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 29, 2004
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, 2004 |
$2,807,467 | |
| Number of shares outstanding
of the registrant's Common Stock as of May 20, 2004 |
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.
Proposed Transaction
On April 9, 2004, the Company filed a Current Report on Form 8-K announcing the signing on March 26, 2004 of an Acquisition Agreement with Creative Marketing Group, Inc, ("CMG") and its shareholders to acquire 100% of CMG's outstanding capital stock in exchange for shares of common stock of MFC. After the closing, MFC shall issue approximately 7,900,000 shares (approximately 80%) of common stock to CMG stockholders and holders of CMG debt out of approximately 10,000,000 shares of common stock which will then be issued and outstanding. The completion of the acquisition is subject to several conditions including, but not limited to, the closing of a private offering raising a minimum of $1,000,000 and a maximum of $2,500,000.
CMG is a sales and marketing company which since the year 2000 has been exclusively working with a national brand name in the coffee industry which has a brand name recognition in excess of 90% among consumers. In late 2002 CMG obtained exclusive licensing agreements permitting it to use the trademark of such national brand name in the production and sale of coffee and coffee filters through retailers, food service, hospitality and in-office locations throughout the United States. CMG's relationship with this national brand name creates marketing opportunities to enhance the awareness and availability of such national brand name's coffee makers and the coffee and coffee filters which CMG may produce and sell under its licenses in the United States.
Completion of the transaction described is subject to the satisfaction of a number of conditions and there can be no assurance that all of the conditions will be met or that the registrant will successfully complete the acquisition or that CMG will raise adequate funds in the private placement.
MFC is engaged in the business of (i) developing real estate and (ii) providing financing and management services to medical practices.
The Real Estate Division of the Company presently conducts its operations through Yolo Equities 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 29, 2004, the total revenues derived from the real estate division were $619,114, constituting 30% of the total revenues from continuing operations 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 approximately $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 29, 2004, 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 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 sell or 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 Equities Corp.), (ii) a Clubhouse with swimming pool and six tennis courts and (iii) a small office building which was renovated and converted into three townhouse units. One of the townhouse units was sold in February 2004, the remaining two units are currently under contract for sale. 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 28, 2005.
The hotel site consists of 10 plus acres contiguous to the ski slopes at Hunter Mountain. Yolo Equities Corp. has received approval from 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 site or sell its interest if the sales price is acceptable.
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, may 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 ("Medical Management Services business") and (ii) a wholly-owned subsidiary of the Company, Medical Financial Corp., which in the past, purchased unpaid medical insurance claims, paying cash to the medical provider in return for a negotiated fee (the "Medical Finance business"). In the fiscal year ended February 29, 2004, MFC experienced a significant increase in the amount of time that the medical insurance claims were outstanding, which resulted in a negative impact on its cash flow.
On February 4, 2004, in response to the change in collections, the Company decided to restructure the Medical Division. The plan of restructuring calls for the Medical Finance business to discontinue the purchase of insurance claims from medical practices, and to focus future operations on collections and other services. In addition, the Company will sell the assets of the Medical Management Services business. As a result of this decision, the operations of the Medical Management Services business have been reclassified as discontinued operations, and prior periods have been restated to reflect this classification.
In the fiscal year ended February 29, 2004, the total revenues of the Medical Division were $1,442,982, constituting 70% of total revenues from continuing operations 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 operations of the Medical Division are being 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 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 Company's presently owned real estate held for development or sale is located in Hunter, New York. The real estate market for second homes in this resort community is presently experiencing improved demand. The Company will be competing 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. 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 collecting certain medical insurance claims of medical groups, the competition is limited to only a few companies.
None.
As of February 29, 2004, the Company had 28 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 or 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 is not presently a party to any material litigation.
None, other than the election of directors on July 17, 2003.
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 | ||
| 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 | |
| 2004 | ||||
| Quarter 1 | (03/01/03 - 05/31/03) | $1.85 | $1.55 | |
| Quarter 2 | (06/01/03 - 08/31/03) | $1.90 | $1.31 | |
| Quarter 3 | (09/01/03 - 11/30/03) | $1.85 | $1.35 | |
| Quarter 4 | (12/01/03 - 02/29/04) | $1.30 | $0.60 | |
The last trade on May 20, 2004 was $2.40.
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, 2004, 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, former Chairman of the Company and 4,500 shares held each by David Michael, a former Director and Anders Sterner, presently a Director 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 29, | February 28, | February 28, | February 28, | February 29, | |||||
| 2004 | 2003 | 2002 | 2001 | 2000 | |||||
| Income Statement Data: | |||||||||
| Total revenue | $ 2,062,096 | $ 2,977,770 | $ 2,733,510 | $ 1,433,109 | $ 2,262,396 | ||||
| Costs and expenses | 2,853,916 | 2,382,915 | 1,986,218 | 2,257,887 | 3,179,783 | ||||
| Income (loss) from operations | (791,820) | 594,855 | 747,292 | (824,778) | (917,387) | ||||
| Other (expenses) net of other income | (90,592) | (31,774) | (51,652) | (221,468) | (28,096) | ||||
| Income (loss) from continuing | |||||||||
| operations before provision for | |||||||||
| income taxes | (882,412) | 563,081 | 695,640 | (1,046,246) | (945,483) | ||||
| Provision (benefit) for income taxes | 7,042 | (75,876) | 13,606 | 10,936 | 14,328 | ||||
| Income (loss) from continuing operations | (889,454) | 638,957 | 682,034 | (1,057,182) | (959,811) | ||||
| Income (loss) from discontinued operations, net | |||||||||
| of taxes (including impairment loss of $229,000 | |||||||||
| in 2004 and gain on sale of subsidiary of $381,182 | |||||||||
| in 2001 and $96,301 in 2000) | (543,570) | 326,128 | 126,351 | 306,887 | 267,531 | ||||
| Net income (loss) | $ (1,433,024) | $ 965,085 | $ 808,385 | $ (750,295) | $ (692,280) | ||||
| Earnings (loss) per common share: | |||||||||