UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 2003
Commission file number: 0-3579974
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Delaware
(State of incorporation)
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13-3579974
(I.R.S. Employer Identification No.)
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (x) No( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (x)
| Aggregate market value
of the voting stock held by non-affiliates of the registrant as of May 20, 2003 |
$1,665,268 | |
| Number of shares outstanding
of the registrant's Common Stock as of May 20, 2003 |
1,775,053 |
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report, to the extent not set forth herein, is incorporated by reference from the Registrant's definitive proxy statement relating to the annual meeting of stockholders to be held in July 2003, which definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the close of the year ended February 28, 2003.
MFC DEVELOPMENT CORP. (the "Company" or "MFC") was incorporated in the State of Delaware on May 18, 1990 under the name of PSI Food Services Corp., which had been a wholly-owned subsidiary of FRMO Corp., formerly FRM Nexus, Inc., a Delaware corporation ("FRM"), since November 1993. All of FRM's assets and liabilities were transferred to MFC on August 31, 2000, except for $10,000. Because such entities were under common control, this transaction was accounted for in a manner similar to a pooling of interests on MFC's books. On January 23, 2001, all of the outstanding shares of MFC were distributed to shareholders of FRM, which no longer owns any shares of MFC.
MFC is engaged in the business of (i) developing real estate and (ii) providing financing and management services to medical practices. On September 14, 2000, a subsidiary of the Company formed a majority-owned Limited Liability Company to operate as a "certified capital company" pursuant to Sections 11 and 1511 of the New York State Tax Law (herein as "Capco") under the State's Capco Program.
The Real Estate Division of the Company presently conducts its operations through Yolo Equities Corp., Yolo Capital Corp. and Highlands Pollution Control Corp, wholly-owned subsidiaries which own the interests described below in parcels of real estate. For the fiscal year ended February 28, 2003, the total revenues derived from the real estate division were $1,036,962, constituting 20% of the total revenues of MFC. A brief description of each parcel follows:
The transactions related to the sale of this property were completed in the fiscal year ended February 28, 2002, resulting in the realization of $745,000 of deferred income related to the original sale of the property in a prior fiscal year.
The Company owned a partially built two-story office building located at 2 Gateway Boulevard in East Granby, Connecticut which was carried at the value of $900,000 on February 28, 1995. In the fiscal year ended February 29, 1996, the Company spent about $1,300,000 in developing the site and improving a portion of the building. In February 1996, the property was sold to Gateway Granby, LLC. ("Gateway"), a limited liability company of which certain members are shareholders of MFC, for $4,800,000, of which $3,853,268 has been paid and $946,732 is due to the Company as of February 28, 2003, pursuant to a purchase money second mortgage. The gain on the sale of this property was recognized on the accrual method in prior years, except for a reserve of $850,000 which was recognized in January 2003 upon the release of the Company from a contingent liability for certain rental payments.
MFC's wholly-owned subsidiary, Yolo Equities Corp. owns the fee interest in properties in Hunter, New York, along with co-investors. The co-investors, together are entitled to receive 35% of the cash proceeds of the sales of Hunter Properties made after June 30, 2000 after deducting the net costs of carrying the properties after June 30, 2000 and the costs of the sales (the "net proceeds"). Yolo Equities Corp. is entitled to receive 65% of the said net proceeds. The properties consist of 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 portion of the acreage, which Yolo Equities Corp. plans to develop, is available for single family residences, townhouses, condominium units and a hotel site. There is already constructed on the property (i) a waste water treatment plant owned by Highlands Pollution Control Corp. (a wholly-owned subsidiary of the Yolo Capital Corp.), (ii) a Clubhouse with swimming pool and six tennis courts and (iii) a small office building. Adjoining the site are 200 condominium units owned by unrelated persons.
The waste water treatment plant was upgraded in the fiscal year ended February 28, 2003, under an agreement with the City of New York. Under terms of the agreement, the City of New York is reimbursing the Company for all costs incurred with the upgrade of the facility. See Note 4 of Notes to Consolidated Financial Statements.
The Company will seek to complete a sale of the Clubhouse in the fiscal year ended February 29, 2004. The small office building is in process of being converted into three residential townhouse units, which will be offered for sale during the summer of 2003.
The hotel site consists of 11 acres contiguous to the ski slopes at Hunter Mountain. Yolo Equities Corp. is currently applying to the Planning Board of the Town of Hunter for site approval of a first phase development of additional condominium units with eventual construction of a hotel and further condominium units in subsequent phases. The Company plans to participate with other developers in financing and constructing improvements on the 11 acre site.
This will then leave Yolo Equities Corp. with about 70 acres of undeveloped land, also contiguous to the Hunter Mountain ski slopes, for which there are no present plans for development. The future development of this acreage and the subsequent phases at the hotel site will require the Company to double the capacity of the waste water treatment plant, for which State permits already exist. The City of New York will pay for the upgrade in technology (but not the expansion of capacity) of this facility because of the Federal requirement to incorporate the latest technology in order to improve the quality of the water derived from the City's Catskill Mountain Watershed Area (in which Hunter is located).
The Company, alone or with co-investors and joint ventures, intends to acquire other lands for development of residential, commercial and office structures, when management identifies opportunities for enhancement of shareholder values.
The Medical Division consists of (i) the three wholly-owned Limited Liability Companies (Nexus Garden City, LLC, FRM Court Street, LLC and Nexus Borough Park, LLC) and a 25% and 33% owned interest in two other Limited Liability Companies, all of which act as service organizations for providers of medical services and (ii) a wholly-owned subsidiary of the Company, Medical Financial Corp., which purchases unpaid medical insurance claims, paying cash to the medical provider in return for a negotiated fee. In the fiscal year ended February 28, 2003, the total revenues of the Medical Division were $4,223,485, constituting 80% of total revenues of the Company. For its clients, this Division delivers management services and increased liquidity, which is normally unavailable to medical groups from traditional sources. The management services include inputting the data on the customers' receivables into the Company's computer system, processing the data and presenting the customers' bills to the insurance company in compliance with regulations to facilitate payment, following up with collection efforts if the bills are not paid promptly, furnishing weekly or other periodic status reports of the customers' receivables and other information relating to their medical practices.
The expected growth in revenues of the Medical Division will be supported by the Company's investment in new technology. This technology, which includes document imaging equipment and software, the internal development of a more efficient collections program and the purchase of new computers needed to run these programs. The investment in this technology has already decreased the time required to perform collection tasks to a fraction of the time required under the old systems. The Company's labor intensive services are now more efficient due to these capital expenditures.
The Capco Division was commenced by the filing on September 14, 2000 of Articles of Organization in New York State for FRM N.Y. Capital LLC which is a 99% majority owned subsidiary of the Company. This LLC was formed for the purpose of being approved as a "certified capital company" pursuant to Sections 11 and 1511 of the New York State Tax Law (herein a "Capco") under the Capco Program. A "certified capital company" as used in this context is a "for profit" entity, located and qualified to conduct business in New York State, which is certified by the New York State Insurance Department ("Department") based on standards set forth in the New York Tax Law (the "Statute"). The Capco was approved, and will seek to participate in any future New York Capco Program. The NY Capco Statute creates a tax credit incentive mechanism to increase investment of financial resources of insurance companies into venture capital to businesses approved by the Department as qualified to provide jobs and promote the growth of the economy in New York State ("Qualified Businesses").
The Capco will use (i) its own capital of $500,000, plus (ii) the investment of insurance companies which wish to take substantial equity interests in New York companies in order to encourage and assist them in creating, developing and expanding their business. The Capco's emphasis will be on viable small business enterprises which have had difficulty in attracting institutional venture capital and which will expand employment opportunities in New York thereby promoting the growth of the State's economy. The Capco has not yet commenced the business for which it was formed, as it is pending the authorization of additional State funding for the program.
The Company's marketing in its real estate activities is limited to working with real estate brokers to sell the properties held for sale in Hunter, N.Y.
The Medical Division markets its services to medical groups through its own individual employees and consultants by direct contact with potential customers recommended by existing customers and those who contact MFC after reading newspaper advertisements or receiving its brochure by direct mail solicitation. MFC designs its own brochure for such solicitations. MFC designed and obtained the names for two websites, "medicalfinancial.com" and "mdhelp.com".
The Capco Program will be marketed by the Managers of FRM N.Y. Capital LLC, who are experienced in the venture capital field.
The Company's presently owned real estate held for development and sale is located in Hunter, New York. The real estate market for second homes in this resort community has recently experienced improved demand. The Company will be compete with many owners and developers in the locale in connection with the development and sale of its properties for residential use.
MFC competes with a wide variety of management and financial service companies, including public companies, banks, and factoring companies (which advance funds on the security of purchased receivables). The Company is very small in relation to such competitors. However the Company's services are also designed to serve a niche market and in its focus on purchasing and collecting medical insurance claims of certain medical groups, the competition is limited to only a few companies.
The Company is awaiting further legislation in New York to provide financial incentives for insurance companies and Capco organizations. If and when the legislation is enacted, the Company will compete with many other Capco organizations for approval by the New York Insurance Department for its Capco Programs.
None.
As of February 28, 2003, the Company had 45 employees. None of the Company's employees are represented by a labor union. MFC considers its relationship with its employees to be good.
The Company is in compliance with all environmental laws relating to hazardous substances in real property. Future compliance with environmental laws is not expected to have a material effect on its business.
In addition to the real property held for development and sale as set forth in Item 1 above, MFC lease its offices in New Rochelle, New York, under a lease expiring on February 28, 2007. All of the space leased by the Company is leased from an unaffiliated third party.
MFC leases a medical office in Brooklyn, NY, where it formerly provided management services for a medical practice that was also a finance client. This office has been sub-leased to an unrelated party until the lease expiration on March 31, 2004.
MFC leases MRI facilities in Garden City South, NY and Central Islip, NY, where it provides MRI and management services for a finance client's radiology practice. The lease in Garden City South expires on February 28, 2005, with a five year renewal option and the lease in Central Islip, expires on September 30, 2006.
MFC is not presently a party to any material litigation.
None, other than the election of directors on July 18, 2002.
In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company is hereby filing cautionary statements identifying important risk factors that could cause the Company's actual results to differ materially from those projected in forward looking statements of the Company made by or on behalf of the Company.
Such statements may relate, but are not limited, to projections of revenues, earnings, capital expenditures, plans for growth and future operations, competition as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted or quantified.
When the Company uses the words "estimates," "expects," "anticipates," "believes," "plans," "intends," and variations of such words or similar expressions, they are intended to identify forward-looking statements that involve risks and uncertainties. Future events and actual results could differ materially from those underlying the forward-looking statements. The factors that could cause actual results to differ materially from those suggested by any such statements include, but are not limited to, those discussed or identified from time to time in the Company's public filings, including general economic and market conditions, changes in domestic laws, regulations and taxes, changes in competition and pricing environments, 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.
The Form 10 Registration of the common stock of MFC Development Corp. pursuant to Section 12(g) of the Securities Exchange Act of 1934 as finally amended on January 17, 2001 was effective as of November 30, 2000 and MFC has been a reporting company since that date, filing its first quarterly statement for the nine months ended November 30, 2000, on January 16, 2001.
The Company's common stock was distributed on January 23, 2001 in a spin-off from FRM. Shareholders' basis in the Company's shares is equal to the market value when distributed, which was $1.00 per share based on its trading on the NASDAQ Bulletin Board under the symbol MFCD. The following table sets forth the range of high and low bid quotations of the Company's common stock for the periods set forth below, as reported by the National Quotation Bureau, Inc. Such quotations represent inter-dealer quotations, without adjustment for retail markets, markdowns or commissions, and do not necessarily represent actual transactions.
| Common Stock | ||||
| Fiscal Period | High Bid | Low Bid | ||
| 2001 | ||||
| Quarter 4 | (12/01/00 - 02/28/01) | $1.00 | $1.00 | |
| 2002 | ||||
| Quarter 1 | (03/01/01 - 05/31/01) | $2.15 | $1.00 | |
| Quarter 2 | (06/01/01 - 08/31/01) | $1.60 | $0.59 | |
| Quarter 3 | (09/01/01 - 11/30/01) | $2.70 | $0.55 | |
| Quarter 4 | (12/01/01 - 02/28/02) | $2.50 | $2.01 | |
| 2003 | ||||
| Quarter 1 | (03/01/02 - 05/31/02) | $2.19 | $0.70 | |
| Quarter 2 | (06/01/02 - 08/31/02) | $2.18 | $0.35 | |
| Quarter 3 | (09/01/02 - 11/30/02) | $1.85 | $0.44 | |
| Quarter 4 | (12/01/02 - 02/28/03) | $1.85 | $1.40 | |
The last trade on May 20, 2003 was $1.55.
No cash dividend has been paid by MFC since its inception. The Company has no present intention of paying any cash dividends on its common stock.
As of May 1, 2003, there were approximately 1,000 holders of record of MFC common stock representing about 2,400 beneficial owners of its shares. There are no options or warrants to purchase common stock of the Company outstanding except for options to purchase a total of 6,000 shares held by Allan Kornfeld, Chairman of the Company and 3,000 shares held each by David Michael and Anders Sterner, Directors of the Company. The Company does not know of any shares of common stock of MFC that are held by any director, officer or holder of as much as 5% of the outstanding stock for sale pursuant to a filing under Rule 144 of the Securities Act. The Company has not agreed to register any common stock for sale under the Securities Act by any shareholder or the Company, the offering of which could have a material effect on the market price of the Company's common equity.
| Fiscal Year Ended | |||||||||
| February 28, | February 28, | February 28, | February 29, | February 28, | |||||
| 2003 | 2002 | 2001 | 2000 | 1999 | |||||
| Income Statement Data: | |||||||||
| Total revenue | $ 5,260,447 | $ 4,166,494 | $ 2,359,123 | $ 2,283,267 | $ 1,457,690 | ||||
| Costs and expenses | 4,354,250 | 3,294,304 | 3,277,340 | 3,258,798 | 1,893,223 | ||||
| Income (loss) from operations | 906,197 | 872,190 | (918,217) | (975,531) | (435,533) | ||||
| Other (expenses) net of other income | (16,988) | (50,199) | (220,170) | (27,636) | (44,874) | ||||
| Income (loss) from continuing | |||||||||
| operations before provision for | |||||||||
| income taxes | 889,209 | 821,991 | (1,138,387) | (1,003,167) | (480,407) | ||||
| (Benefit) provision for income taxes | (75,876) | 13,606 | 10,936 | 14,328 | 5,676 | ||||
| Income (loss) from continuing operations | 965,085 | 808,385 | (1,149,323) | (1,017,495) | (486,083) | ||||
| Income from discontinued operations, net | |||||||||
| of taxes (including gain on sale of | |||||||||
| subsidiary of $381,182 in 2000 and | |||||||||
| $96,303 in 1999 | - | - | 399,028 | 325,215 | 119,514 | ||||
| Net income (loss) | $ 965,085 | $ 808,385 | |||||||