<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

         /X/      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended: February 28, 1998

         / /      TRANSITION REPORT PURSUANT TO SECTION 13(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

                  For the transition period from               to

                         COMMISSION FILE NUMBER: 0-29346


                                 FRM NEXUS, INC.
             (Exact name of registrant as specified in its charter)

           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 Codes)

       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, $.10 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 19, 1998 was not known because shares were not publicly
traded.

         The number of shares outstanding of the registrant's Common Stock as of
May 19, 1998 was 1,211,635 shares (before the common stock dividend of one
common share for every two common shares owned of record on June 24, 1998).

                       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, 1998.



<PAGE>   2
                                 FRM NEXUS, INC.

                           ANNUAL REPORT ON FORM 10-K

                   FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998


<TABLE>
<CAPTION>
                                                                                                                      Page No.
PART I

<S>                                                                                                                    <C>
         Item 1.           Business................................................................................       1

         Item 2.           Properties..............................................................................       4

         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...........................................................       7

         Item 6.           Selected Financial Data.................................................................       8

         Item 7.           Management's Discussion and Analysis of Financial
                                    Condition and Results of Operations............................................       9

         Item 7A           Quantitative and Qualitative Disclosures About
                                    Market Risk...................................................................       12

         Item 8.           Financial Statements and Supplementary Data............................................       12

         Item 9.           Changes in and Disagreements with Accountants on
                                    Accounting and Financial Disclosure...........................................       12



PART III

         Item 10.          Directors and Executive Officers of the Registrant....................................        13

         Item 11.          Executive Compensation.................................................................       13

         Item 12.          Security Ownership of Certain Beneficial Owners
                                    and Management................................................................       13

         Item 13.          Certain Relationships and Related Transactions.........................................       13




PART IV

         Item 14.          Exhibits, Financial Statements, Schedules
                                    and Reports on Form 8-K  .....................................................       14
</TABLE>


<PAGE>   3
                                     PART I

ITEM 1.           BUSINESS


         FRM Nexus, Inc. (the "Company" or "Nexus") owns, operates and
administers three divisions primarily through wholly-owned subsidiary
corporations. 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
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.


         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 is presently
engaged in the development, for residential or commercial use, of real estate
located in Goshen, New York, Hunter, New York and Brookfield, Connecticut.


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.
The lawsuit had been commenced by the Company to enforce a previously approved
subdivision plan for the property. Participating in the settlement was Windemere
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 any
profits to be realized in the 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



                                      -1-
<PAGE>   4



built on the lots. The sale was accounted for using the installment method
resulting in a deferral of income until the initial and continuing investment
criteria is sufficient. The unpaid portion of the long term deferred income
attributable to the construction loan funding and the entire contingent profit,
if any, have not been reflected in the Company's net income as of February 28,
1998.


Hunter, New York. Nexus controls the fee interest in various properties in
Hunter, New York, in which it owns the principal co-investment interest. 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 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 a present
value to Nexus in excess of the cost of $1,103,897 carried on its balance sheet
at February 28, 1998 and 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 $486,548, which is the face value of the mortgage which the Company
foreclosed to acquire its fee title plus foreclosure and capitalized costs. The
$486,548 is believed to be less than fair market value. Nexus plans to develop
both parcels for commercial use unless it receives an acceptable offer to
purchase or lease either or both of them. 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 to develop the
second parcel.


         THE MEDICAL FINANCING DIVISION of the Company conducts its operations
through a wholly-owned subsidiary, Medical Financial Corp. ("MFC"), a start-up
company which commenced business 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. MFC delivers to its clients specialized services
and increased liquidity, which are normally unavailable to medical groups from
traditional lenders. MFC's services include an organized, efficient collection
of the customers' receivables and management information systems reports of
their clients' practices.

                                        2

<PAGE>   5



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.

         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. When the development of the
homes in Goshen, NY commences, Nexus will 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 markets its services to medical groups
through its own employees relying primarily on customer recommendation, direct
mail and personal recruiting.


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 large national restaurant chains.

         The Company's presently owned real estate properties are located in
communities which have been depressed in 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 their properties.

         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.


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

                                        3

<PAGE>   6



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. Their experience and performance as franchise managers have 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.


EMPLOYEES

As of May 19, 1998 the Company had 540 employees in its Wendy's operations, 11
employees at MFC and 5 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.


REGULATORY LAWS

The Company is in compliance with all environmental laws relating to hazardous
substances in real property. Future compliance with such environmental laws is
not expected to have a material effect on its business. In addition the Company
must comply with health and occupancy regulatory laws of the federal, state and
municipal governments relating to the Wendy Restaurants and the regulations of
said governments relating to businesses generally. The cost of such compliance
is important but continued compliance is not expected to have a material effect
on its business.




ITEM 2.   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 5 and 6 to the
Consolidated Financial Statements herein. These properties secure, to the extent
described in Note 6, 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 8 to the Consolidated Financial Statements herein.

         Nexus' lease for its corporate offices in New Rochelle, New York, which
also house MFC's operations, runs to February 28, 2001, with an option to renew
until February 28, 2004.

                                        4

<PAGE>   7



         All of the space leased by the Company is leased from unaffiliated
third parties.




ITEM 3.           LEGAL PROCEEDINGS


         The Company's Yolo subsidiaries filed an action for breach of contract
and conversion 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 the value of the property carried on the books and
the defendants were not then, and are not now, able to pay the option price (See
Note 3 of the Notes to Consolidated Financial Statements). 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 reached for trial in the
fiscal year ending February 28, 1999. 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 the Resolution Trust Company,
which had taken over the first mortgage positions of two Connecticut banks, was
about to foreclose on 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 for less than
the outstanding principal amount and thereby protected PSI Capital's second
mortgage position in the real estate. The two properties were subsequently sold,
after which a Plan of Reorganiza tion filed in the Chapter 11 proceeding was
confirmed and PSI Capital Corp emerged from Chapter 11 in October 1997.




ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
                  AND OTHER INFORMATION


         There were no matters submitted to a vote of the security holders of
the Company, either through solicitation of proxies or otherwise, during the
period from March 1, 1997 to February 28, 1998 including the fourth quarter of
the year ended February 28, 1998.



                                        5

<PAGE>   8



OTHER INFORMATION

REGISTRATION AND MARKET FOR STOCK

         In March 1998, the Form 10 Registration Statement of FRM Nexus, Inc.
pursuant to Section 12(g) of the Securities Exchange Act of 1934 became
effective. A complete copy of the Registration Statement, as amended, is being
sent to the shareholders with this Annual Report. It includes the financial
information for the fiscal years ended February 28, 1997, 1996 and 1995.

         This Annual Report marks the commencement of the Company's annual
reporting under the Securities Exchange Act of 1934. With its reporting in
place, the Company believes that its Common Stock will be traded in the
over-the-counter market. The Company intends to apply for the listing of its
shares on NASDAQ when it meets the requirements of the NASD.


STOCK DIVIDEND

         The Board of Directors, at its meeting on May 14, 1998, declared a
common stock dividend of one share of common stock for every two shares of
common stock owned of record on June 24, 1998. Holders of record on that date
will receive the stock dividend on July 14, 1998. Shareholders will not be
entitled to receive any resulting fractional shares but will receive the value
of any one-half share in cash. The stock dividend was declared in order to
increase the number of outstanding shares and meet the requirements for listing
on NASDAQ. The Company will account for the stock dividend in the same manner as
a 3 for 2 stock split.


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

                                        6

<PAGE>   9



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, regional or general changes in real estate
values.

         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
                  STOCKHOLDER MATTERS



MARKET PRICES OF COMMON STOCK

         The Company's Common Stock, par value $.10 per share ("Common Stock")
has not traded in the period for which the high and low sales prices must be set
forth.


DIVIDENDS

         No cash dividends have been paid by the Company since its inception.
The Company has no present intention of paying any cash dividends on its Common
Stock. See Item 4 at page 6 for a recent stock dividend.


HOLDERS

As of May 19, 1998, there were approximately 1,185 holders of record of the
Company's Common Stock representing about 2,500 beneficial owners of the
Company's shares.





                                        7

<PAGE>   10
Item 6. Selected Consolidated Financial Data

                        FRM NEXUS, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                            Fiscal Year Ended
                                        February 28,        February 28,       February 29,      February 28,         February 28,
                                            1998                1997                1996               1995               1994
                                        ------------        ------------        ------------        -----------       ------------
Income Statement Data:
<S>                                     <C>                 <C>                 <C>                 <C>               <C>         
Total Revenue                           $ 19,885,949        $ 17,299,472        $ 15,082,650        $14,523,900       $ 14,216,221
Costs and expenses                        18,025,358          18,267,540          15,294,370         14,059,992         13,562,357
                                        ------------        ------------        ------------        -----------       ------------

Income (loss) from operations              1,860,591            (968,068)           (211,720)           463,908            653,864
Interest (expense) net of
  interest income                           (395,042)           (278,871)             12,996             23,313            (26,396)
Other income (expense)                            --                  --                  --                 --         (1,126,137)
                                        ------------        ------------        ------------        -----------       ------------

  Income (loss) before provision
   for income taxes and
   extraordinary item                      1,465,549          (1,246,939)           (198,724)           487,221           (498,669)
Provision for income taxes                   149,132              12,070              28,248             70,004             84,136
                                        ------------        ------------        ------------        -----------       ------------

Income (loss) before extra-
  ordinary item                            1,316,417          (1,259,009)           (226,972)           417,217           (582,805)
Extraordinary income net
  of taxes                                    91,674                  --                  --                 --                 --
                                        ------------        ------------        ------------        -----------       ------------

Net income (loss)                       $  1,408,091        $ (1,259,009)       $   (226,972)       $   417,217       $   (582,805)
                                        ============        ============        ============        ===========       ============

Earnings (loss) per common share:

Income (loss) before
extraordinary item                      $       0.72        $      (0.69)       $      (0.12)       $      0.23       $      (0.32)
Extraordinary income                            0.05                  --                  --                 --                 --
                                        ------------        ------------        ------------        -----------       ------------

Basic and diluted earnings
  (loss) per common share               $       0.77        $      (0.69)       $      (0.12)       $      0.23       $      (0.32)
                                        ============        ============        ============        ===========       ============

Number of shares used in
  computation of basic and
  diluted earnings per share               1,817,453           1,817,453           1,817,453          1,817,453          1,817,453
                                        ============        ============        ============        ===========       ============
</TABLE>

<TABLE>
<CAPTION>
                                                                                   As of
                                        February 28,         February 28,        February 29,       February 28,       February 28,
                                            1998                1997                1996               1995               1994
                                        ------------        ------------        ------------        -----------       ------------

Balance Sheet Data:
<S>                                     <C>                 <C>                 <C>                 <C>               <C>          
Working Capital                         $  1,583,888        $  1,412,696        $   (442,940)       $   319,070       $   (222,561)
                                        ============        ============        ============        ===========       ============

Total Assets                            $ 13,014,080        $ 13,662,225        $  9,540,955        $ 5,428,496       $  5,158,298
                                        ============        ============        ============        ===========       ============

Long-term debt                          $  2,391,867        $  5,198,530        $    745,925        $   144,133       $    125,697
                                        ============        ============        ============        ===========       ============

Common Shareholders' equity             $  5,592,874        $  4,346,985        $  5,615,310        $ 4,304,209       $  3,886,992
                                        ============        ============        ============        ===========       ============

Book value per share                    $       3.08        $       2.39        $       3.09        $      2.37       $       2.14
                                        ============        ============        ============        ===========       ============
Common shares
  outstanding                              1,817,453           1,817,453           1,817,453          1,817,453          1,817,453
                                        ============        ============        ============        ===========       ============
</TABLE>

 (a)     Common shares outstanding at February 28, 1995 and 1994 have been
         restated to give effect to recapitalization. Common shares outstanding
         for all periods have been restated to give effect to a stock dividend
         declared on May 14, 1998.

The year ended February 28, 1994 includes the accounts of FRM Nexus, Inc. from
November 15, 1993, (date of inception) and all of the subsidiares it acquired
from Programming and Systems, Inc. from March 1, 1993.





                                        8
<PAGE>   11
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, expenditures to develop real estate owned by the
Company, future borrowing, capital requirements and the Company's future
development plans are based on current expectations. These statements are
forward looking in nature and involve a number of risks and uncertainties.
Actual results may differ materially. Among the factors that could cause actual
results to differ materially are the following: changes in the business of the
Company's medical provider clients, changes in the real estate, fast food and
financial markets, and other risk factors described 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 Consolidated Financial Statements and
related Notes thereto included herein and incorporated herein by reference.


OVERVIEW

         Nexus generates revenues from three business segments: food services,
real estate and medical financing. Revenues in the real estate division vary
substantially from period to period depending on when a particular transaction
closes and depending on whether the closed transaction is recognized for
accounting purposes as a sale or reflected as a financing or is deferred to a
future period.


RESULTS OF OPERATIONS

         YEAR ENDED FEBRUARY 28, 1998 COMPARED TO YEAR ENDED FEBRUARY 28, 1997

         The Company's revenues increased by $2,586,000, or 15%, for the year
ended February 28, 1998 (Fiscal 1998) to $19,886,000 from $17,300,000 for the
year ended February 28, 1997. The growth was a result of increased revenues in
all three divisions. The increase of $440,000 in the food service division was
attributable primarily to increases in food sales in the same number of
restaurants. The additional revenue of $1,589,000 in the real estate division
was attributable primarily to the change from the financing method to the full
accrual method of accounting for the sale of real estate in Granby, CT. During
Fiscal 1998, the Company's continuing involvement with the property was fully
eliminated allowing for the sale to be recorded. Growth in revenues in the
medical financing division of $557,000 was due to the increase in the medical
insurance claims receivables that were purchased in the current period from
existing and new customers.

         Costs and expenses decreased $243,000, or 1%, for Fiscal 1998, to
$18,025,000 from $18,268,000 for the year ended February 28, 1997. This net
decrease was due to decreases in the real estate division of $742,000, $116,000
in corporate expenses and $60,000 of depreciation and amortization, which were
offset by increases of $216,000 in the food services division and $459,000 in
the medical financing division.

                                        9

<PAGE>   12
The decrease in the costs and expenses of the real estate division is
attributable to the reduced amount of real estate transactions. The decrease in
corporate expenses is primarily due to a reduction in legal expenses. The
decrease in depreciation and amortization is due to certain fixed assets
becoming fully depreciated in the food service division. The increase of other
costs and expenses in the food division is attributable to higher labor costs,
which are due in part to an increase in the minimum wage. The increase of the
costs and expenses of the medical financing division was attributable to
additional expenditures on staff and systems as a result of the increase in
volume.

         For the reasons noted above the income from operations increased
$2,829,000 from a loss of $968,000 in the year ended February 28, 1997 to income
of $1,861,000 in Fiscal 1998. Net interest costs increased $116,000 and the
provision for tax increased $137,000 producing an increase in net income before
extraordinary item of $2,575,000, from a loss of $1,259,000 in the year ended
February 28, 1997 to a profit of $1,316,000 in Fiscal 1998.

         After adding the extraordinary income of $92,000 in Fiscal 1998 the
Company's net income rose $2,667,000 to $1,408,000 in Fiscal 1998 from a loss of
$1,259,000 in the year ended February 28, 1997.


YEAR ENDED FEBRUARY 28, 1997 COMPARED TO YEAR ENDED FEBRUARY 29, 1996

         Total revenues increased $2,217,000, or 15%, from $15,083,000 in the
year ended February 29, 1996 ("Fiscal 1996") to $17,300,000 in the year ended
February 28, 1997. Two new Wendy's restaurants were opened in Fiscal 1996 and
sales at the Company's Wendy restaurants rose from $14,536,000 in Fiscal 1996 to
$16,263,000 in the year ended February 28, 1997. Real estate revenues increased
$527,000 from $293,000 in Fiscal 1996 to $820,000 the year ended February 28,
1997 because the volume of sale transactions closed in the year ended February
28, 1997 was higher than in Fiscal 1996. Revenues from the medical financing
division declined $37,000 from $254,000 in Fiscal 1996 to $217,000 in the year
ended February 28, 1997 primarily because of a reduction in the initial fees for
new customer contracts.

         Costs and expenses in the food services division increased $1,210,000
primarily attributable to the two new restaurants opened during Fiscal 1996. The
increase in the costs and expenses of the real estate division of $1,268,000 was
due to the higher cost of the real estate sold during the year ended February
28, 1997 over Fiscal 1996 and the increased selling, general and administrative
expenses. Costs and expenses in the medical financing division increased
$157,000 in the year ended February 28, 1997 over Fiscal 1996 attributable to
gearing up on staff and systems in anticipation of the increased volume which
had occurred by August 31, 1997. The increase in corporate expenses of $175,000
in the year ended February 28, 1997 over Fiscal 1996 was due to additional legal
expenses. The increase in depreciation and amortization of $163,000 in the year
ended February 28, 1997 over Fiscal 1996 was attributable to the purchase of
four restaurants previously leased from Wendy's in June 1996. The total Company
increase in costs and expenses of $2,973,000 resulted in the increase in the
Company's loss from operations of $756,000 from a loss of $212,000 in Fiscal
1996 to a loss of $968,000 in the year ended February 28, 1997.

                                       10

<PAGE>   13
         The Company's net loss rose $1,032,000 in the year ended February 28,
1997 over Fiscal 1996, the difference is due to the increase in loss from
operations of $756,000 and an increase in net interest expense arising from the
debt incurred in the purchase of the four Wendy's restaurants.


LIQUIDITY AND CAPITAL RESOURCES

         The Company's operating activities in Fiscal 1998 including investments
in the purchase of medical claims receivable resulted in cash used by operations
this year. The Company expects this trend to continue with the growth of its
medical financing division. The funds for those needs are expected to be
provided from financing activities such as asset-based borrowing on the
Company's mortgages and accounts receivable. The Company anticipates that cash
will continue to be provided from its food service operations which has shown
improvement in operating profit for Fiscal 1998. The real estate division is not
expected to be a significant user of cash flow from operations by reason of the
disposition as of January 1, 1998 of the formerly vacant space in the Granby, CT
property. The Company's real estate assets in Hunter, NY and Brookfield, CT. are
owned free and clear of mortgages. Further development of those properties, at
any significant cost, is expected to be funded by asset-based financing. The
Company believes that its present cash resources and the cash available from
financing activities will be sufficient on a short-term basis and over the next
12 months to fund continued expansion of its medical financing business, its
company-wide working capital needs and expected investments in property and
equipment. The Company intends to pace its growth in the medical financing
division to its capacity to provide the funds from its financing activities. The
Company has no present intention of increasing its capital from the sale of
common stock, but that may be an option it will explore in the future should
management decide that it will assist its goal of increasing the per-share value
of the Company's outstanding shares.

         Cash used by operations in Fiscal 1998 was $63,000 compared to
$1,627,000 used in the prior year. The decrease in 1998 was due to fluctuations
in operating assets and liabilities primarily caused by timing differences in
the payment of accounts payable. Cash used in investing activities was
$1,407,000 for Fiscal 1998 as compared with $2,260,000 used in the prior year.
The decrease in 1998 was due to a decrease in capital expenditures offset by
increases in finance receivables from the purchase of medical insurance claims
and principal payments received on notes receivable. Net cash provided by
financing activities was $1,044,000 for Fiscal 1998 as compared with $4,578,000
in the prior year. The greater amount in 1997 was due to the need to finance the
four restaurants that were purchased from Wendy's International and additional
proceeds from the finance obligation related to the sale of property in Granby,
CT.


YEAR 2000 COMPLIANCE

         The Company has completed a review of its computer systems and
operations to determine the extent to which its systems will be vulnerable to
potential errors and failures as a result of the "Year 2000" problem. The Year
2000 problem is the result of prior computer programs being written using two

                                       11
<PAGE>   14
digits, rather than four digits, to define the applicable year. Any Computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1990 rather than the year 2000. The Company has concluded that its
significant computer programs and operations will not be affected by the Year
2000 problem.


EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS

DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

In June 1997 the FASB issued SFAS No. 131 "Disclosure About Segments of an
Enterprise and Related Information". SFAS No. 131 requires the reporting of
profit and loss, specific revenue and expense items, and assets for reportable
segments. It also requires the reconciliation of total segment revenues, total
segment profit and loss, total segment assets and other amounts disclosed for
segments to the corresponding amounts in the general purpose financial
statements. This statement is effective for financial statements issued for
periods beginning after December 15, 1997. The Company will adopt this statement
in the fiscal year ending February 28, 1999.


ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                  RISK

         The Company's market risk arises principally from the interest rate
risk related to its receivables. Interest rate risk is a consequence of having
fixed interest rate receivables in the Company's Real Estate and Medical
Financing Divisions. The Company is exposed to interest rate risk arising from
changes in the level of interest rates as principal payment speeds.

         The Company is subject to interest rate risk on the fixed interest rate
of its long term mortgage debt and capital leases in its Food Division.
Generally, the fair market value of debt with a fixed interest rate will
increase as interest rates fall and the fair market value will decrease as
interest rates rise.


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 14(a) below.


ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON AC
                  COUNTING AND FINANCIAL DISCLOSURE

                  Not applicable.

                                       12

<PAGE>   15
                                    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, 1998. 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, 1998. 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, 1998. Such information is
incorporated herein by reference and made a part hereof.






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, 1998. Such information is
incorporated herein by reference and made a part hereof.




                                       13
<PAGE>   16
                                     PART IV


ITEM 14.          EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
                  FORM 8-K

<TABLE>
<S>                                                                                                               <C>
 (a)     FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS

         (1)      FINANCIAL STATEMENTS:

                  Index to Consolidated Financial Statements and Schedules..........................................F-1

                  Report of Ernst & Young LLP.......................................................................F-2

                  Consolidated Balance Sheets - February 28, 1998 and 1997..........................................F-3

                  Consolidated Statements of Operations - Years
                  ended February 28, 1998, 1997 and February 29, 1996...............................................F-5

                  Consolidated Statements of Stockholders' Equity -
                  Years ended February 28, 1998, 1997 and February 29, 1996.........................................F-6

                  Consolidated Statements of Cash Flows - Years
                  ended February 28, 1998, 1997 and February 29, 1996...............................................F-7

                  Notes to Consolidated Financial Statements........................................................F-9

                  Reports of Independent Auditors..................................................................F-32

         (2)      FINANCIAL STATEMENT SCHEDULES:

                  Schedule II       -       Valuation and Qualifying Accounts......................................F-33
                  Schedule III      -       Real Estate and Accumulated Depreciation...............................F-34
                  Schedule IV       -       Mortgage Loans on Real Estate..........................................F-35

                  All other 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.

                  Unaudited Selected Quarterly Financial Data......................................................F-36
</TABLE>




                                       14
<PAGE>   17
         (3)      EXHIBITS:

         The two following exhibits (Exhibits 23.01 and 23.02) are filed as part
of this Annual Report on Form 10-K and the remaining exhibits are incorporated
herein by reference to Form 10 dated June 27, 1997 except that Exhibit 10.04 is
incorporated herein by reference to Amendment No. 1 to Form 10 dated September
19, 1997.



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.

10.03    Management Agreement for Wendy's Restaurants.

10.04    Employment and Consulting Agreement of Peter Barotz.

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.

23.02    Consent of Eric Weston


(b)      REPORTS ON FORMS 8-K

         No current Reports on Form 8K were filed by the Company during the
quarterly period ended February 28, 1998.







                                       15
<PAGE>   18
                                   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 June 8,
1998.

                                 FRM NEXUS, INC.

                             By:    /S/ VICTOR BRODSKY
                                                            Victor Brodsky
                                                        Vice 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 June 8, 1998.


                  Signature                   Title


   /S/ SETH GROSSMAN                 President and Director
         Seth Grossman               (Principal Executive Officer)


   /S/ ALLAN KORNFELD                Chairman of the Board
         Allan Kornfeld


   /S/ KENNETH FULD                  Director
         Kenneth Fuld


   /S/ JOSEPH DOLAN                  Director
         Joseph Dolan


   /S/ JED SCHUTZ                    Director
         Jed Schutz

                                       16
<PAGE>   19
                        FRM Nexus, Inc. and Subsidiaries


                   Index to Consolidated Financial Statements
                        and Financial Statement Schedules




Report of Independent Auditors.........................................   F- 2
Consolidated Balance Sheets -- February 28, 1998 and 1997..............   F- 3
Consolidated Statements of Operations  -- Years Ended February 28,
1998, 1997 and February 29, 1996.......................................   F- 5
Consolidated Statements of Stockholders' Equity --
Years Ended February 28, 1998, 1997 and February 29, 1996..............   F- 6
Consolidated Statements of Cash Flows -- Years Ended February 28,
1998, 1997 and February 29, 1996.......................................   F- 7
Notes to Consolidated Financial Statements.............................   F- 9
Independent Auditors' Report on Supplementary Information
Required by Rule 5-4 of Regulation S-X of the Securities
and Exchange Commission................................................   F-32

Schedules:
II -- Valuation and Qualifying Accounts................................   F-33
III -- Real Estate and Accumulated Depreciation........................   F-34
IV -- Mortgage Loans on Real Estate....................................   F-35



The data required by all other schedules is either included in the financial
statements or is not required.




                                      F-1
<PAGE>   20
                         [LETTERHEAD ERNST & YOUNG LLP]





                         Report of Independent Auditors


The Board of Directors and Shareholders
FRM Nexus, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of FRM Nexus, Inc.
and its subsidiaries as of February 28, 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. Our audit also included the financial statement schedules listed in the
Index at Item 14. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of FRM
Nexus, Inc. and its subsidiaries at February 28, 1998, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedules when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects the information set forth therein.

                                                            /s/ERNST & YOUNG LLP
New York, New York
June 2, 1998




                                      F-2
<PAGE>   21
                        FRM Nexus, Inc. and Subsidiaries

                           Consolidated Balance Sheets


<TABLE>
<CAPTION>
                                                                                   FEBRUARY 28
                                                                             1998              1997
                                                                         -----------       -----------
ASSETS
<S>                                                                      <C>               <C>        
Current assets:
   Cash and cash equivalents                                             $ 1,434,893       $ 1,861,219
   Mortgage and notes receivable                                              22,232            81,202
   Finance receivables, net                                                1,782,687         1,238,891
   Vendor rebate receivable                                                  244,477                --
   Inventories                                                                96,922            97,210
   Other current assets                                                      250,663           275,078
                                                                         -----------       -----------
Total current assets                                                       3,831,874         3,553,600
                                                                         -----------       -----------

Property and equipment:
   Property and equipment, at cost                                         5,850,404         7,119,469
   Less accumulated depreciation and amortization                          2,310,626         1,960,709
                                                                         -----------       -----------
                                                                           3,539,778         5,158,760
                                                                         -----------       -----------
Other assets:
   Real estate held for development and sale                               1,375,445         1,429,369
   Mortgage and notes receivable                                           3,203,598         2,422,034
   Loans receivable                                                           88,995            92,526
   Leasehold costs, net of accumulated amortization of $333,143 in
     1998 and $282,983 in 1997                                               507,145           548,685
   Technical assistance fees, net of accumulated amortization of
     $147,762 in 1998 and $126,510 in 1997                                   227,238           248,490
   Deferred tax asset                                                             --            63,188
   Other                                                                     240,007           145,573
                                                                         -----------       -----------
Total other assets                                                         5,642,428         4,949,865
                                                                         -----------       -----------
Total assets                                                             $13,014,080       $13,662,225
                                                                         ===========       ===========
</TABLE>



See accompanying notes.




                                      F-3
<PAGE>   22
                        FRM Nexus, Inc. and Subsidiaries

                     Consolidated Balance Sheets (continued)


<TABLE>
<CAPTION>
                                                                         FEBRUARY 28
                                                                   1998                1997
                                                                ------------        ------------
<S>                                                             <C>                 <C>         
LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
   Accounts payable and accrued expenses                        $    960,172        $    888,410
   Current portion of notes payable                                  228,578             244,441
   Due to finance customers                                          975,545             957,585
   Income taxes payable                                               64,202              14,357
   Other current liabilities                                          19,489              36,111
                                                                ------------        ------------
Total current liabilities                                          2,247,986           2,140,904
                                                                ------------        ------------

Other liabilities:
   Notes payable                                                   2,391,867           2,162,064
   Deferred income taxes                                              20,729               5,764
   Deferred income                                                 2,760,624           1,910,624
   Finance obligation                                                     --           3,036,466
   Other                                                                  --              59,418
                                                                ------------        ------------
Total other liabilities                                            5,173,220           7,174,336
                                                                ------------        ------------

Commitments and contingencies

Stockholders' equity:
   Common stock -- $.10 par value;
   Authorized -- 2,000,000 shares;
   Issued and outstanding -- 1,817,453 shares                        181,745             181,745
   Capital in excess of par value                                  5,827,125           5,827,125
   Unrealized loss on mortgage and notes receivable                 (162,202)                 --
   Retained earnings (accumulated deficit)                          (253,794)         (1,661,885)
                                                                ------------        ------------
Total stockholders' equity                                         5,592,874           4,346,985
                                                                ============        ============
Total liabilities and stockholders' equity                      $ 13,014,080        $ 13,662,225
                                                                ============        ============
</TABLE>



See accompanying notes.




                                      F-4
<PAGE>   23
                        FRM Nexus, Inc. and Subsidiaries

                      Consolidated Statements of Operations


<TABLE>
<CAPTION>
                                                                                                  YEAR ENDED
                                                               YEARS ENDED FEBRUARY 28            FEBRUARY 29
                                                              1998                1997                1996
                                                          ------------        ------------        ------------
REVENUES
<S>                                                       <C>                 <C>                 <C>         
Restaurant food sales                                     $ 16,703,700        $ 16,263,323        $ 14,536,291
Sale of real estate                                          2,125,696             713,185             256,732
Rental income                                                  115,951                  --              21,458
Interest from mortgages                                        167,128             106,443              14,312
Income from the purchase of medical receivables                773,474             216,521             253,857
                                                          ------------        ------------        ------------
Total income                                                19,885,949          17,299,472          15,082,650
                                                          ------------        ------------        ------------

COSTS AND EXPENSES
Restaurants                                                 15,698,255          15,481,931          14,271,516
Real estate                                                    777,861           1,519,942             251,956
Medical receivables                                            826,085             367,178             210,233
Corporate expenses                                             182,729             298,291             123,455
Depreciation and amortization                                  540,428             600,198             437,210
                                                          ------------        ------------        ------------
Total costs and expenses                                    18,025,358          18,267,540          15,294,370
                                                          ------------        ------------        ------------

Income (loss) from operations                                1,860,591            (968,068)           (211,720)
                                                          ------------        ------------        ------------

Other income (expense):
   Interest income                                              56,199              72,077              59,094
   Interest expense                                           (451,241)           (350,948)            (46,098)
                                                          ------------        ------------        ------------
                                                              (395,042)           (278,871)             12,996
                                                          ------------        ------------        ------------
Income (loss) before provision for income
taxes and extraordinary item                                 1,465,549          (1,246,939)           (198,724)

Provision for income taxes                                     149,132              12,070              28,248
                                                          ------------        ------------        ------------
Income (loss) before extraordinary item                      1,316,417          (1,259,009)           (226,972)
Extraordinary income, net of applicable taxes of $0             91,674                  --                  --
                                                          ------------        ------------        ------------
Net income (loss)                                         $  1,408,091        $ (1,259,009)       $   (226,972)
                                                          ============        ============        ============

Earnings (loss) per common share:
   Income (loss) before extraordinary item                $        .72        $       (.69)       $       (.12)
   Extraordinary income                                            .05                  --                  --
                                                          ------------        ------------        ------------
Basic and diluted earnings (loss) per common share        $        .77        $       (.69)       $       (.12)
                                                          ============        ============        ============

Number of shares used in computation of basic
and diluted earnings per share                               1,817,453           1,817,453           1,817,453
                                                          ============        ============        ============
</TABLE>


See accompanying notes.




                                      F-5
<PAGE>   24
                        FRM Nexus, Inc. and Subsidiaries

                 Consolidated Statements of Stockholders' Equity

                       Years ended February 28, 1998, 1997
                              and February 29, 1996


<TABLE>
<CAPTION>
                                                                                                 RETAINED
                                                            ADDITIONAL         UNREALIZED        EARNINGS            TOTAL
                                              COMMON         PAID-IN            GAINS          (ACCUMULATED       STOCKHOLDERS'
                                              STOCK          CAPITAL           (LOSSES)          DEFICIT)            EQUITY
                                             --------       -----------        ---------        -----------        -----------
<S>                                         <C>            <C>                <C>              <C>                <C>        
Balance, February 28, 1995                   $ 70,581       $ 4,399,216        $      --        $  (165,588)       $ 4,304,209
   Recapitalization                           111,164          (111,164)              --                 --                 --
   Transfer of assets from then parent             --         1,487,631               --                 --          1,487,631
   Transfer of Yolo Capital Corp. and
     Yolo Equities Corp.                           --            51,442               --                 --             51,442
   Net loss                                        --                --               --           (226,972)          (226,972)
                                             --------       -----------        ---------        -----------        -----------
Balance, February 29, 1996                    181,745         5,827,125               --           (392,560)         5,616,310
   Net loss                                        --                --               --         (1,259,009)        (1,259,009)
   Costs incurred on behalf of PSI                 --                --               --            (10,316)           (10,316)
                                             --------       -----------        ---------        -----------        -----------
Balance, February 28, 1997                    181,745         5,827,125               --         (1,661,885)         4,346,985
   Unrealized loss on mortgage and
   notes receivable                                --                --         (162,202)                --           (162,202)
   Net income                                      --                --               --          1,408,091         1,,408,091
                                             --------       -----------        ---------        -----------        -----------
Balance, February 28, 1998                   $181,745       $ 5,827,125        $(162,202)       $  (253,794)       $ 5,592,874
                                             ========       ===========        =========        ===========        ===========
</TABLE>



See accompanying notes.




                                      F-6
<PAGE>   25
                        FRM Nexus, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                                                   YEAR ENDED
                                                                YEARS ENDED FEBRUARY 28            FEBRUARY 29
                                                                1998               1997               1996
                                                             -----------        -----------        -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                          <C>                <C>                <C>         
Net income (loss)                                            $ 1,408,091        $(1,259,009)       $  (226,972)
Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
     Depreciation and amortization                               540,428            600,198            437,210
     Gain on sale of real estate held for development
     and sale                                                 (1,932,994)          (191,362)        (1,478,263)
     Provision for bad debts                                      37,034                 --                 --
     Deferred interest expense                                    90,919                 --                 --
     Deferred income taxes                                        78,153            (64,218)            13,611
     Changes in operating assets and liabilities:
       Vendor rebate receivable                                 (244,477)                --                 --
       Inventory                                                     288             (8,541)           (12,231)
       Additions to real estate held for development
       and sale                                                  (16,076)           (49,334)           (22,400)
       Collections from sale of real estate held for
         development and sale                                         --            410,753            159,000
       Prepaid expenses, miscellaneous receivables,
         and other assets                                        (70,019)            34,710            477,705
       Accounts payable, accrued expenses and taxes              121,607         (1,198,313)         1,351,330
       Deferred income                                                --            127,354                 --
       Other liabilities                                         (76,040)           (29,454)            (6,198)
                                                             -----------        -----------        -----------
Net cash provided by (used in) operating activities              (63,086)        (1,627,216)           692,792
                                                             -----------        -----------        -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures and intangible assets                    (1,044,619)        (2,075,117)          (797,207)
Loans to officer                                                   3,531             (5,300)           (16,886)
Increase in finance receivables                                 (543,796)          (882,172)          (309,561)
Increase in due to finance customers                              17,960            690,263            210,960
Principal payments on notes receivable                           159,717             12,500             75,000
Cash received in transfer of Yolo                                     --                 --              4,190
                                                             -----------        -----------        -----------
Net cash used in investing activities                         (1,407,207)        (2,259,826)          (833,504)
                                                             -----------        -----------        -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of notes payable                                        700,000          1,780,000            550,000
Principal payments on notes payable                             (511,197)          (128,602)           (58,696)
Proceeds of finance obligation                                   926,602          3,054,597            100,000
Principal payments on finance obligation                         (71,438)          (118,131)                --
Decrease in due to then Parent                                        --                 --            (71,678)
Cost incurred on behalf of PSI                                        --            (10,316)                --
                                                             -----------        -----------        -----------
Net cash provided by financing activities                      1,043,967          4,577,548            519,626
                                                             -----------        -----------        -----------
</TABLE>





                                       F-7
<PAGE>   26
                        FRM Nexus, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                                             YEAR ENDED
                                                             YEARS ENDED FEBRUARY 28         FEBRUARY 29
                                                              1998             1997             1996
                                                           ----------       ----------       ----------
<S>                                                        <C>              <C>              <C>       
Net increase (decrease) in cash and cash equivalents       $ (426,326)      $  690,506       $  378,914
Cash and cash equivalents, beginning of year                1,861,219        1,170,713          791,799
                                                           ==========       ==========       ==========
Cash and cash equivalents, end of year                     $1,434,893       $1,861,219       $1,170,713
                                                           ==========       ==========       ==========

ADDITIONAL CASH FLOW INFORMATION
Interest paid                                              $  441,403       $  340,625       $   34,652
                                                           ==========       ==========       ==========
Income taxes paid                                          $   61,497       $   49,322       $       --
                                                           ==========       ==========       ==========

NONCASH INVESTING AND FINANCING ACTIVITIES
Assets acquired under capital leases                       $   25,137       $       --       $   94,549
                                                           ==========       ==========       ==========
Transfer of assets from then parent                        $       --       $       --       $1,487,631
                                                           ==========       ==========       ==========
Transfer of Yolo subsidiaries                              $       --       $       --       $   51,442
                                                           ==========       ==========       ==========
Notes receivable from purchasers of
real estate sold                                           $1,081,547       $2,055,130       $  541,702
                                                           ==========       ==========       ==========
</TABLE>



See accompanying notes.




                                      F-8
<PAGE>   27
                        FRM Nexus, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements

                                February 28, 1998


1. ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION OF THE COMPANY

FRM Nexus, Inc. (the "Company" or "Nexus") was incorporated in November 1993
under the laws of the State of Delaware as PSI Settlement Corp. to settle a
class action (see Note 10) against Programming and Systems, Inc. ("PSI"). Under
the settlement, certain assets transferred to Nexus included PSI Capital Corp.,
PSI Food Services, Inc. which in turn owns all of the outstanding stock of
Wendcello Corp. ("Wendcello"), and Wendclark Corp. ("Wendclark"). In 1995, an
additional subsidiary, Medical Financial Corp., was formed.

In 1996, 100% of the shares of two real estate companies, Yolo Capital Corp.
(and its subsidiary Highlands Pollution Control Corp.) and Yolo Equities Corp.
were transferred to Nexus by its then president in connection with the
reorganization. The assets and liabilities acquired were recorded at historical
cost which was equal to the current fair market value at the time of transfer.
The net assets acquired were recorded as an addition to paid-in capital.

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, par value of
         $.10 per share.

       The 10,000 then outstanding common shares of the Company, par value of $1
       per share, were converted into 1,211,635 shares of common stock, par
       value of $.10 per share. 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.




                                      F-9
<PAGE>   28
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)

BUSINESS ACTIVITIES OF THE COMPANY

The Company operates in three distinct industries consisting of food services,
real estate and medical financing.

The food services companies consist of Wendclark and Wendcello. The food service
companies own and operate 16 Wendy's fast food restaurants in West Virginia and
the Hudson Valley, New York area. The food service companies' day-to-day
operations are managed by management corporations.

The real estate business is conducted by the Company through various
subsidiaries. It owns real estate and holds mortgages on real estate parcels in
New York and Connecticut which are currently held for development and sale.

Medical Financial Corp. was incorporated in New York on January 12, 1995. The
Company purchases the insurance claims receivable of medical practices and
provides certain services to those practices.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
all of its subsidiaries (hereinafter also referred to as the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.

2. SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

Food Service Companies: The accrual method of accounting is used to record all
income.

Real Estate: The full accrual method is used on the sale of real estate if the
profit is determinable, the Company is not obligated to perform significant
activities after the sale to earn the profit and there is no continuing
involvement with the property. If the buyer's initial and continuing investments
are inadequate to demonstrate a commitment to pay for the property, the
installment method is used, resulting in the deferral of income. If there is
continuing involvement with the property, by the Company, the financing method
is used.





                                      F-10
<PAGE>   29
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Purchase of Medical Insurance Claims Receivable: A fee is charged to medical
providers upon the purchase of their accounts receivable by the Company. This
fee income is deferred and recognized on a pro-rata basis as the related
receivables are collected. The deferred fee income is netted against finance
receivables (see Note 4).

RECEIVABLES

Real Estate: The Company evaluates the credit positions on its notes receivable
and the value of the related collateral on an ongoing basis. The Company
estimates that all of its notes receivable are fully collectible and the
collateral is in excess of the related receivables.

The Company continually evaluates its notes receivable that are past due as to
the collectibility of principal and interest. The Company considers the
financial condition of the debtor, the outlook of the debtor's industry,
decrease in the ratio of collateral values to loans and any prior write downs on
loans. The above considerations are all used in determining whether the Company
should suspend recording interest income on any notes receivable or provide for
any loss reserves.

Purchases of Medical Insurance Claims: The Company purchases the net collectible
value of medical insurance claims, on a limited recourse basis. The recourse
basis is limited to the extent any receivables purchased by the Company are
disputed and/or referred to arbitration proceedings. Such receivables are deemed
to be invalid and are immediately substituted. The Company is still entitled to
the collection of its fees from customers regardless of whether the underlying
accounts receivable are collectible or invalid.

Upon full collection of the advance paid in connection with the purchased
medical insurance claims and the related fee, the contracts allow for accounts
receivable that are determined to be invalid and remain unpaid for a specified
period of time to be returned (charged back) to the customer. The charge back
will also reduce the amount due to the customer.

Management's periodic evaluation of the adequacy of the allowance for loan
losses is based on the Company's past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the customer's
ability to repay, the estimated value of any underlying collateral and current
economic conditions.





                                      F-11
<PAGE>   30
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INVENTORIES

Inventories, consisting of food and supplies are stated at the lower of cost or
market. Amounts are relieved from inventory using the first in, first out
("FIFO") basis.

DEPRECIATION AND AMORTIZATION

Depreciation of property and equipment is provided by application of the
straight-line method over estimated useful lives as follows:

<TABLE>
<S>                                                                    <C>     
      Buildings                                                        39 years
      Land improvements                                                15 years
      Restaurant equipment and furniture                                7 years
      Computer and transportation equipment                             5 years
</TABLE>

Amortization of leasehold improvements is provided by the application of the
straight-line method over the shorter of their estimated useful lives or the
terms of the related leases and range from 3 to 22 years.

REAL ESTATE HELD FOR DEVELOPMENT AND SALE

Properties are carried at the lower of acquisition cost or market, less the
costs to sell. The methods for valuing property and mortgages where current
appraisals are unobtainable are based on management's best judgments 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. Such judgments are based on management's
knowledge of real estate markets in general and of sale or rental prices of
comparable properties in particular.

LEASES AND LEASEHOLD COSTS

Leases which transfer substantially all of the risk 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 amortized in the same manner as owned assets are
depreciated. Interest expenses relating to the lease liabilities is recorded to



                                      F-12
<PAGE>   31
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

The Company has capitalized the applicable leasehold costs related to acquiring
the leases for its various restaurants and is amortizing them over the terms of
the applicable leases ranging from 10 to 20 years.

TECHNICAL ASSISTANCE FEES

Technical assistance fees represent initial franchise fees paid to Wendy's
International at the inception of each franchised location and are amortized on
a straight-line basis over the term of the related franchises, ranging from 15
to 20 years.

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 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.

CONCENTRATION OF RISK

Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash, money market mutual funds, commercial
paper and trade and notes receivable.

As of February 28, 1998, the Company had cash in bank balances totaling
approximately $780,000 located at one bank, under four different accounts. In
addition, the Company held approximately $200,000 in an uninsured money market
mutual fund.




                                      F-13
<PAGE>   32
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

All trade receivables arise from the purchase from several medical providers in
the New York City area of their insurance claims from various insurance
companies. For the year ended February 28, 1998, two customers comprised 46% and
30%, respectively, of earned fees. For the year ended February 28, 1997, four
customers comprised 30%, 22%, 13% and 12%, respectively, of earned fees. For the
year ended February 29, 1996, two customers comprised 62% and 38%, respectively,
of earned fees. As of February 28, 1998 and 1997, two insurance companies each
comprised approximately 20% of insurance claims receivable.

All note receivables are from the sale of real estate in New York and
Connecticut (see Note 3).

ADVERTISING COSTS

The Company expenses the cost of advertising as incurred. For the years ended
February 28, 1998, 1997 and February 29, 1996, advertising expense totaled
approximately $1,094,000, $985,000 and $870,000, respectively.

FINANCIAL INSTRUMENTS

The Company believes that the carrying amount of cash and cash equivalents,
mortgages and notes receivable (see Note 3), finance receivables, other assets,
accounts payable, due to finance customers, debt and other liabilities
approximate fair value. Fair value has been determined by management estimates.

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.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the current year
presentation.




                                      F-14
<PAGE>   33
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

 3.   REAL ESTATE ACTIVITIES

SALE OF REAL ESTATE

The following summarizes the Company's sales of real estate:

<TABLE>
<CAPTION>
                                                                                YEAR ENDED
                                             YEARS ENDED FEBRUARY 28            FEBRUARY 29
                                               1998              1997               1996
                                            ----------       -----------        -----------
Goshen, New York:
<S>                                         <C>              <C>                <C>        
  Sales proceeds                            $       --       $ 2,014,950        $   484,400
  Cost basis                                        --          (561,304)           (77,776)
                                            ----------       -----------        -----------
  Gross profit                                      --         1,453,646            406,624
  Gross profit (deferred)                           --        (1,343,261)          (376,252)
                                            ----------       -----------        -----------
Income recognized                                   --           110,385             30,372
                                            ----------       -----------        -----------

Granby, Connecticut:
  Sales proceeds                                    --                --          4,800,000
  Cost basis                                        --                --         (2,057,725)
  Adjustment to cost                            40,719                --                 --
                                            ----------       -----------        -----------
  Gross profit                                  40,719                --          2,742,275
  Gross profit (deferred) recognized         1,892,275                --         (2,742,275)
  Proceeds from sale of lease                  150,000                --                 --
                                            ----------       -----------        -----------
Income recognized                            2,082,994                --                 --
                                            ----------       -----------        -----------

Sales proceeds of other real estate             42,702           602,800            226,360
                                            ----------       -----------        -----------

Total income from sale of real estate       $2,125,696       $   713,185        $   256,732
                                            ==========       ===========        ===========
</TABLE>

GOSHEN, NEW YORK

The Company acquired its property in Goshen, New York through the foreclosure of
two mortgages it held. During 1996, the Company sold 32 of the 165 lots on the
property for $484,400. During fiscal year 1997, the Company sold the remaining
lots for $2,014,950.





                                      F-15
<PAGE>   34
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

3. REAL ESTATE ACTIVITIES (CONTINUED)

The consideration received on this sale did not satisfy the initial investment
criteria to use the full accrual method of profit recognition. The sale was
accounted for using the installment method, resulting in the deferral of income
until the initial and continuing investment criteria is sufficient (See Note 2).
The installment method was used since recovery of the cost of the property is
reasonably assured if the buyer defaults on the mortgage receivable.

The profit from the sale of this property is $1,860,270, of which $110,385 and
$30,372 was recognized in fiscal years 1997 and 1996, respectively, resulting in
a deferred profit of $1,719,513 at February 28, 1998.

In addition, the Company received additional contingent consideration on the
sale in the form of a purchase money debenture in the amount of $2,499,750,
contingent on the sale of the single family residences to be built on the 165
lots which were sold. This purchase money debenture matures on February 28, 2002
and bears interest at a rate of 6% per annum. The Company has not included any
amounts in its financial statements relating to this purchase money debenture or
its related interest since its collectibility is contingent on the profitable
sale of the single family residences to be built.

This transaction and the related note receivable was with Windemere Pines at
Goshen, Inc., a part of the Windemere Group of construction companies, in which
Jed Shutz, a director of Nexus, is an officer, director and shareholder. It is
management's opinion that this transaction would be at the same terms had the
parties not been related.

GRANBY, CONNECTICUT

The Company acquired this partially built office building in Granby, Connecticut
as a result of the foreclosure of the first mortgage on the property of
approximately $1,000,000. In fiscal year 1994, the Company wrote down its
investment in the property to $900,000 to reflect the then market value of the
property.





                                      F-16
<PAGE>   35
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

3. REAL ESTATE ACTIVITIES (CONTINUED)

This property was sold to a limited liability company, of which certain members
are shareholders in the Company, in fiscal year 1996 for $4,800,000. The terms
of the sale provided that the Company complete construction of the building and
provide a tenant for the unoccupied portion of the building. To provide the
tenant, the Company entered into a sales-leaseback transaction with the buyer.
The Company also guaranteed the first mortgage of the buyer-lessor and sublet
the unoccupied space it leased from the buyer. The Company's continuing
involvement with the property precluded the use of full accrual accounting and,
accordingly, no sale was recognized at that time.

During fiscal years 1996, 1997 and a portion of 1998, the Company used the
financing method to report this transaction. The historical cost of the asset
remained on the Company's books and was being depreciated. The proceeds of the
sale were recorded as a finance obligation at a rate of 8.25%. Rental payments
to the buyer-lessor were treated as a reduction in the finance obligation.

In December 1997, the buyer of the property refinanced the first mortgage,
eliminating the Company's guarantee. In addition, in January 1998, the Company
sold for $120,000 the term of its lease on the property to the buyer and was
released of all obligations on its lease through August 31, 2002. The Company
has a lease for the period September 1, 2002 through February 28, 2006 which
specifies rental payments aggregating $1,482,194, the present value of which was
been provided for at February 28, 1998 as a reduction of the gain recognized.

In January 1998, the Company recorded the sale under the accrual method of
accounting since its continuing involvement with the property was terminated.
The Company recorded a gain on the sale of the property of $1,932,994.

The sale of this property includes a second mortgage receivable from the buyer.
Upon full collection of the receivable, an additional liability will be payable
to the co-investors of the original mortgage for approximately $70,000. If the
second mortgage is not collected in full, an amount substantially less will be
paid. An accrual has been provided for this amount.





                                      F-17
<PAGE>   36
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

3. REAL ESTATE ACTIVITIES (CONTINUED)

OTHER REAL ESTATE SALES

The Company sold ten other properties during the three year period ended
February 28, 1998 for various amounts as part of the operations of the real
estate division.

MORTGAGES AND NOTES RECEIVABLE

Mortgages and notes receivable, arising from the sale of real estate, consist of
the following:

<TABLE>
<CAPTION>
                                                          FEBRUARY 28
                                                    1998               1997
                                                 -----------        -----------
<S>                                              <C>                <C>        
Goshen, New York (Construction Company)          $ 2,310,000        $ 2,310,000
Granby, Connecticut (Real Estate Operator)         1,078,032                 --
Pound Ridge, New York (Individual)                        --            150,000
Middletown, Connecticut (Individual)                      --             43,236
                                                 -----------        -----------
                                                   3,388,032          2,503,236
Less current portion                                 (22,232)           (81,202)
Less unrealized loss on mortgage and
notes receivable                                    (162,202)                --
                                                 -----------        -----------
                                                 $ 3,203,598        $ 2,422,034
                                                 ===========        ===========
</TABLE>

These mortgages and notes have various terms for payments of principal and
interest and are collateralized by the underlying real estate. These mortgages
and notes bear interest ranging from 6% to 9%, and mature as follows:

<TABLE>
FISCAL YEAR
<S>                                    <C>    
1999                                              $22,232
2000                                               24,317
2001                                               26,598
2002                                            2,339,093
2003                                               31,822
Thereafter                                        943,970
                                        ==================
                                               $3,388,032
                                        ==================
</TABLE>




                                      F-18
<PAGE>   37
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

3. REAL ESTATE ACTIVITIES (CONTINUED)

In fiscal 1998, the Company recorded an unrealized loss of $162,202 on its
mortgage note receivable from the sale of its property in Goshen, New York, to
reflect the Company's estimate of the fair value (estimated using a discount
rate of 7.5%) of the 6% mortgage note receivable. The unrealized loss on this
available-for-sale security has been reflected as an adjustment to stockholders'
equity in the accompanying financial statements.

As of February 28, 1998 and 1997, all notes receivable were performing. There is
no allowance for loss because the market value of the collateral, less costs to
sell is greater than the related notes receivable. There is no known information
about possible credit problems of debtors which would cause management to have
serious doubts as to the ability of such debtors to comply with the present note
repayment terms.

The Granby note receivable is being used as collateral for a line of credit (see
Note 6).

REAL ESTATE HELD FOR DEVELOPMENT AND SALE

The following properties are included in real estate held for development and
sale:

<TABLE>
<CAPTION>
                                         FEBRUARY 28
                                  1998               1997
                               -----------        -----------
<S>                            <C>                <C>        
Hunter, New York               $ 1,103,897        $ 1,097,897
Brookfield, Connecticut            486,548            476,472
                               -----------        -----------
                                 1,590,445          1,574,369
Less due to co-investors          (215,000)          (145,000)
                               -----------        -----------
                               $ 1,375,445        $ 1,429,369
                               ===========        ===========
</TABLE>

The Hunter property is located at the base of Hunter Mountain in Greene County,
New York, and includes approximately 120 acres of undeveloped land, eight
condominium units available for sale or rental, two building sites, a clubhouse
with a recreational facility and a sewage treatment plant for the development.
This property has been acquired through foreclosure and has been written down to
its fair market value.

The property in Brookfield, Connecticut is comprised of two parcels of land
zoned for commercial use.




                                      F-19
<PAGE>   38
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

4. FINANCE RECEIVABLES, NET

Net finance receivables consist of the following:

<TABLE>
<CAPTION>
                                           FEBRUARY 28
                                     1998               1997
                                  -----------        -----------
<S>                               <C>                <C>        
Gross finance receivables         $ 2,083,043        $ 1,511,463
Allowance for credit losses           (72,866)          (145,218)
Deferred finance income              (227,490)          (127,354)
                                  -----------        -----------
Finance receivables, net          $ 1,782,687        $ 1,238,891
                                  ===========        ===========
</TABLE>

These receivables are collateralizing a line of credit (see Note 6).

5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                             FEBRUARY 28
                                                        1998             1997
                                                     ----------       ----------
<S>                                                  <C>              <C>       
Land (a)                                             $  740,000       $  920,000
Land improvements                                       327,664          296,600
Buildings (a)                                           821,078        2,377,790
Restaurant equipment                                  2,761,034        2,571,281
Leasehold improvements                                  834,864          683,210
Computer equipment                                      105,052           47,985
Equipment under capital leases                          243,940          218,803
Transportation equipment and furniture                   16,772            3,800
                                                     ----------       ----------
                                                      5,850,404        7,119,469
Less accumulated depreciation and amortization        2,310,626        1,960,709
                                                     ----------       ----------
Property and equipment, net                          $3,539,778       $5,158,760
                                                     ==========       ==========
</TABLE>

(a) -- Fiscal year 1997 amounts include an office building and land sold in
fiscal year 1998.

As of February 28, 1998 and 1997 accumulated amortization of equipment under
capital leases was $92,398 and $57,480, respectively.




                                      F-20
<PAGE>   39
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

6. NOTES PAYABLE

Notes payable include the following:

<TABLE>
<CAPTION>
                                        FEBRUARY 28
                                   1998             1997
                                ----------       ----------
<S>                             <C>              <C>       
Mortgage on real estate         $1,632,080       $1,662,171
Bank -- term                       393,358          460,570
Bank -- credit line                     --          100,000
Related party credit line          434,600               --
Capital lease obligations          141,126          155,545
Purchase money note                 19,281           28,219
                                ----------       ----------
                                 2,620,445        2,406,505
Less current maturities            228,578          244,441
                                ----------       ----------
Long-term debt                  $2,391,867       $2,162,064
                                ==========       ==========
</TABLE>

Mortgage on Real Estate: In June 1996, a mortgage of $1,680,000 was obtained to
finance the purchase of the land and buildings of four restaurants leased from
Wendy's International. The mortgage bears interest at a rate of 9.25%, and is
payable in 60 monthly installments of $15,387 including principal and interest
calculated on a 20 year amortization basis, with the balance ($1,515,618)
payable at that time. The loan is secured by a first deed of trust on the land
and equipment at the four restaurants and is guaranteed by Wendclark's three
executive officers. The loan agreement includes various covenants relating to
the operation of Wendclark, including compliance with certain financial ratios,
restrictions on Wendclark dividends, management fees and the sale of Wendclark's
outstanding capital stock. At December 31, 1997, undistributed earnings
available for distribution to the parent were $601,375.

Bank-term: The term bank loans are due in 2000-2005 and bear interest at the
bank's prime rate plus 1% (9.5% at February 28, 1998). One such term loan, with
an outstanding balance of $237,500, is secured by the inventory, furniture,
fixtures and equipment of Wendcello, and is guaranteed by three officers of that
subsidiary.


                                      F-21
<PAGE>   40
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


6. NOTES PAYABLE (CONTINUED)

Bank-credit line: Medical Financial Corp. had a bank line of credit bearing
interest at 1.5% over the bank's prime rate. There were no commitment fees paid
in connection with this line of credit. This line was terminated in August 1997.

Related party credit line: In December 1997, a $700,000 line of credit was
obtained from a related party, Northwest Management Corp., a shareholder of the
Company. The president of Northwest Management Corp., Lester Tanner, who is also
a shareholder of the Company, has the power to vote its shares which are owned
by his two children. The line, under which $434,600 was outstanding at February
28, 1998, expires at the earliest of (i) payment in full of the second mortgage
receivable from the sale of the Granby property, (ii) February 28, 2001 or (iii)
on mutual agreement of the Company and Northwest Management Corp., with final
maturity on October 31, 2002. Interest is calculated at a rate of 12% per annum.
Monthly payments are due for interest and principal in an amount that amortizes
the balance in full over the remaining life of the line. There were no
commitment fees paid in connection with this line of credit.

The line has a joint and several obligation of the Company and its subsidiary,
Medical Financial Corp. The line is collateralized by a second mortgage
receivable in Granby, Connecticut (see Note 3) and the purchased insurance
claims receivable of Medical Financial Corp. (see Note 4) equal to at least 200%
of the principal sum outstanding under the line. Interest expense on this note
was $27,814 for the year ended February 28, 1998.

Subsequent to year end, the Company prepaid $225,000 on their outstanding
balance.

Capital lease obligations: The Company has acquired certain equipment under
capital leases expiring in 2003. The leases provide for monthly payments of
principal and interest of $4,983 and have been capitalized at imputed interest
rates of 9.37% to 16.72%.

Purchase Money Note: The purchase money note, secured by a deed of trust on
certain restaurant land, is due April 1, 1999 and bears interest at 5% per
annum.


                                      F-22
<PAGE>   41
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


6. NOTES PAYABLE (CONTINUED)

Aggregate maturities of the amount of notes payable and capital leases at
February 28, 1998 is as follows:


<TABLE>
<CAPTION>
                                           NOTES      CAPITAL LEASE
                                          PAYABLE      OBLIGATIONS       TOTAL
                                        ----------    -------------   ----------
<S>                                     <C>            <C>            <C>       
1999                                    $  182,076     $   59,800     $  241,876
2000                                       198,230         59,800        258,030
2001                                       291,647         34,564        326,211
2002                                     1,640,853          7,265      1,648,118
2003                                       124,480          5,449        129,929
Thereafter                                  42,033             --         42,033
                                        ----------     ----------     ----------
                                         2,479,319        166,878      2,646,197
Amount representing interest                    --         25,752         25,752
                                        ----------     ----------     ----------
Total (a)                               $2,479,319     $  141,126     $2,620,445
                                        ==========     ==========     ==========
</TABLE>

(a) -- Total capital lease obligations represent present value of minimum lease
payments.

7. RELATED PARTY TRANSACTIONS

MANAGEMENT AGREEMENTS

The day-to-day operations of Wendcello and Wendclark are managed under
management agreements with Cello and Clark Management Corps., respectively. The
management companies are affiliated with the Company 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 Wendcello and Wendclark. The management
agreements took effect upon the purchase of the restaurants and are to remain in
effect as long as Wendcello and Wendclark continue to own the restaurants.


                                      F-23
<PAGE>   42
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


7. RELATED PARTY TRANSACTIONS (CONTINUED)

The management agreements provide for a basic fee based on a percentage of
pre-tax cash flow, as defined (30% for Wendcello and 40% for Wendclark). The
management fees were $136,000 in 1998, $68,600 in 1997 and $117,500 in 1996. The
management agreements further provide for incentive fees equal to 30% for
Wendcello and 40% for Wendclark of the pre-tax proceeds of the sale or
refinancing of any assets owned or later acquired by Wendcello and Wendclark,
less any amounts used to buy replacement assets or to pay off any refinanced
obligations. No incentive fees were paid during the three year period ended
February 28, 1998. The management agreements provide for the management
companies to participate with the Company in financing the subsidiaries under
certain circumstances.

TRANSACTIONS WITH SHAREHOLDERS

See Note 3 for certain related party transactions with shareholders.

8. COMMITMENTS AND CONTINGENCIES

FRANCHISE AGREEMENT COMMITMENTS

The food service subsidiaries are the franchisees for the 16 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.

MINIMUM OPERATING LEASE COMMITMENTS

The food service subsidiaries entered into various leases for its restaurants
containing clauses relating to real estate taxes, common charges, renewal and
percentage rent with certain minimum payments.


                                      F-24
<PAGE>   43
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


8. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Rent expense for these restaurants, were as follows:

<TABLE>
<CAPTION>
                                            YEARS ENDED               YEAR ENDED
                                            FEBRUARY 28               FEBRUARY 29
                                       1998             1997             1996
                                    ----------       ----------       -----------
<S>                                 <C>              <C>              <C>       
Base rentals                        $  763,423       $  729,000       $  665,750
Contingent rentals                     261,961          277,607          324,717
                                    ----------       ----------       ----------
Total                               $1,025,384       $1,006,607       $  990,467
                                    ==========       ==========       ==========
</TABLE>

In June 1996, the division exercised its option to purchase the land and
buildings of the four restaurants it was leasing from Wendy's International for
$1,680,000. The purchase option agreement required Wendy's International to be
given the right of first refusal, for a period of 20 years, in the event the
properties are resold.

In December 1997, Nexus signed a lease extension for its executive offices under
a three year lease expiring on February 28, 2001.

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:

<TABLE>
<S>                                                               <C>       
Year ending February:
    1999                                                          $  806,730
    2000                                                             810,351
    2001                                                             809,054
    2002                                                             750,078
    2003                                                             719,578
    Thereafter                                                     5,404,829
                                                                  ----------
Total                                                             $9,300,620
                                                                  ==========
</TABLE>

There are various commitments and contingencies relating to the sale of real
estate (see Note 3).


                                      F-25
<PAGE>   44
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


8. COMMITMENTS AND CONTINGENCIES (CONTINUED)

LITIGATION

The Yolo Capital subsidiary ("Yolo") filed an action against the former
management for breach of management agreements and for conversion of monies
resulting from cutting wood on its property in Hunter, New York. The defendants
have counterclaimed against Yolo for breach of contract, interference with
contract, conversion and conspiring to interfere with their contracts. The
defendants are seeking damages amounting to over $2,000,000, and have asserted a
claim to the right of ownership of the property. Yolo's legal counsel believes
that the counterclaims will be dismissed. The property at Hunter is under lien
until this matter is settled. A trial date has been set for June 1998.

PSI LITIGATION

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 $.50 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.

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 (such shares were delivered on August 12,
1996) 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.


                                      F-26
<PAGE>   45
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


8. COMMITMENTS AND CONTINGENCIES (CONTINUED)

At the present time, PSI is indebted to (i) the United States Department of
Education 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. As a result
of the Stipulation described above, the Company believes it is not responsible
for the obligations of PSI.

9. INCOME TAXES

The provision (benefit) for income taxes consist of the following:

<TABLE>
<CAPTION>
                                            YEARS ENDED                 YEAR ENDED
                                            FEBRUARY 28                FEBRUARY 29
                                       1998             1997              1996
                                     --------         --------         -----------
<S>                                  <C>              <C>              <C>     
Current:
    Federal                          $     --         $     --          $     --
    State                              70,979           76,288            14,637
                                     --------         --------          --------
Total current                          70,979           76,288            14,637
                                     --------         --------          --------

Deferred:
    Federal                                --               --                --
    State                              78,153          (64,218)           13,611
                                     --------         --------          --------
Total deferred                         78,153          (64,218)           13,611
                                     --------         --------          --------

Total                                $149,132         $ 12,070          $ 28,248
                                     ========         ========          ========
</TABLE>

Nexus filed consolidated federal tax returns 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 are not filing
consolidated tax returns with PSI. Nexus and its subsidiaries are filing
individual federal tax returns for the period beginning August 13, 1996 and
ending February 28, 1997. Subsequent to February 28, 1997, Nexus and its
subsidiaries are filing consolidated federal tax returns.


                                      F-27
<PAGE>   46
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


9. INCOME TAXES (CONTINUED)

Significant components of deferred tax assets (liabilities) were as follows:

<TABLE>
<CAPTION>
                                            FEBRUARY 28             FEBRUARY 29
                                        1998            1997            1996
                                    -----------     -----------     -----------
<S>                                 <C>             <C>             <C>        
Tax loss carryforwards              $   314,773     $   218,743     $ 1,889,126
Property, plant and equipment                --              --              --
Installment sale of real estate              --          63,188           1,996
                                    -----------     -----------     -----------
                                        314,773         281,931       1,891,122
Less valuation allowance               (314,773)       (218,743)     (1,889,126)
                                    -----------     -----------     -----------
Deferred tax assets                 $        --     $    63,188     $     1,996
                                    ===========     ===========     ===========

Installment sale of real estate     $   (12,656)    $        --     $        --
Property, plant and equipment            (8,073)         (5,764)         (8,790)
                                    ===========     ===========     ===========

Deferred tax liabilities            $   (20,729)    $    (5,764)    $    (8,790)
                                    ===========     ===========     ===========
</TABLE>

The following is a reconciliation of the statutory federal and effective income
tax rates for the years ended:

<TABLE>
<CAPTION>
                                                        FEBRUARY 28        FEBRUARY 29
                                                      1998       1997         1996
                                                     ---------------------------------
                                                      % OF       % OF         % OF
                                                     PRETAX     PRETAX       PRETAX
                                                     INCOME     INCOME       INCOME
                                                     ---------------------------------
<S>                                                  <C>        <C>          <C>    
Statutory federal income tax expense rate             34.0%     (34.0%)      (34.0%)
Valuation allowance against NOL                                           
    carryforwards                                    (34.0)      34.0         34.0
State taxes, less federal tax effect                  10.2        1.0         14.2
                                                     -----      -----        -----
                                                      10.2%       1.0%        14.2%
                                                     =====      =====        =====
</TABLE>

As required under SFAS No. 109, the Company must provide for the future benefits
of its net operating loss ("NOL") carryforwards. The Company has net operating
loss carryforwards for federal purposes of approximately $925,000. These losses
will be available for future years, expiring through February 28, 2013. The
Company, however, has taken a 100% valuation allowance against federal NOL
carryforwards due to a history of operating tax losses and the uncertainty of
generating taxable income in the foreseeable future.


                                      F-28
<PAGE>   47
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


10. TRANSFER OF ASSETS FROM PARENT

Pursuant to a Court Order, the following assets and subsidiaries were
transferred from PSI to Nexus during the year ended February 29, 1996:

<TABLE>
<S>                                                                   <C>       
Shares of PSI subsidiaries                                            $  534,419
Cash value of officers' life insurance                                    58,875
Real estate held for development and sale                                869,413
Miscellaneous receivables                                                 24,924
                                                                      ----------
                                                                      $1,487,631
                                                                      ==========
</TABLE>

These assets were transferred at historical cost. The fair market value at the
time of transfer was greater than or equal to the historical cost.

11. EXTRAORDINARY ITEM

During fiscal year 1998, the Company realized an extraordinary gain, net of fees
of $91,674, as a result of the extinguishment of certain debts. There was no
related tax effect since this occurred as a result of a discharge in bankruptcy
of a subsidiary of the Company.


                                      F-29
<PAGE>   48
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


12. BUSINESS SEGMENT INFORMATION

The following provides segment information for the industries in which the
Company operates:

<TABLE>
<CAPTION>
                                               FOOD             REAL          MEDICAL
                                              SERVICE          ESTATE        FINANCING          TOTAL
                                           ------------     -----------    ------------     ------------
<S>                                        <C>              <C>            <C>              <C>         
1998
Total revenue                              $ 16,703,700     $ 2,408,775    $    773,474     $ 19,885,949
                                           ============     ===========    ============     ============
Income (loss) from operations
  before corporate expenses                $    538,326     $ 1,576,029    $    (71,035)    $  2,043,320
                                           ============     ===========    ============ 
Corporate expenses                                                                               182,729
Interest expense, net                                                                            395,042
                                                                                            ------------
Income before provision for taxes
  and extraordinary item                                                                    $  1,465,549
                                                                                            ============
Identifiable assets                        $  5,079,084     $ 5,805,306    $  2,129,690     $ 13,014,080
                                           ============     ===========    ============     ============
Capital expenditures                       $    425,170     $   570,653    $     73,933     $  1,069,756
                                           ============     ===========    ============     ============
Depreciation and amortization              $    467,119     $    54,885    $     18,424     $    540,428
                                           ============     ===========    ============     ============

1997
Total revenue                              $ 16,263,323     $   819,628    $    216,521     $ 17,299,472
                                           ============     ===========    ============     ============
Income (loss) from operations
  before corporate expenses                $    248,483     $  (950,189)   $     31,929     $   (669,777)
                                           ============     ===========    ============
Corporate expenses                                                                               298,291
Interest expense, net                                                                            278,871
                                                                                            ------------
Loss before provision for taxes                                                             $ (1,246,939)
                                                                                            ============
Identifiable assets                        $  4,965,638     $ 7,226,689    $  1,469,898     $ 13,662,225
                                           ============     ===========    ============     ============
Capital expenditures                       $  2,056,264     $        --    $     18,853     $  2,075,117
                                           ============     ===========    ============     ============
Depreciation and amortization              $    532,909     $    63,512    $      3,777     $    600,198
                                           ============     ===========    ============     ============

1996
Total revenue                              $ 14,536,291     $   292,502    $    253,857     $ 15,082,650
                                           ============     ===========    ============     ============
Income (loss) from operations 
  before corporate expenses                $    (47,435)    $  (150,620)   $    109,790     $    (88,265)
                                           ============     ===========    ============
Corporate expenses                                                                               123,455
Interest (income) expense, net                                                                   (12,996)
                                                                                            ------------
Loss before provision for taxes                                                             $   (198,724)
                                                                                            ============
Identifiable assets                        $  3,491,533     $ 5,462,935    $    586,487     $  9,540,955
                                           ============     ===========    ============     ============
Capital expenditures                       $    797,207     $        --    $         --     $    797,207
                                           ============     ===========    ============     ============
Depreciation and amortization              $    437,210     $        --    $         --     $    437,210
                                           ============     ===========    ============     ============
</TABLE>

All revenue is generated in the eastern portion of the United States.


                                      F-30
<PAGE>   49
                        FRM Nexus, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


12. BUSINESS SEGMENT INFORMATION (CONTINUED)

For the year ended February 28, 1998, net sales of the real estate division
included $1,932,994 of income due to changing from the financing method to the
full accrual method of accounting for the sale of real estate in Granby,
Connecticut.

13. STOCK SPLIT

On May 14, 1998, the Company declared a common stock dividend of one common
share for every two common shares owned of record on June 24, 1998. The
accompanying financial statements give retroactive effect to this stock
dividend.


                                      F-31
<PAGE>   50
                         MICHAEL, ADEST & BLUMENKRANTZ
                  --------------------------------------------
                       CERTIFIED PUBLIC ACCOUNTANTS, P.C.


                                SEVEN PENN PLAZA
                           NEW YORK, NEW YORK, 10001
                         212-563-2525 FAX 212-563-3549
                          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, respectively, and total revenues of
$16,263,323, $14,536,291 and $14,523,900 for each of the three years in the
period ended February 28, 1997. 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
 (Except for Note 9B, as to which the date is June 20, 1997)               















                                      F-32
<PAGE>   51
                                                     [Eric L. Weston Letterhead]


                          INDEPENDENT AUDITOR'S REPORT
                          ----------------------------

The Board of Directors
Wendclark Corp.
27 Central Avenue
Cortland, New York 13045


     I have audited the accompanying balance sheet of Wendclark Corp. (an
indirect wholly-owned subsidiary of Programming and Systems, Incorporated) as
of February 23, 1997 and February 25, 1996, and the related statements of
income, stockholder's equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.

     I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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. I believe that my audit provides a reasonable basis for
my opinion.

     In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wendclark Corp. as of
February 23, 1997 and February 25, 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.


                                                  /s/ Eric L. Weston

                                                  CERTIFIED PUBLIC ACCOUNTANT



Westbury, New York
March 25, 1997

















                                      F-32A
<PAGE>   52
                                                     [ERIC L. WESTON LETTERHEAD]


                          INDEPENDENT AUDITOR'S REPORT
                          ----------------------------


The Board of Directors
Wendcello Corp.
27 Central Avenue
Cortland, New York 13045


     I have audited the accompanying balance sheet of Wendcello Corp. (an
indirect wholly-owned subsidiary of Programming and Systems, Incorporated) as
of February 23, 1997 and February 25, 1996, and the related statements of
operations, stockholder's equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.

     I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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. I believe that my audit provides a reasonable basis for
my opinion.

     In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wendcello Corp. as of
February 23, 1997 and February 25, 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.

                                                  /s/ Eric L. Weston

                                                  CERTIFIED PUBLIC ACCOUNTANT




Westbury, New York
March 25, 1997





















                                      F-32B
<PAGE>   53
                         MICHAEL, ADEST & BLUMENKRANTZ
                       ----------------------------------
                       CERTIFIED PUBLIC ACCOUNTANTS, P.C.


                                SEVEN PENN PLAZA
                            NEW YORK, NEW YORK 10001
                         212-563-2525 FAX 212-563-3549

                        INDEPENDENT AUDITORS' REPORT ON
                           SUPPLEMENTARY INFORMATION
         REQUIRED BY RULE 5-04 OF REGULATION S-X OF THE SECURITIES AND
                              EXCHANGE COMMISSION

FRM Nexus, Inc. and Subsidiaries
Board of Directors and Stockholders


We have audited the financial statements of FRM Nexus, Inc. and Subsidiaries as
of February 28, 1997 and February 29, 1996 and for each of the three years in
the period ended February 28, 1997 and have issued our report thereon dated May
9, 1997. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information contained in Schedules
II, III and IV on the following pages are presented for purposes of additional
analysis and is not a required part of the basic financial statements, but is
supplementary information required by rule 5-04 of Regulation S-X of the
Securities and Exchange Commission. Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.



                                             /s/ Michael, Adest & Blumenkrantz

                                             Michael, Adest & Blumenkrantz
                                             Certified Public Accountants, P.C.




May 9, 1997





















                                      F-32C
<PAGE>   54
                        FRM Nexus, Inc. and Subsidiaries

                   Consolidated Financial Statement Schedules

                                February 28, 1998




SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
         COLUMN A                COLUMN B                COLUMN C                    COLUMN D       COLUMN E 
       -----------             ------------     ----------------------------        ----------      ---------
                                                        ADDITIONS              
                                  BALANCE       CHARGED TO        CHARGED TO                         BALANCE
                               AT BEGINNING      COSTS AND      OTHER ACCOUNTS                       AT END
       DESCRIPTION               OF PERIOD       EXPENSES          DESCRIBED        DEDUCTIONS      OF PERIOD
       -----------             ------------     ----------      --------------      ----------      ---------
<S>                            <C>             <C>              <C>               <C>               <C>     
FEBRUARY 29, 1996                                                                
Allowance for credit losses      $145,218       $       --        $       --        $       --      $145,218
                                 ========       ==========        ==========        ==========      ========
                                                                                                  
FEBRUARY 28, 1997                                                                                 
Allowance for credit losses      $145,218       $       --        $       --        $       --      $145,218
                                 ========       ==========        ==========        ==========      ========
                                                                                                  
FEBRUARY 28, 1998                                                                                 
Allowance for credit losses      $145,218       $       --        $       --        $   72,352      $ 72,866
                                 ========       ==========        ==========        ==========      ========
</TABLE>


                                      F-33
<PAGE>   55
1                        FRM Nexus, Inc. and Subsidiaries

                   Consolidated Financial Statement Schedules

                                February 28, 1998

SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION

<TABLE>
<CAPTION>
         COLUMN A            COLUMN B           COLUMN C                    COLUMN D                        COLUMN E                
         --------            --------           --------                    --------                        --------                

                                                                   COST CAPITALIZED SUBSEQUENT     GROSS AMOUNT AT WHICH CARRIED
                                         INITIAL COST TO COMPANY         TO ACQUISITION                 AT CLOSE OF PERIOD          
                                         -----------------------     ------------------------   ------------------------------------
                                                      BUILDINGS                                             BUILDINGS               
                                                         AND                                                   AND                  
                             ENCUM-                    IMPROVE-      IMPROVE-      CARRYING                  IMPROVE-               
       DESCRIPTIONS          BRANCES        LAND        MENTS          MENTS         COST         LAND        MENTS        TOTAL    
------------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>          <C>          <C>            <C>           <C>          <C>         <C>           <C>
Partial investment in                                              
  condominium development;                                         
  Hunter, NY                $       --   $       --   $1,097,897     $    6,000    $       --   $       --   $1,103,897   $1,103,897
Unimproved land;                                                   
  Brookfield, CT                    --      426,579           --             --        59,969      486,548           --      486,548
                            --------------------------------------------------------------------------------------------------------
Total                       $       --   $  426,579   $1,097,897     $    6,000    $   59,969   $  486,548   $1,103,897   $1,590,445
                            ========================================================================================================

<CAPTION>
         COLUMN A              COLUMN F      COLUMN G     COLUMN H       COLUMN I     
         --------              --------      --------     --------       --------     
                                                                                      
                                                                                      
                                                                      LIFE ON WHICH   
                                                                      DEPRECIATION    
                                                                        IN LATEST     
                                                                         INCOME       
                              ACCUMULATED     DATE OF        DATE      STATEMENTS     
       DESCRIPTIONS           DEPRECIATION  CONSTRUCTION   ACQUIRED    IS COMPUTED    
-----------------------------------------------------------------------------------   
<S>                           <C>           <C>            <C>        <C>
Partial investment in                                                                 
  condominium development;                                                            
  Hunter, NY                    $     --            --     2/29/96       N/A          
Unimproved land;                                                                      
  Brookfield, CT                      --            --     5/11/92                    
                            -------------------------------------------------------   
Total                           $     --                                 N/A          
                            =======================================================   
</TABLE>

The following is a reconciliation of the total amount at which real estate was
carried for the years ended:
 
<TABLE>
<CAPTION>
                                               FEBRUARY 28,                   FEBRUARY 28,                    FEBRUARY 29,
                                                  1998                           1997                            1996
                                        -------------------------    ----------------------------    ---------------------------
<S>                                     <C>           <C>            <C>             <C>             <C>            <C>
Balance at beginning of period                        $ 1,574,369                    $  2,246,360                   $  2,287,975
Additions during period:
  Acquisition through foreclosure       $       --                   $         --                    $        --                
  Other acquisitions                            --                         25,000                      1,072,897                
  Improvements, etc                          6,000                             --                             --                
  Capitalized carrying costs                10,076         16,076          24,334          49,334         22,400       1,095,297
                                        ----------    -----------    ------------    ------------    -----------    ------------
                                                        1,590,445                       2,295,694                      3,383,272
Deductions during period:
  Cost of real estate sold                      --                        721,325                      1,136,912                
  Other (describe)                              --                             --                             --                
                                        ----------                   ------------                    -----------                
                                                               --                         721,325                      1,136,912
                                                      -----------                    ------------                   ------------
Balance at close of period                            $ 1,590,445                    $  1,574,369                   $  2,246,360
                                                      ===========                    ============                   ============
</TABLE>


                                      F-34
<PAGE>   56
                        FRM Nexus, Inc. and Subsidiaries

                   Consolidated Financial Statement Schedules

                                February 28, 1998

SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE

<TABLE>
<CAPTION>
             COLUMN A            COLUMN B    COLUMN C      COLUMN D            COLUMN E      COLUMN F      COLUMN G       COLUMN H
             --------            --------    --------      --------            --------      --------      --------       --------
                                                                                                                         PRINCIPAL
                                                                                                                         AMOUNT OF
                                                                                                                       LOANS SUBJECT
                                             FINAL         PERIODIC                          FACE        CARRYING      TO DELINQUENT
                                 INTEREST   MATURITY       PAYMENT             PRIOR       AMOUNT OF     AMOUNT OF     PRINCIPAL OR
           DESCRIPTIONS            RATE       DATE          TERM               LIENS       MORTGAGES     MORTGAGES       INTEREST-
------------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>        <C>         <C>                 <C>            <C>           <C>           <C>
First Mortgages:
  Unimproved land; Goshen, NY       6%       2/28/02    Interest only to            --     $  500,000    $   464,891    $       --
                                                          maturity 
  Unimproved land; Goshen, NY       6%       2/28/02    None                        --      1,810,000      1,682,907            --
  Office building; Granby, CT       9%       3/08/17    9,863               $2,600,000      1,081,547      1,078,032            --
                                                                                           -----------------------------------------
                                                                                           $3,391,547    $ 3,225,830    $       --
                                                                                           =========================================
</TABLE>

The following is a reconciliation of the total amount at which mortgage loans
were carried for the years ended:

<TABLE>
<CAPTION>
                                                      FEBRUARY 28,                  FEBRUARY 28,                  FEBRUARY 29,
                                                          1998                         1997                          1996
                                                -------------------------    ---------------------------   -------------------------
<S>                                             <C>           <C>            <C>           <C>             <C>           <C>
Balance at beginning of period                                $ 2,503,236                  $    466,702                  $       --
Additions during period:
  New mortgage loans                            $1,081,547                   $2,049,034                    $  541,702              
                                                ----------                   ----------                    ----------              
                                                                1,081,547                      2,049,034                    541,702
                                                              -----------                  -------------                  ---------
                                                                3,584,783                      2,515,736                    541,702
Deductions during period:
  Collection of principal                          159,717                       12,500                        75,000              
  Foreclosures                                          --                           --                            --              
  Cost of mortgage sold                                 --                           --                            --              
  Amortization of premium                               --                           --                            --              
  Change in unrealized loss on mortgage and
     notes receivable                              162,202                           --                            --              
  Other -- Bad debts                                37,034                           --                            --              
                                                ----------                   ----------                    ----------              
                                                                  358,953                       12,500                       75,000
                                                              -----------                  ------------                  ----------
Balance at close of period                                    $ 3,225,830                  $  2,503,236                  $  466,702
                                                              ===========                  ============                  ==========
</TABLE>


                                      F-35
<PAGE>   57
                        FRM Nexus, Inc. and Subsidiaries
                       Supplemental Financial Information
                   Unaudited Selected Quarterly Financial Data

<TABLE>
<CAPTION>
                                                                                Quarter
                                                       ---------------------------------------------------------- 
                                                          First          Second          Third          Fourth
                                                       -----------     -----------    -----------     ----------- 
<S>                                                    <C>             <C>            <C>             <C>
Year ended February 28, 1998:

Total revenue                                          $ 4,469,115     $ 4,860,673    $ 4,322,243     $ 6,233,918
                                                       ===========     ===========    ===========     =========== 
Income (loss) from operations                          $   (12,910)    $   122,678    $   (61,272)    $ 1,812,095
                                                       ===========     ===========    ===========     =========== 
Income (loss) before
  extraordinary items                                  $  (117,110)    $     1,325    $  (175,475)    $ 1,607,677
                                                       ===========     ===========    ===========     =========== 
Net income (loss)                                      $  (117,110)    $     1,325    $   (83,801)    $ 1,607,677
                                                       ===========     ===========    ===========     =========== 
Basic and diluted earnings (loss) 
  per common share:

Income (loss) before
   extraordinary items                                 $     (0.06)             $-    $     (0.10)    $      0.88
                                                       ===========     ===========    ===========     =========== 
 Net income (loss)                                     $     (0.06)             $-    $     (0.05)    $      0.88
                                                       ===========     ===========    ===========     =========== 
Number of shares used in computation
  of basic and diluted earnings per share                1,817,453       1,817,453      1,817,453       1,817,453
                                                       ===========     ===========    ===========     =========== 

Year ended February 28, 1997:

Total revenue                                          $ 4,054,968     $ 5,160,186    $ 4,150,681     $ 3,933,637
                                                       ===========     ===========    ===========     =========== 
Income (loss) from operations                          $  (577,496)    $   191,453    $  (191,958)    $  (390,067)
                                                       ===========     ===========    ===========     =========== 
Income (loss) before
  extraordinary items                                  $  (616,695)    $    73,410    $  (259,695)    $  (456,029)
                                                       ===========     ===========    ===========     =========== 
Net income (loss)                                      $  (616,695)    $    73,410    $  (259,695)    $  (456,029)
                                                       ===========     ===========    ===========     =========== 
Basic and diluted earnings (loss) 
  per common share:

Income (loss) before
  extraordinary items                                  $     (0.34)    $      0.04    $     (0.14)    $     (0.25)
                                                       ===========     ===========    ===========     =========== 
Net income (loss)                                      $     (0.34)    $      0.04    $     (0.14)    $     (0.25)
                                                       ===========     ===========    ===========     =========== 
Number of shares used in computation
   of basic and diluted earnings per share               1,817,453       1,817,453      1,817,453       1,817,453
                                                       ===========     ===========    ===========     =========== 
</TABLE>


                                      F-36
<PAGE>   58



                                EXHIBIT INDEX
                                -------------


         The two following exhibits (Exhibits 23.01 and 23.02) are filed as part
of this Annual Report on Form 10-K and the remaining exhibits are incorporated
herein by reference to Form 10 dated June 27, 1997 except that Exhibit 10.04 is
incorporated herein by reference to Amendment No. 1 to Form 10 dated September
19, 1997.



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.

10.03    Management Agreement for Wendy's Restaurants.

10.04    Employment and Consulting Agreement of Peter Barotz.

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.

23.02    Consent of Eric Weston