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, 2000

[ ]      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.)

                              1725 Tenbroeck Avenue
                              Bronx, New York 10461
                                 (718) 828-6996
       (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:  $206,365.

         The  number  of  shares of Common  Stock,  par value  $0.01 per  share,
outstanding as of August 29, 2000: 7,020,022.

         The aggregate market value of voting and non-voting Common Stock
(5,280,022 shares) held by non-affiliates computed by reference to the closing
price of the Common Stock as of August 29, 2000: $5,280,022.

         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.  As of May 31, 2000, the Company closed the one
remaining  medical  facility in New York City.  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.

New York City Facilities

         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, 2000, the Company closed the one remaining facility which
was  acquired  in October  1996  because  the primary  medical  group  referring
patients  to the  therapy  center  ceased  operations.  The cash flows from this
facility was thus insufficient to support its operations.

         In  compliance  with the laws of the State of New York,  all  treatment
related  activities at the Company's New York City clinics were conducted by Oak
Tree  Medical  Practice,   P.C.  ("Oak  Tree  P.C."),  an  independently   owned
professional corporation. The Company had agreements with Oak Tree P.C. pursuant
to which the Company provided to Oak Tree P.C. all administrative and management
services and leased 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 Florida Physical Therapy Care 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.

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,  2000,
included approximately 41 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.  Although the  agreements by their terms may be currently
terminated  by either the Company or the sellers  upon written  notice,  no such
notice has been  delivered  by any of the  parties  and they are  continuing  to
attempt  to  satisfy  their  various  conditions  to  closing.  There  can be no
assurance,  however,  that the Company will successfully meet its obligations of
raising capital to complete the acquisitions or that all the other conditions to
the closing of the transaction will be met.

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
operations 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, although there can
be no assurance that it will be successful in doing so.

Employees

         As of May 31,  2000,  the  Company  had 2  full-time  employees  and no
part-time employees.

Item  2. Property

         The  Company's  headquarter  office  is  temporarily  located  at  1725
Tenbroeck Avenue, Bronx, New York 10461.

         Set forth below is certain information  concerning the Company's leased
facility for its  rehabilitative and medical service  operations,  as of May 31,
2000. 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 10461

                                        7

<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.


                                     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, 1999:
          First Quarter.............................       $1.500       $2.750
          Second Quarter............................        1.000        2.750
          Third Quarter.............................        2.310        5.880
          Fourth Quarter............................        3.130        5.050


     Fiscal Quarter Ended May 31, 2000:
          First Quarter.............................       $2.688       $2.938
          Second Quarter............................        2.000        2.125
          Third Quarter.............................        1.875        2.125
          Fourth Quarter............................        1.313        1.313

         As of August 29, 2000, there were approximately 1,600 holders of record
of the  Company's  Common  Stock.  The  closing  bid and  asked  prices  for the
Company's Common Stock on August 29, 2000, was $1.00 and $1.00, 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, 2000, these options have not been exercised. The Company
recorded  consulting  expenses of  approximately  $925,000 and $122,000 in years
1999 and 2000,  respectively,  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 at $1.69 per share.  During the fiscal year ended May 31,
2000, the Company  granted Mr. Burton Dubbin options to purchase  300,000 shares
of Common  Stock at an  exercise  price of $1.50 per share.  Mr.  Burton  Dubbin
exercised  options to acquire  275,000 shares of Common Stock at $1.69 per share
and 20,000 shares of Common Stock at $1.50 per share.

                                       8

<PAGE>

B. 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. In August 1999, Mr. Veit exercised options to acquire 2,500 shares.

C. 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, 2000, the options have not been exercised.

D. In July 1998,  the Company issued 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.

E. In July 1999, Mr. Fred Singer, Secretary of the Company, exercised options to
acquire 5,000 shares of Common Stock at $1.00 per share.

F. In July 1999,  the Company  issued  10,000 shares of Common Stock to Richards
Healthcare  in  consideration  of temporary  employee  services  rendered to the
Company during prior year. These shares were valued at an average price of $4.43
per share.

G. From  September  1999 to February  2000,  Mr. Henry Dubbin,  President of the
Company,  exercised  options  to acquire  250,000  shares at $2.00 per share and
100,000 shares at $1.50 per share.

H. In December 1999 and in February  2000,  the Company  issued 20,000 shares of
Common Stock to Investec Ernst & Company for investment banking services.  These
shares were valued at an average price of $2.00 per share.


                                       9

<PAGE>

I. In January  2000,  the Company  issued 25,000 shares of Common Stock to Carol
Martino for private placement services rendered.  These shares were valued at an
average price of $2.00 per share.

J. In February 2000, the Company issued 25,000 shares of Common Stock to Richard
P. Greene,  Esq. for legal services  rendered during the current  period.  These
shares were valued at an average price of $2.00 per share.

K. In February  2000, the Company issued 50,000 shares of Common Stock to Rush &
Co. in a private  placement.  These  shares were  valued at an average  price of
$1.00 per share.

L. In April 2000, the Company issued 50,000 shares of Common Stock to Washburn &
Enright in  consideration  of consulting  services outside of the United States.
These shares were valued at a price of $1.50 per share.

M. In May 2000,  the Company  issued 200,000 shares of Common Stock in a private
placement to TTC Vermogensberatung A.G. at an offering price of $1.35 per share,
with net proceeds to the Company of $1.00 per share.

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


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.  As of May 31, 2000,  the Company closed the one
remaining  facility  which was  acquired in October  1996 because the cash flows
from this facility was insufficient to support its operations.

         In 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,  2000,
included  approximately 41 medical  practices and MRI facilities  located in the
greater New York metropolitan  area.  Although the agreements by their terms may
be  currently  terminated  by either the  Company or the  sellers  upon  written
notice,  no such  notice has been  delivered  by any of the parties and they are
continuing to attempt to satisfy their various conditions to closing.  There can
be  no  assurance,   however,  that  the  Company  will  successfully  meet  its
obligations  of raising  capital to complete  the  acquisitions  or that all the
other conditions to the closing of the transaction will be met.

                                       10

<PAGE>

Results of Operations

         2000 Fiscal Year Compared to 1999 Fiscal Year

         Patient  revenues  decreased by 72.51% from $750,690 to $206,365 in the
fiscal year ended May 31, 2000  ("Fiscal  2000")  compared  with the fiscal year
ended May 31, 1999  ("Fiscal  1999").  The  decrease in revenues  was  primarily
attributable  to the Company's  sale of three  physical care centers in New York
City during Fiscal 1999 and sluggish revenues in the last two quarters of Fiscal
2000. The primary medical group referring  patients to the therapy center ceased
operations as of January 2000.

         Total  expenses  decreased by 19.37% to $3,343,468 for Fiscal 2000 from
$4,146,787  for Fiscal 1999,  primarily  attributable  to the Company's  sale of
three  physical  care  centers  in New York City  during  Fiscal  1999 and lower
consulting  expenses  in Fiscal 2000  offset by  deferred  acquisition  costs of
$667,950 due to the length of negotiations  related to the pending  acquisition.
Costs of patient  services,  selling,  and  administrative  expenses  (excluding
acquisition  costs),  consulting,  depreciation  and  amortization  and interest
expense (recurring  operating  expenses)  decreased by 34.55% from $4,087,782 to
$2,675,518.  Costs of patient  services,  as a percentage  of patient  revenues,
decreased from 74.7% in Fiscal 1999 to 72.4% in Fiscal 2000 primarily because of
gradual  staffing  adjustments  relating  to the sale of the three New York City
physical care centers.  Selling,  general and administrative expenses (excluding
acquisition costs) decreased 13.51% from $1,721,583 in Fiscal 1999 to $1,488,985
in Fiscal 2000,  primarily due to the sale of the three physical care centers in
New York City and a significant  reduction in legal  expenses  offset by a Black
Scholes  adjustment  for stock options issued of $531,000.  Consulting  expenses
decreased  by 41.89% from  $1,703,455  in Fiscal 1999 to $989,934 in Fiscal 2000
due to a lower  Black  Scholes  stock  option  adjustment  in Fiscal  2000.  The
adjustment  in Fiscal 2000 was $746,000  compared to  $1,300,000 in Fiscal 1999.
During Fiscal 1999, the Company  recognized a loss of $59,005 in connection with
the sale of three  physical care centers in New York City.  Total  expenses as a
percentage of revenues increased to 1620% for Fiscal 2000 from 552.4% for Fiscal
1999 as a result of these factors.

         Income  taxes for  Fiscal  2000 and 1999 are not  representative  of an
effective tax rate. For Fiscal 2000 and 1999,  deferred income tax benefits have
been reduced by  increases  in the  allowance  for the  realization  of deferred
income tax assets of $838,000 and $1,044,670,  respectively, because, as of both
May 31, 2000 and 1999,  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,
2000 and 1999, net operating loss  carryforwards were $6,849,000 and $5,077,000,
respectively, increased due to the increases in taxable losses for each year.

         The above factors  contributed  to a net loss of  $3,137,103  ($.52 per
share) for Fiscal 2000 compared  with a net loss of $3,396,097  ($.65 per share)
for Fiscal 1999.

                                       11

<PAGE>

         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.

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.  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 February 2000, the Company issued 50,000 shares of Common Stock to a
private  investor at a price of $1.00 per share. In May 2000, the Company issued
200,000 shares of Common Stock to a group of private investors at a net price of
$1.00 per share. Proceeds of the sale of these shares have been used for working
capital.

                                       12

<PAGE>

         During Fiscal 2000,  the Company  issued 112,500 shares of Common Stock
for various  services  rendered valued at $224,313.  In addition,  652,500 stock
options were exercised  during Fiscal 2000 for  $1,117,169.  These proceeds have
been used for working capital.

         In July 1998,  the Company  issued  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.

         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).  The Company  intends to continue  its attempt to sell the gold
ore, although there can be no assurance that it will be successful in doing so.

         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 the Lower Manhattan facility for 50% value
of subsequent collections and accordingly,  the Company recorded a provision for
doubtful accounts of $300,000 as of May 31,1999. As of May 31, 2000, the Company
has received  $31,200 from the sale of the  receivables  and does not expect any
future receipts.

         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,  2000,  included
approximately 41 medical practices and MRI facilities located in the greater New
York metropolitan area. (See Item 1. Business. Pending Acquisition.)

         As of May 31, 2000, negative working capital increased from $638,692 to
$735,999  primarily  due to the  Company's  increase  in the reserve of doubtful
accounts by $52,000 and increase in accrued professional fees by $50,000.

Year 2000

         To date,  no  significant  problems  related  to Year  2000  have  been
identified in the  Company's  internal  systems or with its vendors,  suppliers,
service  providers  or  customers  that would  materially  impact the  Company's
business.

         Although the Company does not expect any  significant  future Year 2000
related  failures  or  malfunctions,  the Company  will  continue to monitor its
internal  systems and work closely with its  suppliers,  service  providers  and
customers to seek to avoid any material interruptions in its business.

                                       13

<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)  Effective  June 6, 1997,  the Company  appointed  Most  Horowitz &
Company,  LLP ("Most Horowitz"),  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.

         (b)  Effective  August  16,  1999,  the  Company's  Board of  Directors
appointed Grant Thornton,  LLP ("Grant  Thornton") as the Company's  independent
accountants  for the fiscal  year  ended May 31,  1999.  On August 17,  2000 the
Company dismissed Grant Thornton as the independent accountants for the Company.
Grant  Thornton's  report on the  financial  statements  of the  Company for the
fiscal year ended May 31, 1999 did not contain an adverse  opinion or disclaimer
of opinion, and was not qualified or modified as to uncertainty,  audit scope or
accounting  principles.  During the Company's fiscal year ended May 31, 1999 and
through  August 17,  2000 there were no  disagreements  between  the Company and
Grant  Thornton on any matter of accounting  principles or practices,  financial
statement  disclosure,  or auditing or procedure,  which  disagreements,  if not
resolved to the  satisfaction  of Grant  Thornton,  would have caused it to make
reference  to the subject  matter of the  disagreement  in  connection  with its
reports.  During the Company's fiscal year ended May 31, 1999 and through August
17,  2000,  Grant  Thornton  did not  advise the  Company of any of the  matters
referred to in Item 304(a) (1)(iv) (B) of Regulation S-B.

         (c) On August 17, 2000 the Company's Board of Directors  engaged Wiss &
Company, LLP as the Company's independent  accountants for the fiscal year ended
May 31, 2000.

                                       14

<PAGE>

                                    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 29, 2000 were as follows:

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

         Henry Dubbin                  84        President and Director
         Fred L. Singer                66        Vice President and Director
         Maxwell M. Rabb               90        Director
         Jerry D. Klepner              55        Director
         Scott S. Rosenblum            51        Director
         Simon Boltuch                 52        Chief Financial Officer

         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.

                                       15

<PAGE>

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

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

Section 16(a) Beneficial Ownership Reporting Compliance

         Section  16(a) of the  Securities  and Exchange Act of 1934, as amended
(the "Exchange Act"), requires the Company's officers, directors and persons who
beneficially  own more than 10% of a registered  class of the  Company's  equity
securities  ("10%  stockholders")  to file reports of  ownership  and changes in
ownership with the Securities and Exchange Commission.  Officers,  directors and
10%  stockholders  also are  required to furnish the Company  with copies of all
Section 16(a) forms they file.  Based solely on its review of the copies of such
forms furnished to it, during the past fiscal year, the Company is of the belief
that all such reports were filed on a timely basis,  except as follows:  (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, 2000  (collectively,  the "named  executive
officers")  for services  rendered in all  capacities to the Company  during the
fiscal years ended May 31, 1998, 1999 and 2000.
<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                                  1998      $32,000         -0-            -0-              -0-
President                                     1999      $48,000         -0-            -0-              -0-
                                              2000      $48,000         -0-            -0-             250,000
---------------------------------------------------------------------------------------------------------------------
Simon Boltuch (1)                             1999      $143,249        -0-            -0-             20,000
Chief Financial Officer                       2000      $175,000        -0-            -0-             60,000

---------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                       16

<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.  In January 2000, the Company granted options to acquire
a total of  862,500  shares of Common  Stock at an  exercise  price of $1.50 per
share to the following  individuals:  Mr.Henry Dubbin -250,000 shares,  Mr. Fred
Singer - 20,000 shares,  Mr. Simon Boltuch -60,000  shares,  Mr. Burton Dubbin -
300,000  shares,  Mr. Scott  Rosenblum  -100,000  shares,  Mr. Timothy Stoakes -
100,000  shares,  Mr.  Richard P. Greene -7,500 shares and Mr. Dean Beck - 25000
shares.  Mr.  Henry  Dubbin  exercised  100,000  shares of Common  Stock and has
150,000  shares of Common Stock  remaing.  Mr.  Burton Dubbin  exercised  20,000
shares of Common  Stock and has 280,000  shares of Common Stock  remaining.  All
options expire on January 24, 2005.

         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,  2000 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
                  Shares Acquired on      Value            # of Unexercised Options       In-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           350,000           $650,000         150,000          0                  $0              $0
Fred L. Singer           5,000           $  5,000          20,000          0                  $0              $0
Simon Boltuch              0                 0             80,000          0                  $0              $0

----------------------------------------------------------------------------------------------------------------------
</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 31, 2000 as quoted on the over-the-counter  market,
         multiplied by the number of shares underlying the option.

                                       17

<PAGE>

Employment Agreements

         The Company had an employment  agreement with Henry Dubbin,  as amended
September 1997,  which expired on September 1, 1999 and provided for a salary of
$48,000 per year.  As of  September  1, 1999 Mr.  Dubbin  continues to receive a
salary of $48,000 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  exercised the entire 250,000
shares between September and December 1999. Mr. Dubbin waived his salary for the
1995 and 1996 fiscal years.

         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 which  provides for (i) an annual salary of $175,000
per year,  (ii)  performance  bonus of up to $35,000  annually  and (iii) annual
options to acquire  20,000 shares of Common Stock at an exercise  price equal to
the fair market  value of the shares on date of grant.  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.

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 29, 2000, no options under the 1994 Plan were outstanding.

                                       18
<PAGE>

Non-Plan Options

         As of August 29, 2000, the Company had outstanding  non-plan options to
purchase an aggregate  of  1,601,250  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                 150,000             $1.50         January 24, 2005

Fred L. Singer                20,000             $1.50         January 24, 2005

Simon Boltuch                 20,000             $2.00         August 31, 2009
                              60,000             $1.50         January 24, 2005


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.

                                       19

<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth certain information as of August 1, 2000
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  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                                          820,000(2)         10.51%
         5189 Alton Rd.
         Miami Beach, FL 33140

Henry Dubbin                                           650,000(3)          9.07%
         10155 Collins Avenue, Suite 607
         Bal Harbor, FL 33154

Simon Boltuch                                           80,000(4)          1.13%
         c/o Oak Tree Medical Systems, Inc.
         1725 Tenbroeck Avenue
         Bronx, New York 10461

Fred L. Singer                                          30,000(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 Naftalis & Frankel LLP
         919 Third Avenue
         New York, NY 10022

Scott S. Rosenblum                                    120,000(4)(5)         *
         c/o Kramer Levin Naftalis & Frankel LLP
         919 Third Avenue
         New York, NY 10022

All directors and executive officers
         As a group (6 persons)                        920,000(6)         12.37%

------------
*        Less than one percent

(1)      Based on 7,020,022 shares of Common Stock outstanding as of August 1,
         2000. Pursuant to the rules of the Securities and Exchange Commission
         (the "Commission"), certain shares of Common Stock which a person has
         the right to acquire within 60 days of August 1, 2000 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) 280,000 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.,a corporation of which he is a consultant, and (iii)
         50,000 shares held indirectly.
(3)      Includes (i) 500,000 shares of Common Stock that Mr. Dubbin
         beneficially owns through Nevada Mineral Corporation of which he is the
         majority stockholder and president, and (ii) 150,000 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 their respective  pecuniary  interests therein,
         if any.
(6)      Includes 420,000 shares subject to presently exercisable options.

                                       20

<PAGE>

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,  2000,
included  approximately 41 medical  practices and MRI facilities  located in the
greater New York metropolitan  area.  Collectively,  the centers had revenues of
approximately  $66  million  and  estimated  earnings  before  interest,  taxes,
depreciation and amortization of approximately $27 million in calendar year 1998
(subject  to audit).  The Company  intends to finance  the  pending  acquisition
through  issuance  of debt and  equity  securities  of the  Company,  which,  if
consummated,  will result in a substantial  change to the Company's current debt
and equity  structure.  Although the  agreements by their terms may be currently
terminated  by either the Company or the sellers  upon written  notice,  no such
notice has been  delivered  by any of the  parties  and they are  continuing  to
attempt  to  satisfy  their  various  conditions  to  closing.  There  can be no
assurance,  however,  that the Company will successfully meet its obligations of
raising capital to complete the acquisitions 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  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, 2000, these options have not been exercised. 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 at $1.69 per share. During the
fiscal year ended May 31, 2000, the Company granted Mr. Burton Dubbin options to
purchase 300,000 shares of Common Stock at an exercise price of $1.50 per share.
The  Company  recorded  consulting  expenses  in 2000 of  approximately  $65,000
relating to these options. During the fiscal year ended May 31, 2000, Mr. Burton
Dubbin exercised  options to acquire 275,000 shares of Common Stock at $1.69 per
share and 20,000 shares of Common Stock at $1.50 per share.

                                       21

<PAGE>

Item 13. Exhibits, Financial Statements and Reports on Form 8-K

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

(a)       Financial Statements:                                            Page

          Report of Independent Certified Public Accountants................F-2

          Independent Auditor's Report......................................F-3

          Consolidated Balance Sheets as of May 31, 2000 and 1999...........F-4

          Consolidated Statements of Operations for the years ended
          May 31, 2000 and 1999 ............................................F-5

          Consolidated Statement of Stockholders' Equity for the
          years ended May 31, 2000 and 1999 ................................F-6

          Consolidated Statements of Cash Flows for the years ended
          May 31, 2000 and 1999.............................................F-7

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

(b)       Reports on Form 8-K.

         On August 24, 2000,  the Company filed a Current  Report on Form 8-K to
report the dismissal of Grant Thornton LLP and the engagement of Wiss & Company,
LLP as the Company's independent accountants as of August 17, 2000.

(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.

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.

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      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.

10.4      Consulting Agreement, dated as of August 29, 1997, between Registrant
          and Burton Dubbin. Incorporated by reference from Exhibit 10.18 of the
          Form 10-KSB for the fiscal year ended May 31, 1997 (the "1997 Form
          10-KSB").

10.5      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.

10.6      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.

                                       22
<PAGE>

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

10.8      Agreement of Sale, dated November 2, 1998, between Rehabilitation
          Medicine Practice of N.Y., P.L.L.C. and Oak Tree Medical Management,
          Inc. Incorporated by reference from Exhibit 10.1 of the Form 10-QSB
          for the fiscal quarter ended November 30, 1998 (the "November 30, 1998
          Form 10-QSB").

10.9      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. Incorporated by reference from Exhibit 10.2 of the November 30,
          1998 Form 10-QSB.

10.10     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.
          Incorporated by reference from Exhibit 10.3 of the November 30, 1998
          Form 10-QSB.

10.11     Asset Purchase Agreement, dated as of July 9, 1999, by and among Oak
          Tree Medical Systems, Inc., Oak Tree Medical Systems Practice
          Management, Inc. and the other parties thereto.

10.12     Stock Purchase Agreement, dated as of December 10, 1999, by and among
          Oak Tree Medical Systems, Inc., Oak Tree Medical Systems Practice
          Management, Inc., Northeast Medical Management, Inc. and the
          stockholders of Northeast Medical Management, Inc.

16.1      Letter from Grant Thorton, LLP, dated August 22, 2000, addressed to
          the Securities and Exchange Commission. Incorporated by reference from
          Form 8-K filed on August 24, 2000.

21        Subsidiaries:

          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.

                                       23

<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, 2000                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, 2000
------------------------
Henry Dubbin


 /s/ Simon Boltuch              Chief Financial Officer      September 13, 2000
------------------------        (Principal Financial and
Simon Boltuch                   Accounting Officer)


/s/ Fred L. Singer              Vice President and           September 13, 2000
------------------------        Director
Fred L. Singer


------------------------        Director
Jerry D. Klepner


------------------------        Director
Maxwell M. Rabb


/s/ Scott S. Rosenblum          Director                     September 13, 2000

-----------------------
Scott S. Rosenblum


                                       24

<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

      Consolidated Statements of Operations                      F-5

      Consolidated Statement of Stockholders' Equity             F-6

      Consolidated Statements of Cash Flows                      F-7

      Notes to Consolidated Financial Statements                 F-8


                                      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, 2000, 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,  2000,  and the
consolidated  results of their operations and their  consolidated cash flows for
the year then ended in conformity with generally accepted accounting principles.

The Company's financial  statements have been prepared assuming that the Company
will  continue  as a going  concern.  As  discussed  in Note A to the  financial
statements,  the Company has incurred  substantial losses from operations end at
May 31, 2000 and has a working  capital  deficiency  of $735,999.  These factors
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern.  Management's  plans in regard to these  matters are also  described in
Note A. The  financial  statements  do not  include any  adjustments  that might
result from the outcome of this uncertainty.



/S/ WISS & COMPANY LLP


Livingston, New Jersey
August 29, 2000


                                      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, 1999, 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,  1999,  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/ GRANT THORNTON, LLP


New York, New York
September 3, 1999


                                      F-3

<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  May 31,
          ASSETS                                             2000         1999
                                                         ----------   ----------
<S>                                                   <C>             <C>
CURRENT ASSETS
    Cash                                              $    145,369    $    121,477
    Patient care receivables                                20,000         100,000
    Other current assets                                    13,500           3,894
                                                      ------------    ------------

              Total current assets                         178,869         225,371

INVESTMENT IN GOLD ORE                                   1,994,214       1,994,214
FIXED ASSETS                                                 1,962          10,826
DEFERRED ACQUISITION COSTS                                       0         162,450
                                                      ------------    ------------
                                                      $  2,175,045    $  2,392,861
                                                      ============    ============


           LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable and accrued expenses             $    914,868    $    864,063
                                                      ------------    ------------

              Total current liabilities                    914,868         864,063

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
    Common stock, $.01 par value; authorized,
       25,000,000 shares; issued and
       outstanding, 6,617,703 and 5,602,703 shares,
       respectively                                         66,176          56,026

    Additional paid-in capital                          17,511,404      14,653,072
    Deficit                                            (16,317,403)    (13,180,300)
                                                      ------------    ------------
                                                         1,260,177       1,528,798
                                                      ------------    ------------
                                                      $  2,175,045    $  2,392,861
                                                      ============    ============
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      F-4

<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                     Year ended May 31,
                                                    2000           1999
                                                -----------    -----------
Revenue
    Patient services                               $206,365     $  750,690

Expenses
    Costs of patient services                       149,365        561,025
    Selling, general and administrative           2,156,935      1,721,583
    Consulting services                             989,934      1,703,455
    Depreciation and amortization                     6,620         65,350
    Interest - net                                   40,614         36,369
    Loss on sales of facilities                         -           59,005
                                                -----------    -----------
              Total expenses                      3,343,468      4,146,787
                                                -----------    -----------

              NET LOSS                          $(3,137,103)   $(3,396,097)
                                                ===========    ===========

Net loss per common share - basic and diluted         $(.52)         $(.65)
                                                       ====          =====

Weighted-average number of common
    shares outstanding - basic and diluted        6,075,588      5,209,013
                                                ===========    ===========


        The accompanying notes are an integral part of these statements.

                                      F-5

<PAGE>

<TABLE>
<CAPTION>
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                      Years ended May 31, 2000 and 1999

                                                                                                        Prepared
                                                                                                       consulting
                                                                         Additiona                      and stock         Total
                                                   Common Stock           paid-in                      subscription    stockholders'
                                                 Shares      Amount       capital        Deficit        receivable       equity
                                                 ------      ------       -------        -------        ----------        ------

<S>                                             <C>          <C>         <C>            <C>              <C>            <C>
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            655,000       6,550        726,348           --            --           732,898
of $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
                                               ----------   ---------   ------------   ------------    ----------    ------------
Sale of Common Stock (net of expenses of $70,000) 250,000       2,500        247,500           --            --           250,000
Issuance of shares for services                   112,500       1,125        223,188           --            --           224,313
Exercise of Options                               652,500       6,525      1,110,644           --            --         1,117,169
Issuance of stock options to consultants             --          --          746,000           --            --           746,000
Issuance of stock options to employees               --          --          531,000           --            --           531,000
Net loss                                             --          --             --       (3,137,103)         --        (3,137,103)
                                               ----------   ---------   ------------   ------------    ----------    ------------
Balance at May 31, 2000                         6,617,703   $  66,176   $ 17,511,404   $(16,317,403)   $     --      $  1,260,177
                                               ==========   =========   ============   ============    ==========    ============

                                 The accompanying notes are an integral part of this statement.

</TABLE>


                                      F-6

<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                               Year ended May 31,
                                                              2000        1999
                                                          -----------    -----------
<S>                                                       <C>            <C>
Cash flows from operating activities
    Net loss                                               $(3,137,103)   $(3,396,097)
    Adjustments to reconcile net loss to net cash
        used in operating activities
         Depreciation and amortization                           6,620         65,350
         Bad debts                                                  --        223,108
         Stock options issued for services                   1,751,313      1,831,936
         Loss (gains) on sales of facilities                        --         59,005
         Fixed assets write-down                                 2,244             --
         Acquisition cost write-down                           162,450             --
         Increase (decrease) in cash from
           Patient care receivables                             80,000        165,121
           Other current assets                                 (9,606)       103,509
           Other assets                                             --         97,740
           Accounts payable and accrued expenses                50,805         19,337
           Other liabilities                                        --        (61,551)
                                                           -----------    -----------
                Net cash used in operating activities       (1,093,277)      (892,542)

Cash flows from investing activities
    Proceeds from sale of facilities                                --        625,000
    Costs of proposed acquisition                                   --        (63,646)
                                                           -----------    -----------

                Net cash provided by (used in)
                     investing activities                           --        561,354

Cash flows from financing activities
   Proceeds from issuance of common stock, net               1,117,169        927,148
   Payments of long-term debt                                       --       (200,000)
   Payment of note payable                                          --       (334,769)
   Payments of capitalized lease obligations                        --       (395,096)
                                                           -----------    -----------
                Net cash (used in)
                     provided by financing activities        1,117,169         (2,717)

                  NET (DECREASE) INCREASE IN CASH               23,892       (333,914)
                                                           -----------    -----------
Cash at beginning of year                                      121,477        455,391
                                                           -----------    -----------
Cash at end of year                                        $   145,369    $   121,477
                                                           ===========    ===========

Supplemental disclosures of cash flow information:
   Cash paid during the year for
      Interest                                             $    40,614    $    36,369
                                                           ===========    ===========
</TABLE>


        The accompanying notes are an integral part of these statements.

                                      F-7

<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              May 31, 2000 and 1999

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, 2000, the Company
     closed the one remaining New York City-based physical therapy care center.

     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 2000 and 1999, used cash from operating activities in 2000 and 1999, and
     has negative working capital at May 31, 2000.

     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.   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, 2001 and fund future  operations.  The Company
     believes  that its ability to raise  private  equity and  support  from the
     Company's  President  will  provide  sufficient  liquidity  to fund current
     operations.


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.  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.

                                      F-8

<PAGE>

     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 $98,804 for the year ended May 31, 1999.  Due to the length
         of this pending acquisition,  the Company wrote off the entire costs to
         operations in May 2000.

     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 1,601,250  and 1,401,250
         remain outstanding at May 31, 2000 and 1999, respectively, but were not
         included in the  computation of diluted EPS because to do so would have
         been antidilutive for the periods presented.

     8.  Financial Instruments

         Financial instruments include cash, patient care receivables,  accounts
         payable  and  accrued  expenses.  The amounts  reported  for  financial
         instruments  are  considered to be reasonable  approximations  of their
         fair values.  The fair value estimates  presented  herein were based on
         market  or  other  information  available  to  management.  The  use of
         different market assumptions and/or estimation methodologies could have
         a material effect on the estimated fair value amounts.

                                      F-9

<PAGE>

NOTE C  - 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
     during the fiscal year ended May 31,1999 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 D - COMMON STOCK

1. Issuance of Common Stock

     In July 1999,  the Company issued 10,000 shares of Common Stock to Richards
     Healthcare Inc. in  consideration  of temporary  employee  services.  These
     shares were valued at a price of $4.43 per share.

     During the fiscal year ended May 31, 2000, the Company issued 20,000 shares
     of Common Stock to Investec Ernst & Company in  consideration of investment
     banking services. These shares were valued at a price of $2.00 per share.

     In February  2000, the Company issued 50,000 shares of Common Stock to Rush
     & Co. in a private placement.  These shares were valued at an average price
     of $1.00 per share.

     In April 2000, the Company issued 50,000 shares of Common Stock to Washburn
     & Enright in  consideration  of consulting  services  outside of the United
     States. These shares were valued at a price of $1.50 per share.

     In May 2000, the Company issued 200,000 shares of Common Stock in a private
     placement to TTC  Vermogensberatung  A.G. at an offering price of $1.35 per
     share, with net proceeds to the Company of $1.00 per share.

     Through May 31, 2000 and 1999, the Company issued an aggregate of 7,500 and
     46,242  shares,  respectively,  of  Common  Stock  in  exchange  for  legal
     services.  The shares were  valued at an average  price of $2.00 and $3.02,
     per share, respectively.

     Through May 31, 2000 and 1999,  the Company  issued an  aggregate of 25,000
     and 28,708 shares, respectively, of Common Stock in exchange for consulting
     services. The shares were valued at an average 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.

                                      F-10

<PAGE>

     In July  1998,  the  Company  issued  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. Consulting Agreements

     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.  As of May 31,  2000,  these
     options have not been exercised.  The Company recorded  consulting expenses
     of approximately  $925,000 and $517,000 in years 1999 and 2000,respectively
     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.
     During the fiscal year ended May 31, 2000,  the Company  granted Mr. Burton
     Dubbin  options to purchase  300,000  shares of Common Stock at an exercise
     price of $1.50 per share.  Mr. Burton Dubbin  exercised  options to acquire
     275,000  shares of Common  Stock at $1.69  per share and  20,000  shares of
     Common Stock at $1.50 per share.

3. Options

     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 which  provides  for (i) an annual  salary of
     $175,000 per year,  (ii)  performance  bonus of up to $35,000  annually and
     (iii)  annual  options  to  acquire  20,000  shares of  Common  Stock at an
     exercise  price  equal to the fair  market  value of the  shares on date of
     grant.  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.

     In March 1999, Mr. Fredrick Veit, counsel to the Company, exercised options
     to  acquire  15,000  shares  of Common  Stock.  In August  1999,  Mr.  Veit
     exercised  his  options to acquire  the  remaining  2,500  shares of Common
     Stock.

     In July 1999, Mr. Fred Singer, Secretary of the Company,  exercised options
     to acquire  5,000 shares of Common  Stock.  In April 2000,  Mr.  Singer had
     10,000 options to purchase Common Stock expire.

                                      F-11

<PAGE>

     From  September 1999 to February 2000, in order to provide the Company with
     working capital, Mr. Henry Dubbin, president,  exercised options to acquire
     350,000 shares of Common Stock.  Mr. Henry Dubbin has remaining  options to
     acquire 150,000 shares of Common Stock which expire on January 24, 2005.

     For the years ended May 31, 2000 and 1999, a summary of the status of stock
     options was as follows:

<TABLE>
<CAPTION>
                                                                  2000                             1999
                                                      --------------------------            ----------------------
                                                                        Weighted-                        Weighted-
                                                        Number           average            Number        average
                                                          of            exercise              Of         exercise
                                                        shares            price             shares         price
                                                        ------            -----             ------         -----
         <S>                                          <C>               <C>                <C>            <C>
         Outstanding - beginning of year              1,401,250         $2.29                936,250       $2.30
         Granted                                        862,500          1.50                580,000        2.15
         Exercised                                     (652,500)         1.77               (115,000)       1.69
         Expired                                        (10,000)         1.00                  --            --
                                                       ---------                           ---------
         Outstanding - end of year                     1,601,250         $2.08             1,401,250       $2.29
                                                       =========                           =========
</TABLE>


     As of May 31, 2000,  options to purchase  1,581,250  shares of Common Stock
     were  exercisable,  with a  weighted-average  exercise  price of $2.08  per
     share.

     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.

     The following table summarizes option data as of May 31, 2000:

                             Weighted-average  Weighted-               Weighted-
     Range of                   remaining      average                 average
     exercise     Number       contractual     exercise   Number       exercise
     prices      outstanding     life           price    Exercisable    price
     ------      -----------     ----           -----    -----------    -----

  $1 to $1.99      802,500       4.17          $1.51      802,500      $1.51
  $2 to $3.50      648,750       3.60           2.27      628,750       2.27
 $3.51 to $5.00    150,000       1.00           4.38      150,000       4.38
                 ---------                              ---------
                 1,601,250                              1,581,250
                 =========                              =========


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

                             Weighted-average  Weighted-               Weighted-
     Range of                   remaining      average                 average
     exercise     Number       contractual     exercise   Number       exercise
     prices      outstanding     life           price    Exercisable    price
     ------      -----------     ----           -----    -----------    -----

  $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
                 =========                              =========


     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.

                                      F-12

<PAGE>

     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 years ended May 31, 2000 and 1999.

     The following assumptions were made in estimating fair value:

                                                            2000        1999
                                                            ----        ----
                 Risk-free interest rate                     6%          6%
                 Expected volatility                        42%         50%
                 Expected option life                       10 years    10 years


     Had  compensation  cost been  determined  under  SFAS No. 123 for the years
     ended May 31,  2000 and 1999,  net loss and net loss per share  would  have
     been increased as follows:

                                                        2000            1999
                                                        ----            ----
                 Net loss
                     As reported                    $(3,137,103)   $(3,396,097)
                     Pro forma for stock options    $(3,362,103)   $(3,483,097
                 Net loss per share
                     As reported                          $(.52)         $(.65)
                     Pro forma for stock options          $(.55)         $(.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, 2000, the Company
     had not granted any options under the Plan.

5. Reserved Shares

     As of May 31, 2000, the Company has reserved the following shares of common
     stock:

              Options                                         1,601,250
              Plan                                              600,000
                                                              ---------
                                                              2,201,250
                                                              =========

NOTE E - INVESTMENT IN GOLD ORE

     As of May 31, 2000 and 1999, investment in gold ore is as follows:


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

                                      F-13

<PAGE>

     As of May 31, 1998,  the Company (i) has  unsuccessfully  attempted to sell
     the gold ore,  (ii) does not have the  resources  to commence the mining of
     the gold ore;  and  (iii)  focuses  in  medical  and  related  areas,  and,
     therefore,  the Company has provided a  write-down  for  impairment  of the
     investment in gold ore of $3,000,000.


NOTE F - FIXED ASSETS

     As of May 31, 2000 and 1999, fixed assets consisted of the following:

                                                     2000                1999
                                                     ----                ----
       Office equipment and furniture               $26,483             $28,727
       Less accumulated depreciation
           and amortization                          24,521              17,901
                                                     ------             -------
                                                    $ 1,962            $ 10,826
                                                     ======             =======

     For the years ended May 31, 2000 and 1999,  depreciation expense was $6,620
     and $64,154, respectively.


NOTE G - INCOME TAXES

     For the  years  ended  May 31,  2000 and 1999,  the tax  effects  of timing
     differences which gave rise to deferred income taxes were as follows:

                                                   2000                 1999
                                                   ----                 ----
         Net operating loss
             carryforwards                      $   780,000             708,573
         Cash basis                                  58,000             336,187
         Less valuation allowance                  (838,000)         (1,044,760)
                                                -----------         -----------
                                                $    --             $    --
                                                ===========         ===========

     As of May 31, 2000 and 1999,  the tax effects of the components of deferred
     income tax payable were as follows:

                                                   2000                1999
                                                   ----                ----
         Allowance for impairment
             of gold ore                        $ 1,324,000         $ 1,324,000
         Net operating loss carryforwards         2,864,000           2,084,573
         Cash basis                                 394,000             336,187
         Less valuation allowance                (4,582,000)         (3,744,760)
                                                -----------         -----------
                                                $    --             $    --
                                                ===========         ===========

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

                                                    2000                1999
                                                    ----                ----
           Tax at statutory rate                $ 1,067,000         $ 1,154,673
           State income tax                         314,000             314,610
           Valuation allowance                   (1,381,000)         (1,494,283)
                                                ------------        -----------
                                                $    --             $    --
                                                ===========         ===========

     As of May 31, 2000,  realization  of the  Company's  deferred tax assets of
     $4,582,000  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 $4,582,000 has been established.

     As of May 31, 2000,  the Company had net operating  loss  carryforwards  of
     approximately  $6,849,000 to reduce future Federal taxable income, expiring
     during various years through May 31, 2019. The Company's ability to utilize
     net  operating  losses may be limited  pursuant  to Internal  Revenue  Code
     Section 382.

                                      F-14

<PAGE>

NOTE H - 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.

     As of May 31, 2000, the future  minimum  aggregate  annual  payments are as
     follows:

             Year ending  May 31,

                  2001                                           30,720
                  2002                                           15,360
                                                                -------
                                                                $46,080
                                                                =======

     For the years  ended May 31,  2000 and 1999,  rent  expense was $30,720 and
     $64,868, respectively.

2. Insurance

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


NOTE I  - 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.

NOTE J - SUBSEQUENT EVENTS

     In June 2000, the Company entered into a consulting agreement with American
     Financial  Communications,  Inc. (AFC) for a six month period. AFC will act
     as a public and financial  relations advisor and consultant to the Company.
     AFC received 50,000 shares of the Company's Common Stock.  These shares are
     "restricted securities" within the meaning of Rule 144 under the Securities
     Act.

     In June 2000,  the Company  entered  into a consulting  agreement  with EBI
     Securities  Corporation (EBI) for a one year term. EBI will act as a public
     relations  advisor and consultant to the Company.  EBI received  options to
     acquire 25,000 shares of the Company's  Common Stock at $1.75 per share and
     25,000 shares of the Company's Common Stock at $2.00 per share.

     In July 2000, the Company entered into a consulting  agreement with Timothy
     Stoakes for a one year term.  Mr.  Stoakes  will act as a public  relations
     advisor and  consultant  to the  Company  outside  the United  States.  Mr.
     Stoakes  received options to acquire 150,000 shares of the Company's Common
     Stock at $0.60 per share.

     In July 2000,  the Company  entered  into a consulting  agreement  with The
     Titan Group LLC (Titan) for a one year term. Titan will provide  consulting
     and advisory services relating to business management and marketing.  Titan
     received options to acquire 100,000 shares of the Company's Common Stock at
     $0.60 per share,  50,000 shares of the Company's  Common Stock at $2.25 per
     share,  50,000 shares of the Company's  Common Stock at $3.00 per share and
     an additional  50,000 shares with an exercise price of $6.00 per share. The
     options will expire on July 1, 2002.

                                      F-15