adjustment, and, at the initial closing, paid an origination fee
     of $17,457. The Company is required to assign substantially all patient
     care receivables to the finance company. As of May 31, 1998, the interest
     rate was 13%, per annum. In December 1998, the Company terminated the
     financing agreement.


                                      F-19
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998


NOTE G - INVESTMENT IN GOLD ORE

     As of May 31, 1999 and 1998, investment in gold ore is as follows:

              Investment in gold ore                           $ 4,994,214
              Allowance for impairment                          (3,000,000)
                                                               ------------
                                                               $ 1,994,214
                                                               ============

     As of May 31, 1998, the Company unsuccessfully attempted to sell its
     investment in gold ore and did not have the resources to commence mining
     operations. The Company's focus is in medical and related areas; and,
     therefore, the Company provided a write-down for impairment of the
     investment in the amount of $3,000,000.
     At May 31, 1999, there is no change in the status of the gold ore.


NOTE H - FIXED ASSETS

    As of May 31, 1999 and 1998, fixed assets consisted of the following:

                                                     1999                 1998
                                                   --------              -----

       Physical therapy equipment                                      $687,366
       Office equipment and furniture               $28,727              56,509
       Leasehold improvements                                            40,919
                                                   --------            --------

                                                     28,727             784,794

       Less accumulated depreciation
           And amortization                          17,901             282,455
                                                     ------             -------

                                                    $10,826            $502,339
                                                     ======             =======

As of May 31, 1999 and 1998, fixed assets included capitalized lease assets of
$0 and $705,243, respectively.

For the years ended May 31, 1999 and 1998, depreciation expense was $64,154 and
$257,903, respectively.


                                      F-20
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998



NOTE I - LONG-TERM DEBT

     There is no long-term debt as of May 31, 1999. As of May 31, 1998,
     long-term debt consisted of the following:

                                                                  1998
                                                                  ----

        Note payable in equal quarterly
            Installments of $18,348,
            Including interest at 8%,
            Per annum (a)                                       $275,057

        Less current portion                                      66,856
                                                                --------
                                                                $208,201
                                                                ========

     (a)  Collateralized by all the assets acquired.


NOTE J - CAPITALIZED LEASE OBLIGATIONS

     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 value of the assets. The implicit interest rates on the capital
     leases were approximately 11% to 17%, per annum.

     The Company paid off or assigned all outstanding leases in connection with
     the sale of certain physical therapy care centers during fiscal 1999 (see
     Note D). Accordingly, the Company has no lease obligations as of May 31,
     1999.


                                      F-21
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998

NOTE K - INCOME TAXES

     For the years ended May 31, 1999 and 1998, the tax effects of timing
     differences which gave rise to deferred income taxes were as follows:

                                               1999                1998
                                            -----------        -----------
             Allowance for impairment
                 of gold ore                                   $ 1,324,000
             Net operating loss
                 carryforwards              $   708,573            776,000
             Cash basis                         336,187           (100,000)
             Less valuation allowance        (1,044,760)        (2,000,000)
                                            -----------        -----------

                                            $    --            $    --
                                            ===========        ===========

     As of May 31, 1999 and 1998, the tax effects of the components of deferred
     income tax payable were as follows:

                                                1999                1998
                                             ----------         ----------

         Allowance for impairment
             of gold ore                    $ 1,324,000        $ 1,324,000
         Net operating loss
             carryforwards                    2,084,573          1,376,000
         Cash basis                             336,187
         Less valuation allowance            (3,744,760)        (2,700,000)
                                             ----------         ----------

                                            $    --            $    --
                                            ===========        ===========


                                      F-22
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998

NOTE K (continued)

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

                                                1998               1998
                                            ------------       -----------

           Tax at statutory rate            $ 1,154,673        $ 1,720,000
           State income tax                     339,610            280,000
           Valuation allowance               (1,494,283)        (2,000,000)
           Other                                 --                 --
                                            ------------       -----------

                                            $    --            $    --
                                            ===========        ===========

     As of May 31, 1999, realization of the Company's deferred tax assets of
     $3,744,760, resulting primarily from impairment of gold ore and net
     operating loss carryforwards, is not considered more likely than not, and
     accordingly, a valuation allowance of $3,744,760 has been established.

     As of May 31, 1999, the Company had net operating loss carryforwards of
     approximately $5,077,000 to reduce future Federal taxable income, expiring
     through May 31, 2018.


NOTE L - COMMITMENTS AND CONTINGENCIES

     1.  Leases

         The Company is committed to a noncancellable lease for a physical care
         center through November 2001, requiring minimum rents, plus additional
         rent for increases in real estate taxes and operating expenses.


                                      F-23
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998



NOTE L (continued)

         As of May 31, 1999, the future minimum aggregate annual payments are as
follows:

             Year ending  May 31,
                  2000                                          $30,720
                  2001                                           30,720
                  2002                                           15,360
                                                                -------
                                                                $76,800
                                                                =======

         For the years ended May 31, 1999 and 1998, rent expense was $64,868 and
$352,876, respectively.

     2.  Employment Agreements

         In February 1998, the Company's chief operating officer resigned and
         his employment agreement was terminated, including his right to receive
         50,000 shares of common stock (which was recorded as deferred
         compensation of $100,000) and options to acquire 350,000 shares of
         common stock in exchange for $60,000 in cash and the Company forgave
         outstanding net loans receivable of $34,924. Such amounts are included
         in severance expense.

         On September 1, 1998, the Company employed Mr. Simon Boltuch as its
         Chief Financial Officer for a three-year term commencing as of August
         31, 1998, and expiring on August 31, 2001. The Company issued options
         to acquire 20,000 shares of Common Stock to Mr. Simon Boltuch at an
         exercise price of $2.00 per share and will vest and become exercisable
         on the one-year anniversary of date of grant.

     3.  Insurance

         The Company has professional liability insurance for medical
         malpractice liabilities, which may arise in the normal course of
         business.


                                      F-24
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998



NOTE M - RELATED PARTY TRANSACTIONS

     Consulting Agreement

     In December 1996, the Company granted ten-year options to acquire 375,000
     shares of Common Stock to Burton Dubbin, the son of Mr. Henry Dubbin, the
     Company's president, in exchange for consulting services. These options had
     an exercise price of $1.6875 per share and were to vest upon the earlier to
     occur of (i) the Company's achievement of certain financial benchmarks,
     (ii) the five-year anniversary of the issuance of the options and Mr.
     Burton's being an employee with the Company or (iii) a change of control
     (as defined). Mr. Burton Dubbin became an employee of the Company in April
     1997. 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 2007. In June 1998, the Company
     extended Mr. Burton Dubbin's consulting agreement until August 31, 2002. In
     addition, the Company granted Mr. Burton Dubbin options to purchase 500,000
     shares of Common Stock at an exercise price of $2.17 per share and were
     exercisable six months from date of grant.


NOTE N - SUBSEQUENT EVENTS

     Pending Acquisitions

     In July and August 1999, the Company entered into definitive agreements to
     purchase substantially all of the assets of 17 medical management companies
     which operate a regional network of 37 medical practices consisting of 10
     radiology practices and 27 medical practices located in the New York City
     and the surrounding metropolitan area. There can be no assurance, however,
     that the Company will successfully meet its obligations of raising capital
     to complete the acquisitions, or that all the other conditions to the
     closing of the transactions will be met.


                                      F-25
<PAGE>