SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                  FORM 10-KSB/A

                                 Amendment No. 1

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

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

                         Commission File Number: 0-16206

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

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

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

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

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

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


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

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

         The Registrant's revenues for its most recent fiscal year:  $750,690.

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

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

         Transactional Small Business Disclosure Format:  Yes:__   No:  X

<PAGE>


                                EXPLANATORY NOTE

         This Amendment No. 1 on Form 10-KSB/A amends Item 13 of the Annual
Report on Form 10-K filed on September 14, 1999 (the "Original Form 10-KSB") on
behalf of Oak Tree Medical Systems, Inc.

         Item 13 of the Original Form 10-KSB is amended to read in its entirety
as follows:


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

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

(a)       Financial Statements:                                      Page
                                                                     ----

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

          Independent Auditors' Report................................F-3

          Consolidated Balance Sheets.................................F-4-F-5

          Consolidated Statement of Operations........................F-6

          Consolidated Statement of Stockholders' Equity..............F-7

          Consolidated Statement of Cash Flows........................F-8-F-9

          Notes to Consolidated Financial Statements..................F-10-F-26

(b)       Reports on Form 8-K.

          None.

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

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

                                       1

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       2

<PAGE>

          the fiscal quarter ended August 31, 1996.

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

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

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

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

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

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

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

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

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

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

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

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

21        Subsidiaries:

                                       3

<PAGE>

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

27*       Financial Data Schedule.

-----------------
* Previously filed.

                                       4


<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:  January 5, 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       January 5, 2000
------------------------
Henry Dubbin


/s/ Simon Boltuch               Chief Financial Officer      January 5, 2000
------------------------        (Principal Financial and
Simon Boltuch                   accounting Officer)


                                Vice President and
------------------------        Director
Fred L. Singer


/s/ Jerry D. Klepner
------------------------        Director                     January 5, 2000
Jerry D. Klepner


/s/ Maxwell M. Rabb
------------------------        Director                     January 5, 2000
Maxwell M. Rabb


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

<PAGE>

                                    I N D E X


                                                                          Page
                                                                          ----

Report of Independent Certified Public Accountants                         F-2

Independent Auditors' Report                                               F-3

Consolidated Financial Statements

      Consolidated Balance Sheets                                     F-4 - F-5

      Consolidated Statements of Operations                                F-6

      Consolidated Statement of Stockholders' Equity                       F-7

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

      Notes to Consolidated Financial Statements                    F-10 - F-26


                                      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 (the "Company") as of May 31, 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Oak
Tree Medical Systems, Inc. and Subsidiaries as of May 31, 1999, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with generally accepted accounting
principles.



GRANT THORNTON LLP


New York, New York
September 3, 1999

                                      F-2

<PAGE>


                          INDEPENDENT AUDITORS' REPORT


Board of Directors
    Oak Tree Medical Systems, Inc.


We have audited the accompanying consolidated balance sheet of Oak Tree Medical
Systems, Inc. and Subsidiaries as of May 31, 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Oak
Tree Medical Systems, Inc. and Subsidiaries as of May 31, 1998, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended in conformity with generally accepted accounting principles.




MOST HOROWITZ & COMPANY, LLP


New York, New York
August 7, 1998

                                      F-3
<PAGE>


                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                     May 31,

                  ASSETS                                1999           1998
                                                        ----           ----

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

              Total current assets                      225,371      1,350,915

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

FIXED ASSETS                                             10,826        502,339

DEFERRED ACQUISITION COSTS                              162,450         98,804

OTHER ASSETS                                                            97,740

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




The accompanying notes are an integral part of these statements.

                                      F-4
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                     May 31,


                                                      1999            1998
                                                      ----            -----
     LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable and accrued expenses          $  864,063      $   844,726
    Notes payable                                       -              334,769
    Current portion of capitalized lease
    obligations                                         -              130,572
    Current portion of long-term debt                   -               66,856
                                                   -----------      ----------
              Total current liabilities               864,063        1,376,923

LONG-TERM DEBT                                          -              208,201

CAPITALIZED LEASE OBLIGATIONS                           -              458,414

ACCOUNTS PAYABLE                                        -               61,551

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
    Common stock, $.01 par value; authorized,
       25,000,000 shares; issued and outstanding,
       5,602,703 and 4,657,753 shares, respectively    56,026           46,577
    Additional paid-in capital                     14,653,072       12,140,841
    Deficit                                       (13,180,300)      (9,784,203)
    Less prepaid consulting and stock
       subscription receivable                           -            (237,404)
                                                  -----------       -----------
                                                    1,528,798        2,165,811
                                                  -----------       ----------
                                                 $  2,392,861      $ 4,270,900
                                                  ===========       ==========



The accompanying notes are an integral part of these statements.


                                      F-5
<PAGE>


                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                               Year ended May 31,

                                                       1999            1998
                                                      -----            ----
Revenue
    Patient services                               $   750,690     $ 2,258,186

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

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

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

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

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



The accompanying notes are an integral part of these statements.


                                      F-6

<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                        Years ended May 31, 1999 and 1998
<TABLE>
<CAPTION>
                                                                                                          Prepaid
                                                                                                         consulting
                                                                          Additional                      and stock      Total
                                                   Common stock            paid-in                      subscription  stockholders'
                                                Shares       Amount        capital         Deficit       receivable      equity
                                                ------       ------        -------         -------       ----------      ------
<S>                                            <C>            <C>         <C>            <C>              <C>              <C>
Balance at June 1, 1997                        2,888,144     $28,881    $  9,772,472    $ (4,726,638)    $(181,389)     $ 4,893,326

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

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

Sales of common stock (net of expenses
of $725,619)                                     655,000       6,550         726,348                                        732,898
Issuance of shares for services                   74,950         749         163,783                                        164,532
Issuance of shares for payoff of loan
payable                                          100,000       1,000         129,000                                        130,000
Exercises of options                             115,000       1,150         193,100                                        194,250
Amortization of prepaid consulting                                                                         237,404          237,404
Issuance of stock options to
  consultants                                                              1,300,000                                      1,300,000
Net loss                                                                                  (3,396,097)                    (3,396,097)
                                              ----------     -------     -----------    ------------     ---------      -----------
Balance at May 31, 1999                        5,602,703     $56,026     $14,653,072    $(13,180,300)    $       -      $ 1,528,798
                                               =========      ======      ==========     ===========     =========      ===========

</TABLE>


The accompanying notes are an integral part of this statement.

                                      F-7
<PAGE>


                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                               Year ended May 31,

                                                         1999             1998
                                                         ----             ----
Cash flows from operating activities
  Net loss                                            $(3,396,097)  $(5,057,565)
  Adjustments to reconcile net loss to net cash
      used in operating activities
       Write-down of investment in gold ore                     -     3,000,000
       Depreciation and amortization                       65,350       560,397
       Bad debts                                          223,108        65,935
       Stock options issued for services                1,831,936        56,064
       Loss (gains) on sales of facilities                 59,005      (208,584)
       Gain on termination of employment agreement              -        (5,076)
       Increase (decrease) in cash from
         Patient care receivables                         165,121        17,150
         Other current assets                             103,509          (705)
         Other assets                                      97,740        (5,260)
         Accounts payable and accrued expenses             19,337        20,371
         Other liabilities                                (61,551)            -
         Deferred compensation                                  -       (60,000)
                                                      -----------   -----------
           Net cash used in operating activities         (892,542)   (1,617,273)

Cash flows from investing activities
  Proceeds from sale of facilities                        625,000
  Collections of note receivable                                        325,000
  Proceeds from sales of fixed assets                                   171,335
  Acquisition                                                          (100,000)
  Costs of proposed acquisition                           (63,646)      (98,804)
  Purchases of fixed assets                                     -       (50,824)
                                                      -----------    ----------
           Net cash provided by (used in)
             investing activities                         561,354       246,707
                                                      -----------    -----------

                                      F-8
<PAGE>


                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

                               Year ended May 31,

                                                       1999             1998
                                                       ----             ----
Cash flows from financing activities
   Proceeds from issuance of common stock, net     $   927,148      $ 1,990,157
   Proceeds of notes payable                                 -          334,769
   Payments of long-term debt                         (200,000)        (319,388)
   Payment of note payable                            (334,769)        (197,305)
   Payments of capitalized lease obligations          (395,096)        (108,195)
                                                   -----------      -----------
       Net cash (used in) provided by
       financing activities                             (2,717)       1,700,038
                                                    ----------      -----------
       NET (DECREASE) INCREASE IN CASH                (333,914)         329,472
Cash at beginning of year                              455,391          125,919
                                                    ----------      -----------
Cash at end of year                                $   121,477     $    455,391
                                                    ==========      ===========
Supplemental disclosures of cash flow
information:
   Cash paid during the year for
      Interest                                     $    36,639     $    202,288
                                                   ===========      ===========
Summary of noncash items:
   Capitalized lease obligations                   $         -     $    190,610
                                                   ===========      ===========
   Issuance of note payable on acquisition         $         -     $    300,000
                                                   ===========      ===========


In the fiscal year ended May 31, 1998, the Company exchanged their investment in
an affiliated company for 100% of the outstanding stock of a subsidiary (Note
G).


The accompanying notes are an integral part of these statements.


                                      F-9
<PAGE>


                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              May 31, 1999 and 1998

NOTE A - BACKGROUND OF THE COMPANY

     Oak Tree Medical Systems, Inc. (the "Company"), a Delaware corporation, was
     incorporated in Delaware on May 27, 1986, as Oak Tree Construction
     Computers, Inc. From 1986 through 1990, the Company was engaged in the sale
     of computer systems for the construction industry. For a number of years
     thereafter, the Company was inactive. The Company changed its name to Oak
     Tree Medical Systems, Inc. in August 1994. Since January 1995, the Company
     has been engaged in the business of operating and managing physical therapy
     care centers and related medical practices. As of May 31, 1999, the
     Company, through its subsidiary, Oak Tree Medical Management Inc., operates
     one New York City-based physical therapy care center.

     Liquidity

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

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


                                      F-10
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              May 31, 1999 and 1998

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     1.  Basis of Presentation

         The consolidated financial statements include the accounts of Oak Tree
         Medical Systems, Inc. and its wholly-owned subsidiaries and Oak Tree
         Medical Practice, P.C., a professional practice entity over which the
         Company exercises significant influence and control. All material
         intercompany balances and transactions have been eliminated.

     2.  Revenue Recognition

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

     3.  Use of Estimates

         In preparing financial statements in conformity with generally accepted
         accounting principles, management is required to make estimates and
         assumptions that affect the reported amounts of assets and liabilities
         and disclosure of contingent assets and liabilities at the date of the
         financial statements, as well as the reported amounts of revenues and
         expenses during the reporting period. Actual results could differ from
         those estimates.

     4.  Fixed Assets

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

     5.  Deferred Acquisition Costs

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


                                      F-11
<PAGE>


                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998

NOTE B (continued)

     6.  Income Taxes

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

     7.  Net Loss Per Share

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

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

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

     8.  Impairment of Long-Lived Assets

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

     9.  Goodwill

         Goodwill resulting from acquisitions of established physical therapy
         care centers represents costs in excess of net assets acquired and is
         being amortized on a straight-line basis over twenty years.


                                      F-12
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998

NOTE B (continued)

         Annually, the Company evaluates goodwill for impairment by comparing
         estimated discounted future cash flows to net book value.

   10.   Certain Reclassifications

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


NOTE C - ACQUISITION

     On July 16, 1997, the Company acquired a physical therapy care center in
     New York City for a purchase price of $400,000, payable $100,000 in cash,
     which was paid at closing, and a note payable in the amount of $300,000. In
     addition, the seller, a physician, entered into a noncompete agreement for
     four years. Furthermore, since the acquired physical therapy care center
     did not achieve certain billings, the purchase price was reduced by
     $100,000.

     In connection with the acquisition, the Company entered into a: (1) lease
     for a facility, (2) consulting agreement with the seller for a six-month
     period and then on a month-to-month basis, at $150,000 per annum, and (3)
     consulting agreement with the physical therapy care center administrator, a
     relative of the seller, for a six-month period and then on a month-to-month
     basis, at $50,000 per annum.

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

           Physical therapy equipment                         $171,335
           Office furniture and equipment                        3,665
           Covenant not-to-compete                              25,000
           Goodwill                                            200,000
                                                               -------
                                                              $400,000
                                                              ========

                                      F-13
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998


NOTE D - SALES OF NEW YORK CITY CENTERS

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

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

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

         Proceeds                                                    $ 625,000
         Expenses related to sales                                      (6,855)
         Assumption of capitalized leases                              193,890
         Costs of assets sold                                         (428,331)
         Provision for doubtful accounts                              (300,000)
         Write-off of goodwill                                        (142,709)
                                                                      --------
         Loss on sales of facilities                                $  (59,005)
                                                                     =========

NOTE E - COMMON STOCK

     1.  Issuance of Common Stock

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


                                      F-14
<PAGE>


                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998


NOTE E (continued)

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

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

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

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

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

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

     2.  Public Relations Consulting Agreements

         In April and May 1997, the Company entered into three public relations
         consulting agreements, two for a period of one year and the other
         through December 31, 1997, in exchange for an aggregate compensation
         of: (a) 175,000 shares of common stock for an aggregate purchase price
         of $1,750, (b) $3,000, per month, for one year, and (c) options to
         acquire 525,000 shares of common stock.


                                      F-15
<PAGE>


                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998


NOTE E (continued)

         The options are exercisable at $2 to $5, per share, through December
         31, 1997, as extended. The shares were recorded at $.75 to $1.69, per
         share. The aggregate consulting fees of $170,750 have been capitalized
         and are being amortized over the terms of the agreements.

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

         During the year ended May 31, 1999, the Company extended the expiration
         dates of 218,750 options issued in a prior year to consultants. The
         Company recorded consulting expense relating to such extension totaling
         approximately $82,000. In August 1997, Mr. Burton Dubbin terminated his
         employment with the Company and entered into a two-year consulting
         agreement at a fee of $150,000 per annum, plus 125,000 shares of Common
         Stock, of which 25,000 shares were immediately issuable and 5,000
         shares are issuable monthly (in an aggregate amount not to exceed
         100,000 shares) for the duration of Mr. Burton Dubbin's service with
         the Company. In addition, the Company amended the terms of the options,
         making such options immediately exercisable and extending the
         expiration date until 2007. In June 1998, the Company extended Mr.
         Burton Dubbin's consulting agreement until August 31, 2002. In
         addition, the Company granted Mr. Burton Dubbin options to purchase
         500,000 shares of Common Stock at an exercise price of $2.17 per share
         and were exercisable six months from date of grant. The Company
         recorded consulting expenses in 1999 of approximately $925,000 relating
         to these options. During the fiscal year ended May 31, 1999, Mr. Burton
         Dubbin exercised options to acquire 100,000 shares of Common Stock.

     3.  Options

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


                                      F-16
<PAGE>


                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998


NOTE E (continued)

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

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

         For the years ended May 31, 1999 and 1998, a summary of the status of
stock options was as follows:
<TABLE>
<CAPTION>
                                                                1999                           1998
                                                       --------------------------     -----------------------
                                                                        Weighted-                   Weighted-
                                                        Number           average        Number       average
                                                          of            exercise          Of         exercise
                                                        shares            price         shares        price
                                                        ------            -----         ------        -----
<S>                                                      <C>             <C>           <C>            <C>
         Outstanding - beginning of year                 936,250         $2.30         1,542,500      $2.24

         Granted                                         580,000          2.15            60,000       1.59
         Exercised                                      (115,000)         1.69          (115,250)      2.32
         Forfeited                                             -                        (350,000)      1.00
         Expired                                               -                        (201,000)      3.84
                                                       ---------                       ---------
         Outstanding - end of year                     1,401,250         $2.29           936,250      $2.30
                                                       =========                       =========
</TABLE>

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


                                      F-17
<PAGE>


                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998


NOTE E (continued)

        The following table summarizes option data as of May 31, 1999:
<TABLE>
<CAPTION>

                                                    Weighted-
                                                     average         Weighted-                      Weighted-
              Range of                              remaining         average                        average
              Exercise            Number           contractual       exercise          Number        exercise
               Prices           outstanding            life            price        exercisable       price
               ------           -----------            ----            -----        -----------       -----

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

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

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

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

The following assumptions were made in estimating fair value:

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

                                      F-18

<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998

NOTE E (continued)

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

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

    4.   Stock Option Plan

         The Company has a Performance Equity Plan (the "Plan") under which it
         may grant incentive and nonqualified stock options, stock appreciation
         rights, restricted stock awards, deferred stock, stock reload options
         and other stock-based awards to purchase up to 600,000 shares of common
         stock to officers, directors, key employees and consultants. The
         Company may not grant any options with a purchase price less than fair
         market value of common stock as of the date of the grant. Through May
         31, 1999, the Company had not granted any options under the Plan.

     5.  Reserved Shares

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

              Options                                          1,401,250
              Plan                                               600,000
                                                               ---------
                                                               2,001,250
                                                               =========

NOTE F - PATIENT CARE RECEIVABLES

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


                                      F-19
<PAGE>


                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998

NOTE G - INVESTMENT IN GOLD ORE

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

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

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

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

     As of May 31, 1998, the Company: (i) has unsuccessfully attempted to obtain
     financial and other information from Accord, as to both the subsidiary and
     the underlying gold ore; (ii) has unsuccessfully attempted to sell the gold
     ore; (iii) does not have the resources to commence the mining of the gold
     ore; and (iv) 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, resulting in a carrying value, based on discussions with
     potential buyers.

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

                                  BALANCE SHEET

          Cash, cash equivalents, and marketable securities       $  1,365,591
          Investment in gold reserves                               42,875,000
          Other assets                                               1,115,122
                                                                   -----------
                                Total assets                      $ 45,355,713
                                                                  ============

                                      F-20
<PAGE>


                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998

NOTE G (continued)

        Liabilities                                                       NONE
        Shareholders' equity                                       $45,355,713
                                                                   -----------
        Total liabilities and stockholders' equity                 $45,355,713
                                                                   ===========
                       STATEMENT OF OPERATIONS

        Revenues                                                   $   195,007
        Expenses                                                      (214,294)
                                                                   -----------
                        NET LOSS                                   $   (19,287)
                                                                   ===========

     At May 31, 1999, there is no change in the status of the gold ore.

NOTE H - FIXED ASSETS

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

                                                           1999          1998
                                                           ----          ----
       Physical therapy equipment                                      $687,366
       Office equipment and furniture                     $28,727        56,509
       Leasehold improvements                                            40,919
                                                         --------      --------
                                                           28,727       784,794
       Less accumulated depreciation
           And amortization                                17,901       282,455
                                                           ------      --------
                                                          $10,826      $502,339
                                                           ======      ========

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

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


                                      F-21
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998

NOTE I - LONG-TERM DEBT

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

                                                                   1998
                                                                   ----
        Note payable in equal quarterly
            Installments of $18,348,
            Including interest at 8%,
            Per annum (a)                                        $275,057

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

     (a)  Collateralized by all the assets acquired.

NOTE J - CAPITALIZED LEASE OBLIGATIONS

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

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

     In August 1997, the Company sold the physical therapy equipment acquired in
     August 1997 (Note C) for $171,335 and leased back the equipment for a
     period of five years.

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


                                      F-22
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998

NOTE K - INCOME TAXES

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

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

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

                                                       1999               1998
                                                       ----               ----
         Allowance for impairment of gold ore      $ 1,324,000      $ 1,324,000
         Net operating loss carryforwards            2,084,573        1,376,000
         Cash basis                                    336,187
         Less valuation allowance                   (3,744,760)      (2,700,000)
                                                   -----------      ------------
                                                   $         -      $         -
                                                   ===========      ============

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

                                                         1999             1998
                                                         ----             ----
           Tax at statutory rate                   $ 1,154,673      $ 1,720,000
           State income tax                            339,610          280,000
           Valuation allowance                      (1,494,283)      (2,000,000)
           Other                                             -                -
                                                   -----------      -----------
                                                   $         -      $         -
                                                   ===========      ===========


                                      F-23
<PAGE>


                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998

NOTE K (continued)

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

     As of May 31, 1999, the Company had net operating loss carryforwards of
     approximately $5,077,000 to reduce future Federal taxable income, expiring
     through May 31, 2018. The Company's ability to utilize net operating losses
     may be limited pursuant to Internal Revenue Code Section 382.


NOTE L - COMMITMENTS AND CONTINGENCIES

     1.  Leases

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

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

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

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

     2.  Employment Agreements

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


                                      F-24
<PAGE>

                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998

NOTE L (continued)

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

     3.  Insurance

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


NOTE M - RELATED PARTY TRANSACTIONS

     Consulting Agreement

     In December 1996, the Company granted ten-year options to acquire 375,000
     shares of Common Stock to Burton Dubbin, the son of Mr. Henry Dubbin, the
     Company's president, in exchange for consulting services. These options had
     an exercise price of $1.6875 per share and were to vest upon the earlier to
     occur of (i) the Company's achievement of certain financial benchmarks,
     (ii) the five-year anniversary of the issuance of the options and Mr.
     Burton's being an employee with the Company or (iii) a change of control
     (as defined). Mr. Burton Dubbin became an employee of the Company in April
     1997. In August 1997, Mr. Burton Dubbin terminated his employment with the
     Company and entered into a two-year consulting agreement at a fee of
     $150,000 per annum, plus 125,000 shares of Common Stock, of which 25,000
     shares were immediately issuable and 5,000 shares are issuable monthly (in
     an aggregate amount not to exceed 100,000 shares) for the duration of Mr.
     Burton Dubbin's service with the Company. In addition, the Company amended
     the terms of the options, making such options immediately exercisable and
     extending the expiration date until 2007. In June 1998, the Company
     extended Mr. Burton Dubbin's consulting agreement until August 31, 2002. In
     addition, the Company granted Mr. Burton Dubbin options to purchase 500,000
     shares of Common Stock at an exercise price of $2.17 per share and were
     exercisable six months from date of grant.


                                      F-25
<PAGE>


                         Oak Tree Medical Systems, Inc.
                                and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                              May 31, 1999 and 1998

NOTE N - SUBSEQUENT EVENTS

     Pending Acquisitions

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


                                      F-26