SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: February 28, 2003
[ ] 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
FRMO CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3754422
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
271 NORTH AVENUE, NEW ROCHELLE, NY 10801
(Address of principal executive offices) (Zip Code)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (914) 636-3432
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Title of Each Class
-------------------
Common Stock, $.001 par value
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( )
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.(x)
The aggregate market value of the voting stock held by non-affiliates
of the registrant at May 21, 2003 was $426,998.
The number of shares outstanding of the registrant's Common Stock as of
May 21, 2003 was 36,083,774 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates information by reference from
the registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission within 120 days after the close of the year ended February
28, 2003.
FRMO Corp.
June 3, 2003
Dear Fellow Shareholder:
As small and as insignificant as FRMO might appear to the objective
observer, it is certainly no exaggeration to state that the firm has made
substantial progress. The term "substantial progress" is, of course, a relative
term but nonetheless a conventional term. Therefore, viewed through the use of
this conventional term through a conventional arithmetic prism, shareholders'
equity has increased 34.18% from $138,433 to $185,745. Net income has increased
354.2% from $8,390 to $38,108. Nevertheless, these numbers are still of very
small magnitude.
Yet, the numbers as such do not reflect the progress of the firm.
Shareholders will be aware that our firm receives a research fee from The New
Paradigm Fund. Incidentally, this fund is now named The Paradigm Fund since,
given its history of more than three years, it is no longer new. The fee is
asset based, which means that FRMO fees increase as the assets under management
increase. At the date of this writing, assets under management at The Paradigm
Fund exceed $25 million. For comparative purposes, one should consider that for
much of the fiscal year ended in February 2003, the fund had less than $10
million in assets. As of this writing, the fund has appreciated by 20% and is
fully 1,000 basis points ahead of the S&P 500 on a year-to-date basis. The fund
outperformed the S&P 500 in 2000, 2001 and 2002. The fund was also recently
awarded a five-star rating by Morningstar.
A more interesting investment is our interest in Kinetics Advisors,
which operates a hedge fund. As of this writing, the hedge fund (both onshore
and offshore) contains a combined $82 million of assets and has appreciated by
30% this year on a gross basis. This is of no little relevance to FRMO, since
FRMO is entitled to its pro-rata share of performance fees.
Interestingly, although FRMO is on accrual accounting, we cannot
accrue, nor can we post, the pro-rata share of the Kinetics Advisors partner's
capital on our balance sheet. This is because of the regulations of generally
accepted accounting practices, from which we do not care to depart. However,
this share is relevant. As of this writing, it can be conservatively estimated
at perhaps $200,000. Thus, if it were possible to post this sum upon our balance
sheet, our shareholders' equity would be more than twice its current level.
However, we are quite content to maintain conservative financial statements. We
merely choose to disclose this, as shareholders have a right to know of items of
interest both good and bad. In this case, the news is, fortunately, good.
Since previous readers of this annual report will be aware that our
firm is essentially an intellectual capital company, we have naturally not added
staff. We have thus indirectly contributed to the national unemployment problem.
However, one must wonder whether we could attract new employees. The management
accepts no cash or equity compensation. (In practice, accounting rules do not
recognize the notion that management cannot be compensated. Consequently, we are
required to record an accounting entry for compensation, but this is a non-cash
expense - it decreases our stated earnings, but not our cash earnings or
balances. It is as if we are being paid, but we are not being paid. If this
confuses you, it confuses even us, but the bottom line is, we don't get any
money.) It is the custom in American business that the management of a firm are
also the highest paid employees. Of course, it must therefore logically follow
that employees should pay FRMO for the privilege of being employed, since the
management has zero compensation. Moreover, the management has no intention of
awarding itself a compensation increase.
We are pleased with our results thus far and we hope, although we
cannot guarantee, that our successes of the past several months presage a future
with more cash flow. It has been our pleasure and privilege to serve as the
management of this firm. We further hope that we have not yet exhausted our last
good idea. Every now and then even we have an insight.
______________________________ ______________________________
Steven Bregman, President Murray Stahl, Chairman
and Chief Operating Officer and Chief Executive Officer
FRMO CORP.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2003
Page No.
-------
PART I
Item 1. Business........................................................................ 1
Item 2. Properties...................................................................... 5
Item 3. Legal Proceedings............................................................... 5
Item 4. Submission of Matters to a Vote of Security Holders and Other Information....... 5
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........... 6
Item 6. Selected Financial Data......................................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition and 8
Results of Operations........................................................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................... 11
Item 8. Financial Statements and Supplementary Data..................................... 11
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure......................................................... 11
PART III
Item 10. Directors and Executive Officers of the Registrant.............................. 11
Item 11. Executive Compensation.......................................................... 11
Item 12. Security Ownership of Certain Beneficial Owners and Management.................. 11
Item 13. Certain Relationships and Related Transactions.................................. 12
Item 14. Controls and Procedures......................................................... 12
PART IV
Item 15. Exhibits, Financial Statements, Schedules and Reports on Form 8-K............... 13
PART I
ITEM 1. BUSINESS
ORGANIZATION OF THE COMPANY
FRMO CORP. (the "Company or "FRMO") was incorporated in November 1993, under the
laws of the State of Delaware under the name of PSI Settlement Corp, (initially
changed to FRM Nexus, Inc. and then to FRMO Corp on November 29, 2001). One of
the Company's former subsidiaries was MFC Development Corp.("MFC"). On August
31, 2000, FRMO transferred to MFC all of its assets (except for $10,000),
including all the shares of its wholly owned subsidiaries, subject to all of its
liabilities which were assumed by MFC. This transfer was made in contemplation
of a spin-off of the common shares of MFC to the Company's shareholders.
SPIN-OFF OF MFC
On August 31, 2000, FRMO filed Form 8-K with the Securities and Exchange
Commission, which disclosed that FRMO contemplated distributing to its
shareholders one share of MFC common stock for each one share of FRMO's
1,800,000 shares of outstanding common stock at the close of business on
November 1, 2000 (the record date). The MFC shares were distributed to
shareholders of FRMO on January 23, 2001.
FRM CONTROL GROUP
After the spin-off, FRMO was recapitalized privately by the FRM Control Group
(described below) purchasing 34,200,000 shares of common stock for $3,258,000
($0.095 per share). By retaining only $10,000 in cash in FRMO, the shareholders'
book value for the 1,800,000 shares outstanding was less than $.01 per share. By
fixing the price that the new Control Group paid for their 95% ownership at
$.095 per share, the existing shareholders realized an increase in book value
from about $.01 per share to about $.091 per share and the shares of the new FRM
Control Group were diluted from about $.095 to about $.091 per share. Book value
of FRMO did not take into account its existing structure and status as a public
company with a reporting history which was considered in the transaction. The
FRM Control Group has benefited from that as well as the $10,000 in cash
remaining in FRMO.
Murray Stahl and Steven Bregman, Chairman and President of the Company,
respectively, are the principal persons in the FRM Control Group, which includes
the other persons who purchased the shares for the consideration stated below.
Messrs. Stahl and Bregman have worked together at Horizon Research Group since
1994 and before that at Bankers Trust Company. They are also part of the
ownership of Kinetics Asset Management, Inc., which is the investment adviser to
several mutual funds and hedge funds, including The Internet Fund, The Kinetics
New Paradigm Fund and Kinetics New Economy Partners, L.P.
The 34,200,000 shares of common stock of FRMO sold after the spin-off
distribution date were issued to the FRM Control Group as follows:
1
(i) 28,800,000 shares of common stock of FRMO Corp. were
issued to Peter Doyle, as Voting Trustee of 8.1% of the issued and
outstanding shares of Kinetics Asset Management Inc. ("Kinetics") and
Murray Stahl (the "Stahl Bregman Group") for $2,880,000, payable as set
forth below. The Stahl Bregman Group includes Murray Stahl, Steven
Bregman, John Meditz, Peter Doyle, Catherine Bradford, Thomas C. Ewing
and Katherine Ewing. That group will be in control of FRMO Corp. and
together with the persons named below are the "FRM Control Group". The
28,800,000 shares were issued to the Stahl Bregman Group on January 23,
2001 but are held in escrow and delivered as paid at the rate of ten
cents ($.10) per share. The Stahl Bregman Group is obligated to pay to
FRMO the after tax amount (fixed at 54% of the dividend) of all
dividends they receive from Kinetics until the total $2,880,000 has
been paid. The Stahl Bregman Group expects the $2,880,000 to be paid to
FRMO in about five years. The installment payments depend on actual
future dividends received from Kinetics. The Stahl Bregman Group may
make additional payments at its discretion but the payment based on the
Kinetics dividend is obligatory until the fixed purchase is paid. The
members of the Stahl Bregman Group have no obligation other than to pay
the net dividends from Kinetics until the fixed purchase price is paid.
The Stahl Bregman Group has agreed that it will not divest itself of
any part of its Kinetics shares or change the character of its
ownership so as to reduce the pro-rata share of the dividends it
currently receives from Kinetics without, as a condition thereof,
paying toward the fixed purchase price of its FRMO shares the after-tax
proceeds of that part divested, as if the divestiture had not occurred.
(ii) 3,600,000 shares of common stock of FRMO were issued
to Lestar Partners, LLC, ("LPC") a New York Limited Liability Company
owned by Lester Tanner, Secretary and a director of FRMO, together with
members of his family, for $360,000 payable as set forth below. The
3,600,000 shares were issued to LPC on January 23, 2001 but are held in
escrow and delivered as paid at the rate of ten cents ($.10) per share.
LPC is obligated to pay to FRMO in cash an amount equal to 12.5% of
each payment made by the Stahl Bregman Group until the purchase price
of $360,000 is paid.
(iii) 1,800,000 shares of common stock of FRMO were issued
to Lawrence J. Goldstein for $18,000 paid on January 23, 2001. Mr.
Goldstein is a director of FRMO and the General Partner of Santa Monica
Partners, LP, a private fund, which owns 218,000 shares of common stock
of FRMO.
BUSINESS OF FRMO
FRMO Corp. is primarily a Financial Risk Management Organization in that the
experience of its management as described herein has been in the analysis of
public companies within a framework of identifying investment strategies and
techniques that reduce risk. The business will include identification of assets,
particularly in the early stages of the expression of their ultimate value, and
the participation with them in ways that are calculated to increase the value of
the shareholders' interest in FRMO. Such assets are expected to include, but are
not limited to, those whose values and earnings are based on intellectual
capital. Of the many varieties of capital upon which investors have earned
returns, ranging from real estate to silicon, perhaps the highest returns on
capital have been earned on intellectual capital. It is the goal of FRMO to
maximize its return on this form of asset. The identification of any business
opportunities will follow the process employed by Horizon Research Group to
select and evaluate investment opportunities and strategies.
2
Horizon Research Group was co-founded by Murray Stahl and Steven Bregman in
1994. It is an independent research firm serving primarily mutual fund managers
and the hedge fund community. It provides in-depth analysis of under-researched
companies and strategies to identify complex or overlooked situations that can
offer asymmetric risk/return advantages to the investor. Horizon's research
periodicals organize the investment universe by functional sector rather than by
the standard division by industry sector. Among its publications are The
Contrarian Research Report, The Spin-Off Report, The Intangible Asset Report,
The Hidden Asset Report, The Devil's Advocate, The Capital Structure Arbitrage
Report, and The Skeptic's Almanac. These reports are addressed to investment
managers, but the concepts and process behind them are expected to serve FRMO's
efforts to identify business opportunities in public and private ventures.
SPECIFIC BUSINESS ACTIVITIES
Since its new start on January 23, 2001, FRMO completed the following
transactions through February 28, 2003:
i. The Company invested $5,000 in FRM NY Capital, LLC, a limited
liability venture capital company whereby the substantial investment of
financial capital will be made by unrelated parties but where FRMO will
have a carried interest based on leveraging the creative services of
its personnel (its intellectual capital).
ii. A consulting agreement was signed effective January 1, 2001,
whereby FRMO is currently receiving approximately $20,000 a year from
the manager of Santa Monica Partners, LP, a director and shareholder of
FRMO, for access to consultations with the Company's personnel. Santa
Monica Partners, L.P. is a private fund, which owns 218,000 shares of
common stock of FRMO.
iii. In March 2001 FRMO acquired the research service fees that
Horizon Research Group had received from The New Paradigm Fund in
exchange for 80,003 shares of FRMO common stock. Management believes
that the growth of that Fund in the current fiscal year and future
years will increase the current level of research fees for which the
stock consideration was paid. The New Paradigm Fund outperformed the
S&P 500 Index by approximately 13 percentage points in its first fiscal
year of operation, Calendar 2000. During 2001, it outperformed the S&P
500 Index by 14 percentage points and, during 2002, by 17 percentage
points. In May 2003, The New Paradigm Fund was assigned a five-star
rating by Morningstar, Inc., the fund rating service. This is
Morningstar's highest rating and is often the basis on which mutual
fund investors seek to select funds.
iv. In October 2001, FRMO acquired a 2% interest in the
subscription revenues from The Convertible/High Yield Arbitrage Report
that Horizon Research Group and another third party receive in exchange
for 50 shares of Series R preferred stock. While the subscriptions are
minimal at the present time, management believes that they will grow in
future years.
v. In February 2002, FRMO acquired a 7.71% interest in Kinetics
Advisors, LLC and the Finder's Fee Share Interest from the Stahl
Bregman Group, in exchange for 315 shares of FRMO common stock.
Kinetics Advisors, LLC controls and provides
3
investment advice to Kinetics Partners, a hedge fund, and to The
Kinetics Fund, an offshore version of Kinetics Partners. While these
funds were quite small at the time of acquisition, they have expanded
significantly and management believes that they will grow in future
years. During its first year of operation in 2000, and in 2001,
Kinetics Partners returned 23.7 and 21.6 percentage points more than
the S&P 500 Index. In 2002, it outperformed the S&P 500 Index by 33
percentage points.
MARKETING
Currently, the marketing of the Company's services and programs is by the
officers of the Company.
COMPETITION
The Company's business activities are founded on the independent research
experience of its personnel who provide in-depth analysis of information-poor,
under-researched or complex companies and securities, and develop related
strategies that can offer an advantage to the investor. This research is
distinct from but competes with the traditional "sell side" research supported
by the trading commissions and corporate finance fees of brokerage firms that
produce the great majority of "Wall Street" research. The Company also competes
with a wide variety of independent entities, which sell periodicals and research
that is paid for by subscription or fees of its readers. The Company is small in
relation to such competitors but its services and programs are designed to reach
a niche market of sophisticated analysts and accredited investors.
TRADEMARKS - None.
EMPLOYEES
As of February 28, 2003, the Company had no paid employees.
REGULATORY LAWS
The Company is in compliance with the regulatory laws that relate to its
business activities. Its operations do not fall within the definition of an
investment company so as to require it to register under the Investment Company
Act of 1940.
ITEM 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
FRMO is not a party to any material litigation.
4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS AND OTHER
INFORMATION
None, other than the election of directors on July 18, 2002.
OTHER INFORMATION
CAUTIONARY STATEMENT
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby filing cautionary
statements identifying important risk factors that could cause the Company's
actual results to differ materially from those projected in forward looking
statements of the Company made by or on behalf of the Company.
Such statements may relate, but are not limited, to projections of revenues,
earnings, capital expenditures, plans for growth and future operations,
competition as well as assumptions relating to the foregoing. Forward-looking
statements are inherently subject to risks and uncertainties, many of which
cannot be predicted or quantified.
When the Company uses the words "estimates", "expects", "anticipates",
"believes", "plans", "intends", and variations of such words or similar
expressions, they are intended to identify forward-looking statements that
involve risks and uncertainties. Future events and actual results could differ
materially from those underlying the forward-looking statements. The factors
that could cause actual results to differ materially from those suggested by any
such statements include, but are not limited to, those discussed or identified
from time to time in the Company's public filings, including general economic
and market conditions, changes in domestic laws, regulations and taxes, changes
in competition and pricing environments.
Undue reliance should not be placed on these forward-looking statements, which
are applicable only as of the date they are made. The Company undertakes no
obligation to revise or update these forward-looking statements to reflect
events or circumstances that arise after that date or to reflect the occurrence
of anticipated events.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS
REGISTRATION AND MARKET PRICES OF COMMON STOCK
The authorized capital stock of the Company consists of 92,000,000 shares, of
which, 90,000,000 are shares of common stock, $.001 par value and 2,000,000
shares are preferred stock, $.001 par value. On February 28, 2003, there were
36,083,774 shares of common stock and 50 shares of series R preferred stock
outstanding. Subject to any prior rights of the Company's preferred
shareholders, FRMO's common shareholders are entitled:
5
- to receive dividends as are declared by FRMO's Board of
Directors out of funds legally available; and
- to full voting rights, each share being entitled to one vote.
The FRMO Board of Directors may issue additional authorized shares of FRMO
common stock without shareholder approval. FRMO shareholders do not have any
cumulative rights or any preemptive rights to subscribe for additional
securities that FRMO may issue without obtaining shareholder consent. Subject to
any prior rights of the holders of any preferred stock then outstanding, in the
event of liquidation, dissolution, or winding up of the company, common
shareholders would be entitled to receive, on a pro rata basis, any assets
distributable to shareholders in respect of shares by them.
The FRMO certificate of incorporation authorizes the issuance by FRMO of up to
2,000,000 shares of FRMO preferred stock, of which 50 shares are issued and
outstanding. The FRMO Board of Directors may issue its preferred stock without
obtaining shareholder consent in one or more series at a time or times and for
consideration or considerations as its Board of Directors may determine. The
Board of Directors is authorized by the FRMO certificate of incorporation to
provide at any time for the issuance of FRMO preferred stock with the rights,
preferences, and limitations as established by the Board.
The Company's common stock is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934 and trades on the NASDAQ Bulletin Board under
the symbol FRMO. The following table sets forth the range of high and low bid
quotations of the Company's common stock for the periods set forth below, as
reported by the National Quotation Bureau, Inc. Such quotations represent
inter-dealer quotations, without adjustment for retail markets, markdowns or
commissions, and do not necessarily represent actual transactions.
FISCAL PERIOD COMMON STOCK
------------- ------------
HIGH BID LOW BID
-------- -------
2002
----
1st Fiscal Quarter ( 3/1/01 - 5/31/01) $ 1.6875 $ 0.59375
2nd Fiscal Quarter ( 6/1/01 - 8/31/01) 2.75 1.42
3rd Fiscal Quarter ( 9/1/01 - 11/30/01) 1.09 0.60
4th Fiscal Quarter (12/1/01 - 2/28/02) 1.00 0.55
2003
----
1st Fiscal Quarter ( 3/1/02 - 5/31/02) $ 0.65 $ 0.40
2nd Fiscal Quarter ( 6/1/02 - 8/31/02) 0.41 0.25
3rd Fiscal Quarter ( 9/1/02 - 11/30/02) 0.25 0.20
4th Fiscal Quarter (12/1/02 - 2/28/03) 0.22 0.20
The high bid and low asked quote on May 21, 2003 was $.20 bid and $.51 asked.
DIVIDENDS
No cash dividend has been paid by FRMO since its inception. The Company has no
present intention of paying any cash dividends on its common stock.
6
HOLDERS
As of May 21, 2003, there were approximately 1,000 holders of record of FRMO
common stock representing about 2,500 beneficial owners of its shares. The
former Chief Financial Officer and two directors were granted options to
purchase a total of 57,000 shares of the Company's common stock. There are no
warrants to purchase common stock of the Company outstanding. The Company does
not know of any shares of common stock of FRMO that are held by any director,
officer or holder of as much as 5% of the outstanding stock for sale pursuant to
a filing under Rule 144 of the Securities Act. The Company has not agreed to
register any common stock for sale under the Securities Act by any shareholder
or the Company, the offering of which could have a material effect on the market
price of the Company's common equity.
ITEM 6. SELECTED FINANCIAL DATA
Previously filed financial reports on Form 10-K during the four fiscal years
ended February 28, 2001 were included in the operations of MFC Development Corp.
and subsidiaries, which were spun off to the shareholders of FRMO on January 23,
2001. This transaction has been accounted for in a manner similar to a reverse
pooling of interests on the Company's books. The Company had no operations prior
to January 23, 2001 and accordingly, there is no selected financial data to
report before that date.
FRMO Corp
Selected Consolidated Financial Data
Fiscal Year Ended
------------------------------------------------------
February 28, February 28, February 28,
2003 2002 2001
------------ ---------- ------------
Income Statement Data:
Total Revenue $ 103,748 $ 68,785 $ 3,600
Costs and expenses 52,409 59,254 4,151
------------ ---------- ------------
Net Ordinary Income 51,339 9,531 (551)
Other income 1,017 1,304 -
------------ ---------- ------------
Income (loss) from operations before
provision for income taxes 52,356 10,835 (551)
Provision for income taxes 14,248 2,445 -
------------ ---------- ------------
Net Income $ 38,108 $ 8,390 $ (551)
============ ========== ===-========
Earnings per common share:
Basic earnings per common share $ 0.01 $ - $ -
Diluted earnings per common share $ 0.01 $ - $ -
Number of shares used in computation of
basic and diluted earnings per share:
Basic 3,897,524 3,899,772 1,998,616
============ ========== ============
Diluted 3,947,524 3,910,046 1,800,000
============ ========== ===-========
7
FRMO Corp
Selected Consolidated Financial Data (continued)
As of
------------------------------------------------------
February 28, February 28, February 28,
2003 2002 2001
------------ ---------- ------------
Balance Sheet Data:
Working Capital $ 116,357 $ 61,890 $ 43,824
============ ========== ============
Total Assets $ 224,687 $ 161,068 $ 52,894
============ ========== ============
Long-term Debt $ - $ - $ -
============ ========== ============
Shareholders' Equity $ 185,541 $ 138,433 $ 48,824
============ ========== ============
Book Value per Share $ 0.05 $ 0.04 $ 0.02
============ ========== ============
Common Shares Outstanding (1) 3,897,524 3,890,087 1,998,616
(1) Common shares outstanding is recorded net of 32,186,250 shares that
are being held in escrow for shareholders who have not yet purchased
their stock, as described in Note 6 of the financial statements.
ITEM 7. 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, capital requirements and the Company's future business 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 changes in the financial markets that affect investment managers,
investors, mutual funds and the Company's consulting clients, 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 Financial Statements and related Notes thereto included herein and
incorporated herein by reference.
OVERVIEW
By reason of the reverse pooling spin-off transaction described in Item 1, the
Company had a new start in terms of its continuing business and its financial
statement as of January 23, 2001, and there were no operations prior to that
date. After the spin-off its balance sheet consisted of $10,000 in assets, no
liabilities and 1,800,000 shares of common stock. On January 23, 2001 the
Company issued an additional 34,200,000 shares of common stock for $3,258,000 to
be paid as set forth in Item 1. The business engaged in by FRMO thereafter is
described in Item 1.
CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis of its financial position and results of
operations are based upon the Company's financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of
8
these financial statements requires management to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses
and related disclosure of contingent assets and liabilities. Actual results
could differ from those estimates. Management believes that the critical
accounting policies and areas that require the most significant judgments and
estimates to be used in the preparation of the financial statements are revenue
recognition and accounting for investments in subsidiaries.
REVENUE RECOGNITION
The Company primarily generates revenue through consulting, research fees and
subscription revenue.
Revenue relating to consulting agreements is earned primarily on a
month-by-month basis.
Research fees are earned and recorded on a monthly basis based upon FRMO's pro
rata share of The New Paradigm Fund assets.
Subscription revenues are earned and recorded on a monthly basis based upon
FRMO's pro rata share of the subscription revenue generated from a certain
research report provided by a related third party.
The accrual method of accounting is used to record all income.
ACCOUNTING FOR INVESTMENTS IN SUBSIDIARIES
Investments in subsidiaries in which the Company holds a less than 20% voting
interest and does not exert a significant influence over operations or financial
policies are accounted for using the cost method.
RESULTS OF OPERATIONS
YEAR ENDED FEBRUARY 28, 2003 COMPARED TO YEAR ENDED FEBRUARY 28, 2002
The Company's revenues from operations increased by $35,000 for the year ended
February 28, 2003 ("2003") from $69,000 for the year ended February 28, 2002
("2002"). The increases in 2003 were due primarily to income from (i) research
fees and (ii) consulting fees.
Costs and expenses decreased by $7,000 in 2003, from $59,000 in 2002. The
decrease in 2003 was due primarily to a decrease in shareholder reporting
expenses and lower administrative fees, partially offset by higher accounting
fees and the recording of non-cash compensation expense. The non-cash
compensation expense represents a notional salary allocation for the Company's
senior officers, as required under generally accepted accounting principles. The
officers of the Company are responsible for all of the Company's operations and
have agreed to not draw any salaries during the period of formation.
For the reasons noted above, the Company's net income for the year ended
February 28, 2003, increased by $30,000 to $38,000, as compared to net income of
$8,000 in 2002.
9
Some discussion is required with respect to an asset that is presently carried
at zero cost on the FRMO balance sheet and which had a negligible accounting
impact on fiscal 2003 earnings, yet which could have a very significant economic
impact on FRMO. This is the investment in Kinetics Advisors, LLC, ("Kinetics
Advisors"), which was acquired in February 2002 (as discussed in Part I, Item 1,
under the heading Specific Business Activities, of this Form 10-K). This
investment takes the form of a minority interest in Kinetics Advisors, which
controls and provides investment advice to two hedge funds. Kinetics Advisors
has elected to reinvest in these two funds the fees to which it is entitled from
them. As a consequence, FRMO will not receive its proportional interest in those
fees until such time that Kinetics Advisors itself elects to receive them. Under
generally accepted accounting principles, FRMO must record this investment on a
cost basis, which was $205 as of February 28, 2002. However, on an economic
basis, FRMO's proportional share of Kinetics Advisors' capital accounts in those
funds was approximately $89,000 (pre-tax and unaudited) as of February 28, 2003.
FRMO's proportional share of the increase in the value of Kinetics Advisors'
capital accounts in those funds during the period, predominantly from fee income
and appreciation (also pre-tax and unaudited), was approximately $82,000 during
2003.
YEAR ENDED FEBRUARY 28, 2002 COMPARED TO YEAR ENDED FEBRUARY 29, 2001
The Company's revenues from operations increased by $65,000 for the year ended
February 28, 2002 ("2002") to $69,000 from $4,000 for the year ended February
29, 2001 ("2001"). The increase in 2002 was due primarily to income from (i)
research fees, (ii) consulting fees, which included the consulting agreement
with the manager of Santa Monica Partners, L.P., and (iii) subscription fees.
Costs and expenses increased by $55,000 in 2002, from $4,000 in 2001. The
increase in 2002 was due primarily to shareholder reporting expenses, accounting
fees, amortization and office expenses. The officers of the Company are
responsible for all of the Company's operations and they have agreed to not draw
any salaries during the period of formation.
For the reasons noted above, the Company's net income for the year ended
February 28, 2002 increased by $9,000 to $8,000, as compared to a loss of $1,000
in 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's activities during the year ended February 28, 2003, resulted in an
increase in cash of $52,000. This increase was due to net income (after
adjusting for amortization, non-cash loss from an unconsolidated subsidiary, and
non-cash compensation) of $55,000, less $3,000 net increase of receivables over
payables and deferrals, which, are normal fluctuations primarily caused by
timing differences. There were no cash flows provided by or used in investing
activities during the year ended in 2003 or in 2002. There were no cash flows
provided by or used in financing activities during the year ended in 2003 or in
2002. The Company expects its business with prospective new clients to develop
without the outlay of cash, since the growth will come from the services of its
officers who will not receive salaries until the Company's operations and
revenues warrant the payment.
On January 23, 2001 the Company issued 34,200,000 shares of $.001 par value
stock for $3,258,000. Only $39,375 was paid for at the time and the balance of
$3,218,625 will be paid to the Company as set forth in Item 1. The Company
believes that its present cash resources will be sufficient on a short-term
basis and over the next 12 months to fund continued expansion of its business.
10
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK.
See subsections (i) and (ii) at page 2 relating to the obligations of the Stahl
Bregman Group and LPC to pay for the shares of common stock of the Company based
on dividends from Kinetics and the income generated from the management of the
mutual funds for which Horizon is the investment advisor.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial Statements and supplementary data required by this Item 8 are set
forth at the pages indicated in Item 15(a) below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is set forth in the Company's definitive
proxy statement, which will be filed with the Securities and Exchange Commission
within 120 days of February 28, 2003. Such information is incorporated herein by
reference and made a part hereof.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is set forth in the Company's definitive
proxy statement, which will be filed with the Securities and Exchange Commission
within 120 days of February 28, 2003. Such information is incorporated herein by
reference and made a part hereof.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is set forth in the Company's definitive
proxy statement, which will be filed with the Securities and Exchange Commission
within 120 days of February 28, 2003. Such information is incorporated herein by
reference and made a part hereof.
11
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth in the Company's definitive
proxy statement, which will be filed with the Securities and Exchange Commission
within 120 days of February 28, 2003. Such information is incorporated herein by
reference and made a part thereof.
PART IV
ITEM 14. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Company's Securities Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, as ours are designed to do, and
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
During the 90-day period prior to the date of this report, an evaluation was
performed under the supervision and with the participation of our Company's
management, including the Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based upon that evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that our disclosure controls and
procedures were effective. Subsequent to the date of this evaluation, there have
been no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls, and no corrective
actions taken with regard to significant deficiencies or material weaknesses in
such controls.
12
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
(1) FINANCIAL STATEMENTS:
Index to Consolidated Financial Statements and Schedules.............................. F-1
Report of Holtz Rubenstein & Co., LLP................................................. F-2
Consolidated Balance Sheets - February 28, 2003 and 2002.............................. F-3
Consolidated Statement of Operations -
Years ended February 28, 2003, February 28, 2002 and February 28, 2001............. F-5
Consolidated Statement of Stockholders' Equity -
Years ended February 28, 2003, February 28, 2002 and February 28, 2001............. F-6
Consolidated Statement of Cash Flows -
Years ended February 28, 2003, February 28, 2002 and February 28, 2001............. F-7
Notes to Consolidated Financial Statements............................................ F-8
(2) FINANCIAL STATEMENT SCHEDULES:
All schedules are omitted because they are not applicable, not required, or
because the required information is included in the consolidated financial
statements or notes thereto.
(3) EXHIBITS:
Exhibits 3.01 and 21.01 are incorporated herein by reference to Form 8-K dated
January 25, 2001 with which said exhibits were previously filed. Exhibits 3.01
and 5.01 are incorporated herein by reference to Form 10 dated June 27, 1997
with which said exhibits were previously filed.
Exhibit
Number Description
------ -----------
3.01 Amended Certificate of Incorporation of the Company*.
3.03 Amended By-Laws of the Company*.
5.01 Opinion of Tanner Propp, LLP*
21.01 The Company has no subsidiaries. The spin-off on January 23, 2001 of
MFC Development Corp, a former subsidiary ("MFC"), is described in Form
10, the General Form for Registration of Common Stock of MFC pursuant
to Section 12(g) of The Securities Exchange Act of 1934, as amended,
which was incorporated by reference as an exhibit in the Company's Form
8-K Current Report filed on January 25, 2001.*
---------
* Previously filed
(b) REPORTS ON FORMS 8-K
None.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)2 of the Securities Exchange
Act of 1934 as amended, the Registrant has duly cause this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on May 22, 2003.
FRMO CORP.
By: /s/ Steven Bregman
-------------------------
Steven Bregman
President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on May 22, 2003.
Signature Title
--------- -----
/s/ Murray Stahl
------------------------------- Chairman of the Board
Murray Stahl (Principal Executive Officer)
/s/ Steven Bregman
------------------------------- President, Director
Steven Bregman
/s/ Lester Tanner
------------------------------- Secretary, Director
Lester Tanner
/s/ David Michael
------------------------------- Director
David Michael
/s/ Peter Doyle
------------------------------- Director
Peter Doyle
14
FRMO Corp.
Index to Financial Statements
This Index........................................................ F-1
Report of Independent Auditors ................................... F-2
Balance Sheets --
As of February 28, 2003 and February 28, 2002.................. F-3
Statements of Operations --
Years Ended February 28, 2003, February 28, 2002
and February 28, 2001 ......................................... F-5
Statements of Stockholders' Equity --
Years Ended February 28, 2003, February 28, 2002
and February 28, 2001 ......................................... F-6
Statements of Cash Flows --
Years Ended February 28, 2003, February 28, 2002
and February 28, 2001 ......................................... F-7
Notes to Financial Statements..................................... F-8
The data required by all other schedules is either included in the financial
statements or is not required.
F-1
Report of Independent Auditors
The Board of Directors and Shareholders
FRMO Corp.
We have audited the accompanying balance sheets of FRMO Corp. as of February 28,
2003 and 2002 and the related statements of operations, stockholders' equity and
cash flows for the three years ended February 28, 2003. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 also 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, the financial statements referred to above present fairly, in
all material respects, the financial position of FRMO Corp. at February 28, 2003
and 2002, and the results of its operations and its cash flows for the three
years ended February 28, 2003 in conformity with accounting principles generally
accepted in the United States of America.
/s/ HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
May 15, 2003
F-2
FRMO Corp.
Balance Sheets
FEBRUARY 28, FEBRUARY 28,
2003 2002
----------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 135,003 $ 83,411
Accounts receivable 20,500 1,114
----------------------------------
Total current assets 155,503 84,525
----------------------------------
Other assets:
Intangible assets, net 64,184 71,543
Investments in unconsolidated subsidiaries 5,000 5,000
----------------------------------
Total other assets 69,184 76,543
----------------------------------
Total assets $ 224,687 $ 161,068
==================================
See accompanying notes.
F-3
FRMO Corp.
Balance Sheets (continued)
FEBRUARY 28, FEBRUARY 28,
2003 2002
----------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 20,551 $ 19,607
Income taxes payable 11,587 322
Deferred income 7,008 2,706
----------------------------------
Total current liabilities 39,146 22,635
Stockholders' equity:
Preferred stock - $.001 par value;
Authorized - 2,000,000 shares;
Issued and outstanding - 50 shares Series R - -
Common stock - $.001 par value;
Authorized - 90,000,000 shares;
Issued and outstanding - 36,083,774 shares 36,083 36,083
Capital in excess of par value 3,322,136 3,313,136
Retained earnings 45,947 7,839
----------------------------------
3,404,166 3,357,058
Less: Receivables from shareholders for
common stock issuance 3,218,625 3,218,625
----------------------------------
Total stockholders' equity 185,541 138,433
----------------------------------
Total liabilities and stockholders' equity $ 224,687 $ 161,068
==================================
See accompanying notes.
F-4
FRMO Corp.
Statements of Operations
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
2003 2002 2001
-----------------------------------------------
REVENUES
Consulting $ 87,839 $ 56,763 $ 3,600
Research Fees 12,438 8,041 -
Subscriptions 3,676 3,018 -
Investments (205) 963 -
-----------------------------------------------
Total Revenues 103,748 68,785 3,600
-----------------------------------------------
COSTS AND EXPENSES
Amortization 7,359 9,676 -
Accounting 7,030 6,100 2,000
Shareholder reporting 23,775 36,588 1,915
Office expenses 13,500 6,178 81
Other 745 712 155
-----------------------------------------------
52,409 59,254 4,151
-----------------------------------------------
Income (loss) from operations 51,339 9,531 (551)
Dividend income 1,017 1,304 -
-----------------------------------------------
Income (loss) from operations before provision
for income taxes 52,356 10,835 (551)
Provision for income taxes 14,248 2,445 -
-----------------------------------------------
Net income (loss) $ 38,108 $ 8,390 $ (551)
===============================================
Basic earnings per common share $ 0.01 $ 0.00 $ (0.00)
Diluted earnings per common share $ 0.01 $ 0.00 $ (0.00)
Average shares of common stock outstanding:
Basic 3,897,524 3,889,772 1,998,616
===============================================
Diluted 3,947,524 3,910,046 1,998,616
===============================================
See accompanying notes
F-5
FRMO Corp.
Statements of Stockholders' Equity
SERIES R ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
---------------------------------------------------------------
Balance, February 29, 2000 - $ - 1,800,000 $ 1,800 $ 8,200
Issuance of new stock - - 34,200,000 34,200 3,223,800
Net (loss) - - - - -
---------------------------------------------------------------
Balance, February 28, 2001 - - 36,000,000 36,000 3,232,000
Issuance of new stock for the
assignment of research agreements - - 83,459 83 54,886
Issuance of new stock for the
assignment of subscription revenue 50 - - - 26,250
Issuance of new stock for the
acquisition of 7.71% of Kinetics
Advisors, LLC and 50% of Finder's
Fee Share Interest - - 315 - -
Net income - - - - -
---------------------------------------------------------------
Balance, February 28, 2002 50 - 36,083,774 36,083 3,313,136
Non-cash compensation expense - - - - 9,000
Net income - - - - -
----------------------------------------------------------------
Balance, February 28, 2003 50 $ - 36,083,774 $ 36,083 $ 3,322,136
================================================================
RECEIVABLES FROM
RETAINED SHAREHOLDERS TOTAL
EARNINGS FOR COMMON SHAREHOLDERS'
(DEFICIT) STOCK ISSUANCE EQUITY
----------------------------------------------------
Balance, February 29, 2000 $ - $ - $ 10,000
Issuance of new stock - (3,218,625) 39,375
Net (loss) (551) - (551)
----------------------------------------------------
Balance, February 28, 2001 (551) (3,218,625) 48,824
Issuance of new stock for the
assignment of research agreements - - 54,969
Issuance of new stock for the
assignment of subscription revenue - - 26,250
Issuance of new stock for the
acquisition of 7.71% of Kinetics
Advisors, LLC and 50% of Finder's
Fee Share Interest - - -
Net income 8,390 - 8,390
----------------------------------------------------
Balance, February 28, 2002 7,839 (3,218,625) 138,433
Non-cash compensation expense - - 9,000
Net income 38,108 38,108
----------------------------------------------------
Balance, February 28, 2003 $ 45,947 $ (3,218,625) $ 185,541
====================================================
See accompanying notes
F-6
FRMO Corp.
Statements of Cash Flows
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
2003 2002 2001
--------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 38,108 $ 8,390 $ (551)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization of research agreements 7,359 9,676 -
Non-cash loss from unconsolidated subsidiary 205
Non-cash compensation 9,000 - -
Changes in operating assets and liabilities:
Other current assets (19,386) 1,823 (2,937)
Accounts payable and accrued expenses 12,004 15,859 4,070
Deferred income 4,302 2,706 -
--------------------------------------------------
Net cash provided by operating activities 51,592 38,454 582
--------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in FRM NY Capital, LLC - - (5,000)
--------------------------------------------------
Net cash used in investing activities - - (5,000)
--------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment for issuance of new stock - - 39,375
--------------------------------------------------
Net cash provided by financing activities - - 39,375
--------------------------------------------------
Net increase in cash and cash equivalents 51,592 38,454 34,957
Cash and cash equivalents, beginning of year 83,411 44,957 10,000
--------------------------------------------------
Cash and cash equivalents, end of year $ 135,003 $ 83,411 $ 44,957
==================================================
ADDITIONAL CASH FLOW INFORMATION
Interest paid $ - $ - $ -
==================================================
Income taxes paid $ - $ 155 $ -
==================================================
NON-CASH INVESTING AND FINANCING ACTIVITIES
Preferred stock issued in consideration for the acquisition
of research agreements $ - $ 26,250 $ -
==================================================
Common stock issued in consideration for the assignment
of subscription revenues $ - $ 54,886 $ -
==================================================
See accompanying notes
F-7
FRMO Corp.
Notes to Financial Statements
1. ORGANIZATION OF THE COMPANY
FRMO CORP. (the "Company or "FRMO") was incorporated in November 1993
under the laws of the State of Delaware under the name of PSI
Settlement Corp, (initially changed to FRM Nexus, Inc. and then to FRMO
Corp on November 29, 2001). One of the Company's former subsidiaries
was MFC Development Corp.("MFC"). On August 31, 2000, FRMO transferred
to MFC all of its assets (except for $10,000), including all the shares
of its wholly owned subsidiaries subject to all of its liabilities
which were assumed by MFC. This transfer was made in contemplation of a
spin-off of MFC.
On August 31, 2000, FRMO filed Form 8-K with the Securities and
Exchange Commission, which disclosed that FRMO contemplated
distributing to its shareholders one share of MFC common stock for each
share of FRMO's 1,800,000 shares of outstanding common stock at the
close of business on November 1, 2000 (the record date). In fiscal
2001, MFC filed a Form 10 to register its common stock and on January
23, 2001, 1,800,000 shares of MFC were distributed to FRMO's
shareholders.
Because FRMO and MFC were under common control, the spin-off
transaction has been accounted for on FRMO's books in a manner similar
to a reverse pooling of interests with FRMO having a new start on
January 23, 2001 with $10,000 in assets, no liabilities and 1,800,000
shares of common stock outstanding. The Statements of Shareholders'
Equity reflect the spin-off as of the beginning of the periods
presented, with no operations until January 23, 2001.
On November 29, 2000, the Company increased authorized capital stock
from 2,000,000 shares common stock, par value $.10 per share to
2,000,000 shares preferred stock, par value $.001 per share and
90,000,000 shares common stock, par value $.001 per share.
Stockholders' equity for prior periods was restated to reflect this
change.
On January 23, 2001, 34,200,000 shares of common stock were issued to
the FRM Control Group. Murray Stahl and Steven Bregman, Chairman and
President of the Company, respectively, are the principal persons in
the FRM Control Group, which includes the other persons who purchased
the shares for the consideration set forth in Note 6.
On July 2, 2001, the Company authorized the establishment of Series R
preferred stock. The number of authorized shares is 5,000 with a par
value of $.001 per share. These shares are each convertible to 1,000
shares of the Company's common stock at the option of the Company at
any time and at the option of the holder after March 1, 2006. The
Company may redeem the shares at $1,000 per share at any time after
March 1, 2011 and shall be required to redeem them at $1,000 per share
upon the request of a holder after March 1, 2012. These shares have one
vote per share on all matters that common stock can vote upon. Upon
liquidation, there is preference to the extent of $1,000 per share. No
dividends may be paid on common stock unless a dividend per share of
1,000% of common stock dividends are paid on the preferred stock.
F-8
FRMO Corp.
Notes to Financial Statements
2. BASIS OF PRESENTATION
BUSINESS ACTIVITIES OF THE COMPANY
FRMO Corp. is primarily a Financial Risk Management Organization in
that the experience of its management as described herein has been in
the analysis and research of public companies. The business will
include identification of assets, particularly in the early stages of
the expression of their ultimate value, and the participation with them
in ways that are calculated to increase the value of the shareholders'
interest in FRMO. Such assets are expected to include, but are not
limited to, those whose values and earnings are based on intellectual
capital. Of the many varieties of capital upon which investors have
earned returns, ranging from real estate to silicon, perhaps the
highest returns on capital have been earned on intellectual capital. It
is the goal of FRMO to maximize its return on this form of asset. The
identification of any business opportunities will follow the process
whereby Horizon Research Group selects and evaluates investment
opportunities and strategies.
Horizon Research Group was co-founded by Murray Stahl and Steven
Bregman in 1994. It is an independent research firm serving primarily
mutual fund managers and the hedge fund community. It provides in-depth
analysis of information-poor, under-researched companies and strategies
to identify the complex or overlooked situations that can offer an
advantage to the investor.
Since its new start on January 23, 2001, FRMO completed the following
transactions by February 28, 2002, the close of its fiscal year:
i. The Company invested $5,000 in FRM NY Capital, LLC, a
limited liability venture capital company whereby the
substantial investment of financial capital will be made by
unrelated parties but where FRMO will have a carried interest
based on leveraging the creative services of its personnel
(its intellectual capital).
ii. A consulting agreement was signed effective January
1, 2001 whereby FRMO is currently receiving approximately
$20,000 a year from the manager of Santa Monica Partners, LP,
a director and shareholder of FRMO, for access to
consultations with the Company's personnel designated by
Murray Stahl and Steven Bregman. Santa Monica Partners, L.P.
is a private fund, which owns 218,000 shares of common stock
of FRMO.
iii. In March 2001, FRMO acquired the research service
fees that Horizon Research Group had received from The New
Paradigm Fund in exchange for 80,003 shares of FRMO common
stock. Management believes that the growth of that Fund in the
current fiscal year and future years will increase the current
level of research fees for which the stock consideration was
paid.
F-9
FRMO Corp.
Notes to Financial Statements
2. BASIS OF PRESENTATION (CONTINUED)
BUSINESS ACTIVITIES OF THE COMPANY (CONTINUED)
iv. In October 2001, FRMO acquired a 2% interest in the
subscription revenues from subscribers to The Convertible/High
Yield Arbitrage Report that Horizon Research Group and another
third party receive in exchange for 50 shares of Series R
preferred stock. While these funds were quite small at the
time of acquisition, they have expanded significantly and
management believes that they will grow in future years.
v. In February 2002, FRMO acquired a 7.71% interest in
Kinetics Advisors, LLC and the Finder's Fee Share Interest
from the Stahl Bregman Group, in exchange for 315 shares of
FRMO common stock. Kinetics Advisors, LLC controls and
provides investment advice to Kinetics Partners and Kinetics
Fund, both of which are hedge funds. While the fees are
minimal at the present time, management believes that they
will grow in future years.
3. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company primarily generates revenue through consulting, research
fees and subscription revenue.
Revenue relating to consulting agreements is earned primarily on a
month-by-month basis.
Research fees are earned and recorded on a monthly basis based upon
FRMO's pro rata share of The New Paradigm Fund assets.
Subscription revenues are earned and recorded on a monthly basis based
upon FRMO's pro rata share of the subscription revenue generated from a
certain research report provided by a related third party.
The accrual method of accounting is used to record all income.
RECEIVABLES
Receivables consist of monthly consulting fees. All receivables are
current and management believes they are fully collectible.
F-10
FRMO Corp.
Notes to Financial Statements
INVESTMENT IN FRM NY CAPITAL, LLC
The investment in FRM NY CAPITAL, LLC represents a 7% Class B
membership interest. Class B members will not receive any distributions
until all Class A members are repaid their capital contributions, with
interest. For the years ended February 28, 2003 and February 28, 2002,
the Company received $-0- and $963 in distributions. This investment is
accounted for under the cost method of accounting. The Company does not
exert a significant influence over the operations or financial policies
of this entity.
INVESTMENT IN KINETICS ADVISERS, LLC
The Company accounts for its 8.44% investment in Kinetics Advisers, LLC
using the cost method of accounting. The Company does not exert a
significant influence over the operations or financial policies of this
entity.
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.
CASH AND CASH EQUIVALENTS
For purposes of the statements 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.
INTANGIBLE ASSETS
Intangible assets are amortized over their estimated lives, ten years,
using the straight line method.
CONCENTRATION OF RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash, money market
mutual funds, and trade receivables.
Trade receivables arise from consulting fees in the New York City area.
For the year ended February 28, 2003, fees earned from one client,
which is a related party, represented 40% of all income, and fees
earned from another client represented 24% of all income. For the year
ended February 28, 2002, fees earned from one client represented 51% of
all income, and fees earned from another client, which is a related
party, represented 31% of all income. As of February 28, 2003, trade
receivables from one client comprised 51% of total trade receivables.
As of February 28, 2002, trade receivables from one client comprised
100% of total trade receivables.
F-11
FRMO Corp.
Notes to Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
The Company's policy is to expense the cost of advertising as incurred.
There were no advertising expenses for the years ended February 28,
2003, 2002 and 2001.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value
of Financial Instruments". The estimated fair values of financial
instruments have been determined by the Company using available market
information and appropriate valuation methodologies. Considerable
judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could
realize in a sale. The carrying amount of financial instruments at the
Balance Sheet dates approximated their estimated fair value at those
dates.
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.
COMPREHENSIVE INCOME (LOSS)
Other comprehensive income refers to revenues, expenses, gains and
losses that under generally accepted accounting principles are included
in comprehensive income but are excluded from net income, as these
amounts are recorded directly as an adjustment to stockholders' equity.
Comprehensive income (loss) was equivalent to net income (loss) for all
periods presented.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 142 ("SFAS No. 142"), "Goodwill and Other
Intangible Assets." SFAS No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets. Under SFAS
No. 142, goodwill and some intangible assets will no longer be
amortized, but rather reviewed for impairment on a periodic basis. The
provisions of this Statement became effective on March 1, 2002 and were
required to be applied to all goodwill and other intangible assets
recognized in its financial statements at that date. The adoption of
SFAS No. 142 did not have a material impact on the Company's financial
statements.
F-12
FRMO Corp.
Notes to Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses financial accounting
and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs.
The Company is required to adopt the provisions of SFAS No. 143
effective March 1, 2003. The adoption of SFAS No. 143 is not expected
to have a material impact on the financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No.144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. The adoption of SFAS No. 144 did not have a material
impact on our financial statements.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections"
was issued. This statement provides guidance on the classification of
gains and losses from the extinguishment of debt and on the accounting
for certain specified lease transactions. Certain provisions of this
statement related to the classification of gains and losses from
extinguishment of debt are required to be adopted by the Company
beginning March 1, 2003. All other provisions were required to be
adopted after May 15, 2002. It is not anticipated that the adoption of
this statement will have a material impact on the consolidated
financial position, consolidated results of operations or liquidity of
the Company.
In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities" was issued. This statement provides guidance on
the recognition and measurement of liabilities associated with disposal
activities and became effective for the Company on January 1, 2003.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of
FASB Statement No. 123," which amends SFAS No, 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. The transition and annual disclosure
provisions of SFAS No. 148 are effective for fiscal years ending after
December 15, 2002. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used
on reported results. The Company will continue to account for
stock-based compensation to employees under APB Opinion No. 25 and
related interpretations.
F-13
FRMO Corp.
Notes to Financial Statements
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
FEBRUARY 28, FEBRUARY 28,
2003 2002
------------ ------------
Research agreements $ 51,003 $ 54,969
Subscription revenue 26,250 26,250
------------ ------------
77,253 81,219
Less accumulated amortization 13,069 9,676
------------ ------------
Intangible assets, net $ 64,184 $ 71,543
============ ============
Amortization of intangible assets was $7,359, $9,676, and $-0- for the
years ended February 28, 2003, 2002, and 2001, respectively. Annual
amortization expense for the next five years is estimated to
approximate $7,700.
5. COMMITMENTS AND CONTINGENCIES
As of February 28, 2003, the Company did not enter into any commitments
and management believes that there were no contingencies.
6. RECEIVABLES FROM SHAREHOLDERS FOR ISSUANCE OF COMMON STOCK
The 34,200,000 shares of common stock of FRMO sold after the spin-off
distribution date were issued to the FRM Control Group as follows:
i. 28,800,000 shares of common stock of FRMO Corp. were
issued to Peter Doyle, as Voting Trustee of 8.1% of the issued
and outstanding shares of Kinetics Asset Management Inc.
("Kinetics") and Murray Stahl (the "Stahl Bregman Group") for
$2,880,000, payable as set forth below. The Stahl Bregman
Group includes Murray Stahl, Steven Bregman, John Meditz,
Peter Doyle, Catherine Bradford, Thomas C. Ewing and Katherine
Ewing. That group is in control of FRMO Corp. and together
with the persons named below are the "FRM Control Group". The
28,800,000 shares were issued to the Stahl Bregman Group on
January 23, 2001 but are held in escrow and delivered as paid
at the rate of ten cents ($.10) per share. The Stahl Bregman
Group is obligated to pay to FRMO the after tax amount (fixed
at 54% of the dividend) of all dividends they receive from
Kinetics until the total $2,880,000 has been paid. The Stahl
Bregman Group expects the $2,880,000 to be paid to FRMO in
about five years. The installment payments depend on actual
future dividends received from Kinetics. The Stahl Bregman
Group may make additional payments at its discretion but the
payment based on the Kinetics dividend is obligatory until the
fixed purchase price is paid. The members of the Stahl Bregman
Group have no obligation other than to pay the net dividends
from Kinetics until the fixed purchase price is paid. The
Stahl Bregman Group has agreed that it will not divest itself
of any part of its Kinetics shares or change the character of
its ownership so as to reduce the pro-rata share of the
dividends it currently receives from Kinetics without, as a
condition
F-14
FRMO Corp.
Notes to Financial Statements
6. RECEIVABLES FROM SHAREHOLDERS FOR ISSUANCE OF COMMON STOCK (CONTINUED)
thereof, paying toward the fixed purchase price of its FRMO
shares the after-tax proceeds of that part divested, as if the
divestiture had not occurred. During the year ended February
28, 2003, the Stahl Bregman Group was not obligated to pay any
amount for the issuance of common stock and no amounts were
paid during that period.
ii. 3,600,000 shares of common stock of FRMO were issued
to Lestar Partners, LLC, ("LPC") a New York Limited Liability
Company owned by Lester Tanner, Secretary and a director of
FRMO, together with members of his family, for $360,000
payable as set forth below. The 3,600,000 shares were issued
to LPC on January 23, 2001 but are held in escrow and
delivered as paid at the rate of ten cents ($.10) per share.
LPC is obligated to pay to FRMO in cash an amount equal to
12.5% of each payment made by the Stahl Bregman Group until
the purchase price of $360,000 is paid. During the year ended
February 28, 2003, LPC was not obligated to pay any amount for
the issuance of common stock and no amounts were paid during
that period.
iii. 1,800,000 shares of common stock of FRMO were issued
to Lawrence J. Goldstein for $18,000 paid on January 23, 2001.
Mr. Goldstein is a director of FRMO and the General Partner of
Santa Monica Partners, LP, a private fund, which owns 218,000
shares of common stock of FRMO.
7. NET INCOME PER COMMON SHARE AND PER COMMON SHARE EQUIVALENT
Basic earnings per common share for each of the three years ended
February 28, 2003 are calculated by dividing net income by the weighted
average common shares outstanding during the period. Diluted earnings
per common share for each of the three years ended February 28, 2003
are calculated by dividing net income by weighted average common shares
outstanding during the period plus dilutive potential common shares,
which are determined as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
2003 2002 2001
------------ ------------ ------------
Weighted average common shares 3,897,524 3,889,772 1,998,616
Effect of dilutive securities:
Conversion of preferred stock 50,000 20,274 -
------------ ------------ ------------
Dilutive potential shares 3,947,524 3,910,046 1,998,616
============ ============ ============
F-15
FRMO Corp.
Notes to Financial Statements
8. INCOME TAXES
The provision for income taxes consist of the following:
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
2003 2002 2001
------------ ------------ ------------
Current:
Federal $ 8,952 $ 1,497 $ -
State 5,296 948 -
------------ ------------ ------------
Total current 14,248 2,445 -
============ ============ ============
Deferred:
Federal - - -
State - - -
------------ ------------ ------------
Total deferred - - -
------------ ------------ ------------
Total $ 14,248 $ 2,445 $ -
============ ============ ============
FRMO and its former subsidiaries filed consolidated tax returns through
January 23, 2001. There was no federal tax liability due to current and
prior year net operating losses. After January 23, 2001, FRMO began
filing individual tax returns. FRMO and its former subsidiaries filed
individual state tax returns. The Company has net operating loss carry
forwards for Federal purposes of approximately $1,091,000 arising from
FRMO's share of losses from the consolidated tax returns that were
filed through January 23, 2001. The use of these NOLs is restricted,
subject to the provisions of Internal Revenue Code section 382 and
accordingly, the Company has taken a 100% reserve against the deferred
tax asset resulting from these NOLs.
The following is a reconciliation of the statutory federal and
effective income tax rates for the years ended:
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
2003 2002 2001
------------ ------------ ------------
Statutory federal income tax
expense rate 34.0 % 34.0 % - %
Adjustment for utilization of
lower tax brackets (19.2) (19.0) -
State taxes, less federal tax effect 2.3 7.6 -
Permanent differences 5.8 - -
Other 4.3 - -
------------ ------------ ------------
27.2 % 22.6 % - %
============ ============ ============
F-16
FRMO Corp.
Notes to Financial Statements
9. STOCK BASED COMPENSATION
The Company applies APB Opinion No. 25 and related interpretations in
accounting for stock based compensation to employees and directors.
Stock compensation to non-employees is accounted for at fair value in
accordance with Statement of Financial Accounting Standard No. 123,
Accounting for Stock-Based Compensation ("SFAS 123").
During the year ended February 28, 2003, the Company granted an officer
and two directors options to acquire a total of 36,000 shares of common
stock, at an exercise price of $0.40 per share, through July 18, 2007.
During the year ended February 28, 2002, the Company granted an officer
and two directors options to acquire a total of 21,000 shares of common
stock, at an exercise price of $1.25 per share, through July 19, 2006.
The Company has elected the disclosure-only provisions of SFAS 123 in
accounting for its employee stock options. Accordingly, no compensation
expense has been recognized for these options. Had the Company recorded
compensation expense for the stock options based on the fair value at
the date for awards, consistent with the provisions of SFAS 123, the
Company's net income for the years ended February 28, 2003 and 2002
would have been reduced by approximately $11,000 ($0.00 per share) and
$24,000 ($0.01) per share, respectively.
F-17
FRMO Corp.
Notes to Financial Statements
10. SUPPLEMENTAL FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter
-----------------------------------------------------------
First Second Third Fourth Total
------------ ------------ ------------ ----------- ----------
YEAR ENDED FEBRUARY 28, 2003
Total revenue $ 31,451 $ 35,054 $ 34,965 $ 2,278 $ 103,748
============ ============ ============ =========== ==========
Income (loss) from operations $ 17,566 $ 17,440 $ 20,876 $ (4,543) $ 51,339
============ ============ ============ =========== ==========
Net income (loss) $ 15,177 $ 11,343 $ 10,390 $ 1,198 $ 38,108
============ ============ ============ =========== ==========
Earnings (loss) per common share:
Basic $ - $ - $ - $ - $ 0.01
============ ============ ============ =========== ==========
Diluted $ - $ - $ - $ - $ 0.01
============ ============ ============ =========== ==========
Number of shares used in computation of
earnings per share:
Basic
3,897,524 3,897,524 3,897,524 3,897,524 3,897,524
============ ============ ============ =========== ==========
Diluted
3,947,524 3,947,524 3,947,524 3,947,524 3,947,524
============ ============ ============ =========== ==========
YEAR ENDED FEBRUARY 28, 2002
Total revenue $ 13,184 $ 14,833 $ 24,741 $ 16,027 $ 68,785
============ ============ ============ =========== ==========
Income (loss) from operations $ 2,875 $ (7,781) $ 12,896 $ 1,541 $ 9,531
============ ============ ============ =========== ==========
Net income (loss) $ 3,246 $ (7,386) $ 11,238 $ 1,292 $ 8,390
============ ============ ============ =========== ==========
Earnings (loss) per common share:
Basic $ - $ - $ - $ - $ -
============ ============ ============ =========== ==========
Diluted $ - $ - $ - $ - $ -
============ ============ ============ =========== ==========
Number of shares used in computation of
earnings per share:
Basic
3,867,703 3,897,209 3,897,209 3,897,209 3,889,772
============ ============ ============ =========== ==========
Diluted
3,867,703 3,897,209 3,929,077 3,947,209 3,910,046
============ ============ ============ =========== ==========
During the fourth quarter of the fiscal year ended February 28, 2003, the
Company reevaluated its accounting for its investment in Kinetics Advisers, LLC.
As a result of this reevaluation, the Company recorded an adjustment that
reduced revenues by $22,000. Of this amount, approximately $6,000, $8,000 and
$8,000 are allocable to the first, second, and third quarters, respectively. The
adjustment also reduced net incomes by the same amount. There was no effect on
revenue or net income for the year ended February 28, 2002.
F-18
CERTIFICATION
Each of the undersigned hereby certifies in his capacity as an officer of FRMO
Corp. (the "Company") that the Annual Report of the Company on Form 10-K for
the period ended February 28, 2003 fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934 and that the information
contained in such report fairly presents, in all material respects, the
financial condition of the Company at the end of such period and the results of
operations of the Company for such period.
Dated: June 24, 2003
By: /s/ MURRAY STAHL
------------------------------
Murray Stahl
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
By: /s/ STEVEN BREGMAN
-------------------------------
Steven Bregman
PRESIDENT AND CHIEF OPERATING OFFICER
CERTIFICATIONS
--------------
I, Murray Stahl, certify that:
1. I have reviewed this annual report on Form 10-K of FRMO Corp;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date''); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: June 24, 2003
By: /s/ MURRAY STAHL
------------------
Murray Stahl
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
CERTIFICATIONS
--------------
I, Steven Bregman, certify that:
1. I have reviewed this annual report on Form 10-K of FRMO Corp;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date''); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weakness.
Dated: January 13, 2003
By: /s/ STEVEN BREGMAN
---------------------
Steven Bregman
PRESIDENT AND CHIEF OPERATING OFFICER