<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: August 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>
<CAPTION>
DELAWARE 13-3754422
<S> <C>
(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 CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, at September 29,
2000: 1,800,000.
<PAGE> 2
FRM NEXUS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2000
<TABLE>
<CAPTION>
Page No.
-------
<S> <C> <C>
PART I
Item 1. Financial Statements............................................................................. 2
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................................................... 17
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................................................................... 21
PART II
Item 6. Exhibits and reports on form 8-K................................................................. 21
</TABLE>
1
<PAGE> 3
FRM Nexus, Inc. and Subsidiaries
Index to Consolidated Financial Statements
PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets--August 31, 2000 (unaudited) and February 29, 2000...........................3
Consolidated Statements of Operations (unaudited) --Six months
and three months August 31, 2000 and 1999.............................................................5
Consolidated Statement of Stockholders' Equity (unaudited) --
Six months ended August 31, 2000 .....................................................................6
Consolidated Statements of Cash Flows (unaudited) --
Six months ended August 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>
AUGUST 31, FEBRUARY 29,
2000 2000
----------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents $ 707,967 $ 591,408
Mortgage and notes receivable - current 27,818 26,597
Finance receivables, net 3,668,340 2,479,999
Other current assets 88,946 103,994
----------------------------------------
Total current assets 4,493,071 3,201,998
----------------------------------------
Property and equipment:
Property and equipment, at cost 526,341 348,575
Less accumulated depreciation and amortization 157,750 115,794
----------------------------------------
368,591 232,781
----------------------------------------
Other assets:
Real estate held for development and sale 476,732 510,880
Mortgage and notes receivable 3,222,646 3,236,866
Accrued interest receivable - related party mortgage 321,150 321,150
Loans receivable 137,751 98,381
Other 64,191 95,991
Net assets of discontinued operations - 1,174,892
----------------------------------------
Total other assets 4,222,470 5,438,160
----------------------------------------
Total assets $ 9,084,132 $ 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>
AUGUST 31, FEBRUARY 29,
2000 2000
----------------------------------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 180,843 $ 213,683
Current portion of notes payable 56,733 19,282
Due to finance customers 1,873,140 1,402,546
Income taxes payable 6,444 5,367
Other current liabilities 34,832 20,000
----------------------------------------
Total current liabilities 2,151,992 1,660,878
----------------------------------------
Other liabilities:
Notes payable 86,974 24,655
Deferred Income 2,569,513 2,569,513
----------------------------------------
Total other liabilities 2,656,487 2,594,168
----------------------------------------
Commitments and contingencies
Stockholders' equity:
Common stock - $.10 par value;
Authorized - 2,000,000 shares;
Issued and outstanding - 1,800,000 shares at August 31, 2000
and 1,816,462 shares at February 29, 2000 180,000 181,646
Capital in excess of par value 5,800,220 5,826,909
Unrealized loss on mortgage and notes receivable (78,019) (78,019)
Accumulated deficit (1,626,548) (1,312,643)
----------------------------------------
Total stockholders' equity 4,275,653 4,617,893
----------------------------------------
Total liabilities and stockholders' equity $ 9,084,132 $ 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 SIX MONTHS ENDED
AUGUST 31, AUGUST 31,
2000 1999 2000 1999
----------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
REVENUES
Sale of real estate $ 69,000 $ 211,000 $ 69,000 $ 211,000
Rental income 23,410 27,010 46,820 52,185
Interest from mortgages 23,118 58,198 46,110 116,530
Income from the purchase of medical receivables 256,268 278,279 443,379 609,581
Medical management service fees 260,171 - 419,950 -
----------------------------------- ----------------------------------
Total income 631,967 574,487 1,025,259 989,296
----------------------------------- ----------------------------------
COSTS AND EXPENSES
Real estate 159,489 278,097 228,213 364,435
Medical receivables 394,482 335,266 739,726 630,816
Medical management services 307,506 - 510,935 -
Corporate expenses 109,816 84,437 204,027 188,944
Depreciation and amortization 25,386 14,849 42,900 28,255
----------------------------------- ----------------------------------
Total costs and expenses 996,679 712,649 1,725,801 1,212,450
----------------------------------- ----------------------------------
(Loss) income from operations (364,712) (138,162) (700,542) (223,154)
----------------------------------- ----------------------------------
Other income (expense):
Interest income 8,682 1,304 11,685 2,394
Interest expense (7,278) (4,941) (13,874) (31,712)
----------------------------------- ----------------------------------
1,404 (3,637) (2,189) (29,318)
----------------------------------- ----------------------------------
(Loss) income from continuing operations before
provision for income taxes (363,308) (141,799) (702,731) (252,472)
Provision for income taxes 5,873 5,308 10,202 10,298
----------------------------------- ----------------------------------
(Loss) income from continuing operations (369,181) (147,107) (712,933) (262,770)
Income from discontinued operations, net of taxes
(including gain on sale of subsidiary of $381,182
in 2000 and $96,303 in 1999) 392,882 147,838 399,028 292,523
----------------------------------- ----------------------------------
Net (loss) income $ 23,701 $ 731 $ (313,905) $ 29,753
=================================== ==================================
Basic and diluted (loss) earnings per common share:
(Loss) income from continuing operations $ (0.20) $ (0.08) $ (0.39) $ (0.14)
Income from discontinued operations 0.22 0.08 0.22 0.16
----------------------------------- ----------------------------------
Basic and diluted (loss) earnings per common share $ 0.01 $ 0.00 $ (0.17) $ 0.02
=================================== ==================================
Number of shares used in computation of basic and
diluted earnings per share 1,812,347 1,816,462 1,814,404 1,816,462
=================================== ==================================
</TABLE>
See notes to interim consolidated financial statements.
5
<PAGE> 7
FRM Nexus Inc.and Subsidiaries
Consolidated Statement of Stockholders' Equity
February 29, 2000 through August 31, 2000
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON STOCK PAID-IN COMPREHENSIVE
SHARES AMOUNT CAPITAL (LOSS)INCOME
---------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, FEBRUARY 29, 2000 1,816,462 $ 181,646 $ 5,826,909 $ (78,019)
PURCHASE AND RETIREMENT OF
TREASURY STOCK (16,462) (1,646) (26,689) -
NET LOSS - - - -
COMPREHENSIVE LOSS
---------------------------------------------------------------
BALANCE, AUGUST 31, 2000 1,800,000 $ 180,000 $ 5,800,220 $ (78,019)
===============================================================
</TABLE>
<TABLE>
<CAPTION>
TOTAL
(ACCUMULATED STOCKHOLDERS' COMPREHENSIVE
DEFICIT) EQUITY (LOSS)INCOME
------------------------------------ ----------------
<S> <C> <C> <C>
BALANCE, FEBRUARY 29, 2000 $ (1,312,643) $ 4,617,893
PURCHASE AND RETIREMENT OF
TREASURY STOCK - (28,335)
NET LOSS (313,905) (313,905) $ (313,905)
----------------
COMPREHENSIVE LOSS $ (313,905)
------------------------------------ ================
BALANCE, AUGUST 31, 2000 $ (1,626,548) $ 4,275,653
====================================
</TABLE>
See notes to interim consolidated financial statements.
6
<PAGE> 8
FRM Nexus, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED AUGUST 31,
2000 1999
-----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (313,905) $ 29,753
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 42,900 28,255
Gain on sale of real estate held for development and sale (15,727) (7,288)
Provision for bad debts 133,424 (9,234)
Changes in operating assets and liabilities:
Collections from the sale of real estate held for
development and sale 69,000 199,350
Additions to real estate held for development and sale (19,125) -
Prepaid expenses, miscellaneous receivables
and other assets 46,848 57,792
Accounts payable, accrued expenses and taxes (31,763) (130,795)
Other current liabilities 14,832 (41,179)
-----------------------------------
Net cash (used in) provided by operating activities (73,516) 126,654
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures & intangible assets (61,021) (67,406)
Finance receivables (1,321,765) 511,574
Due to finance customers 470,594 (160,343)
Principal payments on notes receivable 12,999 13,919
Loan receivable (75,000) -
Principal payments on loan receivable 35,630 -
Proceeds from sale of subsidiaries 1,525,000 975,000
Net assets of discontinued operations (400,108) (248,523)
-----------------------------------
Net cash provided by investing activities 236,329 1,024,221
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of notes payable 420,000 96,779
Principal payments on notes payable (437,919) (946,578)
Purchase and retirement of treasury stock (28,335) -
-----------------------------------
Net cash (used in) financing activities (46,254) (849,799)
-----------------------------------
Net increase in cash and cash equivalents $ 116,559 $ 301,076
Cash and cash equivalents, beginning of period 591,408 253,012
-----------------------------------
Cash and cash equivalents, end of period $ 707,967 $ 554,088
===================================
ADDITIONAL CASH FLOW INFORMATION
Interest paid $ 10,311 $ 36,072
===================================
Income taxes paid $ 17,916 $ 14,123
===================================
NONCASH INVESTING AND FINANCING ACTIVITIES
Assets acquired under capital leases $ 117,689 $ -
===================================
</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 August 31, 2000; results of operations for the six months and three months
ended August 31, 2000 and 1999; cash flows for the six months ended August 31,
2000 and 1999; and changes in stockholders' equity for the six months ended
August 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>
AUGUST 31, FEBRUARY 29,
2000 2000
---------------------------------------
<S> <C> <C>
Gross finance receivables $4,386,764 $2,958,825
Allowance for credit losses (345,912) (212,488)
Deferred finance income (372,512) (266,338)
---------------------------------------
$3,668,340 $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>
AUGUST 31, FEBRUARY 29,
2000 2000
--------------------------------------------
<S> <C> <C>
Leasehold improvements $ 51,402 $ 51,402
Computer equipment 218,558 173,414
Medical equipment 45,520 32,500
Equipment under capital leases 185,060 67,371
Other equipment and furniture 25,801 23,888
--------------------------------------------
526,341 348,575
Less accumulated depreciation and amortization 157,750 115,794
--------------------------------------------
Property and equipment, net $ 368,591 $ 232,781
============================================
</TABLE>
As of August 31, 2000 and February 29, 2000, accumulated amortization of
equipment under capital leases was $28,426 and $21,699.
Depreciation expense for the six months ended August 31, 2000 and 1999, which
includes amortization under capital leases was $42,900 and $28,255.
4. NOTES PAYABLE
Notes payable include the following:
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 29,
2000 2000
---------------------------------------------
<S> <C> <C>
Related party credit line $ - $ -
Related party escrow loan - -
Capital lease obligations 143,707 43,937
---------------------------------------------
143,707 43,937
Less current maturities 56,733 19,282
---------------------------------------------
Long-term debt $ 86,974 $ 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
was terminated by mutual consent of both parties upon full repayment on June
21, 2000 of the outstanding balance of $200,000. 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 was held in escrow and used as collateral for the purpose of obtaining
margin loans. 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 then outstanding balance of $170,00 was paid in full. On June
30, 2000, the line was terminated by mutual consent of both parties.
Interest expense on these related party borrowings was $8,495 and $29,669 for
the six months ended August 31, 2000 and 1999 .
Capital Lease Obligations: The Company has acquired certain equipment under
various capital leases expiring in 2004. The leases provide for monthly
payments of principal and interest of $5,782 and have been capitalized at
imputed interest rates of 10.00% 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, which consist entirely of
capital leases for the years ending February 28 are as follows:
<TABLE>
<S> <C>
2001 (six months) $ 34,692
2002 66,625
2003 51,624
2004 11,393
------------------
164,334
Amount representing interest 20,627
------------------
Total (a) $ 143,707
==================
</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>
<S> <C>
2001 (six months) $ 84,200
2002 139,600
2003 130,920
2004 133,556
2005 138,744
Thereafter 160,800
------------------
Total $ 787,820
==================
</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 SIX MONTHS ENDED
AUGUST 31, AUGUST 31,
2000 1999 2000 1999
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Federal $ - $ - $ - $ -
State 5,873 5,308 10,202 10,298
-------------------------------------------------------------------
Total current 5,873 5,308 10,202 10,298
-------------------------------------------------------------------
Deferred:
Federal - - - -
State - - - -
-------------------------------------------------------------------
Total deferred - - - -
-------------------------------------------------------------------
Total $ 5,873 $ 5,308 $ 10,202 $ 10,298
===================================================================
</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. As a result of this sale, $2,342,555 of
debt that was carried by Wendclark was assumed by the buyer. 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
$381,000 that was recorded during the six months ended August 31, 2000. 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 net assets of the of discontinued operations are as follows:
<TABLE>
<CAPTION>
AUGUST 31 FEBRUARY 29
2000 2000
-----------------------------------------
<S> <C> <C>
Cash & cash equivalents $ - $ 328,607
Inventories - 62,360
Other current assets - 146,552
Property and equipment, at cost - 2,352,846
Less accumulated depreciation and amortization - (1,548,005)
Other assets - 536,579
-----------------------------------------
Total assets - 1,878,939
-----------------------------------------
Accounts payable and accrued expenses - 554,397
Other current liabilities - 149,650
-----------------------------------------
Total liabilities - 704,047
-----------------------------------------
Net assets of discontinued operations $ - $ 1,174,892
=========================================
</TABLE>
A summary of the results of discontinued operations for the food services
division is as follows for the six months and three months ended:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 31 AUGUST 31
2000 1999 2000 1999
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues, including
gain on sale of subsidiary of
$381,182 in 2000 and $96,303 $ 1,281,983 $ 2,944,170 $ 3,714,425 $ 6,893,149
in 1999
Operating expenses 888,715 2,796,880 3,316,091 6,556,679
----------------------------------------------------------------------------------
Income from operations 393,268 147,290 398,334 336,470
Interest expense, net of
interest (income) (694) (1,798) (1,774) 42,697
----------------------------------------------------------------------------------
Income before income taxes 393,962 149,088 400,108 293,773
Income taxes 1,080 1,250 1,080 1,250
----------------------------------------------------------------------------------
Income from discontinued
operations, net of taxes $ 392,882 $ 147,838 $ 399,028 $ 292,523
==================================================================================
</TABLE>
13
<PAGE> 15
FRM Nexus Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 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.
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 six months and three months ended August
31, 2000 and 1999 follows. Certain prior year information has been reclassified
to conform with the current year presentation.
14
<PAGE> 16
FRM Nexus Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
REAL
ESTATE MEDICAL OTHER TOTAL
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED AUGUST 31,
2000
Total revenue from external customers $ 115,528 $ 516,439 $ - $ 631,967
(Loss) income from operations (43,631) (209,390) (111,691) (364,712)
Interest expense,net 13,918 (12,514) - 1,404
(Loss) income from continuing operations
before provision for income taxes (29,713) (221,904) (111,691) (363,308)
Capital expenditures - 35,749 - 35,749
Depreciation and amortization 607 23,841 938 25,386
1999
Total revenue from external customers $ 296,208 $ 278,279 $ - $ 574,487
Income(loss) from operations 16,501 (70,226) (84,437) (138,162)
Interest expense,net 48,786 (52,423) - (3,637)
(Loss) income from continuing operations
before provision for income taxes 65,287 (122,649) (84,437) (141,799)
Capital expenditures - 28,865 - 28,865
Depreciation and amortization 2,944 13,239 (1,334) 14,849
SIX MONTHS ENDED AUGUST 31,
2000
Total revenue from external customers $ 161,930 $ 863,329 $ - $ 1,025,259
(Loss) income from operations (67,497) (427,143) (205,902) (700,542)
Interest expense,net 22,282 (24,471) - (2,189)
(Loss) income from continuing operations
before provision for income taxes (45,215) (451,614) (205,902) (702,731)
Assets - continuing 4,618,228 4,447,413 18,491 9,084,132
Assets - discontinued - - - -
Total assets 4,618,228 4,447,413 18,491 9,084,132
Capital expenditures - 60,521 500 61,021
Depreciation and amortization 1,214 39,811 1,875 42,900
1999
Total revenue from external customers $ 379,715 $ 609,581 $ - $ 989,296
Income(loss) from operations 12,059 (46,269) (188,944) (223,154)
Interest expense,net 78,418 (107,736) - (29,318)
(Loss) income from continuing operations
before provision for income taxes 90,477 (154,005) (188,944) (252,472)
Assets - continuing 5,068,430 2,969,225 3,169 8,040,824
Assets - discontinued - - 1,356,466 1,356,466
Total assets 5,068,430 2,969,225 1,359,635 9,397,290
Capital expenditures - 67,406 - 67,406
Depreciation and amortization 3,221 25,034 - 28,255
</TABLE>
15
<PAGE> 17
FRM Nexus Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. SUBSEQUENT EVENTS
On August 9, 2000, one of the Companies subsidiaries, PSI Food Services, Inc.
amended its certificate of incorporation, changing its name to MFC Development
Corp. ("MFC"). On August 31, 2000, the Company transferred to MFC all of its
assets (except for $10,000), including ownership of all of its wholly owned
subsidiaries and all of its liabilities. On August 30, 2000, FRM filed form 8-K
with the Securities and Exchange Commission, which disclosed that FRM
contemplates the intent of distributing on or about November 30, 2000 to its
shareholders on the record date one share of MFC common stock for each one share
of FRM's outstanding common stock at the close of business on November 1, 2000
(the record date). There are presently 1,800,000 shares of common stock of FRM
outstanding. MFC intends to file a form 10 on September 29, 2000 to register its
common stock.
16
<PAGE> 18
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
six months and three months ended August 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.
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
$381,000 that was 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.
On August 9, 2000, one of the Companies subsidiaries, PSI Food Services, Inc.
amended its certificate of incorporation, changing its name to MFC Development
Corp. ("MFC"). On August 31, 2000, the Company transferred to MFC all of its
assets (except for $10,000), including ownership of all of its wholly owned
subsidiaries and all of its liabilities. On August 30, 2000, FRM filed form 8-K
with the Securities and Exchange Commission, which disclosed that FRM
contemplates the intent of distributing on or about November 30, 2000 to its
shareholders on the record date one share of MFC common stock for each one
share of FRM's outstanding common stock at the close of business on November 1,
2000 (the record date). There are presently 1,800,000 shares of common stock of
FRM outstanding. MFC intends to file a form 10 on September 29, 2000 to
register its common stock.
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RESULTS OF OPERATIONS
2000 PERIOD COMPARED TO THE 1999 PERIOD
The Company's revenues from continuing operations increased by $58,000 or 10%,
for the three months ended August 31, 2000 ("2000") to $632,000 from $574,000
for the three months ended August 31, 1999 ("1999"). The Company's revenues from
continuing operations increased by $36,000 or 4%, for the six months ended
August 31, 2000 ("2000") to $1,025,000 from $989,000 for the six months ended
August 31, 1999 ("1999"). The increase in both the six month and three month
periods was a result of an increase in the medical division, offset by
decreased revenues in the real estate division.
Revenue in the real estate division decreased in 2000 by $181,000, to $116,000
for the three month period and decreased by $218,000 to $162,000 for the six
month period. The decrease in revenue in both the three month and six month
periods was due to a decrease in the sales of real estate in 2000 as compared
to 1999. Rental income decreased in 2000 because rent is no longer being
received on the properties that were sold during the remainder of fiscal 2000.
The decrease in interest from mortgages 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.
The $238,000 and $253,000 net increases in revenues in the medical division for
the three month and six month periods ended in 2000 were due to an increase in
management fees, offset by a decrease of earned fees from the purchase of
medical claims. The increase in management fees of $260,000 and $420,000 for the
three months and six months ended in 2000, was a result of the ownership,
beginning in February 2000, of an MRI facility that provides management services
to a finance client's radiology practice. Management fees were also generated,
beginning in April 2000, from the management of a finance client's physical
therapy practice. Two other finance client's practices were managed for a
temporary period in 2000.
The increase in management fee income in 2000 was offset by a decrease of
$22,000 and $167,000 in earned fees from the purchase of medical claims during
the three month and six month periods. The decrease in earned fees for the six
month period was due to a decrease in medical claims purchased in earlier
periods, which resulted in a decrease in revenue recognition over the period of
collections, which is usually six months. The decrease in claims purchased was
due to the Company's decision to be more selective in the bill purchasing
process. During the three months ended in 2000, claims purchased increased by
$28,000, however, the income that is derived from these purchases is deferred
and recognized as the claims are collected during an average six month period.
Costs and expense from continuing operations increased by $284,000, or 40%, for
the three months ended in 2000, to $997,000 as compared to $713,000 for the same
period ended in 1999. Costs and expense from continuing operations increased by
$514,000, or 42%, for the six months ended in 2000, to $1,726,000 as compared
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to $1,212,000 for the same period ended in 1999. The net increase for the three
months ended in 2000 was due to increases of $367,000 in the medical division,
$26,000 in corporate expenses and $11,000 in depreciation and amortization,
which were offset by decreases of $119,000 in the real estate division. The net
increase for the six months ended in 2000 was due to increases of $620,000 in
the medical division, $15,000 in corporate expenses and $15,000 in depreciation
and amortization, which were offset by decreases of $136,000 in the real estate
division.
The decrease in costs and expenses in the real estate division in both the
three month and six month periods ended in 2000 were due to decrease in the
amount of properties sold in 2000, which results in a decrease in the cost of
sales. Operating expenses also decreased in 2000, 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 division for the three month and six month
periods ended in 2000 was $702,000 and $1,251,000. This was an increase of
$367,000 for the three month period and $620,000 for the six month period. The
increases in 2000 was due to (i) a $59,000 increase in medical receivable
expenses in the three month period and $109,000 in the six month period and (ii)
expenses of $308,000 and $511,000 in the three month and six month periods that
are related to the three new subsidiaries that were formed in 2000 to manage the
operations of certain medical practices.
The $59,000 increase in medical receivable costs in the three month period is
primarily attributable to an increase of $27,000 in the bad debt reserve,
increases in arbitration costs in connection with the collection of claims
receivable and additional closing costs that are related to new clients. The
$109,000 increase in medical receivable expenses in the six month period is
attributable to additional expenses incurred that were needed to properly
service the existing and projected client base. These expense included
additional (i) 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) occupancy and
office costs and (iii) 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 increase in corporate expenses in both the three month and six month periods
ended 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 for the three months ended 2000 was $7,000, an increase of
$2,000 from $5,000 in 1999. The increase in 2000 was due to the acquisition, by
capital lease, of an MRI machine in the medical division. Interest expense for
the six months ended 2000 was $14,000, a decrease of $18,000 from $32,000 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
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Wendclark subsidiary was used to repay amounts that had been borrowed to
finance the purchase of medical claims receivable
Income from discontinued operations for the three month period increased by
$245,000 to $393,000 in 2000. The increase for the six month period was
$106,000, to $399,000 in 2000. The increases in 2000 were primarily due to the
gain of $381,000 from the sale of the Wendcello subsidiary in the three month
period. The increase in six month period, which included the gain on sale of
Wendcello were offset by the profits from that subsidiary that were included in
the entire 1999 period.
For the reasons noted above, most notably, the increase in income from
discontinued operations, offset by the additional costs of the medical division
in relation to its increase in recognized revenue, the Company experienced a net
profit of $24,000 for the three months ended in 2000 as compared to a net profit
of $1,000 in 1999. The loss for the six month period in 2000 of $314,000 ,
compared to a profit of $30,000 in 1999 was caused by the loss in the medical
division, offset by the increase in discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's two continuing business activities during the six months ended
August 31, 2000 resulted in an increase of cash in the amount of $117,000. The
Company expects the continued growth of its medical financing division to
result in the use of cash. The funds for those needs are expected to be
provided from the remainder of the proceeds that were received from the sale of
Wendcello Corp. Additional funds may be provided for from financing activities
such as additional asset-based borrowing facilities on the Company's mortgages
and accounts receivable and the sale of real estate assets.
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 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 six months ended August 31, 2000 was
$74,000, as compared to $127,000 being provided in the same period in 1999. The
$201,000 increase in
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2000 was due to a net loss for the six months ended in 2000 of $314,000 as
compared to a net profit of $30,000 in 1999, a decrease in the sale of real
estate, which resulted in a decrease in collections of $130,000, offset by
fluctuations in operating assets and liabilities primarily caused by timing
differences.
Cash provided by investing activities was $236,000 in 2000 as compared with
$1,024,000 being provided in 1999. The net decrease of $788,000 was primarily
due the increase in medical insurance claims receivable (net of amounts due to
finance customers for payments of residual collections) by $851,000 in 2000,
compared to a $351,000 decrease in 1999. The increase in 2000 was attributable
to a greater amount of bills purchased, beginning during the month of May from
new clients. The use of cash by the medical division was offset by an increase
of $448,000 from discontinued operations, resulting from the sale of the
Wendcello subsidiary in June 2000.
Net cash used by financing activities was $46,000 in 2000 as compared with
$850,000 being used in 1999. The $804,000 decrease in 2000 was primarily due to
the repayment of the related party credit line in the amount of $775,000 and
other related party debt of $147,000 in 1999, offset by the use of $28,000 used
to purchase and acquire treasury stock in 2000.
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 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.
The Company filed a form 8K on August 30, 2000
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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: September 28, 2000
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