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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
FRM NEXUS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3754422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
271 North Avenue New Rochelle, NY 10801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 636-0188
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.10 Per Share
(Title of Class)
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ITEM 1. BUSINESS
Formation of the Company
FRM NEXUS, INC. (the "Company" or "Nexus") was incorporated in the
State of Delaware on November 17, 1993 under the name of PSI Settlement Corp.
pursuant to a Stipulation of Settlement dated as of November 15, 1993 (the
"Stipulation") filed in the United States District Court for the Southern
District of New York (the "Federal Court") in a shareholder Class Action,
Sandler v. Programming and Systems Incorporated ("PSI") et al, 92 Civ 5292 (the
"Class Action").
The Class Action was commenced on July 16, 1992 against the defendants
for damages sustained by shareholders of PSI by reason of alleged understatement
of net income for the fiscal year ended February 28, 1989 and the alleged
overstatement of net income for the fiscal years ended February 28, 1990 and
1991, which were alleged to be violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, the Rules promulgated thereunder and the common
law.
After certain discovery and independent investigation by plaintiff's
counsel into the facts and circumstances relevant to the allegations in the
Class Action, the parties entered into the Stipulation, which released the
defendants from all claims which the Class Members asserted, or could have
asserted, in the Class Action in consideration of the payment by PSI of (i)
$1,400,000 and (ii) the transfer to the Company of the non-vocational-school
assets of PSI and the delivery to Escrow Agents of all outstanding shares of the
Company to hold for the benefit of the shareholders of PSI.
The assets transferred by PSI to the Company in payment of the
settlement included all of the Wendy's Restaurants assets, the real estate
investments held by PSI and all of the outstanding capital stock of the
wholly-owned subsidiaries which owned restaurant and real estate assets.
Initially the Stipulation contemplated that the Company would liquidate these
assets and distribute the proceeds to the PSI shareholders. However on April 28,
1995 the Stipulation was amended to provide that the Company could continue to
operate rather than liquidate, since it was anticipated that the shares of the
Company's stock would be released from escrow, registered pursuant to Section
12(g) of The Securities Exchange Act of 1934 (the "Exchange Act") and followed
by an application to list the common stock on NASDAQ.
On November 17, 1993 Judge Sweet signed his Order granting preliminary
approval of the Settlement and ordered a Settlement Hearing to be held on
January 5, 1994, pursuant to the Federal Rules of Civil Procedure ("FRCP"), to
determine whether the Settlement is fair, reasonable and adequate and should be
approved by the Court. Notice of the Settlement Hearing was given to all PSI
shareholders and after all persons having any objection to the proposed
Settlement had been given an opportunity to present such objections to the
Court, Judge Sweet signed the Final Judgment and Order on January 21, 1994
approving the Settlement Stipulation.
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The same procedure under the FRCP was followed with respect to the
Amendment to the Settlement Stipulation signed on April 28, 1995. The Hearing
was held on June 12, 1995 and the Court signed the Order Amending the Final
Judgment and Order on June 12, 1995.
On February 23, 1996, the Company amended its certificate of
incorporation to change its corporate name to FRM Nexus, Inc. and to change its
authorized capital stock to 2,000,000 shares of common stock of the par value of
ten (10(cent)) cents per share. On July 23, 1996 Judge Sweet signed the
Stipulation and Order authorizing the Escrow Agents to release 1,211,635 shares
of Nexus' common stock to the holders of record of PSI common stock in the ratio
of one share of Nexus common stock for each three shares of PSI common stock.
On November 14, 1996 an annual meeting of stockholders of Nexus was
held pursuant to Section 211 of the Delaware General Corporation Law and the
Order of the Court of Chancery of the State of Delaware (New Castle County)
dated October 10, 1996. At that meeting the five persons named herein were
elected as Directors of Nexus and are still serving until the next Annual
Meeting of Stockholders to be held in November, 1997. None of the five Directors
was an officer, director or employee of PSI prior to November 15, 1993 and none
of them has been an officer, director or employee of PSI since they were elected
as Directors of Nexus on November 14, 1996. Three of the five Directors of Nexus
were never an officer, director or employee of PSI and the other two, Seth
Grossman and Jed Schutz, were directors only of PSI during the period that the
Escrow Agents held the Company's shares for the benefit of the Company's present
shareholders.
Description of Business
The FRM in the Company's name stands for the three markets in which
Nexus is presently engaged - Food Services, Real Estate Development and Medical
Financing.
THE FOOD SERVICES DIVISION presently consists of sixteen Wendy's
restaurants, eight in West Virginia and eight in New York owned by Wendclark
Corp. and Wendcello Corp., wholly owned subsidiaries of Nexus. The restaurants
are operated by two management corporations, in which Nexus has no interest,
under franchise agreements with Wendy's International, the public company listed
on the New York Stock Exchange. The management agreements provide for the
sharing of the operating profits of the restaurants and certain proceeds of the
sale or refinancing of the restaurants. This division commenced business in
1990, when it was part of PSI, with the purchase of eleven restaurants. Since
1990 five additional restaurants were constructed or acquired with the funds and
credit of the two Nexus subsidiaries and the management companies. This division
has usually been profitable, although just as the economy has fluctuated, so too
have the results of operations of the restaurants. Since February 28, 1997 sales
and net income of this division has improved, as has Wendy's franchisees
generally.
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Wendclark Corp. is planning to build a Wendy's restaurant at Flatwoods, West
Virginia, beginning later in 1997 which will be the 17th restaurant owned by
Nexus.
THE REAL ESTATE DEVELOPMENT DIVISION of the Company presently conducts
its operations through PSI Capital Corp and Yolo Equities Corp., wholly-owned
subsidiaries which own and/or control the fee interests in a variety of parcels
of real estate, in which co-investors also have interests. Nexus controls the
development, for residential and commercial use, of this real estate which is
located in New York and Connecticut. A brief description of each parcel follows:
Goshen, New York. A subdivision plan for the development of 165 single family
homes in the Village of Goshen, Orange County, New York, was recently agreed
upon in settlement of a lawsuit between the Company and the Village of Goshen.
Participating in the settlement was Windemere in the Pines at Goshen, Inc., a
part of the Windemere Group of construction companies, in which Jed Schutz, a
director of Nexus, is an officer, director and shareholder ("Windemere"). Nexus
has agreed with Windemere for the joint development of the parcel on terms which
will assure Nexus of a specified profit on its land, with the financing to be
provided by Windemere and a sharing of the profits or losses to be realized in
the joint construction and sale of the homes.
In February and August, 1996, Nexus sold the 165 building lots to
Windemere for $2,499,150 to be paid principally from construction loan funding
plus an additional $2,499,750 contingent on the amount of profit to be realized
on the construction and sale of the homes to be built on the lots. This
contingent profit has not been reflected in the Company's net income because of
its contingent nature.
East Granby, Connecticut. The Company owned a two-story office building located
in East Granby, Connecticut which was carried at the value of $900,000 on
February 28, 1995. In the fiscal year ended February 29, 1996, the Company spent
about $1,300,000 in developing the site and improving a portion of the building.
In February 1996, the property was sold to Gateway Granby, LLC. ("Gateway") for
$4,800,000, of which $2,900,000 has since been paid and $1,900,000, as reduced
by amortization, is held by the Company pursuant to a purchase money second
mortgage. The Company realized a profit on the sale and retained a lease on the
first floor of the building for sublease to a subtenant. In June 1997 a
subtenant for the entire first floor signed an agreement for a lease to begin in
September 1, 1997. Gateway is owned and managed by investors, unrelated to the
officers and directors of Nexus, except that Daniel Elstein, who has 10.5%
interest in Gateway, became a director of Nexus in November 1996, after the sale
of the property by Nexus to Granby.
Hunter, New York. Nexus controls the fee interest in various properties in
Hunter, New York, in which it owns the principal co-investment interest and a
mortgage. The properties consist of undeveloped acreage in an area known as
Hunter Highlands, which is adjacent to the Hunter Mountain Ski Slopes in the
town of Hunter, Greene County, New York. The undeveloped acreage, which Nexus
plans to develop, is zoned for single family residences, condominium
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units and a hotel site. There is already constructed on the property a water
treatment plant, a clubhouse with restaurant, tennis courts and swimming pool, a
small office building and 8 unsold condominium units. Adjoining the site are
some 200 condominium units owned by unrelated persons, who purchased their
resort homes from prior owners of Hunter Highlands.
Hunter, New York has been depressed economically in recent years, which
gave rise to the Company's acquisition of this property through the mortgage
foreclosure process. Management believes that these properties have potential
for profitable development if there is recovery in the market for second homes
in that area.
Brookfield, Connecticut. Nexus owns the fee interest in two parcels of
undeveloped land in Brookfield, Connecticut which is carried on the balance
sheet at $430,000, which is their cost, and which is believed to be less than
fair market value. Nexus plans to develop both parcels for commercial use. One
parcel is on Federal Road, across from the popular Stew Leonards' Supermarket.
The other is a short distance from this location. Nexus has obtained approval to
develop a 23,000 square foot retail building on the first parcel and plans to
seek approval for a restaurant or office structure on the second parcel.
Middletown, Connecticut. Nexus formerly owned several parcels of improved land
in Middletown, Connecticut. These parcels were not readily available for
profitable development and have been sold.
Pound Ridge, New York. This parcel consisted of an unimproved 4 acre lot zoned
for one family residence in Pound Ridge, New York. It has been sold for
$225,000, the price at which it was carried on the Company's balance sheet.
Other Properties. Nexus, alone or with co-investors and joint ventures, intends
to acquire other lands for development of residential, commercial and office
structures, when management identifies opportunities for enhancement of
shareholder values.
THE MEDICAL FINANCING DIVISION of the Company conducts its operations
through a wholly-owned subsidiary, Medical Financial Corp. ("MFC"), a start-up
company with its first full year of operations included in the fiscal year ended
February 28, 1996. MFC purchases insurance company receivables, paying cash to
the medical provider in return for a negotiated fee. For its clients, MFC
delivers valuable services and increased liquidity, which is normally
unavailable to medical groups from traditional lenders. The profitability of
this division in the current and future fiscal years will depend on management's
ability to obtain favorable contracts with additional clients and employ its
resources at fuller capacity.
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Marketing
The Company's Wendy's Restaurants participate in Wendy's national
advertising campaigns pursuant to the franchise agreements with Wendy's
International. National advertising includes network television, radio and print
media. The Company's restaurants supplement the franchisor's national efforts
with local and regional newspapers, TV, radio and outdoor advertising, where
appropriate to the locale. See Note 8A to the financial statements herein.
The Company's marketing in its real estate activities has been limited
in the past, and for the present, to working with real estate brokerage firms in
connection with the sale and leasing of properties. Development of the homes in
Goshen, NY is expected to commence in 1998 and Nexus is planning to employ a
marketing firm to assist it in pricing, advertising and selling the one-family
homes during the construction phases of the development.
The Medical Financing Division has heretofore marketed its services to
medical groups through its own individual employees and consultants. MFC
recently retained a marketing firm to design a brochure for a direct mail and
personal recruiting campaign scheduled for Winter 1997-1998.
Competition
The Company's restaurant business is highly competitive, with the many
stores in the diverse fast food service field, particularly the McDonalds and
Burger King franchisees which are members of larger national restaurant chains.
The Company's presently owned real estate held for development and sale
(i) for its own account is located in Hunter, New York and Brookfield,
Connecticut and (ii) in joint venture with Windemere is located in Goshen, New
York. The real estate markets in those communities have been depressed in the
past years, so that competition has not been a factor. With the expectation of
improved demand and financing for purchasers, the Company will be competing with
many owners and developers in the locale to market properties which it presently
owns and which will be developed and built for sale or lease.
MFC competes with a wide variety of financial service companies,
including banks, and other lending and factoring companies which provide
financial assistance and bill collection services to medical providers. The
Company's services are designed to serve a niche market and in its focus on
purchasing and collecting insured receivables of certain medical groups, the
competition is limited to only a few companies of which it is aware.
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Trademarks
The Company's use of the tradename, trademark and logo for Wendy's is
pursuant to franchise agreements with Wendy's International for each of its 16
restaurants. These agreements have terms extending many years and there is no
reason to expect that the franchises will not be renewed whenever they expire.
The day to day operations of the Wendy's subsidiaries, Wendcello Corp. and
Wendclark Corp. are managed by two management companies, whose principals have
similar agreements with other Wendy's franchisees (see Note 7 to the financial
statements herein). Their experience and performance as franchise managers has
forged a mutually respected relationship with Wendy's International which has
enabled Wendclark and Wendcello to grow the number of restaurants in their
region and to foster the expectation of continuing cooperation. See Notes 8A and
7 to the financial statements herein.
Employees
As of June 26, 1997 the Company had 538 employees in its Wendy's operations, 8
employees at MFC and 4 employees in its real estate and parent company
operations. None of the Company's employees is represented by a union and Nexus
considers its relationship with its employees to be good.
Environmental Laws
The Company is in compliance with all environmental laws. Future compliance with
environmental laws is not expected to have a material effect on its business.
ITEM 2. FINANCIAL INFORMATION
The information required by Items 301 and 303 of Regulation S-K has
been furnished by the Company's independent accountants and is included in the
financial statements listed in Item 15 hereof and filed as part of this
registration statement.
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ITEM 3. PROPERTIES.
In addition to the real property held for development and sale as set
forth in Item 1 above, Nexus owns certain property, land and equipment utilized
in its Wendy's operations which are described in Notes 3 and 6A to the financial
statements herein, which secure, to the extent described in Note 6B, the four
separate notes payable by Wendcello Corp. and Wendclark Corp.
The Wendy's restaurants are tenants in the various restaurant operating
leases described in Note 8B to the financial statements herein.
Nexus' lease for its offices in New Rochelle, which also house MFC's
operations, expires on February 28, 1998 and will be the subject of renewal
negotiations in the Fall of 1997.
All of the space leased by the Company is leased from unaffiliated
third parties.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding the beneficial
ownership of Nexus common stock as of June 26, 1997 by (i) each person who owns
beneficially more than 5% of Nexus Common Stock to the extent known to
management and (ii) each executive officer and director of Nexus and (iii) all
directors and executive officers, as a group. Unless otherwise indicated, the
named persons exercise sole voting and investment power over the shares that are
shown as beneficially owned by them.
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Beneficially Owned
------------------
Name Number Percent
- ---- ------ -------
Seth Grossman (1)(2) 101,777 8.4%
Jed Schutz (2) 101,777 8.4%
Joseph Dolan (3) -- --
Daniel Elstein (3) -- --
Allan Kornfeld (3) -- --
Deborah Knowlton (2) -- --
Lester Tanner (4) 118,493 9.8%
All directors and executive
officers as a group (6 persons) 203,554 16.8%
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(1) Includes all shares owned by Seymour Grossman Pension Trust of which Seth
Grossman is sole Trustee and beneficiary of 50% thereof.
(2) The addressed of Seth Grossman, Jed Schutz and Deborah Knowlton is 271 North
Avenue, Suite 520, New Rochelle, N.Y. 10801.
(3) The address of Joseph Dolan is 35 Huckleberry Lane, East Hampton, NY 11937.
The address of Daniel Elstein is 325 University Avenue, Syracuse, NY 13210. The
address of Allan Kornfeld is 5 Patterson Square, Newtown Sqaure, PA 19073.
(4) Includes all shares owned by Tanner & Gilbert P.C. Retirement Plan Trust, of
which Lester Tanner is the sole Trustee and beneficiary of the shares in his
segregated account. The address of Lester Tanner is 99 Park Avenue, New York,
NY 10016. Seth Grossman is the son of Lester Tanner's wife, Dr. Anne-Renee
Testa.
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ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The executive officers and directors of Nexus are:
Name Age Position
- ---- --- --------
Seth Grossman 29 Mr. Grossman has been President and Chief Executive
Officer of Nexus since January 1, 1997 and a Director of
Nexus since January 1994. He is a director of M & A
London, LLC, of New York, NY, which provides corpo
rate development services to mid-range public and private
companies. In 1991, Mr. Grossman founded a transporta
tion company which he sold in 1994.
Jed Schutz 38 Mr. Schutz has been Chairman of the Board of Nexus since
January 1, 1997 and a Director of Nexus since January
1994. He is a 50% owner and President of Windemere
Development Corp. of Hauppauge, NY, which builds one-
family homes in New York State by itself and with affili
ated companies. He has been in the real estate business for
more than five years.
Joseph Dolan 59 Mr. Dolan recently retired from Dun & Bradstreet, Inc.
where he worked for 31 years rising to a senior manage
ment position in D & B's marketing division. He was
elected a Director of Nexus in November 1996. Mr.
Dolan is a consultant to, and a director of, unaffiliated real
estate companies in East Hampton, New York.
Daniel Elstein 64 Dr. Elstein is a practicing orthopedic surgeon in Syracuse,
NY. He was elected a Director of Nexus in November,
1996. He has been the manager and participant for more
than 25 years in the development and ownership of com
mercial and residential real estate throughout the United
States. He is the operating manager of Gateway Granby,
LLC, the company to which Nexus sold the East Granby,
Connecticut office building in February 1996 for
$4,800,000.
Allan Kornfeld 59 Mr. Kornfeld, a certified public accountant and attorney,
was elected a Director of Nexus in November 1996. He
was an accountant and audit partner at Ernst & Young from
1960-1975, a comptroller, Vice President and Senior Vice
President of Ametek, Inc. (NYSE) from 1975-1986 and
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then Chief Financial Officer and Executive Vice President
of Ametek from 1986-1994. Presently Mr. Kornfeld is an
independent consultant on financial matters.
Deborah Knowlton 46 Ms. Knowlton was elected Secretary -Treasurer of Nexus
in June 1997 and is presently serving as Chief Financial
Officer. Previously she has worked with Kenneth Fuld,
President of Medical Financial Corp., on accounting
matters for other companies in which Mr. Fuld was an
executive officer.
ITEM 6. EXECUTIVE COMPENSATION
The following table shows for the years ended February 28, 1997, 1996
and 1995, compensation paid by Nexus, including salaries, bonuses and certain
other compensation, to the only persons who were executive officers in those
periods:
Name and Fiscal Salary Bonus Other Annual
Principal Position Year $ $ Compensation(1)
- ------------------ ----- --------- ------- ---------------
Peter Barotz 1997 121,530(2) -- 22,000
President and CEO 1996 111,537 60,000 21,000
until 12/31/96 1995 101,539 -- 20,000
Bridget Dewsnap, 1997 60,000 -- --
Treasurer, Secretary 1996 58,000 -- --
and CFO until 6/1/97 1995 56,000 -- --
Seth Grossman, 1997 6,000 -- --
President and CEO 1996 -- -- --
1/1/97 - 2/28/97 1995 --
Jed Schutz, Chairman 1997 6,000
of the Board 1996 -- -- --
1/1/97 - 2/28/97 1995 -- -- --
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(1) The amounts in this column represent automobile allowances and certain
unaccountable and reasonable expense allowances.
(2) Peter Barotz's salary during his incumbency as President of Nexus in the
period from March 1, 1994 to December 31, 1996 is shown above and includes for
the two months, from January 1, 1997 to February 28, 1997, the compensation for
his consulting agreement with Nexus, which continues until December 31, 1997.
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ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Since March 1, 1996 Nexus, through its subsidiary PSI Capital Corp.,
sold building lots in Goshen, NY to Windemere in the Pines at Goshen, Inc., a
part of the Windemere Group of construction companies, in which Jed Schutz, a
director of Nexus, is an officer, director and shareholder ("Windemere"). The
total selling price for the Goshen lots, sold in February and August 1996, was
$2,499,150 resulting in a profit of $1,860,270. In addition the Company received
a debenture for $2,499,750 with payment contingent on, and related to, 50% of
the profits to be realized on the construction and sale of the homes to be built
on the 165 lots. This $2,499,750 has not been reflected in the Company's net
income nor is it carried as an asset on the balance sheet, because of its
contingent nature. It is management's opinion that this transaction would be at
the same terms had Jed Schutz not been a director of Nexus at the time it took
place.
In February 1996 Nexus sold the property in East Granby, to Gateway
Granby, LLC (see Item 1 herein) at a time when Lester Tanner was a director of
Nexus. Shari Stack, the 42 year old daughter of Lester Tanner, owned then and
now a 24% interest in Gateway Granby, LLC.
ITEM 8. LEGAL PROCEEDINGS
The Company's Yolo subsidiaries filed an action in Supreme Court of New
York, Westchester County against the former managing agent of its real property
in Hunter N.Y., and corporate entities controlled by the agent, after the
expiration of the agent's option to purchase the property had expired. The
defendants have counterclaimed seeking damages of over $2,000,000 for not
permitting exercise of the option. The option price was then, and is now, more
than twice the total of the value of the property carried on the books
($461,897) plus the note receivable for Hunter ($636,000) and the defendants
were not then, and are not now, able to pay the option price (See Notes 4 and 2
to the financial statements herein). The Company had negotiated to sell the
Hunter real estate to the defendants for much less than the option price before
the option had expired, but the defendants were unable to raise the financing
for the purchase. Discovery in the lawsuit has been completed and it is expected
that the matter will be placed on the trial calendar shortly. Company counsel
believes that the counterclaims of the defendants will be dismissed.
On March 25, 1992, PSI Capital Corp. filed in Connecticut for relief
under Chapter 11 of the Bankruptcy Code because RTC, which had taken over the
first mortgage positions of two Connecticut banks, was about to foreclose on the
properties, wiping out the value of the second mortgages held by PSI Capital
Corp. The stay in the Chapter 11 proceeding provided sufficient time to purchase
the first mortgages on the real estate (one of which was the building in East
Granby and the other in Greenwich) for less than the outstanding principal
amount and thereby protect PSI Capital's second mortgage position in the real
estate. A Plan of reorganization has been filed in the Chapter 11 proceeding and
it is expected that PSI Capital Corp will emerge from Chapter 11 by the end of
the present fiscal year.
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ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The registrant is unaware of any significant transfers of its common
stock, sales or trading since August 1996 when the shares were released from
escrow. The Company does not know of anyone making a market for its common
stock. After this application has been reviewed by the SEC, the Company plans to
send an Information Statement to its shareholders containing the financial
statements and information in this Form 10 and to seek market makers,
preliminary to its application to list the common stock for trading on NASDAQ.
The Company has never paid dividends on the common stock and there is
no present intention to do so in the foreseeable future.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
The only securities issued by the registrant within the past three
years were the 1,211,635 shares of its common stock issued to shareholders of
PSI pursuant to the Orders of the Federal Court, as described in Item 1 above.
As set forth in the opinion filed herewith as Exhibit 3.10, which was Exhibit
(g) to PSI's Current Report (Form 8-K) dated August 7, 1996, the shares were
exempt from registration under the Securities Act of 1933, as amended, pursuant
to Section 3(a)(10) thereof.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The only authorized capital stock of the Company consists of 2,000,000
shares of common stock, $.10 par value. These are the securities to be
registered. There are issued and outstanding 1,211,635 shares held by more than
800 shareholders at all times since August 1996.
The Company believes that it will meet the requirements for listing the
common stock on NASDAQ at such time as the market prices at which the common
stock will have traded in the over-the-counter market will permit, but there is
no assurance that this will occur.
There is no cumulative voting and each share of common stock has one
vote on all matters brought before the shareholders for a vote. There are no
preemption rights in the holders of common stock.
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ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VII of the Company's By-Laws provides indemnification by the
Company for its directors, officers, employees, agents and other persons who may
be indemnified pursuant to the provisions of Section 145 of the General
Corporation Law of the State of Delaware (the "Indemnitee").
Nexus shall, and is obligated to, indemnify and advance the expenses of
the Indemnitee in every situation where it is obligated to do so pursuant to the
aforesaid statutory provisions provided Nexus had made the determination that
the Indemnitee has acted in good faith and in a manner such Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, and, in the case of any criminal action or proceeding, had not
reasonable cause to believe that such Indemnitee's conduct was unlawful.
See the text of Article VII in the By-laws filed as an Exhibit herein.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
All financial statements required by Regulation S-X and the
supplementary financial information required by Item 302 of Regulation S-K has
been furnished by the Company's independent accountants and is included in the
financial statements listed in Item 15 and filed as part of this registration
statement.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Nexus has had the same independent accountants since its incorporation
and there have been no disagreements with them on accounting or financial
matters.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
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The response to this portion of Item 15 is submitted as a
separate "Index to Financial Statements and Schedules" which precedes the
Independent Auditor's Report herein.
(b) Exhibits:
Exhibit
Number Description
- ------ -----------
3.01 Certificate of Incorporation of the Company.
3.02 Certificate of Amendment of Certificate of Incorporation of
the Company.
3.03 Amended By-Laws of the Company.
3.04 Settlement Stipulation dated November 17, 1993.
3.05 Court Order dated November 17, 1993.
3.06 Final Judgment and Order Approving Settlement.
3.07 Amendment to Settlement Stipulation
3.08 Court Order Amending Final Judgment and Order.
3.09 Stipulation and Order Authorizing Release of Shares From
Escrow.
3.10 Opinion re release of shares.
4.01 Specimen Common Stock Certificate.
5.01 Opinion re legality of common stock.
10.01 Agreement for sale of lots in Goshen, NY to Windemere in the
Pines at Goshen, Inc.
10.02 Agreement for the sale of real property in East Granby, CT to
Gateway Granby, LLC.
10.03 Management Agreement for Wendy's Restaurants.
19.01 Letter to shareholders dated January 5, 1996.
19.02 Letter to shareholders dated July 26, 1996.
23.01 Consent of Michael, Adest & Blumenkrantz.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly cause this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRM NEXUS, INC.
(Registrant)
By /s/ Seth Grossman
--------------------------
June 27, 1997 Seth Grossman, President
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Index to Financial Statements and Schedules
Independent Auditor's Report dated May 9, 1997 ................................cover page
Consolidated Balance Sheets as of February 28, 1997
and February 29, 1996 (Balance Sheet as of
February 28, 1995 is part of Exhibit 19.1 herewith) ........................... 2 pages
Consolidated Income Statements For the Three Years
Ended February 28, 1997 ....................................................... 1 page
Consolidated Statement of Stockholders' Equity For
the Three Years Ended February 28, 1997 ....................................... 1 page
Statements of Cash Flows For The Three Years Ended
February 28, 1997 ............................................................. 1 page
Notes 1 through 9 to Consolidated Financial Statements
for the Three Years Ended February 28, 1997 ................................... 15 pages
Selected Consolidated Financial Data for the Three Years
Ended February 28, 1997 ....................................................... 1 page
Supplemental Financial Information Segment Information ........................ 2 pages
Supplemental Financial Information Unaudited Selected
Quarterly Financial Data ...................................................... 1 page
17
[MICHAEL, ADEST & BLUMENKRANTZ LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of FRM Nexus, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of FRM Nexus, Inc.
and Subsidiaries as of February 28, 1997 and February 29, 1996, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended February 28, 1997. 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 audits. We did not audit the financial statements of
Wendclark Corporation and Wendcello Corporation, wholly owned subsidiaries,
which statements reflect total assets of $4,998,033 and $3,423,936 as of
February 28, 1997 and February 29, 1996. Those statements were audited by
another auditor whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for Wendclark Corporation and Wendcello
Corporation, is based solely on the report of the other auditor.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditor, the
financial statements referred to in the first paragraph present fairly, in all
material respects, the financial position of FRM Nexus, Inc. and Subsidiaries as
of February 28, 1997 and February 29, 1996, and the results of their operations
and their cash flows for the three years then ended, in conformity with
generally accepted accounting principles.
/s/ Michael, Adest & Blumenkrantz
---------------------------------
MICHAEL, ADEST & BLUMENKRANTZ
Certified Public Accountants, P.C.
New York, New York
May 9, 1997
18
FRM NEXUS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 28, February 29,
1997 1996
----------- -----------
ASSETS
CURRENT ASSETS
Cash & cash equivalents $ 1,861,219 $ 1,170,713
Mortgage and notes receivable 141,718 2,848,477
Finance receivables, net of
deferred finance income of
$127,354 in 1997 and $-0- in 1996 1,238,891 484,073
Inventories at cost 97,210 88,669
Other current assets 275,078 344,135
----------- -----------
TOTAL CURRENT ASSETS 3,614,116 4,936,067
----------- -----------
FIXED ASSETS
Property, land, and equipment 5,351,679 3,316,145
Less: Accumulated depreciation 1,897,197 1,429,387
----------- -----------
NET BOOK VALUE 3,454,482 1,886,758
----------- -----------
OTHER ASSETS
Real estate held for
development and sale 793,369 1,385,360
Mortgage and notes receivable 4,897,852 2,993,629
Loans receivable 92,526 87,226
Unamortized leasehold costs 548,685 592,809
Technical assistance fees 248,490 269,747
Other 100,073 29,638
----------- -----------
TOTAL OTHER ASSETS 6,680,995 5,358,409
----------- -----------
TOTAL ASSETS $13,749,593 $12,181,234
=========== ===========
See Notes to Consolidated Financial Statements
19
FRM NEXUS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 28, February 29,
1997 1996
------------ ------------
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and
Accrued expenses $ 888,410 $ 2,086,329
Notes payable - current maturities 244,441 109,182
Due to customers 957,585 267,322
Taxes payable - income 14,357 14,751
Deferred income -- 2,685,175
Other current liabilities 36,111 71,648
------------ ------------
Total current liabilities 2,140,904 5,234,407
------------ ------------
Other liabilities
Notes payable - less current
maturities 2,162,064 645,925
Deferred taxes payable 66,076 335,379
Deferred income 2,317,248 567,363
Other 59,418 53,335
------------ ------------
Total other liabilities 4,604,806 1,602,002
------------ ------------
Total liabilities 6,745,710 6,836,409
------------ ------------
Stockholder's equity
Common stock - $.10 par value;
Authorized - 2,000,000 shares;
Issued and outstanding 1,211,635 121,164 121,164
Capital in excess of par value 5,887,706 5,887,706
Retained earnings 995,013 (664,045)
------------ ------------
Total stockholder's equity 7,003,883 5,344,825
------------ ------------
Total liabilities and
Stockholder's equity $ 13,749,593 $ 12,181,234
============ ============
See Notes to Consolidated Financial Statements
20
FRM NEXUS, INC.
AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
REVENUE
Restaurant food sales $ 16,263,323 $ 14,536,291 $ 14,523,900
Sale of real estate 2,617,750 5,510,560 --
Rental income -- 21,458 --
Interest from mortgages 315,874 14,312 --
Income from the purchase of
accounts receivable 216,521 253,857 --
------------ ------------ ------------
Total income 19,709,878 20,336,478 14,523,900
------------ ------------ ------------
COST OF SALES
Restaurants 5,687,138 4,973,113 4,854,252
Real estate 1,487,580 2,272,106 --
------------ ------------ ------------
Total costs of sales 7,174,718 7,245,219 4,854,252
------------ ------------ ------------
Gross profit 12,238,750 13,091,259 9,669,648
------------ ------------ ------------
OPERATING EXPENSES
Selling, general & administrative -
Restaurants 9,794,793 9,298,403 8,705,224
Other 1,234,892 448,839 136,164
Interest expense 207,164 46,098 16,384
Depreciation and amortization 532,909 437,210 364,352
------------ ------------ ------------
Total costs and expenses 11,769,758 10,230,550 9,222,124
------------ ------------ ------------
Income from operations before
income taxes and other items 468,992 2,860,709 447,524
Interest income 72,077 59,094 39,697
------------ ------------ ------------
Income before income taxes 541,069 2,919,803 487,221
Provision for (benefit from)
income taxes (193,015) 356,833 70,004
------------ ------------ ------------
Net income $ 734,084 $ 2,562,970 $ 417,217
============ ============ ============
Net income per common share and
common share equivalents (a)
Primary and fully diluted $ .606 $ 2.12 $ .34
============ ============ ============
Number of shares used in computation
of primary and fully diluted
earnings (a) 1,211,635 1,211,635 1,211,635
============ ============ ============
(a) Common shares outstanding at
February 28, 1995 have been restated
to give effect to recapitalization.
See Notes to Consolidated Financial Statements
21
FRM NEXUS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
Total
Additional Retained Stock-
Common Paid-In Earnings holder's
Stock Capital (Deficit) Equity
----------- ----------- ----------- -----------
Balances,
February 28, 1994 $ 10,000 $ 4,459,797 $ (582,805) $ 3,886,992
Net income for the
year ended
February 28, 1995 -- -- 417,217 417,217
----------- ----------- ----------- -----------
Balances,
February 28, 1995 10,000 4,459,797 (165,588) 4,304,209
Recapitalization 111,164 (111,164) -- --
Transfer of assets
from parent -- 1,539,073 -- 1,539,073
Net income for the
year ended
February 29, 1996 -- -- 2,562,970 2,562,970
----------- ----------- ----------- -----------
Balances
February 29, 1996 121,164 5,887,706 2,397,382 8,406,252
Net income for the
year ended
February 29, 1997 -- -- 734,084 734,084
Dividend paid to parent -- -- (10,316) (10,316)
----------- ----------- ----------- -----------
Balances
February 29, 1997 $ 121,164 $ 5,887,706 $ 3,121,150 $ 9,130,020
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements
22
FRM NEXUS, INC.
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
February 28, February 29, February 28,
1997 1996 1995
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 734,084 $ 2,562,970 $ 417,217
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 536,686 437,210 364,352
Deferred income tax expense (benefit) (269,303) 342,196 (6,817)
(Increase) decrease in accounts receivable (882,172) (309,561) (174,512)
(Increase) decrease in notes receivable 802,536 (5,277,106) --
(Increase) decrease in inventory (8,541) (12,231) 97
(Increase) decrease in real estate held
for development and sale 591,991 (110,385) 160,727
(Increase) decrease in prepaid expenses
misc. receivables, and other assets 34,710 (199,926) 8,145
Increase (decrease) in accounts payable,
accrued expenses and taxes (1,198,313) 1,351,330 (136,601)
Increase (decrease) in due to Parent -- (71,678) 56,362
Increase (decrease) in due to customers 690,263 210,960 71,678
Increase (decrease) in deferred income 127,354 191,111 --
Increase (decrease) in other liabilities (29,454) 47,740 (9,239)
----------- ----------- -----------
Net cash provided (used) by
operating activities 1,129,841 (837,370) 751,409
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures & intangible assets (395,117) (797,207) (300,092)
Loans to officer (5,300) (16,886) (14,617)
----------- ----------- -----------
Net cash provided (used) by
investing activities (400,417) (814,093) (314,709)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds of notes payable, banks 100,000 550,000 --
Principal payments on notes payable (128,602) (58,696) (298,473)
Transfer of assets from parent -- 1,539,073 --
Dividend paid to parent (10,316) -- --
----------- ----------- -----------
Net cash provided (used) by
financing activities (38,918) 2,030,377 (298,473)
----------- ----------- -----------
Net increase (decrease) in cash 690,506 378,914 138,227
Cash, beginning of year 1,170,713 791,799 653,572
----------- ----------- -----------
Cash, end of year $ 1,861,219 $ 1,170,713 $ 791,799
=========== =========== ===========
Additional cash flow information:
Interest expense paid $ 196,841 $ 34,652 $ 16,384
=========== =========== ===========
Income taxes paid $ 49,322 $ -- $ 68,783
=========== =========== ===========
Non-cash financing activities:
Assets acquired under capital lease $ -- $ 94,549 $ 124,254
=========== =========== ===========
Transfer of assets from parent $ -- $(1,539,073) $ --
=========== =========== ===========
Purchase money note given on realty
acquisition $ 1,680,000 $ -- $ 45,000
=========== =========== ===========
See Notes to Consolidated Financial Statements
23
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of FRM Nexus, Inc.
(the "Company" or "Nexus") and all of its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
B. BUSINESS ACTIVITIES OF THE COMPANY:
The Company was incorporated in November 1993 under the laws of the State of
Delaware to settle a class action (See Note 8E) against Programming and Systems,
Inc. (PSI), in order to liquidate certain assets in favor of the shareholder
class in settlement of the class action. The assets transferred to Nexus
included PSI Capital Corp. and PSI Food Services, Inc. which in turn own all of
the stock of Wendcello Corp., and Wendclark Corp. In 1995, an additional
subsidiary, Medical Financial Corp. was formed. In 1996, additional
subsidiaries, Yolo Capital Corp. and Yolo Equities Corp. were acquired. However,
pursuant to Court Order Nexus is no longer under the obligation to liquidate.
Nexus intends to list its common stock on NASDAQ and operate as an ongoing
entity.
On February 26, 1996, the Company amended its certificate of incorporation as
follows:
1) The Company changed its name from PSI Settlement Corp. to FRM Nexus,
Inc.
2) The Company increased authorized capital stock from 75,000 shares, par
value $1.00 per share, to 2,000,000 shares common stock of the par
value of ten cents (.10) per share.
All of the outstanding shares of stock of the Corporation, consisting of 10,000
shares of stock of PSI Settlement Corp., of the par value of $1 per share,
registered in the name of one shareholder, be changed into such number of shares
of common stock of FRM Nexus, Inc. of the par value of .10 per shares as shall
be determined by the Board of Directors of the Corporation, namely 1,211,635
shares of common stock. These shares had been held in escrow for the benefit of
the shareholders of PSI since the settlement of the class action in January 21,
1994. On August 12, 1996, the shares were released from escrow to shareholders
of PSI.
1) The Food Services Companies consist of Wendclark Corp. and Wendcello
Corp.
Wendclark Corp. was incorporated in West Virginia on March 22, 1990.
Wendcello Corp. was incorporated in New York on June 25, 1990. The food
service companies were formed to acquire, own and operate eleven
existing Wendy's Old Fashioned Hamburger Restaurants in West Virginia
and the Hudson Valley, New York area. Six of the restaurants were
acquired from a franchisee of Wendy's International and five were
acquired from a subsidiary of Wendy's International. In addition, the
companies constructed 3 new restaurants which opened between December
1990 and November 1992. During fiscal 1996, two additional restaurants
were opened.
On June 21, 1996, Wendclark Corp. exercised its option to purchase the
land and buildings of the four restaurants it was leasing from Wendy's
International (See Note 6B-4).
24
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
The Food Service Companies' day-to-day operations are managed by
Management Corporations, which are affiliated to the extent set forth
in Note 7A.
2) The real estate business is conducted by PSI Capital Corp, Yolo Capital
Corp. and Yolo Equities Corp. PSI Capital Corp. was incorporated in
April, 1989 for the purpose of extending first and subordinate real
estate mortgages. These mortgages were subsequently foreclosed and the
properties were sold except for two parcels in Brookfield, Connecticut
(See Note 4). Yolo Capital Corp. and Yolo Equities Corp. hold
beneficial interest in trusts, own real estate and hold mortgages on
real estate parcels in Hunter, New York. The properties in Hunter, New
York and Brookfield, Connecticut are currently held for development and
sale.
3) Medical Financial Corp was incorporated in New York on January 12,
1995. The Company purchases the insurance claims receivable of medical
practices.
C. REVENUE RECOGNITION:
The accrual method of accounting is used to record all income.
D. INVENTORIES:
Inventories of food and supplies are stated at cost.
E. PROPERTY, LAND, EQUIPMENT AND DEPRECIATION:
Property, Land and equipment are stated at cost. Depreciation is provided by
application of the straight-line method over estimated useful lives as follows:
Buildings 39 years
Land improvements 15 years
Leasehold improvements 10-22 years
Restaurant equipment 7 years
Computer equipment 5 years
Transportation equipment 5 years
F. REAL ESTATE HELD FOR DEVELOPMENT AND SALE:
The methods for valuing property and mortgages where current appraisals are
unobtainable, is based on management's best judgements regarding the economy and
market trends. These factors cannot be precisely quantified and verified. As a
result, estimates may change based on ongoing evaluation of future economic and
market trends.
G. LEASES:
Leases which transfer substantially all of the risks and benefits of ownership
are classified as capital leases, and assets and liabilities are recorded at
amounts equal to the lesser of the present value of the minimum lease payments
or the fair value of the leased properties at the beginning of the respective
lease terms. Such assets are depreciated in the same manner as owned assets.
Interest expense relating to the lease liabilities is recorded to effect
constant rates of interest over the terms of the leases. Leases which do not
meet such criteria are classified as operating leases and the related rentals
are charged to expense as incurred.
25
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
H. LEASEHOLD COSTS:
The Company has capitalized the applicable costs and related expenses of
acquiring the leases for its various restaurants and is amortizing them over the
terms of the applicable leases, ten to twenty years.
I. TECHNICAL ASSISTANCE FEES:
The Company has capitalized the Technical Assistance Fees paid to Wendy's
International and is amortizing them on a straight-line basis over fifteen to
twenty years.
J. INCOME TAXES:
Deferred income taxes are recognized for all temporary differences between the
tax and financial reporting bases of the Company's assets and liabilities based
on enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. The Company accounts for
such deferred taxes pursuant to Financial Accounting Standards Board Statement
No. 109.
K. CASH AND CASH EQUIVALENTS:
For purposes of the statement of cash flows, the company considers all
highly-liquid, short-term investments with an original maturity of three months
or less to be cash equivalents.
L. CONCENTRATION OF CREDIT:
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash, commercial paper maturing in less than
90 days and trade and notes receivables.
As of February 28, 1997, the Company had concentrations of cash in bank balances
totaling approximately $463,000 located at one bank, under two different
accounts which exposes the Company to concentrations of credit risk.
All trade receivables arise from the purchase of insurance claims receivable
from several medical groups in the New York City area. The insurance claims are
from various insurance companies.
All note receivables are from the sale of real estate in New York and
Connecticut. Three purchasers account for approximately 46%, 37% and 13% of the
total notes receivable (See Note 2).
The Company's restaurant operations are all located in West Virginia and the
Hudson Valley area of New York.
M. USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management 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 and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
26
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 2: NOTES RECEIVABLE
The Company has notes and mortgages receivable arising from the sale of real
estate (See Notes 4 and 7C). These notes have various terms for payments of
principal and interest and are collateralized by the underlying real estate.
These notes bear interest ranging from 6% to 14%. The Company recognizes
interest income on these notes on the accrual basis. These notes mature as
follows:
1998 $ 141,718
1999 2,469,520
2000 89,288
2001 77,156
2002 83,664
Thereafter 2,178,224
-----------
$ 5,039,570
===========
Of the $2,178,224 scheduled to mature after 2002, $636,000 is non-performing.
Interest income has not been accrued on this mortgage. The underlying value of
the real estate is in excess of the mortgage receivable.
The notes receivable consist of the following:
Goshen, NY $ 2,310,000
Granby, CT 1,854,834
Hunter, NY 636,000
Pound Ridge, NY 150,000
New York, NY 45,500
Middletown, CT 43,236
-----------
$ 5,039,570
===========
NOTE 3: PROPERTY, LAND AND EQUIPMENT
Property, Land and equipment consists of the following assets:
February 28, February 29,
1997 1996
---------- ----------
Land $ 740,000 $ 50,000
Land improvements 296,600 90,100
Buildings 790,000 --
Restaurant equipment 2,571,281 2,336,106
Leasehold improvements 683,210 588,204
Computer equipment 47,985 29,132
Register systems under capital leases 218,803 218,803
Transportation 3,800 3,800
---------- ----------
Total 5,351,679 3,316,145
Less: Accumulated depreciation 1,897,197 1,429,387
---------- ----------
Property and equipment, net $3,454,482 $1,886,758
========== ==========
Substantially all of the above assets are utilized in the food service
subsidiaries.
27
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 4: REAL ESTATE HELD FOR DEVELOPMENT AND SALE
The borrowers on several mortgages defaulted on their loan payments and PSI
Capital Corp. successfully foreclosed on the underlying properties. These
properties have been capitalized at the value of the mortgage debt. Some of the
properties have been written down to fair market value where the capitalized
value exceeded the fair market value.
The foreclosed properties are shown net of co-investors. Co-investors were used
to finance the original mortgages receivable. Upon foreclosure, when the
recovery is for a lesser amount than the principal amount of the mortgage, PSI
Capital Corp. agreed that the first 10-15% of the losses, if any, upon the
liquidation of the collateral, shall be borne by it.
The following properties are included in real estate held for development and
sale:
February 28, February 29, February 28,
1997 1996 1995
----------- ----------- -----------
A. Hunter, NY $ 461,897 $ 436,897 $ --
B. Brookfield, CT 476,472 455,559 455,559
C. Goshen, NY -- 306,304 380,000
D. Pound Ridge, NY -- 225,000 225,000
E. Middletown, CT -- 186,600 300,000
F. Granby, CT -- -- 927,416
----------- ----------- -----------
938,369 1,610,360 2,287,975
Less: Due to co-investors (145,000) (225,000) (458,000)
----------- ----------- -----------
$ 793,369 $ 1,385,360 $ 1,829,975
=========== =========== ===========
A. HUNTER, NY
These are condominium units and land held for development and sale at the base
of Hunter Mountain in Greene County, New York (See Note 8F).
B. BROOKFIELD, CT
These are two parcels of land in Brookfield, Connecticut. PSI Capital Corp. held
the original mortgage of $430,000, less $70,000 due to co-investors. The Company
foreclosed upon the property. Current appraisals for the two parcels of land are
for $290,000 and $225,000. The property is valued at the face value of the
mortgage plus foreclosure costs and capitalized costs on the balance sheet
because this amount is less than its fair market value.
C. GOSHEN, NY
PSI Capital Corp. held the first mortgage on 90% of a parcel of land in Goshen,
New York, and a second mortgage on 10% of this same property. The property had
been foreclosed upon and was owned by PSI Capital Corp. PSI Capital had
instituted an action against the village of Goshen to enforce a subdivision plan
for the property. During fiscal year 1994 this property had been written down to
$380,000 which represented its fair market value as vacant land. During fiscal
year 1996, 32 lots of the 165 lots were sold for $484,800, reducing the $380,000
to $306,304 representing the amount at which the remaining 133 lots are included
above. During fiscal 1997, the remaining lots were sold for $2,014,950 (See
Notes 2 and 8D).
28
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 4: REAL ESTATE HELD FOR DEVELOPMENT AND SALE (CONT'D)
D. POUND RIDGE, NY
PSI Capital Corp. held the first mortgage on four acres of residential land in
Pound Ridge, New York. During fiscal 1994 this property had been written down to
$225,000 based upon an appraisal. This property was sold during fiscal 1997 for
$225,000 (See Note 2).
E. MIDDLETOWN, CT
PSI Capital Corp. held the first mortgage on seven parcels of land in
Middletown, Connecticut, and the third mortgage on the home of the borrower. The
amount of the mortgages were for $550,000, less $40,000 due to participants.
Based upon appraisals this property had been written down to $300,000. It was
then owned by PSI Capital Corp as a result of the foreclosure of the mortgages.
During fiscal year 1996, two properties were sold, leaving a balance of
$186,600. During fiscal 1997, the remaining property was sold.
F. GRANBY, CT
This was a partially built office building in Granby, Connecticut, which FRM
owned as a result of the foreclosure of the first mortgage on the property which
was acquired for approximately $1,000,000. Based on a current appraisal the
property had been written down to $900,000 during fiscal 1994. This property was
sold during fiscal 1996 (See Notes 2, 8D-1, and 8H).
NOTE 5: LOANS RECEIVABLE OFFICER
Wendcello Corp. has made certain loans to its President who is not an officer or
director of Nexus. At February 28, 1997 and February 29, 1996 $92,526 and
$87,226 were outstanding. Included in this amount was $5,300 of interest accrued
at 9% per annum. The loans have no specific repayment terms and are accordingly
reported as non-current.
NOTE 6: NOTES PAYABLE
The Food Service Companies entered into the following notes and capital leases
payable:
A. CAPITAL LEASES PAYABLE:
1) In January 1995, Wendcello Corp committed to the lease of new cash
register systems for all of its restaurants. Sixty payments of $2,442
commerce April 1995. At the conclusion of the lease, the equipment may
be purchased for $12,150. Wendcello has capitalized this lease
obligation including the purchase option utilizing an imputed interest
rate of 9.37%.
2) In May 1995, Wendclark Corp. leased new cash register systems for its
restaurants. Sixty payments of $1,936 commenced June 1995. At the
conclusion of the lease, the equipment may be purchased for $8,797.
Wendclark has capitalized this lease obligation including the purchase
option utilizing an imputed interest rate of 10.8%.
29
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 6: NOTES PAYABLE (CONT'D)
A. CAPITAL LEASES PAYABLE (CONT'D):
Minimum lease payments including imputed interest and principal through maturity
are as follows:
Year-Ending Minimum Amounts Representing
February Lease-Payments Interest Principal
-------- -------------- -------- ---------
1998 $ 52,535 $ 13,977 $ 38,558
1999 52,535 9,944 42,591
2000 52,535 5,486 47,049
2001 27,798 451 27,347
-------- -------- --------
Total $185,403 $ 29,858 $155,545
======== ======== ========
B. NOTES PAYABLE:
1) Wendcello Corp., Bank:
Wendcello borrowed $350,000 to finance the renovations and equipment of
its eighth restaurant in Chester, New York. This loan is for a term of
five years and is payable in monthly principal payments of $4,167 plus
interest at 1% above prime through September 29, 2000 at which time a
balloon payment of $100,000 plus accrued interest is due. The loan is
secured by all the inventory, furniture, fixtures and equipment of
Wendcello and is guaranteed by the three executive officers.
2) Wendclark Corp., Bank:
On May 1, 1995, Wendclark borrowed $200,000 from a local bank pursuant
to a promissory note and term loan agreement. The note is for a term of
ten years, bearing interest at one percent above the prime rate.
Monthly principal payments of $2,755 including interest commenced June
1, 1995.
The note is secured by all the personal property at the new
Martinsville, West Virginia restaurant and is guaranteed by the
Wendclark's Chairman, President and Vice President.
3) Wendcello Corp., Purchase Money Note Payable:
The consideration for the land purchased to extend a Wendy's parking
lot was $50,000, of which $5,000 was paid in cash and the balance by
delivery of five-year, 5%, $45,000 purchase money note secured by a
deed of trust. The note is payable in five annual installments of
$10,394 on April 1, 1995 through 1999.
30
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 6: NOTES PAYABLE (CONT'D)
B. NOTES PAYABLE (CONT'D):
4) Wendclark Corp., Mortgage Payable:
In June 1996, Wendclark obtained a loan from its bank for new financing
in the aggregate amount of $1,680,000. The loan was used to exercise
the option to purchase the land and buildings of the four restaurants
leased from Wendy's (See Note 8B). The loan bears interest at 9.25%
over its term and requires 60 monthly payments of $15,387 including
principal and interest calculated on a 20 year amortization basis. A
balloon payment will be required after five years. The loan, which
required an $8,400 origination fee in addition to other closing costs
aggregating $41,913, is secured by a first deed of trust on the realty
of and the equipment at the four restaurants and is guaranteed by
Wendclark's three executive officers. The loan agreement imposes
various affirmative and negative covenants upon Wendclark relating to
the conduct of business, maintenance of insurance, submission of
financial statements of Wendclark and its guarantors, compliance with
certain financial ratios, restrictions on dividends, management fees
and the sale of Wendclark's outstanding capital stock.
5) Medical Financial Corp., Bank:
Medical Financial Corp. has a $300,000 line of credit with a bank. The
line expires on August 30, 1997 and bears interest at the rate of prime
plus 1.5%. The line is collateralized by a blanket lien on all of
Medical Financial Corp's assets and is guaranteed by FRM.
Annual principal maturities for all of these notes as referred to above for the
years ended February 28, are as follows:
1998 $ 205,883
1999 111,159
2000 116,956
2001 200,434
2002 1,536,370
Thereafter 80,158
----------
$2,250,960
==========
As of February 28, 1997 the amounts outstanding on all of the capital leases and
notes payable are as follows:
Current Longterm
Maturities Maturities Total
---------- ---------- ----------
Wendcello Corp. $ 72,055 $ 302,681 $ 374,736
Wendclark Corp. 72,386 1,859,383 1,931,769
Medical Financial Corp. 100,000 0 100,000
---------- ---------- ----------
Total $ 244,441 $2,162,064 $2,406,505
========== ========== ==========
31
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 7: RELATED PARTY TRANSACTIONS
A. MANAGEMENT AGREEMENT:
The day-to-day operations of the subsidiaries, Wendcello and Wendclark
are managed by Cello and Clark Management Corps., respectively. The
management companies are affiliated with the subsidiaries in that
certain of its officers and/or directors (none of whom are officers or
directors of Nexus) are also officers and/or directors of the
subsidiaries. The management agreement took effect upon the purchase of
the restaurants and is to remain in effect as long as the subsidiaries
continue to own the restaurants.
The management agreement grants the management company complete
authority with respect to day-to-day operations, all of which is
carried out under the subsidiaries' name. Any non-routine matters such
as the purchase or sale of real property or fixed assets, assignment or
sublease of a lease, any proposed borrowing or financing or
participation in a joint venture including the exercise of the purchase
option granted by the seller or Wendy's requires the joint approval of
the subsidiaries' and the management company.
The management agreement provides for a basic fee equal to thirty
percent in Wendcello and forty percent in Wendclark of pre-tax cash
flow determined annually and paid on an estimated basis quarterly to be
adjusted when annual results are known. The management fees were $
68,600 in 1997, $117,500 in 1996 and $178,000 in 1995. The agreement
further provides for an incentive fee equal to thirty and forty percent
of the pre-tax proceeds of the sale or refinancing of any assets owned
or later acquired by the subsidiaries less any amounts used to buy
replacement assets or to pay off any refinanced obligations. Whenever
basic or incentive fees are paid, the subsidiaries must pay a dividend
to its parent equal to two and one-third times and one and one-half
times the amount of the fee paid to Cello and Clark Management Corps.,
respectively.
The agreement further provides that in the event the subsidiaries
exercise the purchase option for the real property granted by Wendy's
International, the parent Company and the management company shall
share in the capital funding thereof (that is, for the portion which
cannot be financed through third parties). For any period in which cash
flow is negative, working capital advances shall be made to the
subsidiaries by its parent and management company in the ratio of 7 to
3 and 3 to 2 for Wendcello and Wendclark, respectively.
B. CONSULTING AGREEMENT:
Wendclark has a three-year consulting contract with its Chairman (who
is not an officer or director of Nexus) renewed in 1996 through March
31, 1999 providing for a monthly fee of $1,150 plus reasonable
expenses. For fiscal 1997, 1996 and 1995, $13,650, $12,600 and $12,550
were incurred pursuant to this contract. At expiration, the agreement
is automatically renewable for as long as Wendclark remains in business
at not less than the current fee.
32
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 7: RELATED PARTY TRANSACTIONS (CONT'D)
C. NOTES RECEIVABLE (CONT'D):
The transaction involving the sale of land in Goshen, NY (See Note 4)
and the related note receivable (See Note 2) was with Windemere in the
Pines at Goshen, Inc., a part of the Windemere Group of construction
companies, in which Jed Schutz, a director of Nexus, is an officer,
director and shareholder. The selling price of this land was $2,014,950
in fiscal 1997 and $484,200 in fiscal 1996, resulting in a profit
$1,453,646 in fiscal 1997 and $406,624 in fiscal 1996 (See Note 8D-2).
The balance of the notes receivable at February 28, 1997 and February
29, 1996 were $2,310,000 and $448,000, respectively. It is management's
opinion that this transaction would be at the same terms had the
parties not been related.
NOTE 8: COMMITMENTS AND CONTINGENCIES
A. FRANCHISE AGREEMENT COMMITMENTS:
Wendcello and Wendclark, subsidiaries of the Company are the
franchisees for the sixteen Wendy's Restaurants it owns and operates.
The franchise agreements obligates the subsidiaries to pay to Wendy's
International a monthly royalty equal to 4% of the gross sales of each
restaurant during the month, or $250, whichever is greater.
Additionally, the subsidiaries must contribute to Wendy's National
Advertising Program 2.5% of the gross sales and spend not less than
1.5% of the gross sales of each restaurant for local and regional
advertising.
B. MINIMUM OPERATING LEASE COMMITMENTS:
The Wendy's restaurants entered into various leases, with various
clauses relating to real estate taxes, common charges, renewals and
percentage rent with certain minimum payments.
Rent expense for these restaurants, were as follows:
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
Base rentals $ 729,000 $ 665,750 $ 638,750
Contingent rentals 277,607 324,717 347,900
------------ ------------ ------------
Total $ 1,006,607 $ 990,467 $ 986,650
============ ============ ============
In June, 1996 Wendclark exercised its option to purchase the land and
buildings of the four restaurants it was leasing from Wendy's for
$1,680,000 (See Note 6B-4). The purchase option agreement required
Wendclark to give to Wendy's the right of first refusal, for a period
of twenty years, in the event the properties are resold.
In July, 1994 Nexus moved its executive offices to office facilities
that are leased under a three year and eight month lease expiring on
February 28, 1998.
33
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 8: COMMITMENTS AND CONTINGENCIES (CONT'D)
B. MINIMUM OPERATING LEASE COMMITMENTS (CONT'D):
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 above operating leases as of
February 28,:
Year Ending
February
-----------
1998 $ 739,436
1999 711,230
2000 714,851
2001 710,180
2002 714,346
Thereafter 6,001,419
-----------
Total $ 9,591,462
===========
On March 1, 1996, pursuant to an agreement for the sale of real estate
Nexus leased back 50% of the building that was sold for a period of ten
years. The Company is obligated to pay for construction and landscaping
costs necessary to complete the building. The lease calls for monthly
rent payable in the period from March 1, 1996 throughout April 1, 1998,
on the first day of each such month in said period, shall be determined
by the following formula: the sum of (i) $10,500, (ii) the monthly
payments due in said month for principal and interest on the first and
purchase money notes, namely $34,833 (See Note 2) and (iii) the
operating expenses payable by the landlord for said month pursuant to
this lease and an existing lease on the remainder of the building,
less, (iv) the rent receivable from the existing lease for said month
under that lease. Commencing May 1, 1998 and for the balance of the
term, the annual base rent on a monthly basis is $35,290.33 per month.
The Company may sublease the entire space covered under the lease, with
any profit to be payable to the Company.
C. CONTRACTS:
1) The Company has a three year employment contract with one of its
executive officers commencing January 1, 1995 through December 31,
1997. The base salary for this executive is $120,000 in 1996, and
$130,000 in 1997 plus an unaccountable expense allowance of $5,000 per
year, plus any other reasonable expenses. In, addition he received a
bonus of $60,000 in 1996.
2) The Wendcello and Wendclark subsidiaries have three-year consulting
contracts with one of its executives and another consultant renewed in
1993 providing for a total fee of approximately $1,750 per month, plus
reasonable expenses. At expiration, the agreements are automatically
renewable thereafter for as long as Wendcello and Wendclark remain in
business at not less than the current fee. For fiscal 1997, 1996 and
1995 $29,500, $27,000 and $27,000 was incurred pursuant to this
contract.
34
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 8: COMMITMENTS AND CONTINGENCIES (CONT'D)
D. SALE OF REAL ESTATE:
1) Upon full collection of the note receivable as referred to in Note 2
for Granby in the amount of $1,854,834, an additional liability will be
due and payable for approximately $150,000. If the note is not
collected in full, an amount substantially less will be paid.
2) The Company received additional consideration for the land sold in
Goshen, N.Y., which is not included among the notes receivable (See
Notes 2, 4C and 7C). This was a purchase money debenture payable to PSI
Capital Corp. for $2,499,750 which matures on February 28, 2002
together with interest at the rate of 6% per annum payable at maturity,
but subject to increase or decrease, as set forth below, contingent on
the sale of the single family residences to be built on the 165 lots
which were sold. There is no interest income being accrued on this
debenture.
Prior to the maturity date, the principal sum of this debenture shall
be prepaid as each of the single family residences constructed on the
real estate are conveyed to the end purchaser, each such prepayment to
be equal to at least 50% of the net profit to the buyer with respect to
said sale. The buyer agrees to take such action as is necessary to
construct and sell the one family residences and the buyer shall not
sell any portion of the real estate except to an end purchaser of said
residences. Upon the sale of the last residence that is built or could
be built on the real estate, the parties shall compute the amount of
the buyer's net profit on all residences constructed on the real estate
(the "final net profit of the buyer"). If 50% of the final net profit
of the buyer is (i) more that $2,499,750, the excess shall be paid to
the seller at the time or (ii) less than $2,499,750, the deficiency
shall not be payable by the buyer and the debenture shall be deemed
fully paid. At that date the interest shall be adjusted to reflect the
actual principal sum of the debenture already paid.
E. FORMATION OF FRM NEXUS (FORMERLY PSI SETTLEMENT CORP):
In 1993, Shareholders of Programming and Systems, Inc. (PSI) brought a
class action against PSI and certain of its officers in the United
States District Court for the Southern District of New York, which was
settled by a Stipulation of Settlement dated as of November 15,
1993(the "Stipulation"), pursuant to which PSI Settlement Corp. (Nexus)
was formed. On January 21, 1994 Judge Robert Sweet signed the Order
confirming the Stipulation. Pursuant to that Stipulation (i) the
eligible shareholders of PSI received a pro-rata distribution of
$1,400,000, after deduction of the fees and expenses of the class
action, which amounted to fifty cents per share, and (ii) all the
shares of Nexus were delivered to Escrow Agents to hold for the benefit
of all shareholders of PSI. Pursuant to the Orders of Judge Sweet, PSI
transferred certain assets to Nexus as specified in the Stipulation and
the Court's Orders. These payments, including the shares of Nexus,
fully settled all of the claims by PSI shareholders that could have
been asserted against PSI and the other defendants in the class action.
35
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 8: COMMITMENTS AND CONTINGENCIES (CONT'D)
E. FORMATION OF FRM NEXUS (FORMERLY PSI SETTLEMENT CORP) (CONT'D):
On June 12, 1995 Judge Sweet signed an Order approving an amendment of
the Stipulation which permitted Nexus to operate as an ongoing entity
rather than liquidating its assets, provided the escrowed shares of
Nexus were delivered out to PSI shareholders by June 12, 1997 and
listed for trading on NASDAQ.
In addition to settling the class action and making payment to
shareholders, PSI has now settled the action by the Securities and
Exchange Commission against it and resolved the material claims and
lawsuits which arose out of its discontinued vocational school
operations. At the present time, PSI is indebted to (i) the United
States for $1,000,000 by reason of the fraudulent conduct of a former
chief executive officer, (ii) to the Internal Revenue Service for
$416,000 representing excess refunds of income taxes made by IRS to PSI
plus interest thereon and (iii) to a former landlord of a PSI school
for $98,621. While PSI may not be able to pay its debts in full, Nexus
is not responsible for their payment, will defend against any claim
that may be instituted and management believes it will be successful.
F. LITIGATION:
The Yolo Capital subsidiary (Yolo) filed an action against the former
management of its property in Hunter, NY (See Note 4A). The defendants
have counterclaimed against Yolo for various charges, seeking damages
of over $2,000,000. Yolo's legal counsel believes that the
counterclaims will be dismissed.
G. BANKRUPTCY:
On March 25, 1992, PSI Capital Corp. filed for relief under Chapter 11
of the Bankruptcy Code. This filing was done in order to protect second
mortgage positions on two of the properties. This action provided PSI
Capital Corp., with sufficient time to negotiate with the holders of
prior mortgages and secure PSI Capital Corp's interest in the
properties. A plan of reorganization has been filed and PSI Capital
Corp. expects to complete the Chapter 11 proceeding by the fiscal year
ending February 28, 1998.
H. LOAN GUARANTY:
The Company received the unpaid balance of its $1,900,000 purchase
money note when the purchaser of the property in Granby, CT refinanced
the mortgage with a bank in the amount of $1,900,000. As part of the
refinancing, Nexus guaranteed payment of this mortgage. Payments
include interest and principal over the term of 25 years.
The interest rate was fixed at closing based upon the five-year U.S.
Treasury Note Constant Maturity Yield plus 2.75% and continues at that
rate for the first five years of the loan. Then repricing at the fifth,
tenth, fifteenth and twentieth year anniversaries at a rate equal to
the then 5-year U.S. Treasury Note Constant Maturity Yield rate on said
anniversary date plus 2.75%. The Interest rate will have a ceiling of
12% and a floor of 7% for the first adjustment (year 6) only.
36
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 9: INCOME TAXES
The provision for (benefit from) income taxes consist of the following:
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
Currently payable:
Federal $ 0 $ 0 $ 0
State 76,288 14,637 76,821
--------- --------- ---------
Total currently payable 76,288 14,637 76,821
--------- --------- ---------
Deferred:
Federal $ 0 $ 0 $ 0
State (298,439) 342,196 (6,817)
--------- --------- ---------
Total deferred (298,439) 342,196 (6,817)
--------- --------- ---------
Total $(222,151) $ 356,833 $ 70,004
========= ========= =========
Nexus filed consolidated federal tax return with PSI through August 12, 1996,
which has no federal tax liability due to current and prior year net operating
losses. After August 12, 1996, Nexus and its subsidiaries will file a
consolidated tax return without PSI (See Note 1B).
Due to a net operating loss in the period from August 12, 1996 to February 28,
1997, there is no federal tax liability. Future benefits of this net operating
loss have not been provided for.
Significant components of deferred tax liabilities (assets) were as follows:
February 28, February 29, February 28,
1997 1996 1995
--------- --------- ---------
Property, plant and
equipment $ 5,764 $ 8,790 $ --
Installment sale of
real estate 60,312 326,589 --
--------- --------- ---------
Gross deferred tax
liabilities 66,076 335,379 --
--------- --------- ---------
Property, plant and
equipment -- -- $ (6,817)
--------- --------- ---------
Gross deferred tax
assets -- -- (6,817)
--------- --------- ---------
$ 66,076 $ 335,379 $ (6,817)
========= ========= =========
37
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 9: INCOME TAXES (CONT'D)
The following is a reconciliation of the statutory federal and
effective income tax rates for the years ended:
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
% of % of % of
Pretax Pretax Pretax
Income Income Income
------------ ------------ ------------
Statutory federal income
tax expense rate 34.0% 34.0% 34.0%
State taxes, less federal
tax effect 8.4 11.3 7.9
Permanent differences 7.2 -- --
Utilization of prior net
operating losses (90.0) (33.0) (24.8)
----- ----- -----
(40.4%) 12.3% 17.1%
===== ==== ====
38
FRM NEXUS, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
SEGMENT INFORMATION
The following analysis provides segment information for the three industries in
which the Company operates:
Food Medical
1 9 9 7 Service Real Estate Financing Total
--------- ----------- ----------- ------------ -----------
Net Sales $16,263,323 $ 2,933,624 $ 216,521 $19,413,468
Operating Expenses 16,014,840 2,587,933 134,539 18,737,312
----------- ----------- ---------- -----------
Operating Profit $ 248,483 $ 345,691 $ 81,982 676,156
=========== =========== ==========
Interest Expense - Net 135,087
Provision for (Benefit
from) Income Taxes (193,015)
-----------
Net Income $ 734,084
===========
Identifiable Assets $ 4,965,638 $ 7,314,057 $ 1,597,252 $13,876,947
=========== =========== =========== ===========
Capital Expenditures $ 376,264 $ - $ 18,853 $ 395,117
=========== =========== =========== ===========
Depreciation and
Amortization $ 532,909 $ - $ 3,777 $ 536,686
=========== =========== =========== ===========
Food Medical
1 9 9 6 Service Real Estate Financing Total
--------- ----------- ----------- ------------ --------
Net Sales $14,536,291 $ 5,546,330 $ 253,857 $20,336,478
Operating Expenses 14,583,726 2,730,500 115,445 17,429,671
----------- ----------- ---------- -----------
Operating Profit (Loss) $ (47,435) $ 2,815,830 $ 138,412 2,906,807
============ =========== ==========
Interest Income - Net 12,996
Provision for Income Taxes 356,833
-----------
Net Income $ 2,562,970
===========
Identifiable Assets $ 3,471,187 $ 8,123,560 $ 586,487 $12,181,234
=========== =========== =========== ===========
Capital Expenditures $ 797,207 $ - $ - $ 797,207
=========== =========== =========== ===========
Depreciation and
Amortization $ 437,210 $ - $ - $ 437,210
=========== =========== =========== ===========
39
FRM NEXUS, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
SEGMENT INFORMATION
Food Medical
1 9 9 5 Service Real Estate Financing Total
--------- ----------- ----------- ---------- -----------
Net Sales $14,523,900 $ - $ - $14,523,900
Operating Expenses 13,923,828 124,520 11,644 14,059,992
----------- ----------- ---------- -----------
Operating Profit (Loss) $ 600,072 $ (124,520) $ (11,644) 463,908
=========== ============ ==========
Interest Income - Net 23,313
Provision for Income Taxes 70,004
-----------
Net Income $ 417,217
===========
Identifiable Assets $ 3,104,880 $ 2,121,898 $ 201,718 $ 5,428,496
=========== =========== =========== ===========
Capital Expenditures $ 300,092 $ - $ - $ 300,092
=========== =========== =========== ===========
Depreciation and
Amortization $ 364,352 $ - $ - $ 364,352
=========== =========== =========== ===========
40
SELECTED CONSOLIDATED FINANCIAL DATA
Fiscal Year Ended
------------------------------------------------
February 28, February 29, February 28,
1997 1996 1995
------------------------------------------------
Income Statement Data:
Total Revenue $19,417,625 $20,336,478 $14,523,900
=========== =========== ===========
Earnings Before Interest
and Taxes $ 468,992 $ 2,860,709 $ 447,524
=========== =========== ===========
Net Income $ 734,084 $ 2,562,970 $ 417,217
=========== =========== ===========
Net income per common share
primary and fully diluted (a) $ .606 $ 2.12 $ .34
=========== =========== ===========
Number of shares used in computation
of primary and fully diluted
earnings (a) 1,211,635 1,211,635 1,211,635
=========== =========== ===========
Fiscal Year Ended
------------------------------------------------
February 28, February 29, February 28,
1997 1996 1995
------------------------------------------------
Balance Sheet Data:
Working Capital $ 1,600,566 $ 2,386,835 $ 319,070
=========== =========== ===========
Total Assets $13,876,947 $12,181,234 $ 5,428,496
=========== =========== ===========
Long-Term Debt $ 2,606,023 $ 645,925 $ 144,133
=========== =========== ===========
Stockholders' Equity $ 9,130,020 $ 8,406,252 $ 4,304,209
=========== =========== ===========
Common Shares Outstanding (a) 1,211,635 1,211,635 1,211,635
=========== =========== ===========
(a) Common shares outstanding at February 28, 1995 have been restated to
give effect to recapitalization.
41
EXHIBITS TO FORM 10 OF FRM NEXUS, INC.
DATED JUNE 27, 1997
Number Description
3.01 Certificate of Incorporation of the Company.
3.02 Certificate of Amendment of Certificate of Incorporation of the
Company.
3.03 Amended By-Laws of the Company.
3.04 Settlement Stipulation dated November 17, 1993.
3.05 Court Order dated November 17, 1993.
3.06 Final Judgment and Order Approving Settlement.
3.07 Amendment to Settlement Stipulation
3.08 Court Order Amending Final Judgment and Order.
3.09 Stipulation and Order Authorizing Release of Shares From Escrow.
3.10 Opinion re release of shares.
4.01 Specimen Common Stock Certificate.
5.01 Opinion re legality of common stock.
10.01 Agreement for sale of lots in Goshen, NY to Windemere in the Pines at
Goshen, Inc.
10.02 Agreement for the sale of real property in East Granby, CT to Gateway
Granby, LLC.
10.03 Management Agreement for Wendy's Restaurants.
19.01 Letter to shareholders dated January 5, 1996.
19.02 Letter to shareholders dated July 26, 1996.
23.01 Consent of Michael, Adest & Blumenkrantz.