ITEM 1 - BUSINESS
Business Development
Morris Business Development Company, a California corporation (referred to as “we,” “us,” “our” or the “Company”) was incorporated on March 10, 1998, in the State of California, as Electronic Media Central Corporation. Prior to our incorporation, we commenced sales distribution operations in late 1996 as a division of Internet Infinity, Inc. (“Internet Infinity”). Following our incorporation, on April 1, 1998, we continued to provide such services as a 100% wholly owned subsidiary of Internet Infinity. Internet Infinity supplied us with management support to launch our sales distribution activities.
On September 28, 2001, all 500,000 of our issued and outstanding shares of common stock, held by Internet Infinity, were distributed to the Internet Infinity shareholders of record as of September 18, 2001.
Our initial business focus in late 1996 was on distributing electronic media duplication and packaging services for an unaffiliated company, Video Magnetics, LLC. In February 1997, as the result of L&M Media, Inc. acquiring Video Magnetics, LLC, these services were supplied by the affiliated company, L&M Media, Inc. which for over 10 years had been wholly owned by George Paul Morris, our CEO, Chief Financial Officer and Secretary and the controlling shareholder of both Internet Infinity and us. L&M Media was supplying its products and services to us through its wholly owned subsidiary, Apple Media Corporation, through March 31, 2002. All products and services were provided by Pac Max Corporation of Brea, California and less than five other independent suppliers.
On May 12, 2006, we filed an election to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”), which became effective on the date of filing.
On March 30, 2007, we changed our name to Morris Business Development Company.
Description of Business
George Morris, Ph.D. is acting as the CEO and as the leader of the Company until the Company can recruit a new CEO with the experience and motivation to build the mission of the Company.. Dr. Morris and the Board of Directors are ready to seek revenue and profits for the Company through strategic partnering and acquisitions. The management and development of the real estate multifamily business for seniors, veterans and families with children is of special interest.
We focus on the development of opportunities to invest in eligible portfolio companies as a closed end investment fund similar to a mutual fund and we help provide growth capital, strategic guidance and operational support. In some cases we may receive stock in portfolio companies for services provided by the Company both with or without cash. We may assist a client company with stock in our portfolio to grow their revenue and sales through substantial managerial support and capital sourcing. If a portfolio company meets the criteria, our Company may further assist them in “going public” for the benefit of all shareholders in the portfolio company and our Company.
As a business development company ("BDC"), Morris Business Development Company is able to raise money to acquire interests in small private businesses, as well as larger private companies, and distressed public companies as defined under the BDC provisions of the Investment Company Act. We intend to seek equity positions and on-going relationships with companies offering sustainable and profitable growth. We do not intend to limit our acquisitions to a single line of business or industry.
All acquisitions will be designed to enhance shareholder value through capital appreciation and dividend payments.
Consistent with Section 58 of the Investment Company Act, we may not, unless authorized by the vote of a majority of our outstanding common stock, change the nature of our business so as to cease to be, or to withdraw our election as, a business development company. In addition, as a BDC, we will not make any significant material changes in our investment guidelines and policies without obtaining the approval of our Board of Directors.
Our Company may invest in a variety of securities, including bonds, convertible debentures, preferred stock and common stock. We have not set a policy as to what proportion of our assets may be invested in any type of security, nor have we set a policy regarding a potential concentration in any particular industry or group of industries.
Morris Business Development Company shall seek to render significant managerial assistance to and/or control of eligible companies. While we do not currently intend to invest as part of a group, we have not set any policy to that effect, and may determine to so invest in the future without seeking shareholder approval. We have not yet set a policy with respect to any assets that are not required to be invested in eligible portfolio companies or other companies qualifying under Section 55 of the Investment Company Act.
Consistent with its objective of long-term capital appreciation, Morris BDC may invest in a variety of securities, including bonds, convertible debentures, preferred stock and common stock. We have not set a policy as to what proportion of our assets may be invested in any type of security, nor have we set a policy regarding a potential concentration in any particular industry or group of industries.
Consistent with its objective of long-term capital appreciation, The Company will consult with its investees with respect to obtaining capital and offer managerial assistance to selected businesses that, in the opinion of our management, have a significant potential for growth.
In addition to acquiring investment positions in new and developing companies, Our Company may also occasionally invest in more mature privately and publicly-held companies, some of which may be experiencing financial difficulties, but which, The Company believes, have potential for further development or revitalization, and which, in the long-term, could experience growth and achieve profitability.
As a business development company ("BDC"), Morris Business Development Company is able to raise money to acquire interests in small private businesses, as well as larger private companies, and distressed public companies as defined under the BDC provisions of the Investment Company Act. We intend to seek equity positions and ongoing relationships with companies offering sustainable and profitable growth. We do not intend to limit our acquisitions to a single line of business or industry.
All acquisitions will be designed to enhance shareholder value through capital appreciation and dividend payments.
The Company will seek to render significant managerial assistance to and/or control of eligible companies. While we do not currently intend to invest as part of a group, we have not set any policy to that effect, and may determine to so invest in the future without seeking shareholder approval. We have not yet set a policy with respect to any assets that are not required to be invested in eligible portfolio companies or other companies qualifying under Section 55 of the Investment Company Act.
Consistent with its objective of long-term capital appreciation, The Company will consult with its investees with respect to obtaining capital and offer managerial assistance to selected businesses that, in the opinion of our management, have a significant potential for growth.
In addition to acquiring investment positions in new and developing companies, Our Company may also occasionally invest in more mature privately and publicly-held companies, some of which may be experiencing financial difficulties, but which, we believes, have potential for further development or revitalization, and which, in the long-term, could experience growth and achieve profitability.
Morris Business Development Company will consult with its investees with respect to obtaining capital and offer managerial assistance to selected businesses that, in the opinion of our management, have a significant potential for growth.
Our principal objectives are long-term capital appreciation of portfolio company securities and shorter-term receipt of dividends and/or interest from our portfolio companies. We may invest in debt securities of these companies, or may acquire an equity interest in the form of common or preferred stock, warrants or options to acquire stock or the right to convert the debt securities into stock. We may invest alone, or as part of a larger investment group. Consistent with our status as a BDC and the purposes of the regulatory framework for BDCs under the 1940 Act, we will offer to provide managerial assistance, potentially in the form of a consulting agreement or in the form of a board of director’s seat, to the developing companies in which we invest.
In addition, we may acquire either a minority or controlling interest in mature companies in a roll-up strategy. It is anticipated that any acquisitions will be primarily in exchange for our common stock, or a combination of cash and stock. The principal objective of acquisitions pursuant to a roll-up strategy would be to consolidate an industry and either sell the acquired entities as a larger unit, or take the unit public through an initial public offering, spin-off portfolio shares to our shareholders, or reverse merger into a publicly traded shell corporation.
We operate as an externally managed investment company. Our operations will be governed by an Investment Advisory Management Agreement to be entered into between us and a new investment advisory limited liability company, BDC Fund Management, LLC, which was formed and is wholly-owned by our CEO, George Morris. We have not elected to qualify to be taxed as a regulated investment company as defined under Subchapter M of the Internal Revenue Code.
We have terminated our working arrangement with Howell Capital Holdings, LLC. However, our Company looks forward to helping American companies prepare to access both government and private financial support. In addition, the Company will also continue to purse relationships with alternative finance companies including factors such as Avalon Funding Corporation, an asset based lender focusing on accounts receivable and purchase order funding.
In summary, the Company will attempt to locate and negotiate with eligible portfolio companies for our Company to invest in, lend funds to, acquire and/or possibly manage. Our company intends to offer managerial assistance to eligible portfolio companies in which we invest.
Our common stock trades on the Over-the-Counter Bulletin Board (OTCBB) under the symbol “MBDE.”
Our financial statements have been prepared assuming we will continue as a going concern. Because we have historically incurred operating losses, and expect those losses to continue in the future, our Certified Public Accountants included an explanatory paragraph in their report raising substantial doubt about our ability to continue as a going concern.
Regulation as a BDC
Although the 1940 Act exempts a BDC from registration under that Act, it contains significant limitations on the operations of BDCs. Among other things, the 1940 Act contains prohibitions and restrictions relating to transactions between a BDC and its affiliates, principal underwriters and affiliates of its affiliates or underwriters, and it requires that a majority of the BDC’s directors be persons other than “interested persons,” as defined under the 1940 Act. The 1940 Act also prohibits a BDC from changing the nature of its business so as to cease to be, or to withdraw its election as, a BDC unless so authorized by the vote of the holders of a majority of its outstanding voting securities. BDCs are not required to maintain fundamental investment policies relating to diversification and concentration of investments within a single industry.
Generally, a BDC must be primarily engaged in the business of furnishing capital and providing managerial expertise to companies that do not have ready access to capital through conventional financial channels. Such portfolio companies are termed “eligible portfolio companies.” More specifically, in order to qualify as a BDC, a company must (1) be a domestic company; (2) have registered a class of its equity securities or have filed a registration statement with the Securities and Exchange Commission pursuant to Section 12 of the Securities Exchange Act of 1934; (3) operate for the purpose of investing in the securities of certain types of portfolio companies, namely immature or emerging companies and businesses suffering or just recovering from financial distress; (4) extend significant managerial assistance to such portfolio companies; and (5) have a majority of “disinterested” directors (as defined in the 1940 Act).
An eligible portfolio company is, generally, a U.S. company that is not an investment company and that (1) does not have a class of securities registered on an exchange or included in the Federal Reserve Board’s over-the-counter margin list; or (2) is actively controlled by a BDC and has an affiliate of a BDC on its board of directors; or (3) meets such other criteria as may be established by the Securities and Exchange Commission. Control under the 1940 Act is generally presumed to exist where a BDC owns 25% of the outstanding voting securities of the company.
The 1940 Act prohibits or restricts companies subject to the 1940 Act from investing in certain types of companies, such as brokerage firms, insurance companies, investment banking firms and investment companies. Moreover, the 1940 Act limits the type of assets that BDCs may acquire to “qualifying assets” and certain assets necessary for its operations (such as office furniture, equipment and facilities) if, at the time of acquisition, less than 70% of the value of the BDC’s assets consist of qualifying assets. Qualifying assets include: (1) securities of companies that were eligible portfolio companies at the time the BDC acquired their securities; (2) securities of bankrupt or insolvent companies that were eligible at the time of the BDC’s initial acquisition of their securities but are no longer eligible, provided that the BDC has maintained a substantial portion of its initial investment in those companies; (3) securities received in exchange for or distributed in or with respect to any of the foregoing; and (4) cash items, government securities and high-quality short-term debt. The 1940 Act also places restrictions on the nature of the transactions in which, and the persons from whom, securities can be purchased in order for the securities to be considered qualifying assets. These restrictions include limiting purchases to transactions not involving a public offering and acquiring securities from the portfolio company or its officers, directors, or affiliates.
A BDC is permitted to invest in the securities of public companies and other investments that are not qualifying assets, but those kinds of investments may not exceed 30% of the BDC’s total asset value at the time of the investment.
A BDC must make significant managerial assistance available to the issuers of eligible portfolio securities in which it invests. Making available significant managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted does provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company. The portfolio company does not have to accept the BDC’s offer of managerial assistance, and if they do accept may be required to pay prevailing market rates for the services.
We do not currently have any subsidiaries but do currently hold 2,500,000 shares of Leep, Inc., as of March 31, 2011 an EPC. We are actively seeking quality eligible portfolio companies in which to make an investment and provide managerial assistance.
Morris Business Development Company Services
We shall market the services of our BDC through the Internet, telephone, direct mail and trade conferences. The financial and management consulting services industry is highly competitive. However, the BDC delivery of these services to smaller American companies under $100 million in revenue is limited to 100 Business Development Companies operating under the 1940 Investment Act.
Our President George Morris and a network of independent contractor financial sales representatives known to Dr. Morris are actively engaged in sales of BDC services.
Our BDC can help but not guarantee to provide a wide range of services to our portfolio company clients such as, but not limited to, debt and equity financing, strategic business plan development, productive assets. management personnel and other resource acquisition including licensing, partnering, distributor and joint venture relationships, preparation for growth funding and financial restructuring, preparation and guidance for going public and remaining an efficient compliant public company, investor exposure and market trading support, exit strategy with tax planning and both professional and life coaching.
Employees
We employ no persons full or part time and have only one part-time independent contractor. We can scale up our staffing based on sales growth and our business need.
ITEM 1A
ITEM 1A - RISK FACTORS
On at least an annual basis, we are required to provide our shareholders with a statement of risk factors and other considerations for their review. These risk factors and other considerations include:
We have a limited operating history.
Our business development company (“BDC”) was created on May 12, 2006. We have been offering our BDC services on a limited basis for approximately three years due to the accident of our founder George Morris. We have received stock for consulting services from one public stock company, Leep, Inc. (OTCBB symbol “LPPI”). Leep is a depressed modular building panel company with special technology searching for application sales or association with another building materials company. Our Company is trying to help Leep in any way possible since we could benefit from both earnings and share value increases for Leep.
Our BDC operation is undercapitalized and must be funded to successfully assist portfolio client companies. We are currently seeking funding from financial partners to implement our marketing plan.
We may incur losses on a quarterly or annual basis for a number of reasons, some within and others outside our control. The growth of our business will require the commitment of substantial capital resources. If funds are not available from operations, we will need additional funds. We may seek such additional funding through public and private financing, including debt or equity financing. Adequate funds for these purposes, whether through financial markets or from other sources, may not be available when we need them. Even if funds are available, the terms under which the funds are available to us may not be acceptable to us. Insufficient funds may require us to delay, reduce or eliminate some or all of our planned activities.
To successfully execute our current strategy, we will need to improve our working capital position. The report of our independent auditors accompanying our financial statements includes an explanatory paragraph indicating there is a substantial doubt about the Company’s ability to continue as a going concern due to recurring losses. We plan to overcome the circumstances that impact our ability to remain a going concern through a combination of increased revenues and decreased costs, with interim cash flow deficiencies being addressed through additional equity financing.
We will likely experience fluctuation in our quarterly performance.
Quarterly operating results can fluctuate significantly depending on a number of factors, any one of which could have a material adverse effect on our results of operations. The factors related to our business development operation include: the timing of services announcements and subsequent introductions of new or enhanced services by us and by our competitors, the market acceptance of our services, changes in our prices and in our competitors’ prices, the timing of expenditures for staffing and related support costs, the extent and success of advertising, and changes in general economic conditions.
We may experience significant quarterly fluctuations in revenues and operating expenses as we introduce new services, especially as we enter the BDC business. Furthermore, quarterly results are not necessarily indicative of future performance for any particular period.
Since our competitors have greater financial and marketing resources than we do, we may experience a reduction in market share and revenues.
The markets for our products and services are highly competitive and rapidly changing. Some of our current and prospective competitors have significantly greater financial, technical and marketing resources than we do. Our ability to compete in our markets depends on a number of factors, some within and others outside our control. These factors related to our business development operation include: the frequency and success of new service introductions by us and by our competitors, the selling prices of our products and services and of our competitors’ products and services, the performance of our products and of our competitors’ products, product distribution by us and by our competitors, our marketing ability and the marketing ability of our competitors, and the quality of customer support offered by us and by our competitors.
We are dependent upon portfolio clients for our sales, and the inability to attract new client companies would materially reduce our future revenues and could harm our business, financial condition and results of operations.
We are dependent upon portfolio clients for our sales revenue paid for the services we provide them; therefore, with our inability to attract new client companies, we would materially reduce our future revenues and could harm our business, financial condition and results of operations.
We rely on a limited number of third-party suppliers to provide some of the services and products we resell and distribute.
We create and deliver most all of our services but plan to also sell services and products to our clients such as software and training programs provided by independent third parties. There can be no assurance that there will not be a significant disruption in the supply of such products and services from a supplier or, in the event of a disruption, that we would be able to locate alternative suppliers of such products and services of comparable quality at an acceptable price, or at all. In addition, we cannot be certain that our unaffiliated suppliers will be able to fill our orders in a timely manner. There can be no assurance that alternative suppliers will be available when required on terms that are acceptable to us, or at all, or that any supplier would allocate sufficient capacity to us in order to meet our requirements. In addition, even if we are able to find new suppliers, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers in our methods, products and quality control standards. Any delays, interruption or increased costs in the supply of such products and services could have an adverse effect on our ability to meet client demand for our products and result in lower revenues and net income both in the short and long-term.
If our operations continue to result in a net loss, negative working capital and a decline in net worth, and we are unable to obtain needed funding, we may be forced to discontinue operations.
For several recent periods, up through the present, we had a net loss, negative working capital and a decline in net worth, which raise substantial doubt about our ability to continue as a going concern. Our ability to continue operations will depend on positive cash flow, if any, from future operations and on our ability to raise additional funds through equity or debt financing. If we are unable to achieve the necessary product sales or raise or obtain needed funding, we may be forced to discontinue operations.
We have never paid any dividends on our common stock.
We have not paid any cash or stock dividends on our common stock to date and we do not anticipate paying cash dividends in the foreseeable future.
Since we have limited experience with portfolio investment companies we may encounter problems that would negatively impact our financial condition.
Our experience with portfolio investments is limited and we may encounter problems or underlying liabilities with portfolio companies that would put our investment or our business at risk. We may in our effort to correct or reverse these problems encounter significant accounting or legal expense that would deplete our working capital. These corrective efforts would adversely impact our working capital. We may also incorrectly estimate the value of our investments which would require a subsequent restatement or require an updated valuation due to our lack of experience with portfolio investments.
Our common stock may be affected by limited trading volume and may fluctuate significantly.
There has been a limited public market for our common stock and there can be no assurance an active trading market for our common stock will develop. This could adversely affect our shareholders’ ability to sell our common stock in short time periods or possibly at all. Our common stock has experienced and is likely to experience significant price and volume fluctuations that could adversely affect the market price of our common stock without regard to our operating performance and the performance of our portfolio companies. Our stock price could fluctuate significantly in the future based upon any number of factors such as: general stock market trends; announcements of developments related to our business; fluctuations in our operating results; announcements of technological innovations, new products or services or enhancements by us or our competitors; general conditions in the markets we serve; general conditions in the U.S. economy; developments in patents or other intellectual property rights; the performance of our eligible portfolio companies; and developments in our relationships with our clients. Substantial fluctuations in our stock price could significantly reduce the price of our stock.
Our common stock is traded on the "Over-the-Counter Bulletin Board," which may make it more difficult for investors to resell their shares due to suitability requirements.
Our common stock is currently traded on the Over-the-Counter Bulletin Board (OTCBB) where we expect it to remain in the foreseeable future. Broker-dealers often decline to trade in OTCBB stocks given the market for such securities are often limited, the stocks are more volatile, and the risk to investors is greater. These factors may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of their shares. This could cause our stock price to decline.
Our share ownership is concentrated.
Our officers, directors and principal stockholders, together with their affiliates, beneficially own approximately 83% of our voting shares. As a result, these stockholders, if they act together, will exert significant influence over all matters requiring stockholder approval, including the election and removal of directors, any merger, consolidation or sale of all or substantially all of our assets, as well as any charter amendment and other matters requiring stockholder approval. In addition, these stockholders may dictate the day-to-day management of the business. This concentration of ownership may delay or prevent a change in control and may have a negative impact on the market price of the Company’s common stock by discouraging third party investors. In addition, the interests of these stockholders may not always coincide with the interests of the Company’s other stockholders.
We may change our investment policies without further shareholder approval.
Although we are limited by the Investment Company Act of 1940 with respect to the percentage of our assets that must be invested in qualified investment companies, we are not limited with respect to the minimum standard that any investment company must meet, neither are we limited to the industries in which those investment companies must operate. We may make investments without shareholder approval and such investments may deviate significantly from our historic operations. Any change in our investment policy or selection of investments could adversely affect our stock price, liquidity, and the ability of our shareholders to sell their stock.
Our investments may not generate sufficient income to cover our operations.
We intend to make investments in qualified companies that will provide the greatest overall return on our investment. However, certain of those investments may fail, in which case we will not receive any return on our investment. In addition, our investments may not generate income either in the immediate future or at all. As a result, we may have to sell additional stock or borrow money to cover our operating expenses. The effect of such actions could cause our stock price to decline or, if we are not successful in raising additional capital, we could cease to continue as a going concern.
Our officers and directors have the ability to exercise significant influence over matters submitted for stockholder approval and their interests may differ from other stockholders.
Our executive officers and directors have the ability to appoint a majority to the Board of Directors. Accordingly, our directors and executive officers, whether acting alone or together, may have significant influence in determining the outcome of any corporate transaction or other matter submitted to our Board for approval, including issuing common and preferred stock, appointing officers, which could have a material impact on mergers, acquisitions, consolidations and the sale of all or substantially all of our assets, and the power to prevent or cause a change in control. The interests of these board members may differ from the interests of the other stockholders.
Our board of directors will value our portfolio investments.
There is typically no public market of equity securities of the small privately held companies in which we intend to invest. As a result, the valuation of the equity securities in our portfolio is likely to be stated at fair value as determined by the good faith estimate of our Board of Directors. In the absence of a readily ascertainable market value, the estimated value of our portfolio of securities may differ significantly, favorably or unfavorably, from the values that would be placed on the portfolio if a ready market for the equity securities existed.
We plan to target portfolio companies that are early to growth stage companies dependent upon the successful commercialization of their goods or services. Each of our investments in portfolio companies is subject to a high degree of risk, and we may lose all of our investment in a portfolio company if it is not successful.
We will be investing in early to growth stage companies that we believe can benefit from our expertise in structural support and market entry. Early to growth stage companies are subject to all of the risks associated with newer businesses. These risks include the risk that a newer business opportunity cannot remain commercially viable, may not work, or become obsolete. We cannot assure that any of our investments in our portfolio companies will be successful. Our portfolio companies will be competing with larger, established companies with greater access to, and resources for, further development requiring capital resources beyond our ability. We may lose our entire investment in any or all of our portfolio companies. Even if our portfolio companies are able to deliver commercially viable products, the market for new products and services is highly competitive and rapidly changing. Commercial success is difficult to predict and the marketing efforts of our expected portfolio companies may not be successful.
The securities we hold in our portfolio companies may be subject to restriction on resale, and we may not be able to sell the securities we hold for amounts equal to their recorded value, if at all.
Some of our portfolio companies may be or become thinly traded public companies or remain private companies. As a result, substantially all of the securities we hold in our portfolio companies are subject to legal restrictions on resale. Furthermore, our ability to sell the securities in our portfolio may be limited by, and subject to, the lack of or limited nature of a trading market for such securities. Therefore, we cannot assure you that we will be able to sell our portfolio company securities for amounts equal to the values that we have ascribed to them or at the time we desire to sell.
We are subject to substantive SEC regulations as a business development company.
Securities and tax laws and regulations governing our activities may change in ways adverse to our and our shareholders' interests, and interpretations of these laws and regulations may change with unpredictable consequences. Any change in the laws or regulations that govern our business could have an adverse impact on us or on our operations. Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and NASDAQ Market rules, are creating additional expense and uncertainty for publicly held companies in general, and for business development companies in particular. These new or changed laws, regulations and standards are subject to varying interpretations in many cases because of their lack of specificity, and as a result, their application in practice may evolve over time, which may well result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
We have made no investments in other companies.
Although we have a division that provides electronic media duplication, replication, and packaging services, we have very few assets. We need to raise capital before we can make substantive investments into, and offer managerial assistance to, other companies. We may not be successful in raising capital. If we are successful in raising capital, we may make investments that turn out to be worthless.
We have never had any annual net profit and there is no assurance that we will be able to achieve the financing necessary to enable us to proceed with the development of our business plan.
We have never generated an annual net profit. Our primary activity to date has been our electronic media duplication, replication, and packaging services, and more recently, the development of our BDC business plan. We plan to stop investing any additional capital or resources in the media business but to service any orders coming to us from existing clients. Our success is dependent upon the successful development of our business model as a business development company, as to which there is no assurance. Unanticipated problems, expenses and delays are frequently encountered in establishing a new business. These include, but are not limited to, inadequate funding, competition, and investment development. Our failure to meet any of these conditions would have a materially adverse effect upon us and may force us to reduce or curtail operations. We may not ever be profitable.
We need to raise capital in order to fulfill our business plan.
To date we have relied on sales revenue from our electronic media duplication, replication, and packaging services and private loans and equity investments from George Morris, our CEO, Chief Financial Officer and Secretary and controlling shareholder to fund operations. We have generated little revenue and have extremely limited cash liquidity and capital resources. Any equity financings could result in dilution to our stockholders. Debt financing may result in high interest expense. Any financing, if available, may be on unfavorable terms. If adequate funds are not obtained, we may be required to reduce or curtail operations.
The services of our directors, officers and key staff are essential to our future success.
We are dependent for the selection, structuring, closing and monitoring of our investments on the diligence and skill of George Morris, Ph.D., our CEO and Chief Financial Officer. However, we are seeking additional management assistance through partnering and joint participation. Any loss or interruption of our key personnel’s services, as occurred in the last two years with the accident of George Morris, could adversely affect our ability to develop our business plan. Our future success depends to a significant extent on the continued service and coordination of our senior management team and we cannot assure you we would be able to find an appropriate replacement for key personnel. We have no employment agreements or life insurance on Dr. Morris.
ITEM 1B
ITEM 1B - UNRESOLVED STAFF COMMENTS
This Item is not applicable to us as we are not an accelerated filer, a large accelerated filer, or a well-seasoned issuer; however, we have not received written comments from the Commission staff regarding our periodic or current reports under the Securities Exchange Act of 1934 within the last 180 days before the end of our last fiscal year.
ITEM 2
ITEM 2 - PROPERTIES
George Morris, our CEO, provides approximately 100 square feet of office space in Redondo Beach, California, at $100 a month. We currently pay approximately $500 a month for public storage. There is a large amount of office and storage space available for less than $2.00 per square foot within three miles of the existing office.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS
We are not a party to, or threatened by, any litigation or procedures.
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted, during the fourth quarter of the fiscal year covered by this report, to a vote of security holders of our company through the solicitation of proxies or otherwise.
PART II
ITEM 5
ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Since December 2001, we have been eligible to participate in the OTC Bulletin Board, an electronic quotation medium for securities traded outside of the NASDAQ Stock Market, and prices for our common stock were published on the OTC Bulletin under the trading symbol “EMEC” through March 31, 2007. Subsequently, in conjunction with the name change to Morris Business Development Company, our OTCBB trading symbol was changed to “MBDV.” The stock traded under that symbol until the opening of business on May 30, 2008 when a 10-for-one stock split became effective and the symbol was changed to “MBDE.” The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. This market is extremely limited and the prices quoted are not a reliable indication of the value of our common stock.
The following table sets forth the high and low bid information for each quarter within the two most recent fiscal years, as provided by the Nasdaq Stock Markets, Inc. The information reflects prices between dealers, and does not include retail markup, markdown, or commission, and may not represent actual transactions.
Holders
The number of holders of record of shares of our common stock is approximately thirty-six (36). Approximately 1,072,130 shares of common stock are held in brokerage accounts and represent approximately one hundred eighty-five (185) additional shareholders.
Dividend Policy
There have been no cash dividends declared on our common stock. Dividends are declared at the sole discretion of our Board of Directors.
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA
ITEM 7
ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Disclaimer Regarding Forward-Looking Statements
Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Annual Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
Overview
We focus on the development of opportunities to invest in eligible portfolio companies providing early stage capital, strategic guidance and operational support.
Our principal objective is long-term capital appreciation. We may invest in debt securities of these companies, or may acquire an equity interest in the form of common or preferred stock, warrants or options to acquire stock or the right to convert the debt securities into stock. We may invest alone, or as part of a larger investment group. Consistent with our status as a BDC and the purposes of the regulatory framework for BDCs under the 1940 Act, we will offer to provide managerial assistance, potentially in the form of a consulting agreement or in the form of a board of director’s seat, to the developing companies in which we invest.
In addition, we may acquire either a minority or controlling interest in mature companies in a roll-up strategy. It is anticipated that any acquisitions will be primarily in exchange for our common stock, or a combination of cash and stock. The principal objective of acquisitions pursuant to a roll-up strategy would be to consolidate an industry and either sell the acquired entities as a larger unit, or take the unit public through an initial public offering, spin-off to our shareholders, or reverse merger into a publicly traded shell corporation.
We shall operate as an externally managed investment company. Our operations will be governed by an Investment Advisory Management Agreement to be entered into between us and a new investment advisory limited liability company which will be formed and wholly-owned by our CEO, George Morris. We have not yet elected to
qualify to be taxed as a regulated investment company as defined under Subchapter M of the Internal Revenue Code.
Our common stock trades on the Over-the-Counter Bulletin Board (OTCBB) under the symbol “MBDE.”
Our financial statements have been prepared assuming we will continue as a going concern. Because we have historically incurred operating losses, and expect those losses to continue in the future, our Certified Public Accountants included an explanatory paragraph in their report raising substantial doubt about our ability to continue as a going concern.
Results of Operations for the Years ended March 31, 2011 and 2010
Introduction
In 2011, our revenues were $10,090, compared to $3,300 in 2010, an increase of approximately 206%. This increase was a result of the new effort for business development clients in a bad economy the start of our management assistance business development business.
Revenues and Loss from Operations
Our revenue, cost of revenue, total operating expenses, and loss from operations for the year ended March 31, 2010 as compared to the year ended March 31, 2009 are as follows:
Revenues for the year ended March 31, 2011 were $10,900, an increase of $7,600 from $3,300, for the same period ended March 31, 2010. All of our revenue was generated by our business development services in the year ending December 31, 2011. The increase in revenue is due to our new business direction.
Cost of revenues for the year ended March 31, 2011 was $0, a decrease of $660 from $660 for the same period ended March 31, 2010. The decrease in cost of revenues was primarily due to the trial no cost of goods revenue model...
Operating expenses were $26,205 and $31,100, respectively, for the year’s ended March 31, 2011 and2010. The operating expenses incurred during each of the years were:
Total operating expenses were $26,205 for the year ended March 31, 2011 versus $31,100 for the year ended March 31, 2010, which is a decrease of $4,895. The majority of the reduction was due to lower legal and accounting fees...
Non-Operating Income (Expense) and Net Income (Loss)
Our other income and expenses and net loss for the years ended March 31, 2010 and 2009 are as follows:
The interest expense for each of the years presented is related to notes owed to George Morris, our CEO, Chief Financial Officer and Secretary.
During the twelve months ended March 31, 2011, our total other expenses decreased to $2,204 compared to the twelve months ended March 31, 2010. The net loss for the year ended March 31, 2011 was $30,737, versus a net loss of $47,750 for the year ended March 31, 2010.
Liquidity and Capital Resources
Introduction
During the twelve months ended March 31, 2011, we had a negative cash flow from operations of ($30,737). Because our revenues are small, almost any change in our revenues or operating expenses has a material effect, and we anticipate that our net profit or loss, and operating profit or loss, will continue to vary widely from time period to time period.
Our cash and cash equivalents, accounts receivable, total current assets, total current liabilities, and total liabilities as of March 31, 2011, as compared to March 31, 2010 were as follows:
Cash Requirements
As of March 31, 2011, we had a total shareholder deficit of $56,415. Our cash obligations are anticipated to increase substantially over the next 12 months. The cash would be utilized for operational expenses and general working capital. Funds will also be utilized for continued legal and professional fees as a result of legal securities filings and reserve or deposit requirements which are needed for our administrative support business... We intend for these funding requirements to be fulfilled through either equity or debt financing.
Sources and Uses of Cash
Operations
Net cash provided by (used in) operating activities for the twelve months ended March 31, 2011 and 2010 were $(165,501) and $(24,045), respectively. We hope to operate at approximately break-even before December 31, 2011 and generate a small positive cash flow from the operations of our BDC consulting activities.
Financing
Net cash provided by (used in) financing activities for the twelve months ended March 31, 2011 and 2010 were $166,916 and $24,045, respectively.
Critical Accounting Policies
Our accounting policies are fully described in Note 2 to our consolidated financial statements. The following describes the general application of accounting principles that impact our consolidated financial statements.
Our results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to bad debt, inventories, investments, intangible assets, income taxes, financing operations, and contingencies and litigation.
We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is deemed by our management to be material to investors.
ITEM 7A
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since we have very few assets and one eligible portfolio company, there is no quantitative information, as of the end of March 31, 2011, about market risk that has any impact on our present business. Once we begin making investments in eligible portfolio companies we anticipate there will be market risk sensitive instruments and we will disclose the applicable market risk information at that time.
Our primary financial instruments will be cash in banks and money market instruments. We do not believe that these instruments are subject to material potential near-term losses in future earnings from reasonably possible near-term changes in market rates or prices. We do not have derivative financial instruments for speculative or trading purposes. We are not currently exposed to any material currency exchange risk.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Certified Public Accountants June 30, 2011
Report of Independent Certified Public Accountants July 2, 2009
Balance Sheet as of March 31, 2011 and 2010
Statement of Operations for the fiscal years ended March 31, 2011, 2010 and 2009
Statement of Changes in Stockholders’ Equity for the fiscal years ended March 31, 2011, 2010 and 2009
Statements of Cash Flows for the fiscal years ended March 31, 2011, 2010 and 2009
Notes to Financial Statements
-
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On June 24, 2010, the Company”, through and with the recommendation of its Audit Committee and approval of its Board of Directors, engaged John Kinross-Kennedy, CPA of Irvine, California (“Kennedy”) as its independent registered public accounting firm as reported in Form 8-K June 24, 2010 filed on June 25, 2010.
Concurrent with the engagement of John Kinross-Kennedy, the Company dismissed the engagement of Kabani & Company, Inc. (“Kabani”) from its position as the Company’s independent registered public accounting firm. Kabani served as the Company’s independent registered public account firm since March 31, 2000. No report on the Company’s financial statements prepared by Kabani during the fiscal years ended March 31, 2010 and March 31, 2009 and the subsequent interim period through December 31, 2009 contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles. Further, during the fiscal years ended March 31, 2008 and March 31, 2009 and the subsequent interim period through December 31, 2010, there were no disagreements between the Company and Kabani on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the satisfaction of Kabani, would have caused it to make reference to the subject matter of the disagreement in connection with a report. The Company’s Audit Committee recommended the dismissal of Kabani, and such recommendation was adopted by the Company’s Board of Directors.
In accordance with Item 304(a)(3) of Regulation S-K, the Company provided Kabani a copy of the disclosures it made in the Current Report on Form 8-K prior to filing with the SEC and requested that Kabani furnish the Company with a letter addressed to the SEC stating whether or not Kabani agreed with the above statements.
During the fiscal years ended March 31, 2008 and March 31, 2009 and the subsequent interim period through December 31, 2010, neither the Company nor anyone on its behalf has consulted with Kabani regarding (i) the application of accounting principles to a specific transaction, either completed or proposed, (ii) the type of audit opinion that might be rendered on the Company’s financial statements, (iii) any matter that was the subject of a disagreement within the meaning of Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K or (iv) any reportable event within the meaning of Item 304(a)(1)(v) of Regulation S-K.
ITEM 9A
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of March 31, 2009, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2009, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.
In light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure our consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies, those results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following three material weaknesses which have caused management to conclude that, as of March 31, 2009, our disclosure controls and procedures were not effective at the reasonable assurance level:
1. We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act and are applicable to us for the fiscal year ended March 31, 2009. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
2. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
3. We have had, and continue to have, a significant number of audit adjustments. Audit adjustments are the result of a failure of the internal controls to prevent or detect misstatements of accounting information. The failure could be due to inadequate design of the internal controls or to a misapplication or override of controls. Management evaluated the impact of our significant number of audit adjustments and has concluded that the control deficiency that resulted represented a material weakness.
To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.
Remediation of Material Weaknesses
We have attempted to remediate the material weaknesses in our disclosure controls and procedures identified above by working with our independent registered public accounting firm and refining our internal procedures. To date, we have not been successful in reducing the number of audit adjustments, but will continue our efforts in the coming fiscal year.
Internal control over financial reporting.
Management’s annual report on internal control over financial reporting. The registrant’s management recognizes its responsibility for establishing and maintaining adequate internal control over financial reporting for the registrant. Currently, the registrant is operating as a caretaker entity, keeping the corporation alive and in good standing with the Commission. All debit and credit transactions with the company’s bank accounts are reviewed by the officers as well as all communications with the company’s creditors. The directors meet frequently - as often as weekly - to discuss and review the financial status of the company and all developments regarding its search for a reverse merger partner. All filings of reports with the Commission are reviewed before filing by all directors.
Management assesses the company’s control over financial reporting at the end of its most recent fiscal year to be effective. It detects no material weaknesses in the company’s internal control over financial reporting.
This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.
There has been no change in our internal control over financial reporting identified in connection with the evaluation required by Commission rules that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B
ITEM 9B - OTHER INFORMATION
William Nordstrom resigned as a director of our company on June 12, 2009. Charles Yesson was appointed to serve as a director.
PART III
ITEM 10
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth the names and ages of the current directors and executive officers of the Company, the principal offices and positions with the Company held by each person and the date such person became a director or executive officer of the Company. The executive officers of the Company are elected annually by the Board of Directors. The directors serve one-year terms until their successors are elected. The executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors. Unless described below, there are no family relationships among any of the directors and officers.
GEORGE MORRIS, Ph.D. Dr. Morris has been the Chairman of the Board of Directors, principal shareholder, Chief Financial Officer and Secretary of Morris Business Development Company since we were incorporated on March 10, 1998. Dr. Morris has also been the Chairman and Vice President of Internet Infinity, Inc., the parent company and owner of 100% of our shares. Dr. Morris assumed the duties of President in 2006 to operate the Business Development Company. Dr. Morris is also the President of Apple Realty, Inc. doing business as Hollywood Riviera Studios since 1974 and the Chairman of the Board of Directors of L&M Media, Inc. since 1990. Dr. Morris is also the Founder and has been the President, Chairman of the Board of Directors and principal of Morris Financial, Inc., a NASD member broker-dealer firm, since its inception in 1987. He has been active in designing, negotiation and acquiring all equipment, facilities and systems for manufacturing, accounting and operations of Morris Business Development Company and its affiliates. Dr. Morris has produced over 20 computer-training programs in video and interactive hypertext multimedia CD-ROM versions, as well as negotiating Morris Business Development Company and its affiliate distribution and supplier agreements. Dr. Morris earned a Bachelor of Business Administration and Masters of Business Administration from the University of Toledo, and a Ph.D. (Doctorate) in Marketing and Finance and Educational Psychology from the University of Texas. Prior to founding Morris Business Development Company and its affiliates, Dr. Morris had 20 years of academic experience as a professor of Management, Marketing, Finance and Real Estate at the University of Southern California (1969 - 1971) and the California State University (1971 - 1999). During this period Dr. Morris served a Department Chairman for the Management and Marketing Departments. He has since retired from teaching at the University. Dr. Morris was the West Coast Regional Director of the American Society for Training and Development, a Director of the South Bay Business Roundtable and a speaker on a number of topics relating to business, training and education. He most recently taught University courses about Internet Marketing for domestic and foreign markets and Sales Force Management. George Morris returned to full time work activity from a serious automobile accident in the fiscal year ended March 31, 2010.
JAMES HERBERT. Mr. Herbert was appointed as an independent director of our company on May 10, 2006. He is a professional consultant and businessman with more than forty years’ experience in Canada, Texas and California, in real estate development and business financing. Mr. Herbert also has 24 years’ experience in oil and gas investments and partnerships as a business/financial consultant. For the last five years, he has been a financial consultant to the California Clean Air Technologies and Recast Company in Riverside, California. In addition, Mr. Herbert through a life-long network of friends is expected significantly identify and prospect for investment and acquisition opportunities for our Company operating as a business development company.
CHARLES YESSON. Mr. Yesson has over 35 years of experience in the Financial Services Industry. His experience includes 25 years of managing public corporations and 10 years as a consultant to emerging companies. He has worked extensively in the areas of reorganization, growth development and capitalization. His experience includes serving as CEO of several Life Insurance Companies. He also held positions as a Senior Business Consultant of the Principal Life Insurance Company and for GEICO in Washington, DC. He has served as CEO of U.S. Life Savings Loan Association, and VP of Midwestern Financial/First S&L Shares, and Sr. VP of First Western Financial Corp (NYSE). Mr. Yesson is currently licensed as a FINRA Series 7, 24 and 66-holding positions as Managing Director of Antaeus Capital a Principal of J. Alexander Securities and Marketing Director and Securities Analyst of Hayden., Stone, Inc. He holds a Master’s Degree from New York University, New York where he has done PhD-level study, attended George Washington Law School and holds certificates in Bank Marketing from Northwestern University. Mr. Yesson is licensed in Insurance and Real Estate in the State of California and is certified as a Property Damage Mediator for the California Insurance Department. In addition, Mr. Yesson’s experience as a public stock company board member should help guide the development of our Company and client companies.
Audit Committee
Our Directors Yesson and Morris serve as our audit committee. There is no audit committee financial expert. However, the audit committee has the authority to hire a financial expert any time it has the need for expert financial advice.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who own more than 10 percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than 10 percent shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, none of the required parties are delinquent in their 16(a) filings.
Code of Ethics
We have adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, and - should we acquire such - principal accounting officer or controller or persons performing similar functions. A copy of the Code of Ethics was filed as an exhibit to the Form 10-KSB Annual Report for the fiscal year ended March 31, 2004.
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION
The following tables set forth certain information about compensation paid, earned or accrued for services by (i) our Chief Executive Officer and (ii) all other executive officers who earned in excess of $100,000 in the fiscal year ended March 31, 2010 (“Named Executive Officers”):
SUMMARY COMPENSATION TABLE
*
Based upon the aggregate grant date fair value calculated in accordance with the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“FAS”) No. 123R, Share Based Payment. Our policy and assumptions made in valuation of share based payments are contained in Note 2 to our December 31, 2006 financial statements.
Employment Contracts
We currently do not have any employment agreements with our officers.
Other Compensation
There are no annuity, pension or retirement benefits proposed to be paid to our officers, directors, or employees in the event of retirement at normal retirement date as there was no existing plan as of March 31, 2010, provided for or contributed to by us.
Director Compensation
The following table sets forth director compensation as of March 31, 2010:
DIRECTOR COMPENSATION
*
Based upon the aggregate grant date fair value calculated in accordance with the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“FAS”) No. 123R, Share Based Payment. Our policy and assumptions made in valuation of share based payments are contained in Note 2 to our December 31, 2006 financial statements.
The compensation of each of our directors is fully furnished in the Summary Compensation Table above.
Directors of the Company who are also employees do not receive cash compensation for their services as directors or members of the committees of the board of directors. All directors may be reimbursed for their reasonable expenses incurred in connection with attending meetings of the board of directors or management committees.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth certain information concerning outstanding stock awards held by the Named Executive Officers as of March 31, 2010:
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of March 31, 2010, certain information with respect to our equity securities owned of record or beneficially by (i) each Officer and Director of the Company; (ii) each person who owns beneficially more than 5% of each class of the Company’s outstanding equity securities; and (iii) all Directors and Executive Officers as a group.
(1)
Unless stated otherwise, the address of each beneficial owner is c/o 413 Avenue G, #1, Redondo Beach, CA 90277.
(2)
Unless otherwise indicated, based on 23,666,667 shares of common stock issued and outstanding. Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.
(3)
Mr. Morris is the registered holder of 21,425,657 shares of our common stock but is attributed the combined shares of 496,550 held by Hollywood Riviera Studios and L&M Media, Inc. (2,177,140 shares), because he exercises voting and/or dispositive power over the securities held by Hollywood Riviera Studios and L&M Media, Inc.
The issuer is not aware of any person who owns of record, or is known to own beneficially, five percent or more of the outstanding securities of any class of the issuer, other than as set forth above. The issuer is not aware of any person who controls the issuer as specified in section 2(a)(1) of the Investment Company Act of 1940. There are no classes of stock other than common stock issued or outstanding. Other than as set forth herein, there are no options, warrants, or other rights to acquire common stock outstanding. We do not have an investment advisor.
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
We are under the control of George Morris, our CEO and Chief Financial Officer, who beneficially owns 82.8% of our issued and outstanding common stock.
The basis of his control is set forth below:
·
Mr. Morris directly owns 90.6% of our issued and outstanding common stock;
·
Mr. Morris owns 100% of Hollywood Riviera Studios which owns 3.82% of our issued and outstanding common stock; and
·
Mr. Morris owns 100% of L&M Media, Inc. which owns 16.75% of our issued and outstanding common stock.
We had been either a division or a wholly-owned subsidiary of Internet Infinity, Inc., since incorporating our business in 1998. Our shares previously owned by Internet Infinity were distributed on September 28, 2001 to the Internet Infinity shareholders of record on September 18, 2001. We now operate independently of Internet Infinity but we share in common the office facilities. Internet Infinity is a party related through a common controlling shareholder. George Morris is our Chief Financial Officer, Vice President, CEO of the Board of Directors and our controlling shareholder. As of March 31, 2010, his beneficial ownership of the percentages of the outstanding voting shares of the related parties is listed below:
·
Morris Business Development Company
90.6%
·
Internet Infinity, Inc.
85.1%
·
Morris & Associates, Inc.
71.30%
·
Apple Realty, Inc.
100.00%
We have a loan payable of $119,992 to Apple Realty, Inc., a party related through a common controlling shareholder. The loan is secured by our assets. Interest accrues at 6% per annum, due and payable upon demand. This loan is the remaining unpaid consulting fees and office expense provided by Apple Realty, Inc. For the year ended March 31, 2011, $1,200 and for March 31,2010, $1,200 of unpaid office expense was added to the loan.
We recorded interest to Apple Realty, Inc. of $1,826 and $0, for the years ended March 31, 2010, and 2009 respectively. The interest payable amounting to $1,826for March 31, 2011 is included in account payable and accrued expense in the accompanying financial statements.
During the year ended March 31, 2011, we incurred no consulting fees to Apple Realty, Inc.
We have a payable of $0 as of March 31, 2011 to Morris & Associates, Inc., a party related through a common controlling shareholder. The amounts were temporary loans in the normal course of business, interest free, unsecured and due on demand.
We have a payable to George Morris and his affiliates, loan, amounting to $70,000 at March 31, 2011, carries an interest rate of 6% per annum, is unsecured, and due on March 31, 2011. We recorded interest of $1,764 for the year ended March 31, 2011. The total interest payable on officer's loan amounted to $9,720 at March 31, 2011 and is included in due to officer in the accompanying financial statements.
During the year ended March 31, 2006, we issued 300,000 shares of our common stock to George Morris for cash consideration of $45,000, which was the market value on the date the board of directors authorized the issuance.
During the year ended March 31, 2011, we issued 10,666 667 shares of our common stock to George Morris for cash consideration of $320,000, which was the value on the date the board of directors authorized the issuance.
ITEM 14
ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
During the fiscal years ended March 31, 2010 and 2009, our principal independent accountant billed us $15,500 and $25,500, respectively, in fees for professional services for the audit of our annual financial statements and review of financial statements included in our Forms 10-K and 10-Q. For the year ended March 31, 2011, the estimated fees are $6,000.
Audit - Related Fees
During the fiscal years ended March 31, 2010 and 2009, our principal independent accountant billed us $0 and $0, respectively, in fees for assurance and related services related to the performance of the audit and review of our financial statements.
Tax Fees
During the fiscal years ended March 31, 2011, our principal independent accountant billed us $0 in fees for professional services for tax planning and preparation.
All Other Fees
During the fiscal years ended March 31, 2011, our principal independent accountant billed $700 for any other fees.
Pre-Approval of Audit and Non-Audit Services.
The Audit Committee charter requires that the committee or the directors if there be no committee, pre-approve all audit, review and attest services and non-audit services before such services are engaged.
PART IV
ITEM 15
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1)
Financial Statements
Refer to Item 8 above.
(a)(2)
Financial Statement Schedules
We do not have any financial statement schedules required to be supplied under this Item.
(a)(3)
Exhibits
Refer to (b) below.
(b)
Exhibits
3.1
Articles of Incorporation
(1)
3.2
Articles of Amendment to Articles of Incorporation
(4)
3.3
Bylaws
(1)
10.1
Distribution Agreement Between Electronic Media Central and L&M Media, Inc., dba Apple Media
(2)
14.1
Code of Ethics
(3)
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
(1)
Incorporated by reference to the Registrant’s Registration Statement on Form 10-SB, filed on February 13, 2001.
(2)
Incorporated by reference to the Registrant’s Registration Statement on Form 10-SB/A, filed on April 13, 2001.
(3)
Incorporated by reference to the Registrant’s Annual Report on Form 10-KSB, filed on July 13, 2004.
(4)
Incorporated by reference to the Registrant’s Annual Report on Form 10-K, filed on July 3, 2007.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Dated: June 30. 2011
/s/ George Morris
George Morris, President, CEO, CFO and Director
Dated: une 30, 2011
/s/ Charles Yesson
Charles Yesson, Director
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To: The Board of Directors and Stockholders
Morris Business Development Company
Irvine, California
I have audited the accompanying balance sheet of Morris Business Development Company as of March 31, 2011 and the related statements of operations, shareholders’ deficit 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 audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 Morris Business Development Company as of March 31, 2011 and the results of its operations and its cash flows for the years then ended in conformity with United States generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As discussed in Note 3 to the financial statements, the Company has incurred significant losses and has limited revenue. This raises substantive doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company has determined that it is not required to have, nor was I engaged to perform, an audit of the effectiveness of its documented internal controls over financial reporting.
/ s / John Kinross-Kennedy
John Kinross-Kennedy
Certified Public Accountant
Irvine, California
June 29, 2011, 2010
Board of Directors and Stockholders of Morris Business Development Company.
We have audited the accompanying balance sheet of Morris Business Development Company as of March 31, 2009, and the related statements of operations, shareholders’ deficit, and cash flows for the years ended March 31, 2009 & 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, the financial statements referred to above present fairly, in all material respects, the financial position of Morris Business Development Company as of March 31, 2009 and the results of its operations and cash flows for the years ended March 31, 2009 & 2008 in conformity with accounting principles generally accepted in the United States of America.
The Company’s financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has an accumulated deficit of $836,553 at March 31, 2009 including a net loss of $480,348 during the year ended March 31, 2009. These factors as discussed in Note 3 to the financial statements, raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Kabani & Company, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Los Angeles, California
July 2, 2009
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
MORRIS BUSINESS DEVELOPMENT COMPANY
NOTES TO AUDITED FINANCIAL STATEMENTS
MARCH 31, 2011
NOTE 1
ORGANIZATION
On April 1, 1998, Morris Business Development Company (the Company or MBDC) was incorporated in California as Electronic Media Central Corporation (EMC) (formerly a division of Internet Infinity, Inc. (III)). The Company is engaged in providing services for the development and growth of both American public and private stock companies. The Company is also engaged in providing services for duplication, replication and packaging of DVDs and CDs.
As of May 12, 2006 the Company filed Form N-54A with the United States Securities Exchange Commission to become a business development company by certifying that it is a closed-end company (mutual fund) organized and operated for the purpose of making investments in securities described in Section 55 (a)(1) through (3) of the Investment Company Act of 1940; and that it will make available significant managerial assistance to American companies with respect to issuers of such securities to the extent required by the act.
On March 29, 2007 the Company registered a name change to Morris Business Development Company with the California Secretary of State.
The Company has commenced the development of new management consulting services to assist American client companies in complying with the reporting requirements to the government and in communicating with shareholders, customers and the public and the accessing of needed growth capital. The Company has received 2.5 million shares from its first client for financial consulting work completed in the fiscal year ended March 31, 2008.
In June, 2009 the Company entered into an agreement with Howell Capital Holdings, LLC operating as “More American Jobs” to help American companies prepare to access both government and private financial support. In addition, the Company will also commence a new participation relationship this month with Avalon Funding Corporation, an asset based lender focusing on accounts receivable and purchase order funding.
On April 7, 2010 the Company entered into a Material Definitive Agreement with Video Army, LLC, A California limited partnership, to operate a (‘NEWCO”) business named “Internet Video / Morris BDC, LLC”, a California Limited Partnership and/or other registered DBAs. The business will provide financial and internet related services primarily for both private and thinly traded public stock American based companies.
NOTE 2
SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS
Cash and cash equivalents
The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents.
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.
Long-lived assets
The Company periodically analyzes long-lived assets for potential impairment, assessing the appropriateness of lives and recoverability of unamortized balances through measurement of undiscounted operation cash flows in accordance with Financial Accounting Standards Board ASC (Accounting Standards Codification) No. 144, Property, Plant and Equipment. If impairment is deemed to exist, it will be written down to its fair value. Fair Value is generally determined using a discounted cash flow analysis. As at March 31, 2011, the Company does not believe any adjustment for impairment is required.
Income taxes
ASC (Accounting Standards Codification) No. 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carry-forwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rules on deferred tax assets and liabilities is recognized in operations in the year of change. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
Stock-based compensation
The Company complies with FASB ASC 718 Compensation - Stock Compensation, requiring companies to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value.
Stock Split
Effective May 30, 2008, a ten-for-one stock split was effected. All per share amounts and share numbers presented herein have been retroactively restated for this adjustment.
Fair value of financial instruments
FASB ASC 820-10, “Fair Value Measurements and Disclosures" for financial assets and liabilities provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. FASB ASC 820-10 defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available.
Revenue Recognition
The Company's revenue recognition policies are in compliance with Staff accounting bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectibility is reasonably assured. The Company recognizes consulting fee revenue when the transaction is complete and the fee has been earned.
Advertising and Marketing Costs
The Company expenses costs of advertising and marketing as incurred. Advertising and marketing expense for the years ended March 2011 and 2010 were insignificant.
Basic and Diluted Earnings Per Share
Earnings per share is calculated in accordance with FASB ASC Topic 260, “Earnings per share”. Net loss per share for all periods presented has been restated to reflect the adoption of SFAS No. 128. Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
Recent Pronouncements
In April 2010, the FASB codified the consensus reached in Emerging Issues Task Force Issue No. 08-09, “Milestone Method of Revenue Recognition.” FASB ASU No. 2010-29 “Revenue Recognition - Milestone Method (Topic 605)” provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research and development transactions. FASB ASU No. 2010 - 17 is effective for fiscal years beginning on or after June 15, 2010, and is effective on a prospective basis for milestones achieved after the adoption date. The Company does not expect this ASU has a material impact on its financial position or results of operations at this time.
On December 1, 2010, we adopted guidance issued by the FASB ASU 2010-15 on the consolidation of variable interest entities. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. Adoption of the new guidance did not have a material impact on our financial statements.
The Company has reviewed issued accounting pronouncements and plans to adopt those that are applicable to it. The Company does not expect the adoption of any other pronouncements to have an impact on its results of operations or financial position.
Accounts Receivable
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis. There were no accounts receivable as of March 31, 2011 and 2010.
Marketable securities
The Company’s investments in securities are classified as available-for-sale and, as such, are carried at fair value based on quoted market prices. Securities classified as available-for-sale may be sold in response to changes in interest rates, liquidity needs, and for other purposes.
Unrealized holding gains and losses for available-for-sale securities are excluded from earnings and reported as a separate component of stockholder’s equity. Realized and unrealized gains and losses for securities classified as available-for-sale are included in the statement of operations and comprehensive Gain, respectively. On March 31, 2011 and2010, marketable securities have been recorded at $12,500 and $12,500 respectively, based upon the fair market value of the marketable securities.
Accounts Payable and Accrued Expenses
Accrued expenses consisted of the following at March 31, 2011 and 2010:
NOTE 3
UNCERTAINTY OF ABILITY TO CONTINUE AS A GOING CONCERN
The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has accumulated deficit of $900,418 at March 31, 2011, and its total liabilities exceeds its total assets by $56,415.
In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. The Company is actively pursuing the new business development company activities and additional funding from strategic partners, which would enhance stockholders’ investment. Management believes that the above actions will allow the Company to continue operations through the next fiscal year.
NOTE 4
CAPITAL
The Company had the following capital transactions in the years ended March 31, 2011 and 2009:
On September 30, 2010, 10,667,000 shares of common stock were issued at $0.03 per share in retirement of debt of $320,000.
On March 31, 2010, an officer of the Company contributed $57,109 upon assumption of $57,109 liabilities of the Company.
As of March 31, 2011 and 2010 the Company had authorized 10,000,000 preferred shares of par value $0.001, of which none were issued and outstanding. As of March 31, 2011 and 2010 the Company had authorized 40,000,000 shares of common stock of par value $0.001, of which 23,667,000 and 13,000,000 shares were issued and outstanding respectively.
NOTE 5
RELATED PARTY TRANSACTIONS
The Company has a note payable to a related party, through a common shareholder and officer. The note payable to Apple Realty, Inc. of $41,847 and 119,992 as of March 31, 2011 and 2010, respectively, is due on demand, and is secured by assets of Morris Business Development Company. Interest accrues at 6% per annum. The note is the remaining unpaid consulting fees and office expense provided by the related party. During the twelve month period ended March 31, 2011, interest of $4,845 was accrued on the note.
The Company has a payable to the Company’s chairman. The loan of $190 and $186,338 at March 31, 2011 and 2010, respectively, carries an interest rate of 6% per annum, is unsecured and is due on demand and has no maturity. The company recorded interest on the loan of $9,720 and $9,732, for the years ended March 31, 2011 and 2010 respectively.
George Morris is the chairman of MBDE. As of March 31, 2011, Mr. Morris’ beneficial ownership percentages of related companies’ common stock is as follows:
NOTE 6
CONCENTRATION OF CREDIT RISK
For the year ended March 31, 2011, 2010 and 2009, revenue from the top two customers represents 100%, 100% and 73% of the Company’s total revenue, respectively. Accounts receivable balance outstanding from these customers was zero as of March 31, 2010, 2009 and 2008. For total purchases for the twelve month periods ended March 31, 2011, 2010 and 2009 the Company had two top vendors who represent 100%, 100%and 92% of the Company’s total purchases. Accounts payable balance outstanding for these vendors was zero, $526 and $4,171 as of March 31, 2011, 2010 and 2009, respectively.
NOTE 7
INCOME TAXES
No provision was made for federal income tax for the years ended March 31, 2011, 2010 and 2009, since the Company had a significant net operating loss. The net operating loss carryforwards may be used to reduce taxable income through the year 2027. The availability of the Company’s net operating loss carryforwards are subject to limitation if there is a 50% or more positive change in the ownership of the Company’s stock. The provision for income taxes consists of the state minimum tax imposed on corporations.
The net operating loss carryforward for federal and state income tax purposes was approximately $905,673 as of March 31, 2011.
The Company has recorded a 100% valuation allowance for the deferred tax asset due to the uncertainty of its realization.
The components of the net deferred tax asset are summarized below:
The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations:
Income tax expense consisted of the following:
NOTE 8
SUBSEQUENT EVENTS
Events subsequent to June 23, 2011 have been evaluated through June 29, 2011, the date these statements were available to be issued, to determine whether they should be disclosed to keep the financial statements from being misleading. Management found no subsequent events to be disclosed.