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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Month of August 1998
MFC BANCORP LTD.
(Exact Name of Registrant as specified in its charter)
6 Rue Charles-Bonnet, 1206 Geneva, Switzerland
(41 22) 818 2999
(Address and telephone number of Registrant's executive office)
(Indicate by check mark whether the Registrant files or will file annual
reports under cover of Form 20-F or Form 40-F).
[ X ] Form 20-F [ ] Form 40-F
(Indicate by check mark whether the Registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934).
Yes No X
------- -------
(If "Yes" is marked, indicate below the file number assigned to the Registrant
in connection with Rule 12g3-2(b): 82- ).
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MFC BANCORP LTD.
1998 SECOND QUARTER REPORT
TO SHAREHOLDERS
JUNE 30, 1998
FORWARD-LOOKING STATEMENTS
Statements in this report, to the extent that they are not based on historical
events, constitute forward-looking statements within the meaning of the United
States Private Securities Litigation Reform Act of 1995. These statements
appear in a number of different places in this report and include statements
regarding the intent, belief or current expectations of MFC Bancorp Ltd., and
its directors and officers, primarily with respect to the future market size
and future operating performance of MFC Bancorp Ltd. and its subsidiaries.
Forward-looking statements include, without limitation, statements regarding
the outlook for future operations, forecasts of future costs and expenditures,
evaluation of market conditions, the outcome of legal proceedings, the
adequacy of reserves, or other business plans. Investors are cautioned that
any such forward-looking statements are not guarantees and may involve risks
and uncertainties, and that actual results may differ from those in the
forward-looking statements as a result of various factors such as general
economic and business conditions, including changes in interest rates, prices
and other economic conditions; actions by competitors; natural phenomena;
actions by government authorities, including changes in government regulation;
uncertainties associated with legal proceedings; technological development;
future decisions by management in response to changing conditions; the ability
to execute prospective business plans; and misjudgments in the course of
preparing forward-looking statements.
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MFC BANCORP LTD.
1998 SECOND QUARTER REPORT
President's Letter to Shareholders:
We are pleased to enclose the Company's second quarter results for 1998. The
Company continued to realize increases in revenues and earnings during the
second quarter of 1998, primarily as a result of the growth in its banking and
financial services. The following table is a summary of selected financial
information concerning the Company for the periods indicated:
<TABLE>
<CAPTION>
June 30, June 30,
--------------------------- ----------------------
1998 1997 1998 1997
------------- ------------ ---------- ----------
(U.S. Dollars in thousands) (Canadian Dollars
Information Only in thousands)
<S> <C> <C> <C> <C>
Revenue(1) $ 37,468 $ 25,033 $ 53,895 $ 34,449
Net Income(1) 9,604 4,569 13,812 6,286
Cash and cash equivalents 31,289 28,806 46,045 39,784
Securities 46,765 26,852 68,819 37,085
Total assets 153,746 125,384 226,253 173,167
Accrued losses, claims
and settlement expenses 3,337 5,664 4,911 7,823
Debt 30,611 25,341 45,047 34,998
Shareholders' equity 87,426 70,476 128,657 97,333
- ---------------
(1) For the six months ended.
</TABLE>
The Company is in the financial services business specializing in private and
investment banking internationally. The Company's banking business is
conducted by its wholly-owned subsidiary, MFC Merchant Bank S.A. (the "Bank"),
a licensed full-service Swiss bank acquired in early February 1997. In the
third quarter of 1997, the Company acquired Bank Rinderknecht AG ("BRA"),
which was active in private banking and securities trading for Swiss and
foreign customers since 1870. Following the acquisition, the Company merged
BRA with the Bank.
Private banking focuses on asset management and servicing the Bank's worldwide
base of clients, including corporations, small to mid-sized institutions and
high net-worth individuals. Investment banking services include providing
finance and advisory services to clients with respect to corporate finance
transactions and underwriting issuances of securities. The Company's
personalized approach to client development for both its private and
investment banking activities has continued to increase its client base. The
Company will continue to focus on providing its clients with creative
solutions through both its existing operations and strategic acquisitions and
alliances.
The Bank requires substantially less regulatory capital than traditional North
American banks as the majority of its customer deposits are placed in the
European fiduciary market. Such placements are off-balance sheet items which
allow the Bank to generate enhanced fee income without tying up significant
amounts of its capital. The Bank does not engage in commercial or real estate
lending.
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The Company also conducts proprietary investing/merchant banking activities,
which consist of the Company using its own resources and expertise to invest
for its own account. These activities concentrate on the identification and
acquisition of control of undervalued assets and the development and
realization of the full potential thereof. The Company invests globally with
the objective of maximizing total return measured through both long-term
appreciation and recognized gains.
The Company has established a solid foundation for its financial services
business and looks forward to continued growth in 1998.
Respectfully submitted,
M.J. Smith
August 1998 President
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MFC BANCORP LTD.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
4
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MFC BANCORP LTD.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
June 30, 1998 June 30,
------------------ ----------------------
(U.S. Dollars) 1998 1997
Information Only ---------- ----------
(Canadian Dollars)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 31,289 $ 46,045 $ 39,784
Securities 46,765 68,819 37,085
Loans 26,213 38,575 37,402
Receivables 25,326 37,270 18,906
Property held for sale 4,064 5,980 8,289
Notes receivable 1,657 2,438 10,322
Excess cost of net assets acquired 12,463 18,341 18,266
Premises and equipment 1,784 2,626 1,725
Prepaid and other 4,185 6,159 1,388
---------- ---------- ----------
$ 153,746 $ 226,253 $ 173,167
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 9,636 $ 14,181 $ 9,770
Accounts payable and accrued expenses 21,022 30,934 20,666
Debt 30,611 45,047 34,998
Accrued losses, claims and
settlement expenses 3,337 4,911 7,823
---------- ---------- ----------
64,606 95,073 73,257
Minority interest 1,714 2,523 2,577
Shareholders' equity
Common stock 44,599 65,632 66,832
Cumulative translation adjustment 837 1,233 (519)
Retained earnings 41,990 61,792 31,020
---------- ---------- ----------
87,426 128,657 97,333
---------- ---------- ----------
$ 153,746 $ 226,253 $ 173,167
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MFC BANCORP LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1998 and 1997
(Unaudited)
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
June 30, 1998 June 30,
------------------ ----------------------
(U.S. Dollars) 1998 1997
Information Only ---------- ----------
(Canadian Dollars)
<S> <C> <C> <C>
Revenues
Banking and financial services $ 19,420 $ 27,935 $ 8,233
Investments 17,177 24,708 25,132
Other 871 1,252 1,084
---------- ---------- ----------
37,468 53,895 34,449
Expenses
Investments 18,069 25,992 18,297
General and administrative 8,216 11,819 7,772
Interest 1,581 2,274 2,175
---------- ---------- ----------
27,866 40,085 28,244
---------- ---------- ----------
Income before income taxes 9,602 13,810 6,205
Provision for income taxes (168) (242) (9)
---------- ---------- ----------
9,434 13,568 6,196
Minority interest 170 244 90
---------- ---------- ----------
Net income $ 9,604 $ 13,812 $ 6,286
========== ========== ==========
Earnings per share:
Basic $ 0.78 $ 1.12 $ 0.53
========== ========== ==========
Fully diluted $ 0.72 $ 1.03 $ 0.52
========== ========== ==========
Weighted average number of shares
outstanding (in thousands) 14,367 14,367 12,685
========== ========== ==========
Dividends paid on:
Common shares $ 257 $ 369 $ 104
========== ========== ==========
Preferred shares $ - $ - $ 396
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MFC BANCORP LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 1998 and 1997
(Unaudited)
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
June 30, 1998 June 30,
------------------ ----------------------
(U.S. Dollars) 1998 1997
Information Only ---------- ----------
(Canadian Dollars)
<S> <C> <C> <C>
Revenues
Banking and financial services $ 9,512 $ 13,763 $ 5,794
Investments 4,382 6,406 13,694
Other 647 931 824
---------- ---------- ----------
14,541 21,100 20,312
Expenses
Investments 4,913 7,173 9,687
General and administrative 4,231 6,119 4,318
Interest 718 1,040 929
---------- ---------- ----------
9,862 14,332 14,934
---------- ---------- ----------
Income before income taxes 4,679 6,768 5,378
(Provision for) recovery of
income taxes (99) (144) 11
---------- ---------- ----------
4,580 6,624 5,389
Minority interest 159 228 76
---------- ---------- ----------
Net income $ 4,739 $ 6,852 $ 5,465
========== ========== ==========
Earnings per share:
Basic $ 0.39 $ 0.56 $ 0.45
========== ========== ==========
Fully diluted $ 0.35 $ 0.51 $ 0.44
========== ========== ==========
Weighted average number of shares
outstanding (in thousands) 14,776 14,776 12,847
========== ========== ==========
Dividends paid on:
Common shares $ 257 $ 369 $ 104
========== ========== ==========
Preferred shares $ - $ - $ 396
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MFC BANCORP LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1998 and 1997
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
June 30,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Inflow (outflow) of cash and cash equivalents
related to the following activities:
Operating
Net income $ 13,812 $ 6,286
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Items not affecting cash
Depreciation and amortization 825 593
Loss (gain) on sales of investments 1,600 (1,945)
Gain on debt securities (7,689) (2,132)
Minority interest (244) (90)
Other (69) 15
------------ ------------
8,235 2,727
Changes in current assets
and liabilities
Investments 5,290 18,438
Receivables (17,676) (10,552)
Properties held for sale 539 (33)
Accounts payable and accrued expenses 8,532 7,417
Accrued losses, claims and settlement
expenses (1,594) (3,035)
Other (301) (1,335)
------------ ------------
3,025 13,627
Financing
Net (decrease) increase in deposits (16,652) 3,132
Debt repayments (21) (8,991)
Borrowings 17,207 1,065
Issuance of shares, net of repurchase (4,736) 550
Dividends paid (369) (500)
Other (39) (199)
------------ ------------
(4,610) (4,943)
Investing
Net decrease in loans 5,775 3,094
Purchases of subsidiaries, net of
cash acquired (370) 10,443
Other (55) -
------------ ------------
5,350 13,537
Exchange rate effect on cash and
cash equivalents 58 -
------------ ------------
Increase in cash and cash equivalents 3,823 22,221
Cash and cash equivalents:
Beginning of period 42,222 17,563
------------ ------------
End of period $ 46,045 $ 39,784
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MFC BANCORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
(Unaudited)
NOTE 1. Basis of Presentation
---------------------
The consolidated financial statements contained herein include the accounts of
MFC Bancorp Ltd. and its subsidiaries (the "Company").
The interim period consolidated financial statements have been prepared by the
Company in accordance with Canadian generally accepted accounting principles.
All financial summaries included are presented on a comparative and consistent
basis showing the figures for the corresponding period in the preceding year.
The preparation of financial data is based on accounting principles and
practices consistent with those used in the preparation of annual financial
statements. Certain information and footnote disclosure normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These interim
period statements should be read together with the audited consolidated
financial statements and the accompanying notes included in the Company's
latest annual report on Form 20-F. In the opinion of the Company, its
unaudited interim consolidated financial statements contain all adjustments
necessary in order to present a fair statement of the results of the interim
periods presented.
Certain reclassifications have been made to the prior period financial
statements to conform with the current period presentation.
NOTE 2. Nature of Business
------------------
The Company is in the financial services business and its principal activities
focus on private and investment banking.
NOTE 3. Earnings Per Share
------------------
Basic earnings per share is computed on the weighted average number of shares
outstanding during the period. For the calculation of fully diluted earnings
per share, under Canadian generally accepted accounting principles, options
are deemed to be exercised at the date of grant and convertible securities are
deemed to be converted at the date of issuance.
Under U.S. generally accepted accounting principles, options affect diluted
earnings per share when "in-the-money".
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NOTE 4. Reporting Currency
------------------
The Company reports its results in Canadian dollars. Certain amounts herein
have also been reported in U.S. dollars for reference purposes. Amounts
reported in U.S. dollars have been translated from Canadian dollars at a rate
of U.S. $1.00 = Canadian $1.4716 for period end purposes and U.S. $1.00 =
Canadian $1.4385 for the six months ended June 30, 1998.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and the
financial condition of the Company for the three and six months ended June 30,
1998, respectively, should be read in conjunction with the consolidated
financial statements and related notes included elsewhere herein. In this
document, unless the context otherwise requires, the "Company" refers to MFC
Bancorp Ltd. and its subsidiaries and all references to monetary amounts are
in Canadian dollars unless otherwise indicated. Selected financial
information has also been provided in U.S. dollars for information purposes.
RESULTS OF OPERATIONS - Six Months Ended June 30, 1998
------------------------------
The Company operates in the financial services business, specializing in
private and investment banking internationally. It also engages in
proprietary investing/merchant banking activities for its own account. The
Company conducts its banking activities through its wholly-owned subsidiary,
MFC Merchant Bank S.A., which was acquired in February 1997. The Company
further expanded its operations by acquiring the MFC Securities group of
companies and Bank Rinderknecht AG in the second and third quarters of 1997,
respectively.
Revenues in the six months ended June 30, 1998 increased by approximately 56%
to $53.9 million from $34.4 million in the comparative period of 1997. In the
current period of 1998, revenues from banking and financial services increased
to $27.9 million from $8.2 million in the comparative period of 1997. In the
first half of 1998, revenues from sales of investment securities decreased to
$24.7 million from $25.1 million in the comparative period of 1997.
Costs and expenses increased to $40.1 million in the six months ended June 30,
1998 from $28.2 million in the comparative period of 1997. In the current
period of 1998, costs and expenses from sales of investment securities
increased to $26.0 million from $18.3 million in the comparative period of
1997. General and administrative expenses increased to $11.8 million in the
six months ended June 30, 1998 from $7.8 million in the same period of 1997.
Interest expense was $2.3 million during the first half of 1998, compared to
$2.2 million in the comparative period of 1997.
Net earnings in the six months ended June 30, 1998 were $13.8 million or $1.12
per share on a basic basis ($1.03 per share on a fully diluted basis),
compared to $6.3 million or $0.53 per share on a basic basis ($0.52 per share
on a fully diluted basis) in the same period of 1997. Increased revenues from
banking and financial services contributed to improved earnings in the six
months ended June 30, 1997, which were partially offset by increased expenses
related to investment securities and higher general and administrative
expenses.
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RESULTS OF OPERATIONS - Three Months Ended June 30, 1998
--------------------------------
Revenues in the second quarter of 1998 increased to $21.1 million from $20.3
million in the comparative quarter of 1997. In the three months ended June
30, 1998, revenues from banking and financial services increased to $13.8
million from $5.8 million in the comparative period of 1997. In the current
quarter of 1998, revenues from sales of investment securities decreased to
$6.4 million from $13.7 million in the comparative period of 1997.
Costs and expenses decreased to $14.3 million in the three months ended June
30, 1998 from $14.9 million in the three months ended June 30, 1997, as a
result of a reduction in costs and expenses from sales of investment
securities to $7.2 million in the current quarter of 1998 from $9.7 million in
the comparative period of 1997. General and administrative expenses increased
to $6.1 million in the current period of 1998 from $4.3 million in the same
period of 1997. Interest expense was $1.0 million during the three months
ended June 30, 1998, compared to $0.9 million in the three months ended June
30, 1997.
Net earnings in the quarter ended June 30, 1998 were $6.9 million or $0.56 per
share on a basic basis ($0.51 per share on a fully diluted basis), compared to
$5.5 million or $0.45 per share on a basic basis ($0.44 per share on a fully
diluted basis) in the same period of 1997. Increased revenues from banking
and financial services contributed to improved earnings in the current quarter
of 1998, which were partially offset by increased general and administrative
expenses.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company's cash and cash equivalents were $46.0 million,
compared to $39.8 million at June 30, 1997. At June 30, 1998, the Company had
securities of $68.8 million, compared to $37.1 million at June 30, 1997.
Operating Activities
- --------------------
Operating activities provided cash of $3.0 million in the six months ended
June 30, 1998, compared to $13.6 million for the same period in 1997. A
decrease in investments provided cash of $5.3 million in the six months ended
June 30, 1998, compared to $18.4 million in the six months ended June 30,
1997. The Company's purchase of debt securities resulted in a gain of $7.7
million. An increase in receivables used cash of $17.7 million in the current
period of 1998, compared to $10.6 million in the same period of 1997.
Increased accounts payable and accrued expenses provided cash of $8.5 million
in the current period of 1998, compared to $7.4 million in the same period of
1997. The Company expects to generate sufficient cash flow from operations to
meet its working capital requirements.
Financing Activities
- --------------------
Financing activities used cash of $4.6 million in the six months ended June
30, 1998, compared to $4.9 million in the same period in 1997. A net decrease
in deposits used cash of $16.7 million during the current period of 1998,
compared to a net increase in deposits providing cash of $3.1 million in the
comparative period of 1997. Net repurchases of the Company's shares used cash
of
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$4.7 million in the six months ended June 30, 1998, compared to an issuance of
shares providing cash of $0.6 million in the six months ended June 30, 1997.
During the six months ended June 30, 1998, the Company used $0.4 million to
pay cash dividends to common shareholders, compared to $0.1 million for
dividends to common shareholders in the same period in 1997.
Investing Activities
- --------------------
Investing activities provided cash of $5.4 million in the six months ended
June 30, 1998, compared to $13.5 million in the comparative period of 1997.
During the six months ended June 30, 1998, a net decrease in loans outstanding
provided cash of $5.8 million, compared to $3.1 million in the comparative
period of 1997. The net purchase of subsidiaries used cash of $0.4 million in
the current period of 1998, compared to providing cash of $10.4 million in the
same period of 1997.
The Company anticipates that there will be further purchases of businesses or
commitments to projects during the second half of 1998. To achieve its long-
term goals of expanding its asset-base and earnings both with respect to
client services and proprietary investments, the Company may require
substantial capital resources. The necessary resources will be generated from
cash flow from operations, cash on hand, borrowing against its assets and/or
the sale of assets.
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SIGNATURES
Pursuant to the requirements 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.
Registrant MFC BANCORP LTD.
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By /s/ Michael J. Smith
------------------------------
MICHAEL J. SMITH, PRESIDENT
Date August 28, 1998
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