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, 2005
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, 2005 |
$1,200,078 | |
| Number of shares outstanding
of the registrant's Common Stock as of May 20, 2005 |
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 2005, 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, 2005.
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 developing real estate and liquidating the discontinued operations of the Medical Division.
The Real Estate Division of the Company presently owns the interests in parcels of real estate described below. For the fiscal year ended February 28, 2005, the total revenues derived from the Real Estate Division were $1,776,877, constituting 100% of the total revenues from continuing operations of MFC. A brief description of each parcel follows:
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 was due to the Company as of February 28, 2005, 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. On May 17, 2005, the $946,732 second mortgage was exchanged for a $1,000,000 equity investment in Granby.
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. As of February 28, 2005, the properties consisted 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, and condominium units. The developed portion, consisting of (i) a waste water treatment plant owned by Highlands Pollution Control Corp. (a wholly-owned subsidiary of the Yolo Equities Corp.), and (ii) a Clubhouse with swimming pool and six tennis courts, were sold in May 2005. A small office building was renovated and converted into three townhouse units. One of the townhouse units was sold in February 2004, and the remaining two units were sold in the fiscal year ended February 28, 2005. Adjoining the undeveloped portion of the acreage 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. Prior to the sale of the plant on May 10, 2005, the City of New York was reimbursing the Company for all costs incurred with the upgrade of the facility. See Note 4 of Notes to Consolidated Financial Statements.
The Company completed a sale of the Clubhouse on May 17, 2005.
The hotel site, consisting of 10 plus acres, was sold on September 23, 2004. See Note 4 of Notes to Consolidated Financial.
After the sales in May 2005, Yolo Equities Corp. continues to retain about 65 acres of land for development or sale. The future development of this acreage will require an increase in the capacity of the waste water treatment plant, for which State permits already exist, and which Yolo Equities Corp. has the right to obtain by participating in the financing of the expansion.
The Company, alone or with co-investors and joint ventures, may acquire other real property for development of residential, commercial and office structures, when management identifies opportunities for enhancement of shareholder values.
On February 4, 2004, the Company instituted a plan to restructure the medical financing segment. The plan of restructuring called for the Company to sell the assets of the three subsidiaries that were formed to provide additional management services to certain medical practices. On August 26, 2004 the Company sold its continuing service obligations and the related future revenue rights of its medical financing business in exchange for preferential collection rates on the receivables that are expected to be collected. As part of the terms of the sale, the Company will retain half of the interest paid by insurance companies on late payments from improperly denied receivables. The Company expects that the interest income it receives will be great enough to cover the additional costs that will be due when the existing receivables are collected. The Company still expects to incur certain additional costs related to its discontinued operation, until all of the receivables are collected. The medical financing business was conducted through Medical Financial Corp., a wholly owned subsidiary, which (i) purchased insurance claims receivables from medical practices and provided certain services to those practices; and (ii) three other subsidiaries, which were formed to provide additional management services to certain medical practices. Accordingly, the operating results of the medical financing segment for each of the three years ended February 28, 2005 has been presented as "(Loss) income from discontinued operations, net of income taxes". Net assets and liabilities to be disposed of or liquidated, at their book value, have been separately classified in the accompanying balance sheets at February 28, 2005 and February 29, 2004. See Note 11 of Notes to Consolidated Financial Statements.
The Company's marketing in its real estate activities is limited to working with real estate brokers in New York and Connecticut.
The Company's presently owned acreage 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 this land. After May 17, 2005, the Company has a 49% equity interest in Gateway Granby, LLC, which owns an office building, subject to a first mortgage of $2,200,000. The building is currently 93% occupied by unrelated tenants. Gateway competes with many owners of office buildings in the Northern Hartford, Connecticut area for leasing and lease renewals.
None.
As of February 28, 2005, the Company had 7 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 as set forth in Item 1 above, MFC leases 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, except (i) a lawsuit relating to the title issue on the sale of the hotel site set forth in Note 4 of the Notes to the Consolidated Financial Statements, which involves $125,000 for which the Company has taken a 100% valuation allowance, and (ii) a lawsuit by the co-investors of the Hunter property set forth in Note 8 of Notes to the Consolidated Financial Statements, which has been deferred pending review of the recent accounting given to the co-investors as of February 28, 2005.
None, other than the election of directors on July 15, 2004.
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, and 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, and 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.
| Fiscal Period | High Bid | Low Bid | ||
| 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 | |
| 2005 | ||||
| Quarter 1 | (03/01/04 - 05/31/04) | $3.50 | $1.02 | |
| Quarter 2 | (06/01/04 - 08/31/04) | $3.10 | $1.35 | |
| Quarter 3 | (09/01/04 - 11/30/04) | $2.80 | $1.45 | |
| Quarter 4 | (12/01/04 - 02/28/05) | $2.10 | $1.00 |
The last trade on May 20, 2005 was $1.05
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, 2005, there were approximately 1,000 holders of record of MFC common stock representing about 2,100 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 (i) 4,500 shares held by Allan Kornfeld, former Chairman of the Company, (ii) 4,500 shares held by David Michael, a former Director, (iii) 6,000 shares held by Anders Sterner, presently a Director of the Company, and (iv) 1,500 shares each held by Jay Hirschson and Steven Kevorkian, both presently 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 29, | February 28, | February 28, | February 28, | |||||
| 2005 | 2004 | 2003 | 2002 | 2001 | |||||
| Income Statement Data: | |||||||||
| Total revenue | $ 1,776,877 | $ 619,114 | $ 1,036,962 | $ 1,116,723 | $ 304,260 | ||||
| Costs and expenses | 2,055,314 | 782,857 | 564,519 | 558,327 | 791,014 | ||||
| Income (loss) from operations | (278,437) | (163,743) | 472,443 | 558,396 | (486,754) | ||||
| Other (expenses) net of other income | (86,950) | (80,140) | (11,483) | 2,778 | (198,040) | ||||
| (Loss) income from continuing | |||||||||
| operations before provision for | |||||||||
| income taxes | (365,387) | (243,883) | 460,960 | 561,174 | (684,794) | ||||
| Provision (benefit) for income taxes | 3,795 | 6,378 | (75,838) | 12,390 | 10,556 | ||||
| (Loss) income from continuing operations | (369,182) | (250,261) | 536,798 | 548,784 | (695,350) | ||||
| (Loss) income from discontinued operations, net | |||||||||
| of taxes (including impairment & disposal losses | |||||||||
| of $489,000 in 2005 and $229,000 in 2004, and | |||||||||
| gain on sale of subsidiary of $381,000 in 2001) | (2,122,721) | (1,182,763) | 428,287 | 259,601 | (54,945) | ||||
| Net income (loss) | $ (2,491,903) | $ (1,433,024) | $ 965,085 | $ 808,385 | $ (750,295) | ||||
| (Loss) earnings per common share: | |||||||||
| (Loss) earnings from continuing operations | $ (0.21) | $ (0.14) | $ 0.30 | ||||||