<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended: May 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION
13(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to________
COMMISSION FILE NUMBER: 0-29346
FRM NEXUS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3754422
(State or other jurisdiction of incorporation (I.R.S.Employer Identification No.)
or organization)
271 NORTH AVENUE, NEW ROCHELLE, NY 10801
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (914) 636-3432
N/A
(Former name, former address and former fiscal year, if changed since last
report)
--------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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( )
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by checkmark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes ( ) No ( )
APPLICABLE ONLY TO CORPORATEISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, at July 14, 2000: 1,816,462.
<PAGE> 2
FRM NEXUS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MAY 31, 2000
<TABLE>
<CAPTION>
Page No.
PART I
<S> <C>
Item 1. Financial Statements.............................................................................2
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................................................15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk..............................................................................................18
PART II
Item 6. Exhibits and reports on form 8-K................................................................18
</TABLE>
1
<PAGE> 3
FRM Nexus, Inc. and Subsidiaries
Index to Consolidated Financial Statements
PART I
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheets--May 31, 2000 (unaudited) and February 29, 2000..............................3
Consolidated Statements of Operations (unaudited) --Three months ended
May 31, 2000 and 1999....................................................................................5
Consolidated Statement of Stockholders' Equity (unaudited) --
Three months ended May 31, 2000 ......................................................................6
Consolidated Statements of Cash Flows (unaudited) --
Three months ended May 31, 2000 and 1999..............................................................7
Notes to Consolidated Financial Statements (unaudited)...................................................8
</TABLE>
2
<PAGE> 4
FRM Nexus Inc.and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
2000 2000
-----------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents $ 109,844 $ 591,408
Mortgage and notes receivable - current 27,201 26,597
Finance receivables, net 3,217,053 2,479,999
Other current assets 86,829 103,994
-----------------------------------------------------
Total current assets 3,440,927 3,201,998
-----------------------------------------------------
Property and equipment:
Property and equipment, at cost 373,847 348,575
Less accumulated depreciation and amortization 133,310 115,794
-----------------------------------------------------
240,537 232,781
-----------------------------------------------------
Other assets:
Real estate held for development and sale 510,880 510,880
Mortgage and notes receivable 3,229,836 3,236,866
Accrued interest receivable - related party mortgage 321,150 321,150
Loans receivable 118,241 98,381
Other 105,797 95,991
Net assets of discontinued operations 1,181,038 1,174,892
-----------------------------------------------------
Total other assets 5,466,942 5,438,160
-----------------------------------------------------
Total assets $ 9,148,406 $ 8,872,939
=====================================================
</TABLE>
See notes to interim consolidated financial statements.
3
<PAGE> 5
FRM Nexus Inc.and Subsidiaries
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
2000 2000
-----------------------------------------------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 232,336 $ 213,683
Current portion of notes payable, including $270,000 at May 31,
2000 payable to related parties 289,854 19,282
Due to finance customers 1,736,774 1,402,546
Income taxes payable 189 5,367
Other current liabilities 20,000 20,000
-----------------------------------------------------
Total current liabilities 2,279,153 1,660,878
-----------------------------------------------------
Other liabilities:
Notes payable 19,453 24,655
Deferred Income 2,569,513 2,569,513
-----------------------------------------------------
Total other liabilities 2,588,966 2,594,168
-----------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Common stock - $.10 par value;
Authorized - 2,000,000 shares;
Issued and outstanding - 1,816,462 shares 181,646 181,646
Capital in excess of par value 5,826,909 5,826,909
Unrealized loss on mortgage and notes receivable (78,019) (78,019)
Accumulated deficit (1,650,249) (1,312,643)
-----------------------------------------------------
Total stockholders' equity 4,280,287 4,617,893
-----------------------------------------------------
Total liabilities and stockholders' equity $ 9,148,406 $ 8,872,939
=====================================================
</TABLE>
See notes to interim consolidated financial statements.
4
<PAGE> 6
FRM Nexus Inc.and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 31,
2000 1999
----------------------------------------------
<S> <C> <C>
REVENUES
Rental income $ 23,410 $ 25,175
Interest from mortgages 22,992 58,332
Income from the purchase of medical receivables 187,111 331,302
Medical management service fees 159,779 -
----------------------------------------------
Total income 393,292 414,809
----------------------------------------------
COSTS AND EXPENSES
Real estate 68,724 86,338
Medical receivables 345,244 295,550
Medical management services 203,429 -
Corporate expenses 94,211 104,507
Depreciation and amortization 17,514 13,406
----------------------------------------------
Total costs and expenses 729,122 499,801
----------------------------------------------
Loss from operations (335,830) (84,992)
----------------------------------------------
Other income (expense):
Interest income 3,003 1,090
Interest expense (6,596) (26,771)
----------------------------------------------
(3,593) (25,681)
----------------------------------------------
Loss from continuing operations before
provision for income taxes (339,423) (110,673)
Provision for income taxes 4,329 4,990
----------------------------------------------
Loss from continuing operations (343,752) (115,663)
Income from discontinued operations, net of taxes (including
gain on sale of subsidiary of $96,303 in 1999) 6,146 144,685
----------------------------------------------
Net (loss) income $ (337,606) $ 29,022
==============================================
Basic and diluted (loss) earnings per common share:
Loss from continuing operations $ (0.19) $ (0.06)
Income from discontinued operations 0.00 0.08
----------------------------------------------
Basic and diluted (loss) earnings per common share $ (0.19) $ 0.02
==============================================
Number of shares used in computation of basic and
diluted earnings per share 1,816,462 1,816,462
==============================================
See notes to interim consolidated financial statements.
</TABLE>
5
<PAGE> 7
FRM Nexus Inc.and Subsidiaries
Consolidated Statement of Stockholders' Equity
February 29, 2000 through May 31, 2000
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN COMPREHENSIVE (ACCUMULATED STOCKHOLDERS' COMPREHENSIVE
STOCK CAPITAL (LOSS)INCOME DEFICIT) EQUITY (LOSS)INCOME
------------------------------------------------------------------------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 29, 2000 $ 181,646 $ 5,826,909 $ (78,019) $ (1,312,643) $ 4,617,893
Net loss - - - (337,606) (337,606) $ (337,606)
-------------
Comprehensive (loss) income $ (337,606)
------------------------------------------------------------------------------------- =============
Balance, May 31, 2000 $ 181,646 $ 5,826,909 $ (78,019) $ (1,650,249) $ 4,280,287
=====================================================================================
</TABLE>
See notes to interim consolidated financial statements.
6
<PAGE> 8
<TABLE>
<CAPTION>
FRM Nexus, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
THREE MONTHS ENDED MAY 31,
2000 1999
--------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (337,606) $ 29,022
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 17,514 13,406
Provision for bad debts 39,211 (9,234)
Changes in operating assets and liabilities:
Prepaid expenses, miscellaneous receivables
and other assets 7,359 37,020
Accounts payable, accrued expenses and taxes 13,475 (90,759)
Other current liabilities - (43,789)
--------------------------------
Net cash used in operating activities (260,047) (64,334)
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures & intangible assets (25,270) (38,540)
Finance receivables (776,265) 514,628
Due to finance customers 334,228 (386,869)
Principal payments on notes receivable 6,426 5,876
Loan receivable (52,000) -
Principal payments on loan receivable 32,140 -
Net assets of discontinued operations (6,146) 870,565
--------------------------------
Net cash (used in) provided by investing activities (486,887) 965,660
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of notes payable 270,000 96,779
Principal payments on notes payable (4,630) (845,577)
--------------------------------
Net cash provided by (used in) financing activities 265,370 (748,798)
--------------------------------
Net (decrease) increase in cash and cash equivalents $ (481,564) $ 152,528
Cash and cash equivalents, beginning of period 591,408 253,012
--------------------------------
Cash and cash equivalents, end of period $ 109,844 $ 405,540
================================
ADDITIONAL CASH FLOW INFORMATION
Interest paid $ 7,649 $ 27,779
================================
Income taxes paid $ 17,916 $ 14,123
================================
</TABLE>
See notes to interim consolidated financial statements
7
<PAGE> 9
FRM Nexus, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information in response to the requirements of Article 10 of
Regulation S-X. Accordingly they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting only of
normal recurring items) necessary to present fairly the financial position as of
May 31, 2000; results of operations for the three months ended May 31, 2000 and
1999; cash flows for the three months ended May 31, 2000 and 1999; and changes
in stockholders' equity for the three months ended May 31, 2000. For further
information, refer to the Company's financial statements and notes thereto
included in the Company's Form 10-K for the year ended February 29, 2000. The
consolidated balance sheet at February 29, 2000 was derived from the audited
financial statements as of that date. Results of operations for interim periods
are not necessarily indicative of annual results of operations.
Certain prior year amounts were reclassified to conform with the current year
presentation.
2. FINANCE RECEIVABLES, NET
Net finance receivables consist of the following:
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
2000 2000
---------------------------------------
<S> <C> <C>
Gross finance receivables $3,793,092 $2,958,825
Allowance for credit losses (251,691) (212,488)
Deferred finance income (324,348) (266,338)
---------------------------------------
$3,217,053 $2,479,999
=======================================
</TABLE>
8
<PAGE> 10
FRM Nexus Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
2000 2000
--------------------------------------------
<S> <C> <C>
Leasehold improvements $ 51,402 $ 51,402
Computer equipment 196,773 173,414
Medical equipment 32,500 32,500
Equipment under capital leases 67,371 67,371
Other equipment and furniture 25,801 23,888
--------------------------------------------
373,847 348,575
Less accumulated depreciation and amortization 133,310 115,794
--------------------------------------------
Property and equipment, net $ 240,537 $ 232,781
============================================
</TABLE>
As of May 31, 2000 and February 29, 2000, accumulated amortization of equipment
under capital leases was $35,153 and $21,699
Depreciation expense for the three months ended May 31, 2000 and 1999, which
includes amortization under capital leases was $17,514 and $13,406.
4. NOTES PAYABLE
Notes payable include the following:
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
2000 2000
---------------------------------------------
<S> <C> <C>
Related party credit line $ 170,000 $ -
Related party escrow loan 100,000 -
Capital lease obligations 39,307 43,937
---------------------------------------------
309,307 43,937
Less current maturities 289,854 19,282
---------------------------------------------
Long-term debt $ 19,453 $ 24,655
=============================================
</TABLE>
9
<PAGE> 11
FRM Nexus Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. NOTES PAYABLE (CONTINUED)
Related Party Credit Line: In December 1997, a $700,000 line of credit was
obtained from a related party, Northwest Management Corp. ("NMC"), a shareholder
of the Company. In January 1999, the line of credit was increased to $785,000.
The president of NMC, who is also a shareholder of the Company, has the power to
vote NMC shares which are owned by his two children. The line, under which there
was an outstanding balance of $100,000 at May 31, 2000, was terminated by mutual
consent of both parties upon full repayment on June 21, 2000. Interest was
calculated at a rate of 12% per annum
Related party escrow loan: In February 1999, a related partnership, whose
partners are directors, officers and shareholders of the Company, committed to
loan until March 15, 2001 an investment portfolio, which at the time was valued
at $240,000, to the Medical Financial Corp. subsidiary. This investment
portfolio is being held in escrow and is used as collateral for the purpose of
obtaining margin loans. At May 31, 2000, the value of this portfolio was valued
at $266,075 and the balance of the escrow loan was $170,000. All risks and
rewards of the investment portfolio pass to the related party. The loans bear
interest at a variable rate based on market condition set at the discretion of
the investment brokerage firm. A fee is payable monthly to the related party at
the rate of 5% per annum on the value of the investment escrow account. This fee
is included in interest expense. Proceeds from the loan may only be used to fund
the purchase of certain medical receivables. The loan is repaid as payment is
received from such receivables. On June 26, 2000, the line was repaid and on
June 30, 2000, the line was terminated by mutual consent of both parties.
Interest expense on these related party borrowings was $4,837 and $25,380 for
the three months ended May 31, 2000 and 1999 .
Capital Lease Obligations: The Company has acquired certain equipment under
various capital leases expiring in 2003. The leases provide for monthly payments
of principal and interest of $1,984 and have been capitalized at imputed
interest rates of 10.82% to 16.72%.
10
<PAGE> 12
FRM Nexus Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. NOTES PAYABLE (CONTINUED)
Aggregate maturities of the amount of notes payable and capital leases for the
years ending February 28 are as follows:
<TABLE>
<CAPTION>
NOTES CAPITAL LEASE
PAYABLE OBLIGATIONS TOTAL
----------------- ------------------- -----------------
<S> <C> <C> <C>
2001 (nine months) $ 270,000 $ 17,860 $ 287,860
2002 - 21,055 21,055
2003 - 6,054 6,054
----------------- ------------------- -----------------
270,000 44,969 314,969
Amount representing interest - 5,662 5,662
----------------- ------------------- -----------------
Total (a) $ 270,000 $ 39,307 $ 309,307
================= =================== =================
</TABLE>
(a)--Total capital lease obligations represent present value of minimum lease
payments.
MINIMUM OPERATING LEASE COMMITMENTS
Subject to annual real estate adjustments and additional rent in excess of base
sales, the following is a schedule of future minimum rental payments required
under the Company's leases for the years ending February 28:
<TABLE>
<CAPTION>
<S> <C>
2001 (nine months) $ 126,300
2002 139,600
2003 130,920
2004 133,556
2005 138,744
Thereafter 160,800
-----------------
Total $ 829,920
=================
</TABLE>
11
<PAGE> 13
FRM Nexus Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES
The provision for income taxes consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 31,
2000 1999
-------------------------------
<S> <C> <C>
Current:
Federal $ - $ -
State 4,329 4,990
--------------------------------
Total current 4,329 4,990
--------------------------------
Deferred:
Federal - -
State - -
--------------------------------
Total deferred - -
--------------------------------
Total $ 4,329 $ 4,990
================================
</TABLE>
7. DISCONTINUED OPERATIONS
On May 14, 1999 the Company sold Wendclark, Inc., one of the two subsidiaries
that operated in the food service division. The Company received $975,000 in
cash, resulting in a gain of $96,303. On May 23, 2000 the Company committed to
sell Wendcello Corp., the remaining subsidiary that operated in the food service
division. On June 20, 2000 the Company completed the sale and received
$1,575,000 in cash, resulting in a gain of approximately $395,000 that will be
recorded in the second quarter. As a result of this sale, $125,000 of current
debt that was carried on Wendcello was eliminated. The results of operations of
both subsidiaries have been classified as discontinued operations and prior
periods have been restated.
12
<PAGE> 14
FRM Nexus Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. DISCONTINUED OPERATIONS (CONTINUED)
The components of discontinued operations are as follows:
<TABLE>
<CAPTION>
MAY 31 FEBRUARY 29
2000 2000
--------------------- --------------------
<S> <C> <C>
Cash & cash equivalents $ 329,664 $ 328,607
Inventories 58,626 62,360
Other current assets 113,619 146,552
Property and equipment, at cost 2,376,860 2,352,846
Less accumulated depreciation and amortization (1,590,597) (1,548,005)
Other assets 520,825 536,579
--------------------- --------------------
Total assets 1,808,997 1,878,939
--------------------- --------------------
Accounts payable and accrued expenses 502,959 554,397
Other current liabilities 125,000 149,650
--------------------- --------------------
Total liabilities 627,959 704,047
--------------------- --------------------
Net assets of discontinued operations $ 1,181,038 $ 1,174,892
===================== ====================
</TABLE>
A summary of the results of discontinued operations for the food services
division is as follows for the three months ended:
<TABLE>
<CAPTION>
MAY 31 MAY 31
2000 1999
-------------------- --------------------
<S> <C> <C>
Operating revenues, including gain on sale of subsidiary in 1999 $ 2,432,442 $ 3,948,979
Operating expenses 2,427,376 3,759,799
-------------------- --------------------
Income from operations 5,066 189,180
Interest expense, net of interest (income) (1,080) 44,495
-------------------- --------------------
Income before income taxes 6,146 144,685
Income taxes - -
-------------------- --------------------
Income from discontinued operations, net of taxes $ 6,146 $ 144,685
==================== ====================
</TABLE>
8. BUSINESS SEGMENT INFORMATION
Operating segments are managed separately and represent separate business units
that offer different products and serve different markets. The Company's
reportable segments include: (1) real estate, (2) medical financing and (3)
other, which is comprised of corporate overhead and net assets of discontinued
operations. The real estate segment operates in New York and Connecticut. The
medical financing segment operates in New York and New Jersey.
13
<PAGE> 15
FRM Nexus Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. BUSINESS SEGMENT INFORMATION (CONTINUED)
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. All inter-segment balances have been
eliminated. Inter-segment balances that have not been capitalized, bear interest
at the rate of 10% per annum and are included in net interest expense. Business
segment information for the three months ended May 31, 2000 and 1999 follows.
Certain prior year information has been reclassified to conform with the current
year presentation.
<TABLE>
<CAPTION>
REAL MEDICAL
ESTATE FINANCING OTHER TOTAL
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000
Total revenue from external
customers $ 46,402 $ 346,890 - $ 393,292
Loss from operations (23,866) (217,753) $ (94,211) (335,830)
Interest expense,net 8,364 (11,957) - (3,593)
Loss from continuing operations
before provision for income taxes (15,502) (229,710) (94,211) (339,423)
Assets - continuing 4,225,220 3,732,720 9,428 7,967,368
Assets - discontinued - - 1,181,038 1,181,038
Total assets 4,225,220 3,732,720 1,190,466 9,148,406
Capital expenditures - 24,772 500 25,272
Depreciation and amortization 607 15,970 937 17,514
1999
Total revenue from external
customers $ 83,507 $ 331,302 $ - $ 414,809
(Loss) income from operations (4,442) 23,957 (104,507) (84,992)
Interest expense,net (29,632) 55,313 - 25,681
Income (loss) from continuing
operations before provision for income taxes 25,190 (31,356) (104,507) (110,673)
Assets - continuing 5,166,583 2,919,741 12,869 8,099,193
Assets - discontinued - - 1,212,378 1,212,378
Total assets 5,166,583 2,919,741 1,225,247 9,311,571
Capital expenditures - 38,541 - 38,541
Depreciation and amortization 1,611 11,795 1,334 14,740
</TABLE>
9. SUBSEQUENT EVENTS
In June 2000, the Company used a portion of the proceeds from the sale of the
Wendcello subsidiary to repay all related party borrowings.
14
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
All statements contained herein that are not historical facts, including but not
limited to, statements regarding future operations, financial condition and
liquidity, expenditures to develop real estate owned by the Company, future
borrowing, capital requirements and the Company's future development plans are
based on current expectations. These statements are forward looking in nature
and involve a number of risks and uncertainties. Actual results may differ
materially. Among the factors that could cause actual results to differ
materially are the following: changes in the business of the Company's medical
provider clients, changes in the real estate and financial markets and other
risk factors described herein and in the Company's reports filed and to be filed
from time to time with the Commission. The discussion and analysis below is
based on the Company's unaudited consolidated financial statements for the three
months ended May 31, 2000 and 1999. The following should be read in conjunction
with the Management's Discussion and Analysis of results of operations and
financial condition included in the 2000 10-K.
OVERVIEW
Nexus generates revenues from two business segments: real estate and medical
financing. Revenues in the real estate division vary substantially from period
to period depending on when a particular transaction closes and depending on
whether the closed transaction is recognized for accounting purposes as a sale
or reflected as a financing or is deferred to a future period. On May 23, 2000
the Company committed to sell Wendcello Corp., the remaining subsidiary that
operated in the food service division. On June 20, 2000 the Company completed
the sale and received $1,575,000 in cash, resulting in a gain of approximately
$395,000 that will be recorded in the second quarter. As a result of that sale
and the sale of the Wendclark subsidiary in May 1999, the food service segment
has been classified as discontinued and prior periods have been restated.
RESULTS OF OPERATIONS
2000 PERIOD COMPARED TO THE 1999 PERIOD
The Company's revenues decreased by $22,000 or 5%, for the three months ended
May 31, 2000 ("2000") to $393,000 from $415,000 for the three months ended May
31, 1999 ("1999"). The decrease was a result of decreased revenues in the real
estate division, offset by an increase in the medical financing division.
Revenue in the real estate division decreased by $38,000, to $46,000 in 2000.
The decrease in revenue was attributable to a decrease in accrued interest
income on the mortgage receivable from the property located in Goshen, NY.
Interest is no longer being accrued on this mortgage because the annual interest
payment that was due in February 2000 has not been paid.
15
<PAGE> 17
The $16,000 net increase in revenues in the medical financing division in 2000
was due to fees in the amount of $109,000 that were generated from the
ownership, beginning in February 2000, of an MRI facility that provides
management services to a finance client's radiology practice. An additional
$51,000 of fees was also generated from the management of two finance client's
physical therapy practices. The $160,000 of management fee income in 2000 was
offset by a decrease of $144,000 in earned fees from the purchase of medical
claims. The decrease in earned fees was due to a decrease in medical claims
purchased in that period as compared to 1999. The decrease in claims purchased
was due to the Company's decision to be more selective in the bill purchasing
process.
Costs and expenses increased by $229,000, or 46%, for the three months ended in
2000, to $729,000 as compared to $500,000 for the same period ended in 1999. The
net increase for 2000 was due to increases of $253,000 in the medical financing
division and $4,000 in depreciation and amortization, which were offset by
decreases of $17,000 in the real estate division and $11,000 in corporate
expenses.
The decrease of $11,000 in costs and expenses in the real estate division is
attributable to a decrease in operating expenses after a portion of the Hunter
property and all of the Brookfield property were sold during the last three
quarters of fiscal 2000.
The costs and expenses in the medical financing division in 2000 was $549,000,
an increase of $253,000 from 1999. The increase was due to a $50,000 increase in
medical receivable expenses and $203,000 of expenses related to the three new
subsidiaries that were formed in 2000 to manage the operations of certain
medical practices. The $50,000 increase in medical receivable expenses is
attributable to additional expenses incurred that were needed to properly
service the existing and projected client base. These expenses included an
additional (i) $24,000 on staff and related employment costs, in part due to
reclassifying a portion of executive salaries from corporate, part due to the
hiring of additional employees and part due to annual salary increases, (ii)
$9,000 on occupancy and office costs and (iii) $16,000 on marketing costs. The
infrastructure of the company as established, can now service a greater number
of clients than currently exists. This is necessary to efficiently service
expected new clients with properly trained employees.
The $11,000 decrease in corporate expenses in 2000 is primarily due to cost
savings in shareholder reporting expenses. The increase in depreciation and
amortization is attributable to additional depreciation as a result of increased
capital expenditures in the medical financing division.
Interest expense in 2000 was $7,000, a decrease of $20,000 from $27,000 in 1999.
The decrease was attributable to the debt that was eliminated in 1999 when a
portion of the proceeds from the sale of the Wendclark subsidiary were used to
repay amounts that had been borrowed to finance the purchase of medical claims
receivable
16
<PAGE> 18
The decrease in income from discontinued operation of $139,000 to $6,000 in 2000
was primarily due to the gain of $96,000 on sale of the Wendclark subsidiary in
May 1999 and the net income of $30,000 from Wendclark in the 1999 period.
For the reasons noted above, most notably, the additional costs of the medical
financing division in relation to its increase in revenue and the decrease in
income from discontinued operations, the Company experienced a net loss of
$338,000 in 2000 as compared to a net profit of $29,000 in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's two continuing business activities during the three months ended
May 31, 2000 resulted in a use of cash in the amount of $482,000. The Company
expects the continued growth of its medical financing division to result in the
continued use of cash. The funds for those needs are expected to be provided
from $1,575,000 in proceeds (less repayments of $270,000 of related party debt)
from the sale of Wendcello Corp., the remaining subsidiary in the now
discontinued food service division, which occurred in June 2000. The loss of the
cash flow that was provided from the food service division should eventually be
replaced by the anticipated profits that will be generated from the use of the
sale proceeds to purchase additional medical insurance claims receivable. As a
result of the sale of Wendcello, $125,000 of current debt was eliminated,
improving the Company's working capital and debt-equity ratio. Additional funds
may be provided for from financing activities such as additional asset-based
borrowing facilities on the Company's mortgages and accounts receivable.
The real estate division is not expected to be a significant user of cash flow
from operations. The Company's real estate assets in Hunter, NY are owned free
and clear of mortgages. Further development of this property, at any significant
cost, is expected to be funded by the sale of the remaining condominium units
and portions of other property in Hunter or asset-based financing. The mortgage
receivable on the Goshen, NY property does not call for principal payments until
February 28, 2002, however, interest payments in the amount of $30,000 are due
annually. The annual payment that was due on February 29, 2000 has not been
paid, which resulted in the suspension of interest being accrued.
The Company believes that its present cash resources and the cash available from
financing activities will be sufficient on a short-term basis and over the next
12 months to fund continued expansion of its medical financing business, its
company-wide working capital needs and expected investments in property and
equipment. The Company intends to pace its growth in the medical financing
division to its capacity to provide the funds internally and from its financing
activities.
Cash used by operations during the three months ended May 31, 2000 was $260,000,
as compared to $64,000 being used in the same period in 1999. The $196,000
decrease in 2000 was due to a net loss for the three months ended in 2000 of
$337,000 as compared to a net
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profit of $29,000 in 1999, offset by fluctuations in operating assets and
liabilities primarily caused by timing differences.
Cash used by investing activities was $487,000 in 2000 as compared with $966,000
being provided in 1999. The net decrease of $1,453,000 was primarily due to the
$975,000 in proceeds from the sale of the Wendclark subsidiary in 1999. In the
medical financing division, medical insurance claims receivable (net of amounts
due to finance customers for payments of residual collections) increased by
$442,000 in 2000, compared to a $128,000 decrease in 1999. The increase in 2000
was attributable to a greater amount of bills purchased during the month of May
from new clients. There are normally very few collections during the month of
purchase.
Net cash provided by financing activities was $265,000 in 2000 as compared with
$749,000 being used in 1999. The $1,014,000 increase in 2000 was primarily due
to the repayment of the related party credit line in the amount of $775,000 in
1999 and the borrowing in 2000 to finance the purchase of medical insurance
claims receivable from new clients in the month of May. In addition, financing
is required to cover the short fall that occurs when paid management service
fees are insufficient to pay the operating expenses of the finance clients that
the Company manages.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk arises principally from the interest rate risk related
to its receivables. Interest rate risk is a consequence of having fixed interest
rate receivables in the Company's Real Estate and Medical Financing Divisions.
The Company is exposed to interest rate risk arising from changes in the level
of interest rates.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS.
27. Financial Data Schedule
b) REPORTS ON FORM 8K.
None.
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SIGNATURE
Pursuant to the requirements 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.
FRM NEXUS, INC.
By: /s/Victor Brodsky
---------------------------
Victor Brodsky
Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: July 14, 2000
