UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended SeptemberJune 30, 20222023

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from_______________________________from __________________________________ to _____________________________________________________________________

 

Commission File Number: 000-25991

 

MANHATTAN BRIDGE CAPITAL, INC.

(Exact name of registrant as specified in its charter)

New York

11-3474831

(State or other jurisdiction of

of incorporation or organization)

(I.R.S. Employer

Identification No.)

60 Cutter Mill Road, Great Neck, New York 11021

(Address of principal executive offices)

 

(516) 444-3400

(Registrant’s telephone number, including area code)

 

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class 

Trading Symbol(s)

 Name of each exchange on which registered
Common shares, par value $.001 LOAN Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 Large accelerated filer☐Accelerated filer☐
 Non-accelerated filer☒Smaller reporting company☒
 

Emerging growth company

☐  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

 

As of October 21, 2022,July 20, 2023, the Issuer had a total of 11,494,94511,461,585 common shares, $.001 par value per share, outstandingoutstanding.

 

 

 

 
 

MANHATTAN BRIDGE CAPITAL, INC.

TABLE OF CONTENTS

 

MANHATTAN BRIDGE CAPITAL, INC.

TABLE OF CONTENTS

  Page Number
Part IFINANCIAL INFORMATION
   
Item 1.

Consolidated Financial Statements (unaudited)

2
 
Consolidated Balance Sheets as of June 30, 2023 and December 31, 20222
  
 

Consolidated Balance Sheets asStatements of SeptemberOperations for the Three and Six Month Periods Ended June 30, 20222023 and December 31, 20212022

23
  
 

Consolidated Statements of OperationsChanges in Stockholders’ Equity for the Three and Nine MonthsSix Month Periods Ended SeptemberJune 30, 20222023 and 20212022

34
  
 

Consolidated Statements of Changes in Stockholders’ EquityCash Flows for the ThreeSix Month Periods Ended June 30, 2023 and Nine Months Ended September 30, 2022 and 2021

45
  
 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021

5

Notes to Consolidated Financial Statements

6
  
Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

10
   
Item 3.

Quantitative and Qualitative Disclosures about Market Risk

14
   

Item 4.

Controls and Procedures

1514
   
Part II

OTHER INFORMATION

 
   
Item 1A.2.Risk FactorsUnregistered Sales of Equity Securities and Use of Proceeds15
   
Item 6.Exhibits15
   
SIGNATURES16
   
EXHIBITS 

 

 
 

 

Forward Looking Statements

This report contains forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are typically identified by the words “believe,” “expect,” “intend,” “estimate” and similar expressions. Those statements appear in a number of places in this report and include statements regarding our intent, belief or current expectations or those of our directors or officers with respect to, among other things, trends affecting our financial condition and results of operations and our business and growth strategies. These forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those projected, expressed or implied in the forward-looking statements as a result of various factors (such factors are referred to herein as “Cautionary Statements”), including but not limited to the following: (i) our loan origination activities, revenues and profits are limited by available funds; (ii) we operate in a highly competitive market and competition may limit our ability to originate loans with favorable interest rates; (iii) our Chief Executive Officer is critical to our business and our future success may depend on our ability to retain him; (iv) an increase in interest rates may impact our profitability; (v) if we overestimate the yields on our loans or incorrectly value the collateral securing the loan, we may experience losses; (vi)(v) we may be subject to “lender liability” claims; (vii)(vi) our due diligence may not uncover all of a borrower’s liabilities or other risks to its business; (viii)(vii) borrower concentration could lead to significant losses; and (ix)(viii) we may choose to make distributions in our own stock, in which case you may be required to pay income taxes in excess of the cash dividends you receive.receive; (ix) our ability to recover funds, relating to a single foreclosure action, either through the title insurer or through a foreclosure of the property on which we hold a mortgage; and (x) an increase in interest rates may impact our profitability. The accompanying information contained in this report, including the information set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” identifies important factors that could cause such differences. Further information on potential factors that could affect our business is described under the heading “Risk Factors” in Part I, Item 1A.,1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Annual Report”) and in Part II, Item 1A., of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 (the “Quarterly Report”).2022. These forward-looking statements speak only as of the date of this report, and we caution potential investors not to place undue reliance on such statements. We undertake no obligation to update or revise any forward-looking statements. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Cautionary Statements.

 

All references in this Form 10-Q to “Company,” “we,” “us,” or “our” refer to Manhattan Bridge Capital, Inc. and its wholly-owned subsidiary, MBC Funding II Corp., unless the context otherwise indicates.

 
 

PART I. FINANCIAL INFORMATION

 

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

 

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

 

        
 September 30, 2022  

December 31, 2021

  June 30, 2023 December 31, 2022 
 (unaudited) (audited)   (unaudited)   (audited) 
Assets             
Loans receivable $72,701,582  $65,715,364  $69,811,335  $74,483,463 
Interest receivable on loans  1,132,189   955,443   1,274,288   1,363,502 
Cash
  109,708   142,546   248,874   103,540 
Cash - restricted  433,269   — 
Other assets  94,202   64,745   134,819   59,566 
Operating lease right-of-use asset, net  275,937   317,080   234,793   262,222 
Deferred financing costs, net  19,271   10,539   33,948   7,708 
Total assets $74,766,158  $67,205,717  $71,738,057  $76,280,001 
                
Liabilities and Stockholders’ Equity                
Liabilities:                
Line of credit $23,361,607  $15,645,970  $20,670,721  $24,994,234 
Senior secured notes (net of deferred financing costs of $265,928 and $322,241, respectively)  5,734,072   5,677,759 
Senior secured notes (net of deferred financing costs of $209,614 and $247,155, respectively)  5,790,386   5,752,845 
Deferred origination fees  642,106   580,461   686,981   669,128 
Accounts payable and accrued expenses  202,059   154,169   231,736   289,868 
Operating lease liability  286,378   324,248   247,287   273,485 
Loan holdback  17,500   — 
Dividends payable  1,436,868   1,436,868   1,289,428   1,436,868 
Total liabilities  31,663,090   23,819,475   28,934,039   33,416,428 
                
Commitments and contingencies  -        -   - 
Stockholders’ equity:                
Preferred shares - $.01 par value per share; 5,000,000 shares authorized; none issued  —   — 
Common shares - $.001 par value per share; 25,000,000 shares authorized; 11,757,058 issued; 11,494,945 outstanding  11,757   11,757 
Preferred shares - $.01 par value; 5,000,000 shares authorized; none issued  —   — 
Common shares - $.001 par value; 25,000,000 shares authorized; 11,757,058 issued; 11,461,585 and 11,494,945 outstanding, respectively  11,757   11,757 
Additional paid-in capital  45,532,544   45,522,746   45,542,343   45,535,811 
Treasury shares, at cost – 262,113 shares  (798,939)  (798,939)
Treasury stock, at cost – 295,473 and 262,113 shares, respectively  (963,745)  (798,939)
Accumulated deficit  (1,642,294)  (1,349,322)  (1,786,337)  (1,885,056)
Total stockholders’ equity  43,103,068   43,386,242   42,804,018   42,863,573 
                
Total liabilities and stockholders’ equity $74,766,158  $67,205,717  $71,738,057  $76,280,001 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2
 

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 2023 2022 2023 2022 
                 Three Months Ended June 30, Six Months Ended June 30, 
 

Three Months

Ended September 30,

 

Nine Months

Ended September 30,

  2023 2022 2023 2022 
 2022  2021  2021  2022          
Interest income from loans $1,677,670  $1,323,085  $4,933,767  $4,189,658  $1,942,527  $1,612,308  $3,896,349  $3,256,097 
Origination fees  429,350   304,297   1,405,076   880,440   456,835   504,455   900,806   975,726 
Total revenue  2,107,020   1,627,382   6,338,843   5,070,098   2,399,362   2,116,763   4,797,155   4,231,823 
                                
Operating costs and expenses:                                
Interest and amortization of deferred financing costs  496,718   184,914   1,204,954   819,015   595,427   376,383   1,241,690   708,236 
Referral fees  625   2,069   3,945   6,463   1,000   1,958   1,292   3,320 
General and administrative expenses  377,436   335,284   1,125,162   983,867   400,979   386,238   897,075   747,726 
Total operating costs and expenses  874,779   522,267   2,334,061   1,809,345   997,406   764,579   2,140,057   1,459,282 
Income from operations  1,232,241   1,105,115   4,004,782   3,260,753   1,401,956   1,352,184   2,657,098   2,772,541 
Other income  4,500   4,500   13,500   13,500   20,380   4,500   24,880   9,000 
Income before income tax expense  1,236,741   1,109,615   4,018,282   3,274,253   1,422,336   1,356,684   2,681,978   2,781,541 
Income tax expense  —   —   (650)  (647)  (650)  (650)  (650)  (650)
Net income $1,236,741  $1,109,615  $4,017,632  $3,273,606  $1,421,686  $1,356,034  $2,681,328  $2,780,891 
                                
Basic and diluted net income per common share outstanding:                                
—Basic $0.11  $0.10  $0.35  $0.32  $0.12  $0.12  $0.23  $0.24 
—Diluted $0.11  $0.10  $0.35  $0.32  $0.12  $0.12  $0.23  $0.24 
                                
Weighted average number of common shares outstanding                
Weighted average number of common shares outstanding:                
—Basic  11,494,945   11,331,902   11,494,945   10,196,868   11,475,406   11,494,945   11,485,116   11,494,945 
—Diluted  11,494,945   11,331,902   11,494,945   10,196,868   11,475,406   11,494,945   11,485,116   11,494,945 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3
 

 

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

 

FOR THE THREE MONTHS ENDED SEPTEMBERJUNE 30, 20222023

 

                             
  Common Shares  Additional Paid in  Treasury Shares  Accumulated   
  Shares  Amount  Capital  Shares  Cost  Deficit  Totals 
Balance, July 1, 2022  11,757,058  $11,757  $45,529,278   262,113  $(798,939) $(1,442,167) $43,299,929 
Non-cash compensation          3,266               3,266 
Dividends declared and payable                      (1,436,868)  (1,436,868)
Net income  -    -        -    -    1,236,741   1,236,741 
Balance, September 30, 2022  11,757,058  $11,757  $45,532,544   262,113  $(798,939) $(1,642,294) $43,103,068 
  Shares  Amount  in Capital  Shares  Cost  Deficit  Totals 
  Common Shares  

Additional Paid

  Treasury Stock  Accumulated   
  Shares  Amount  in Capital  Shares  Cost  Deficit  Totals 
Balance, April 1, 2023  11,757,058  $11,757  $45,539,077   262,113  $(798,939) $(1,918,595) $42,833,300 
Balance  11,757,058  $11,757  $45,539,077   262,113  $(798,939) $(1,918,595) $42,833,300 
Purchase of treasury shares              33,360   (164,806)      (164,806)
Non - cash compensation          3,266               3,266 
Dividends declared and payable                      (1,289,428)  (1,289,428)
Net income     -         -   1,421,686   1,421,686 
Balance, June 30, 2023  11,757,058  $11,757  $45,542,343   295,473  $(963,745) $(1,786,337) $42,804,018 
Balance  11,757,058  $11,757  $45,542,343   295,473  $(963,745) $(1,786,337) $42,804,018 

 

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021

  Common Shares  Additional Paid in  Treasury Shares  Retained   
  Shares  Amount  Capital  Shares  Cost  Earnings  Totals 
Balance, July 1, 2021  9,882,058  $9,882  $33,163,628   262,113  $(798,939) $701,948  $33,076,519 
Public offering, net  1,875,000   1,875   12,352,585               12,354,460 
Non-cash compensation          3,266               3,266 
Dividends paid                      (1,436,868)  (1,436,868)
Net income  -    -        -    -    1,109,615   1,109,615 
Balance, September 30, 2021  11,757,058  $11,757  $45,519,479   262,113  $(798,939) $374,695  $45,106,992 

FOR THE NINE MONTHS ENDED SEPTEMBERJUNE 30, 2022

 

  Common Shares  Additional Paid in  Treasury Shares  Accumulated   
  Shares  Amount  Capital  Shares  Cost  Deficit  Totals 
Balance, January 1, 2022  11,757,058  $11,757  $45,522,746   262,113  $(798,939) $(1,349,322) $43,386,242 
Non-cash compensation          9,798               9,798 
Dividends paid                      (2,873,736)  (2,873,736)
Dividends declared and payable                      (1,436,868)  (1,436,868)
Net income  -    -        -    -    4,017,632   4,017,632 
Balance, September 30, 2022  11,757,058  $11,757  $45,532,544   262,113  $(798,939) $(1,642,294) $43,103,068 
  Common Shares  

Additional Paid

  Treasury Stock  Accumulated   
  Shares  Amount  in Capital  Shares  Cost  Deficit  Totals 
Balance, April 1, 2022  11,757,058  $11,757  $45,526,012   262,113  $(798,939) $(1,361,333) $43,377,497 
Balance  11,757,058  $11,757  $45,526,012   262,113  $(798,939) $(1,361,333) $43,377,497 
Non - cash compensation          3,266               3,266 
Dividends declared and payable                      (1,436,868)  (1,436,868)
Net income  -   -         -   1,356,034   1,356,034 
Balance, June 30, 2022  11,757,058  $11,757  $45,529,278   262,113  $(798,939) $(1,442,167) $43,299,929 
Balance  11,757,058  $11,757  $45,529,278   262,113  $(798,939) $(1,442,167) $43,299,929 

 

FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20212023

 

  Common Shares  Additional Paid in  Treasury Shares  

(Accumulated Deficit)

Retained

   
  Shares  Amount  Capital  Shares  Cost  Earnings  Totals 
Balance, January 1, 2021  9,882,058  $9,882  $33,157,096   262,113  $(798,939) $(403,849) $31,964,190 
Public offering, net  1,875,000   1,875   12,352,585               12,354,460 
Non-cash compensation          9,798               9,798 
Dividends paid                      (2,495,062)  (2,495,062)
Net income  -    -        -    -    3,273,606   3,273,606 
Balance, September 30, 2021  11,757,058  $11,757  $45,519,479   262,113  $(798,939) $374,695  $45,106,992 
  Common Shares  Additional Paid in  Treasury Stock  Accumulated   
  Shares  Amount  Capital  Shares  Cost  Deficit  Totals 
Balance, January 1, 2023  11,757,058  $11,757  $45,535,811   262,113  $(798,939) $(1,885,056) $42,863,573 
Balance  11,757,058  $11,757  $45,535,811   262,113  $(798,939) $(1,885,056) $42,863,573 
Purchase of treasury shares              33,360   (164,806)      (164,806)
Non - cash compensation          6,532               6,532 
Dividends paid                      (1,293,181)  (1,293,181)
Dividends declared and payable                      (1,289,428)  (1,289,428)
Net income     -            2,681,328   2,681,328 
Balance, June 30, 2023  11,757,058  $11,757  $45,542,343   295,473  $(963,745) $(1,786,337) $42,804,018 
Balance  11,757,058  $11,757  $45,542,343   295,473  $(963,745) $(1,786,337) $42,804,018 

 

FOR THE SIX MONTHS ENDED JUNE 30, 2022

  Common Shares  

Additional Paid

  Treasury Stock  Accumulated   
  Shares  Amount  in Capital  Shares  Cost  Deficit  Totals 
Balance, January 1, 2022  11,757,058  $11,757  $45,522,746   262,113  $(798,939) $(1,349,322) $43,386,242 
Balance  11,757,058  $11,757  $45,522,746   262,113  $(798,939) $(1,349,322) $43,386,242 
Non - cash compensation          6,532               6,532 
Dividends paid                      (1,436,868)  (1,436,868)
Dividends declared and payable                      (1,436,868)  (1,436,868)
Net income     -         -   2,780,891   2,780,891 
Balance, June 30, 2022  11,757,058  $11,757  $45,529,278   262,113  $(798,939) $(1,442,167) $43,299,929 
Balance  11,757,058  $11,757  $45,529,278   262,113  $(798,939) $(1,442,167) $43,299,929 

The accompanying notes are an integral part of these consolidated financial statements.

 

4
 

 

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

         
  

Nine Months

Ended September 30,

 
  2022  2021 
Cash flows from operating activities:        
Net income $4,017,632  $3,273,606 
Adjustments to reconcile net income to net cash provided by
operating activities -		        
Amortization of deferred financing costs  83,401   66,324 
Adjustment to operating lease right-of-use asset and liability  3,274   2,603 
Depreciation  1,598   1,716 
Non-cash compensation expense  9,798   9,798 
Changes in operating assets and liabilities:        
Interest receivable on loans  (176,746)  (168,148)
Other assets  (29,164)  (28,538)
Accounts payable and accrued expenses  47,890   (92,982)
Deferred origination fees  61,645   85,945 
Net cash provided by operating activities  4,019,328   3,150,324 
         
Cash flows from investing activities:        
Issuance of short term loans  (49,241,679)  (28,534,303)
Collections received from loans  42,255,461   33,058,052 
Purchase of fixed assets  (1,893)  — 
Net cash (used in) provided by investing activities  (6,988,111)  4,523,749 
         
Cash flows from financing activities:        
Proceeds from (repayment of) line of credit, net  7,715,637   (16,824,722)
Dividends paid  (4,310,604)  (3,553,256)
Proceeds from public offering, net  —   12,354,460 
Deferred financing costs incurred  (35,819)  — 
Net cash provided by (used in) financing activities  3,369,214   (8,023,518)
         
Net increase (decrease) in cash and restricted cash*  400,431   (349,445)
Cash and restricted cash*, beginning of year  142,546   459,137 
Cash and restricted cash*, end of period $542,977  $109,692 
         
Supplemental Cash Flow Information:        
Taxes paid during the period $650  $647 
Interest paid during the period $1,036,338  $811,610 
Operating leases paid during the period $47,703  $47,600 
         
Supplemental Information – Noncash Information:        
Dividend declared and payable $1,436,868  $— 

*At January 1, 2021 and at September 30, 2022, cash and restricted cash included $327,483 and $433,269, respectively, of restricted cash.
  2023  2022 
  Six Months Ended June 30, 
  2023  2022 
Cash flows from operating activities:        
Net income $2,681,328  $2,780,891 
Adjustments to reconcile net income to net cash provided by operating activities -        
Amortization of deferred financing costs  49,494   53,999 
Adjustment to operating lease right-of-use asset and liability  1,230   2,316 
Depreciation  1,946   972 
Non-cash compensation expense  6,532   6,532 
Changes in operating assets and liabilities:        
Interest receivable on loans  89,214   (96,889)
Other assets  (72,115)  (63,871)
Accounts payable and accrued expenses  (58,132)  31,151 
Deferred origination fees  17,853   132,166 
Net cash provided by operating activities  2,717,350   2,847,267 
         
Cash flows from investing activities:        
Issuance of short term loans  (28,122,249)  (37,953,007)
Collections received from loans  32,811,877   34,364,708 
Purchase of fixed assets  (5,085)  (1,893)
Net cash provided by (used in) investing activities  4,684,543   (3,590,192)
         
Cash flows from financing activities:        
(Repayment of) proceeds from line of credit, net  (4,323,513)  3,627,556 
Dividends paid  (2,730,049)  (2,873,736)
Purchase of treasury shares  (164,806)  — 
Deferred financing costs incurred  (38,191)  (35,819)
Net cash (used in) provided by financing activities  (7,256,559)  718,001 
         
Net increase (decrease) in cash  145,334   (24,924)
Cash, beginning of year  103,540   142,546 
Cash, end of period $248,874  $117,622 
         
Supplemental Cash Flow Information:        
Taxes paid during the period $650  $650 
Interest paid during the period $1,215,297  $608,902 
Operating leases paid during the period $31,863  $31,786 
         
Supplemental Information – Noncash Information:        
Dividend declared and payable $1,289,428  $1,436,868 
Loan holdback relating to mortgage receivable $17,500  $— 

 

The accompanying notes are an integral part of these consolidated financial statements.

5
 

 

MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September

JUNE 30, 20222023

 

1.THE COMPANY

 

The accompanying unaudited consolidated financial statements of Manhattan Bridge Capital, Inc. (“MBC”), a New York corporation founded in 1989, and its consolidated subsidiary, MBC Funding II Corp. (“MBC Funding II”), a New York corporation formed in December 2015 (collectively referred to herein as the “Company”) have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 20212022 and the notes thereto included in the Company’s Annual Report on Form 10-K. Results of consolidated operations for the interim period are not necessarily indicative of the operating results to be attained in the entire fiscal year.

 

The preparation of consolidated financial statements in conformity with GAAP 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 amount of revenues and expenses during the reporting period. Actual amounts could differ from those estimates.

 

The consolidated financial statements include the accounts of MBC and MBC Funding II. All significant intercompany balances and transactions have been eliminated in consolidation.

 

The Company offers short-term, secured, non–banking loans to real estate investors (also known as hard money) to fund their acquisition, renovation, rehabilitation or development of residential or commercial properties located in the New York metropolitan area, including New Jersey and Connecticut, and in Florida.

 

Interest income from commercial loans is recognized, as earned, over the loan period.

 

Origination fee revenue on commercial loans is amortized over the term of the respective note.

 

2.RECENT TECHNICAL ACCOUNTING PRONOUNCEMENTS

 

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.

 

3. CASH - RESTRICTED

Restricted cash mainly represents collections received, pending check clearance, from the Company’s commercial loans and is primarily dedicated to the reduction of the Webster Credit Line (as defined below), established pursuant to the Amended and Restated Credit Agreement (as defined below, see Note 5).

4.  COMMERCIAL LOANS

Loans Receivable

The Company offers short-term secured non–banking loans to real estate investors (also known as hard money) to fund their acquisition and construction of properties located in the New York metropolitan area, including New Jersey and Connecticut, and in Florida. The loans are principally secured by collateral consisting of real estate and accompanied by personal guarantees from the principals of the borrowers. The loans are generally for a term of one year. The short term loans are initially recorded, and carried thereafter, in the financial statements at cost. Most of the loans provide for receipt of interest only during the term of the loan and a balloon payment at the end of the term.

 

At SeptemberJune 30, 2022,2023, the Company was committed to $7,903,8538,388,975 in construction loans that can be drawn by the borrowers when certain conditions are met.

 

6

At SeptemberJune 30, 2022,2023, no one entity hashad loans outstanding representing more than 10%10% of the total balance of the loans outstanding.

 

The Company generally grants loans for a term of one year. When a performing loan reaches its maturity and the borrower requests an extension, the Company may extend the term of the loan beyond one year. Prior to granting an extension of any loan, the Company reevaluates the underlying collateral.

6

Credit Risk

Credit risk profile based on loan activity as of SeptemberJune 30, 20222023 and December 31, 2021:2022:

SCHEDULE OF CREDIT RISK

Performing loans 

Developers-

Residential

  

Developers-

Commercial

  

Developers-

Mixed Use

  Total outstanding loans 
September 30, 2022 $59,163,582  $10,619,000  $2,919,000  $72,701,582 
December 31, 2021 $57,432,364  $5,819,000  $2,464,000  $65,715,364 
Performing loans Developers-Residential  Developers-Commercial  Developers-Mixed Use  Total outstanding loans 
June 30, 2023 $58,112,335  $10,230,000  $1,469,000  $69,811,335 
December 31, 2022 $62,264,463  $9,300,000  $2,919,000  $74,483,463 

 

At SeptemberJune 30, 2022,2023, the Company’s loans receivable consisted of loans in the amount of $49,83040,160, $500,000755,636, $736,0832,635,250, $3,820,2502,356,000 and $8,390,88612,435,000, originally due in 2016, 2017, 2019, 2020, 2021 and 2021,2022, respectively. The loans receivable also includes loans in the amount of $9,764,41315,429,000 originally due duringin the first ninesix months of 2022.2023.

 

In all instances theGenerally, borrowers are currently paying their interest, and generally, the Company receives a fee in connection with the extension of the loans. In all instances, except as described below, the borrower has either signed an extension agreement or are in the process of signing the extension. At SeptemberAccordingly, at June 30, 2022,2023, no loan impairments exist and there are no provisions for impairments of loans or recoveries thereof.

 

During February 2023, the Company determined to, and sold, one of its loans receivable to a third-party investor at its face value of $485,000. Assaf Ran, the Company’s President and Chief Executive Officer, participated in such acquisition in the amount of $152,000. In addition, in June 2023, the Company filed a foreclosure lawsuit relating to one property, as a result of a deed transfer from the borrower to a buyer without the Company’s consent. In that instance, the buyer of a property on which the Company had a valid mortgage suffered a data breach which resulted in the failure of the buyer to remit the funds needed for the loan payoff. As a result, the Company filed the foreclosure lawsuit to assist the buyer in making a claim with its title insurer. The loan is currently performing and the mortgage is valid. The Company expects to retrieve the payoff funds either from the buyer’s title insurance or through foreclosing on the property.

Subsequent to the balance sheet date, $890,0002,187,000 of the loans receivable at SeptemberJune 30, 20222023 were paid off.off, including $152,000 originally due in or before 2022.

 

5.  4.LINE OF CREDIT

 

The Company executed an Amended and Restated Credit and Security Agreement as(as amended (theon January 31, 2023, the “Amended and Restated Credit Agreement”), with Webster Business Credit Corporation (“Webster”), Flushing Bank (“Flushing”) and Mizrahi Tefahot Bank Ltd (“Mizrahi” and together with Webster and Flushing, the “Lenders”), which established the Company’s credit line (the “Webster Credit Line”). Currently, the Webster Credit Line provides the Company with a credit line of $32.5 million in the aggregate until February 28, 2023,2026, secured by assignments of mortgages and other collateral. The Company is currently working on extendinginterest rates relating to the Webster Credit Line equal (i) the Secured Overnight Financing Rate (“SOFR”) plus a premium, which rate aggregated approximately 8.7%, including a 0.5% agency fee, as of June 30, 2023, or (ii) a Base Rate (as defined in the Amended and Restated Credit Agreement) plus 2.00% and a 0.5% agency fee, as chosen by the Company for an additional each drawdown.

three years.

The Webster Credit Line contains various covenants and restrictions including, among other covenants and restrictions, limiting the amount that the Company can borrow relative to the value of the underlying collateral, maintaining various financial ratios and limitations on the terms of loans the Company makes to its customers, limiting the Company’s ability to pay dividends under certain circumstances, and limiting the Company’s ability to repurchase its common shares, sell assets, engage in mergers or consolidations, grant liens, and enter into transactions with affiliates. In addition, the Webster Credit Line contains a cross default provision which will deem any default under any indebtedness owed by us or our subsidiary, MBC Funding II, as a default under the credit line.

The interest rates relating to the Webster Credit Line equal (i) LIBOR plus a premium, which rate aggregated approximately 7.14%, including a 0.5% agency fee, as of September 30, 2022, or (ii) a Base Rate (as defined in the Amended and Restated Credit Agreement) plus 2.25% plus a 0.5% agency fee, as chosen by the Company for each drawdown. Under the Amended and Restated Credit Agreement, the Company may repurchase, redeem or otherwise retire its equity securities in an amount not to exceed ten percent of our annual net income from the prior fiscal year.year. Further, the Company may issue up to $20 million in bonds through its subsidiary, of which not more than $10 million of such bonds may be secured by mortgage notes receivable, and provided that the terms and conditions of such bonds are approved by Webster, subject to its reasonable discretion. In addition, Mr. Ran has provided a personal guaranty to the Webster Credit Line, which shall not exceed the sum of $

500,000 plus any costs relating to the enforcement of the personal guaranty.

7

 

On March 7, 2022,January 31, 2023, the Company entered into a Waiver Agreement (the “Waiver”),another amendment, effective as of January 2, 2023, with respect to the Amended and Restated Credit Agreement with the Lenders and Mr. Ran, as guarantor, to provide(i) extend the Company with a waivermaturity date of its covenantthe credit line by three years to February 28, 2026; (ii) transition the applicable benchmark from LIBOR to SOFR and adjust the applicable margin with respect to maintaining itsBase Rate Loans and SOFR Loans; (iii) update the required calculation with respect to the fixed charge coverage ratio for the period ended December 31, 2021. In addition, the Waiver also provided that an amount of $700,000 of distributions and/or dividends paid during the quarter ended December 31, 2021 shall be excluded from the calculation of fixed charge coverage ratio for the fiscal quarters ending March 31, 2022, June 30, 2022 and September 30, 2022.

7

On April 25, 2022, the Company entered into an amendment (the “2022 Amendment”), with respect to the Amended and Restated Credit Agreement with the Lenders and Mr. Ran, as guarantor. Pursuant to the terms of the 2022 Amendment, each of the Company and the Lenders agreed to amend the Amended and Restated Credit Agreement to provide as follows: (i) tocovenant; (iv) further increase the limit on individual loans from $1 million to $2 million; (ii) to increaseand the concentration of any mortgagor (together with guarantors and other related entities and affiliates) from; and (v) eliminate the requirement to pledge additional mortgage loans as collateral for the credit line. In addition, the terms of the personal guaranty provided by Mr. Ran were amended such that the potential sums owed under such guaranty will not exceed the sum of $2.51,000,000 millionplus any costs relating to $5 million; and (iii) to permit the Company to originate loans inenforcement of the state of Florida in any county south of, and including, Palm Beach and Lee counties, in an amount up to $4.875 million.personal guaranty.

 

Except as set forth in the preceding paragraphs, theThe Company was in compliance with all covenants of the Webster Credit Line, as amended, as of SeptemberJune 30, 2022.2023. At SeptemberJune 30, 2022,2023, the outstanding amount under the Amended Credit Agreement was $23,361,60720,670,721. The interest rate on the amount outstanding fluctuates daily. The rate, including a 0.50.5%% Agency Fee, agency fee, was approximately 7.148.7%% as of SeptemberJune 30, 2022.2023.

 

6.  5.SENIOR SECURED NOTES

 

On April 25, 2016, in an initial public offering, MBC Funding II issued 66%% senior secured notes, due April 22, 2026 (the “Notes”) in the aggregate principal amount of $6,000,000 under the Indenture, dated April 25, 2016,, among MBC Funding II, as Issuer, the Company, as Guarantor, and Worldwide Stock Transfer LLC, as Indenture Trustee (the “Indenture”). The Notes, having a principal amount of $1,000 each, are listed on the NYSE American and trade under the symbol “LOAN/26”. Interest accrues on the Notes commencing on May 16, 2016. The accrued interest is payable monthly in cash, in arrears, on the 15th day of each calendar month commencing June 2016.

 

Under the terms of the Indenture, the aggregate outstanding principal balance of the mortgage loans held by MBC Funding II, together with MBC Funding II’s cash on hand, must always equal at least 120120%% of the aggregate outstanding principal amount of the Notes at all times. To the extent the aggregate principal amount of the mortgage loans owned by MBC Funding II plus MBC Funding II’s cash on hand is less than 120% of the aggregate outstanding principal balance of the Notes, MBC Funding II is required to repay, on a monthly basis, the principal amount of the Notes equal to the amount necessary such that, after giving effect to such repayment, the aggregate principal amount of all mortgage loans owned by MBC Funding II plus, MBC Funding II’s cash on hand at such time is equal to or greater than 120% of the outstanding principal amount of the Notes. For this purpose, each mortgage loan is deemed to have a value equal to its outstanding principal balance, unless the borrower is in default of its obligations.obligations.

 

MBC Funding II may redeem the Notes, in whole or in part, at any time after April 22, 2019 upon at least 30 days prior written notice to the Noteholders. The redemption price will be equal to the outstanding principal amount of the Notes redeemed plus the accrued but unpaid interest thereon up to, but not including, the date of redemption, without penalty or premium. No Notes were redeemed by MBC Funding II as of SeptemberJune 30, 2022.2023.

 

MBC Funding II is obligated to offer to redeem the Notes if there occurs a “change of control” with respect to MBC Funding II or the Company or if MBC Funding II or the Company sell any assets unless, in the case of an asset sale, the proceeds are reinvested in the business of the seller. The redemption price in connection with a “change of control” will be 101% of the principal amount of the Notes redeemed plus accrued but unpaid interest thereon up to, but not including, the date of redemption. The redemption price in connection with an asset sale will be the outstanding principal amount of the Notes redeemed plus accrued but unpaid interest thereon up to, but not including, the date of redemption.

 

The Company guaranteed MBC Funding II’s obligations under the Notes, which are secured by its pledge of 100100%% of the outstanding common shares of MBC Funding II that it owns.

 

Our principal executive officers consist of Assaf Ran, who serves as our Chief Executive Officer and President, and Vanessa Kao, who serves as our Chief Financial Officer. As of SeptemberJune 30, 2022,2023, each of Mr. Ran and Ms. Kao ownedown an aggregate of $704,000 and $288,000 of our Notes.Notes, respectively.

6.STOCKHOLDERS’ EQUITY

On April 11, 2023, the Company’s Board of Directors authorized a share buy back program, pursuant to which the Company may, from time to time, purchase up to 100,000 of its common shares. This program does not obligate the Company to purchase any shares and expires on April 10, 2024. The authorization for the program is able to be terminated, increased or decreased by the Company’s Board of Directors in its discretion at any time. As of June 30, 2023, the Company has purchased an aggregate of 33,360 common shares under this repurchase program, at an aggregate cost of approximately $165,000.

 

8
 

 

7.EARNINGS PER COMMON SHARE

 

Basic and diluted earnings per share are calculated in accordance with Accounting Standards Codification (“ASC”) 260, “Earnings Per Share” (“ASC 260”). Under ASC 260, basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the potential dilution from the exercise of stock options and warrants for common shares using the treasury stock method. The numerator in calculating both basic and diluted earnings per common share for each period is the reported net income. There were no outstanding stock options or warrants at September 30, 2022 and 2021.

 

8. STOCK–STOCK – BASED COMPENSATION

 

Stock-basedStock based compensation expense recognized under ASC 718, “Compensation-Stock“Compensation – Stock Compensation,” for each of the nine monthsthree-month periods ended SeptemberJune 30, 20222023 and 20212022 of $9,7983,266, and for each of the six month periods ended June 30, 2023 and 2022 of $6,532 representsrepresent the amortization of the fair value of 1,000,000 restricted shares granted to the Company’s Chief Executive Officer on September 9, 2011 of $195,968, after adjusting for the effect on the fair value of the stock options related to this transaction. The fair value is being amortized over 15 years. At SeptemberJune 30, 2022,2023, all 1,000,000 shares remain restricted, and the remaining unrecognized stock-basedstock based compensation amounted to $51,17041,371.

 

9.SUBSEQUENT EVENT

 

In accordance with the dividend declared by the Company’s Board of Directors on July 28, 2022,April 17, 2023, a cash dividend of $0.1250.1125 per share in an aggregate amount of $1,436,8681,289,428 was paid on OctoberJuly 17, 20222023 to all shareholders of record on October 11, 2022July 10, 2023.

 

********

 

9
 

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in thethis Quarterly Report.Report on Form 10-Q. The discussion and analysis contains forward-looking statements based on current expectations that involve risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statementsstatements..

We are a New York-based real estate finance company that specializes in originating, servicing and managing a portfolio of first mortgage loans. We offer short-term, secured, non-banking loans (sometimes referred to as “hard money” loans), which we may renew or extend on, before or after their initial term expires, to real estate investors to fund their acquisition, renovation, rehabilitation or development of residential or commercial properties located in the New York metropolitan area, including New Jersey and Connecticut, and in Florida.

 

The properties securing the loans are generally classified as residential or commercial real estate and, typically, are not income producing. Each loan is secured by a first mortgage lien on real estate. In addition, each loan is personally guaranteed by the principal(s) of the borrower, which guarantee may be collaterally secured by a pledge of the guarantor’s interest in the borrower. The face amount of the loans we originated duringin the past seven years ranged from $30,000$40,000 to a maximum of $3$3.3 million. Our lending policy limits the maximum amount of any loan to the lower of (i) 9.9% of the aggregate amount of our loan portfolio (not including the loan under consideration) and (ii) $3$3.5 million. Our loans typically have a maximum initial term of 12 months and bear interest at a fixed rate of 9% to 12% per year. In addition, we usually receive origination fees or “points” ranging from 0% to 2% of the original principal amount of the loan as well as other fees relating to underwriting and funding the loan. Interest is always payable monthly, in arrears. In the case of acquisition financing, the principal amount of the loan usually does not exceed 75% of the value of the property (as determined by an independent appraiser) and in the case of construction financing, it is typically up to 80% of construction costs. More recently, as a result of an increase in interest rates in general, our interest rate expenses, as they relate to our Webster Credit Line, have increased as well and, as a result, we are making efforts to increase the interest rates charged on our commercial loans to offset the impact on our net income.

 

Since commencing thisour business in 2007, except as set forth below, we have made more than 1,100 loans and never foreclosed on a property. We currently manage approximately 120 loans. In addition, none of our loans have ever gone into defaultproperty, although sometimes we have renewed or extended our loansthe term of a loan to enable the borrower to avoid premature sale or refinancing of the property. When we renew or extend a loan, we generally receive additional “points” and other fees. In June 2023, we filed a foreclosure lawsuit relating to one property, as a result of a deed transfer from the borrower to a buyer without our consent. In that instance, the buyer of a property on which we had a valid mortgage suffered a data breach which resulted in the failure of the buyer to remit the funds needed for the loan payoff. As a result, we filed the foreclosure lawsuit to assist the buyer in making a claim with its title insurer. The loan is currently performing and the mortgage is valid. We expect to retrieve the payoff funds either from the buyer’s title insurance or through foreclosing on the property.

10

 

Our primary business objective is to grow our loan portfolio while protecting and preserving capital in a manner that provides for attractive risk-adjusted returns to our shareholders over the long term through dividends. We intend to achieve this objective by continuing to selectively originate and fund loans secured by first mortgages on residential and commercial real estate held for investment located in the New York metropolitan area, including New Jersey and Connecticut, and in Florida, and to carefully manage and service our portfolio of first mortgage real estate loans in a manner designed to generate attractive risk-adjusted returns across a variety of market conditions and economic cycles. We believe that current market dynamics, specifically the demanddemand/supply imbalance for relatively small loans secured by residential and commercial real estate heldloans, presents opportunities for investment around the New York metropolitan market, including New Jersey and Connecticut, and in the Florida market remains relatively strong, but weakened due to continued interest-rate hikes.

10

Our ability to close deals quickly has created an opportunity for non-bank “hard money” real estate lenders like us to selectively originate high-quality first mortgage loans and we anticipatebelieve that this condition maythese market conditions should persist for a number of years. However, we have observed more intense competition in our industry from both small and large lenders, which has resulted in more liquidity in the real estate markets in the geographic areas in which we operate.

We have built our business on a foundation of intimate knowledge of the New York metropolitan area real estate market combined with a disciplined credit and due diligence culture that is designed to protect and preserve capital. We believe that our flexibility in terms of meetingand ability to structure loans that address the needs of our borrowers without compromising our standards on credit risk, our expertise, our intimate knowledge of the New York metropolitan area real estate market and our focus on newly originated first mortgage loans, has defined our success until now and should enable us to continue to achieve our objectives.

 

A principal source of new transactions has been repeat business from prior customers and their referral of new business to us.business. We also receive leads for new business from banks, brokers and a limited amount of advertising. Finally, our Chief Executive Officer also spends a significant portion of his time on new business development. We rely on our own employees, independent legal counsel, and other independent professionals to verify titles and ownership, to file liens and to consummate the transactions. Outside appraisers are used to assist us in evaluating the worth of collateral, when deemed necessary by management. We also use construction inspectors.

 

For the nine monthssix month period ended SeptemberJune 30, 20222023 and 2021,2022, the total amounts of $49,241,679$28,122,249 and $28,534,303,$37,953,007, respectively, have been lent, offset by collections received from borrowers, under our commercial loans of $42,255,461$32,811,877 and $33,058,052,$34,364,708, respectively.

 

At SeptemberJune 30, 2022,2023, we were committed to $7,903,853$8,388,975 in construction loans that can be drawn by the borrowers when certain conditions are met.

 

To date, we have not experienced any defaults andexcept as discussed above, none of the loans previously made have been non-collectable, although no assurances can be given that existing or future loans may not go into default or prove to be non-collectible or foreclosed in the future.

 

We satisfied all of the requirements to be taxed as a real estate investment trust (“REIT”) and elected to be taxed as a REIT commencing with our taxable year ended December 31, 2014. In order to maintain our qualification for taxation as a REIT and avoid any excise tax on our net taxable income, we are required to distribute each year at least 90% of our REIT taxable income. If we distribute less than 100% of our taxable income (but more than 90%), the undistributed portion will be taxed at the regular corporate income tax rates. As a REIT, we may also be subject to federal excise taxes and minimum state taxes.

 

Results of Operations

Three months ended SeptemberJune 30, 20222023 compared to three months ended SeptemberJune 30, 20212022

RevenueTotal revenue

Total revenues for the three months ended SeptemberJune 30, 20222023 were approximately $2,107,000$2,399,000 compared to approximately $1,627,000$2,117,000 for the three months ended SeptemberJune 30, 2021,2022, an increase of $480,000$282,000, or 29.5%13.3%. The increase in revenue was due to an increase in lending operations.higher interest rates charged on our commercial loans. For the three months ended SeptemberJune 30, 2023 and 2022, approximately $1,943,000 and 2021, approximately $1,678,000 and $1,323,000,$1,612,000, respectively, of our revenues were attributable to interest income on secured commercial loans that we offer to real estate investors, and approximately $429,000$457,000 and $304,000,$504,000, respectively, of our revenues were attributable to origination fees on such loans. The loans are principally secured by collateral consisting of real estate and accompanied by personal guarantees from the principals of the borrowers.

 

11
 

 

Interest and amortization of deferred financing costs

Interest and amortization of deferred financing costs for the three months ended SeptemberJune 30, 20222023 were approximately $497,000$595,000 compared to approximately $185,000$376,000 for the three months ended SeptemberJune 30, 2021,2022, an increase of $312,000,$219,000, or 168.6%58.2%. The increase is primarily attributable to the increase in interest expense due to higher LIBORSOFR rates relating to the use of the Webster Credit Line in order to support our ability to increase loan originationsoriginations. (See Note 54 to the consolidated financial statements included elsewhere in the Quarterly Report)this quarterly report on Form 10-Q). In addition, the outstanding balance of the Webster Credit Line was significantly reduced during the third quarter of 2021 due to a public offering of our common shares in July 2021.

 

General and administrative expenses

General and administrative expenses for the three months ended SeptemberJune 30, 20222023 were approximately $377,000$401,000 compared to approximately $335,000$386,000 for the three months ended SeptemberJune 30, 2021,2022, an increase of $42,000,$15,000, or 12.5%3.9%. The increase is primarily attributable to increases in payroll, appraisalmarketing, travel and travel expenses.meals expenses, partially offset by a decrease in advertising expense.

 

Net income

Net income for the three months ended SeptemberJune 30, 20222023 was approximately $1,237,000$1,422,000 compared to approximately $1,110,000$1,356,000 for the three months ended SeptemberJune 30, 2021,2022, an increase of $127,000,$66,000, or 11.4%4.9%. This increase is primarily attributable to the increase in revenue,interest income, partially offset by the increase in interest expense.

 

NineSix months ended SeptemberJune 30, 20222023 compared to ninesix months ended SeptemberJune 30, 20212022

 

RevenueTotal revenue

 

Total revenues for the ninesix months ended SeptemberJune 30, 20222023 were approximately $6,339,000$4,797,000 compared to approximately $5,070,000$4,232,000 for the ninesix months ended SeptemberJune 30, 2021,2022, an increase of $1,269,000,$565,000, or 25.0%13.4%. The increase in revenue was due to an increase in lending operations.higher interest rates charged on our commercial loans. For the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, revenues of approximately $4,934,000$3,896,000 and $4,190,000,$3,256,000, respectively, were attributable to interest income on the secured commercial loans that we offer to real estate investors, and approximately $1,405,000$901,000 and $880,000,$976,000, respectively, of our revenues were attributable to origination fees on such loans. The loans are principally secured by collateral consisting of real estate and accompanied by personal guarantees from the principals of the borrowers.

 

Interest and amortization of deferred financing costs

Interest and amortization of deferred financing costs for the ninesix months ended SeptemberJune 30, 20222023 were approximately $1,205,000$1,242,000 compared to approximately $819,000$708,000 for the ninesix months ended SeptemberJune 30, 2021,2022, an increase of $386,000,$534,000, or 47.1%75.4%. The increase is primarily attributable to the increase in interest expense due to higher LIBORSOFR rates relating to the use of the Webster Credit Line in order to support our ability to increase loan originationsoriginations. (See Note 54 to the consolidated financial statements included elsewhere in the Quarterly Report)this quarterly report on Form 10-Q). In addition, the outstanding balance of the Webster Credit Line was significantly reduced during the third quarter of 2021 due to a public offering of our common shares in July 2021.

 

General and administrative expenses

 

General and administrative expenses for the ninesix months ended SeptemberJune 30, 20222023 were approximately $1,125,000$897,000 compared to approximately $984,000$748,000 for the ninesix months ended SeptemberJune 30, 2021,2022, an increase of $141,000,$149,000, or 14.3%19.9%. The increase is primarily attributable to a special bonus to officers in 2023 for extending the Webster Credit Line, and increases in payroll, advertising, appraisal,marketing, insurance, board compensation, travel and Nasdaq listingmeals expenses, partially offset by a decrease in insurance expenses.advertising expense.

 

Net income

Net income for the ninesix months ended SeptemberJune 30, 20222023 was approximately $4,018,000$2,681,000 compared to approximately $3,274,000$2,781,000 for the ninesix months ended SeptemberJune 30, 2021, an increase2022, a decrease of $744,000,$100,000, or 22.7%3.6%. This increasedecrease is primarily attributable to the increase in revenue,interest expense and a special bonus to officers in 2023, partially offset by the increases in interest expense and in general and administrative expenses.income.

 

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Liquidity and Capital Resources

 

At SeptemberJune 30, 2022,2023, we had cash of approximately $110,000 (not including restricted cash, which mainly represents collections received, pending check clearance, from the Company’s commercial loans and is primarily dedicated to the reduction of the Webster Credit Line)$249,000, compared to approximately $143,000$104,000 at December 31, 2021.2022.

 

For the ninesix months ended SeptemberJune 30, 2022,2023, net cash provided by operating activities was approximately $4,019,000,$2,717,000, compared to approximately $3,150,000$2,847,000 for the ninesix months ended SeptemberJune 30, 2021.2022. The increasedecrease in net cash provided by operating activities primarily resulted from the increasesdecreases in net income and in accounts payable and accrued expenses.expenses, partially offset by the decrease in interest receivable on loans.

 

For the ninesix months ended SeptemberJune 30, 2022,2023, net cash provided by investing activities was approximately $4,685,000, compared to approximately $3,590,000 of net cash used in investing activities was approximately $6,988,000, compared to approximately $4,524,000 of netfor the six months ended June 30, 2022. Net cash provided by investing activities for the ninesix months ended SeptemberJune 30, 2021.2023 mainly consisted of the collection of our commercial loans of approximately $32,812,000, offset by the issuance of commercial loans of approximately $28,122,000. Net cash used in investing activities for the ninesix months ended SeptemberJune 30, 2022 mainly consisted of the issuance of commercial loans of approximately $49,242,000,$37,953,000, offset by the collection of our commercial loans of approximately $42,255,000. During the period ended September 30, 2021, net cash provided by investing activities consisted of the collection of our commercial loans of approximately $33,058,000, offset by the issuance of commercial loans of approximately $28,534,000.$34,365,000.

 

For the ninesix months ended SeptemberJune 30, 2022,2023, net cash used in financing activities was approximately $7,257,000, compared to approximately $718,000 of net cash provided by financing activities was approximately $3,369,000, compared to approximately $8,024,000 of netfor the six months ended June 30, 2022. Net cash used in financing activities for the ninesix months ended SeptemberJune 30, 2021.2023 reflects the repayment of the Webster Credit Line of approximately $4,324,000, dividend payments of approximately $2,730,000, repurchase of treasury shares of approximately $165,000 and deferred financing costs of approximately $38,000. Net cash provided by financing activities for the ninesix months ended SeptemberJune 30, 2022 reflects the net proceeds from the Webster Credit Line of approximately $7,716,000,$3,628,000, offset by dividend payments of approximately $4,311,000$2,874,000 and deferred financing costs of approximately $36,000. Net cash used in financing activities for the nine months ended September 30, 2021 reflects the repayment of the Webster Credit Line of an aggregate of approximately $16,825,000 and the dividend payments of approximately $3,553,000, offset by the net proceeds from our July 2021 public offering of approximately $12,354,000.

 

Our Amended and Restated Credit and Security Agreement with Webster, Flushing Bank and Mizrahi provides for the Webster Credit Line. Currently, the Webster Credit Line provides us with a credit line of $32.5 million in the aggregate until February 28, 2023,2026, secured by assignments of mortgages and other collateral. We are currently working on extendingThe interest rates relating to the Webster Credit Line equal (i) SOFR plus a premium, which rate aggregated approximately 8.7%, including a 0.5% agency fee, as of June 30, 2023, or (ii) a Base Rate (as defined in the Amended and Restated Credit Agreement) plus 2.00% and a 0.5% agency fee, as chosen by the Company for an additional three years. each drawdown.

The Webster Credit Line contains various covenants and restrictions including covenants limiting the amount that the Company can borrow relative to the value of the underlying collateral, maintaining various financial ratios and limitations on the terms of loans the Company makes to its customers, limiting the Company’s ability to pay dividends under certain circumstances, and limiting the Company’s ability to repurchase its common shares, sell assets, engage in mergers or consolidations, grant liens, and enter into transactions with affiliates. In addition, the Webster Credit Line contains a cross default provision which will deem any default under any indebtedness owed by us or our subsidiary, MBC Funding II, as a default under the credit line.

The interest rates relating to the Webster Credit Line equal (i) LIBOR plus a premium, which rate aggregated approximately 7.14%, including a 0.5% agency fee, as of September 30, 2022, or (ii) a Base Rate (as defined in the Amended and Restated Credit Agreement) plus 2.25% plus a 0.5% agency fee, as chosen by the Company for each drawdown. Under the Amended and Restated Credit Agreement, the Company may repurchase, redeem or otherwise retire its equity securities in an amount not to exceed ten percent of our annual net income from the prior fiscal year. Further, the Company may issue up to $20 million in bonds through its subsidiary, of which not more than $10 million of such bonds may be secured by mortgage notes receivable, and provided that the terms and conditions of such bonds are approved by Webster, subject to its reasonable discretion. In addition, Mr. Ran has provided a personal guaranty to the Webster Credit Line, which shall not exceed the sum of $500,000 plus any costs relating to the enforcement of the personal guaranty.

 

On March 7, 2022,January 31, 2023, we entered into the Waiver,another amendment, effective as of January 2, 2023, with respect to the Amended and Restated Credit Agreement with the Lenders and Mr. Ran, as guarantor, providingto (i) extend the Company with a waivermaturity date of its covenantthe credit line by three years to February 28, 2026; (ii) transition the applicable benchmark from LIBOR to SOFR and adjust the applicable margin with respect to maintaining itsBase Rate Loans and SOFR Loans; (iii) update the required calculation with respect to the fixed charge coverage ratio for the period ended December 31, 2021. In addition, the Waiver also provided that an amount of $700,000 of distributions and/or dividends paid during the quarter ended December 31, 2021 shall be excluded from the calculation of fixed charge coverage ratio for the fiscal quarters ending March 31, 2022, June 30, 2022 and September 30, 2022.

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On April 25, 2022, we entered into an amendment, with respect to the Amended and Restated Credit Agreement with the Lenders and Mr. Ran, as guarantor, pursuant to which the parties agreed to amend the Amended and Restated Credit Agreement to provide as follows: (i) tocovenant; (iv) further increase the limit on individual loans from $1 million to $2 million; (ii) to increaseand the concentration of any mortgagor (together with guarantors and other related entities and affiliates) from $2.5 million; and (v) eliminate the requirement to $5 million; and (iii)pledge an additional mortgage loans as collateral for the credit line. In addition, the terms of the personal guaranty provided by Mr. Ran were amended such that the potential sums owed under such guaranty will not exceed the sum of $1,000,000 plus any costs relating to permit us to originate loans in the stateenforcement of Florida in any county south of, and including, Palm Beach and Lee counties, in an amount up to $4.875 million.the personal guaranty.

 

Except as set forth in the preceding paragraphs, weWe were in compliance with all covenants of the Webster Credit Line, as amended, as of SeptemberJune 30, 2022.2023. At SeptemberJune 30, 2022,2023, the outstanding amount under the Amended and Restated Credit Agreement was $23,361,607.$20,670,721. The interest rate on the amount outstanding fluctuates daily. The rate, including a 0.5% agency fee, was approximately 7.14%8.7% as of SeptemberJune 30, 2022.2023.

 

MBC Funding II has $6,000,000 of outstanding principal amount of Notes. The Notes mature on April 22, 2026, unless redeemed earlier, and accrue interest at a rate of 6% per annum commencing on May 16, 2016 and will be payable monthly, in arrears, in cash, on the 15th day of each calendar month, commencing June 2016.

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Under the terms of the Indenture, the aggregate outstanding principal balance of the mortgage loans held by MBC Funding II, together with its cash on hand, must always equal at least 120% of the aggregate outstanding principal amount of the Notes at all times. To the extent the aggregate principal amount of the mortgage loans owned by MBC Funding II plus its cash on hand is less than 120% of the aggregate outstanding principal balance of the Notes, MBC Funding II is required to repay, on a monthly basis, the principal amount of the Notes equal to the amount necessary such that, after giving effect to such repayment, the aggregate principal amount of all mortgage loans owned by it plus, its cash on hand at such time is equal to or greater than 120% of the outstanding principal amount of the Notes. For this purpose, each mortgage loan is deemed to have a value equal to its outstanding principal balance, unless the borrower is in default of its obligations.

 

The Notes are secured by a first priority lien on all of MBC Funding II’s assets, including, primarily, mortgage notes, mortgages and other transaction documents entered into in connection with first mortgage loans originated and funded by us, which MBC Funding II acquired from MBC pursuant to an asset purchase agreement. MBC Funding II may redeem the Notes, in whole or in part, at any time after April 22, 2019 upon at least 30 days prior written notice to the noteholders. The redemption price will be equal to the outstanding principal amount of the Notes redeemed plus the accrued but unpaid interest thereon up to, but not including, the date of redemption, without penalty or premium. No Notes were redeemed by MBC Funding II as of SeptemberJune 30, 2022.2023.

 

MBC Funding II is obligated to offer to redeem the Notes if there occurs a “change of control” with respect to us or MBC Funding II or if we or MBC Funding II sell any assets unless, in the case of an asset sale, the proceeds are reinvested in the business of the seller. The redemption price in connection with a “change of control” will be 101% of the principal amount of the Notes redeemed plus accrued but unpaid interest thereon up to, but not including, the date of redemption. The redemption price in connection with an asset sale will be the outstanding principal amount of the Notes redeemed plus accrued but unpaid interest thereon up to, but not including, the date of redemption.

 

We guarantee MBC Funding II’s obligations under the Notes, which are secured by our pledge of 100% of the outstanding common shares of MBC Funding II that we own.

 

The interest rate on the Notes is fixed and the interest rate on the Webster Credit Line is adjustable. The continued increase in LIBOR rates adversely impactsOn April 11, 2023, our interest costs. We experiencedBoard of Directors authorized a slowdown in the deployment of capital and lower demand for new loans,share buy back program, pursuant to which resulted in lower origination fees. We are increasing the interest rates charged on our commercial loans in orderwe may, from time to offset our increased interest costs. In addition, mosttime, purchase up to 100,000 of our loans containcommon shares. This program does not obligate the Company to purchase any shares and expires on April 10, 2024. The authorization for the program is able to be terminated, increased or decreased by the Company’s Board of Directors in its discretion at any time. As of June 30, 2023, we have purchased an adjustable interest rate clause allowing us to charge no less than the prime rate plus 3% on the outstanding loans. We also believe that we benefit from our low equity-to-debt ratio in the current market condition.aggregate of 33,360 common shares under this repurchase program, at an aggregate cost of approximately $165,000.

 

We anticipate that our current cash balances and the Amended and Restated Credit Agreement, as described above, together with our cash flows from operations will be sufficient to fund our operations for the next 12 months. In addition, from time to time, we receive short term unsecured loans from our executive officers and others in order to provide us with the flexibility necessary to maintain a steady deployment of capital. However, we expect our working capital requirements to increase over the next 12 months as we continue to strive for growth.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, we are not required to provide the information required by this Item.

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Item 4. CONTROLS AND PROCEDURES

 

(a)Evaluation and Disclosure Controls and Procedures

(a) Evaluation and Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of SeptemberJune 30, 20222023 (the “Evaluation Date”). Based upon that evaluation, the chief executive officer and the chief financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) are recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) are accumulated and communicated to our management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

(b)Changes in Internal Control Over Financial Reporting

(b) Changes in Internal Control Over Financial Reporting

 

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the fiscal quarter ended SeptemberJune 30, 20222023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II OTHER INFORMATION

 

Item 1A.RISK FACTORS

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In addition

On April 11, 2023, our Board of Directors authorized a share buy back program, pursuant to which we may, from time to time, purchase up to 100,000 of our common shares. This program does not obligate us to purchase any shares and expires on April 10, 2024. The authorization for the other information set forthprogram is able to be terminated, increased or decreased by our Board of Directors in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2021 Annual Report and in Part II, “Item 1A. Risk Factors” in our Quarterly Report, which could materially affect our business, financial condition or future results.its discretion at any time.

 

There have been no material changes fromAs set forth in the risk factors previously disclosed intable below, during the quarter ended June 30, 2023, we repurchased 33,360 of our 2021 Annual Report and our Quarterly Report, except as noted below.

common shares under the stock buy-back program at an aggregate cost of $164,806.

Rising interest rates may reduce our profitability and may cause losses.

Our borrowings under the Webster Credit Line are subject to LIBOR. In addition, in the future we may enter into financing arrangements that may be determined by reference to floating rates, such as LIBOR (or any replacement rate such as SOFR) or a Treasury index, and the amount of the cost of borrowing may depend on the level and movement of interest rates. In 2022, the U.S. Federal Reserve raised short term interest rates several times and has suggested additional interest rate increases may come in subsequent quarters. The continue increases in LIBOR rates adversely impact our interest costs. We experienced a slowdown in the deployment of capital and lower demand for new loans, which resulted in lower origination fees. We are increasing the interest rates charged on our commercial loans in order to offset our increased interest costs. In addition, most of our loans contain an adjustable interest rate clause allowing us to charge no less than the prime rate plus 3% on the outstanding loans. We also believe that we benefit from our low equity-to-debt ratio in the current market condition. However, in the event of additional increases in interest rates, our borrowing costs would increase further which would adversely affect our results of operations and financial condition and may negatively impact our distributions to shareholders.

  ISSUER PURCHASES OF EQUITY SECURITIES 
        (c)  (d) 
        Total Number  Maximum Number 
        of Shares (or  (or Approximate 
        Units)  Dollar Value) of 
  (a)  (b)  Purchased as  Shares (or Units) 
  Total Number  Average  Part of Publicly  that May Yet Be 
  of Shares  Price Paid  Announced  Purchased Under 
  (or Units)  per Share  Plans or  the Plans or 
Period Purchased  (or Unit)  Programs  Programs 
April 1-30, 2023  8,000  $5.03   8,000   92,000 
May 1-31, 2023  22,060  $4.93   22,060   69,940 
June 1-30, 2023  3,300  $4.78   3,300   66,640 
Total  33,360  $4.94   33,360   66,640 

 

Item 6. EXHIBITS

 

Exhibit No.Description
31.1Chief Executive Officer Certification under Rule 13a-14
31.2Chief Financial Officer Certification under Rule 13a-14
32.1*Chief Executive Officer Certification pursuant to 18 U.S.C. section 1350
32.2*Chief Financial Officer Certification pursuant to 18 U.S.C. section 1350
101.INSXBRL Instance Document
101.CALInline XBRL Taxonomy Extension Schema Document
101.SCHInline XBRL Taxonomy Extension Calculation Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
104Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).

*Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.

 

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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.

 

 Manhattan Bridge Capital, Inc. (Registrant)
   
Date: October 21, 2022July 20, 2023By:/s/ Assaf Ran
  Assaf Ran, President and Chief Executive Officer
  (Principal Executive Officer)
   
Date: October 21, 2022July 20, 2023By:/s/ Vanessa Kao
  Vanessa Kao, Chief Financial Officer
  (Principal Financial and Accounting Officer)

 

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