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MBC Funding Ii

Filed: 23 Jul 21, 7:00am

 

 

 

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 June 30, 2021

or

 

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

 

For the transition period from _______________________________to__________________________________

 

Commission File Number: 001-37726

 

MBC FUNDING II CORP.

(Exact name of registrant as specified in its charter)

 

New York 81-0758358
(State or other jurisdiction 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
6% Senior Secured Notes, due April 22, 2026 LOAN/26 NYSE American LLC

 

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 July 23, 2021, the Issuer had a total of 100 shares of Common Stock, $.001 par value per share, outstanding.

 

 

 

   

 

 

MBC FUNDING II CORP.

TABLE OF CONTENTS

 

  Page Number
Part IFINANCIAL INFORMATION 
   
Item 1.

Financial Statements (unaudited)

 
   
 

Balance Sheets as of June 30, 2021 and December 31, 2020

3
   
 

Statements of Operations for the Three and Six Month Periods Ended June 30, 2021 and 2020

4
   
 

Statements of Changes in Stockholders’ Equity for the Three and Six Month Periods Ended June 30, 2021 and 2020

5
   
 

Statements of Cash Flows for the Six Month Periods Ended June 30, 2021 and 2020

6
   
 

Notes to Financial Statements

7
   
Item 2.

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

8
   
Item 3.Quantitative and Qualitative Disclosures about Market Risk

10

   

Item 4.

Controls and Procedures10
   
Part II

OTHER INFORMATION

 
   
Item 6.Exhibits11
   
SIGNATURES12
   
EXHIBITS 

 

1
 

 

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 risk factors discussed in more detail in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as may be supplemented or amended from time to time, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 in this report. 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. 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.

 

The terms “we”, “our”, “us”, or any derivative thereof, as used herein refer to MBC Funding II Corp., a New York corporation, and its predecessors.

 

2
 

 

PART I. FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

 

MBC FUNDING II CORP.

BALANCE SHEETS

 

  

June 30, 2021

  

December 31, 2020

 
  (unaudited)  (audited) 

Assets

        
Loans receivable $8,008,000  $7,784,712 
Cash  49,016   48,913 
Interest receivable on loans  63,188   65,887 
Total assets $8,120,204  $7,899,512 
         
Liabilities and Stockholder’s Equity        
Liabilities:        
Senior secured notes (net of deferred financing costs of $359,784 and $397,327, respectively) $5,640,216  $5,602,673 
Due to parent company  69,723   76,138 
Accrued expenses  17,500   15,000 
Total liabilities  5,727,439   5,693,811 
         
Stockholder’s equity:        
Common shares - $.001 par value; 100 authorized, issued and outstanding      
Additional paid-in capital  100   100 
Retained earnings  2,392,665   2,205,601 
Total stockholder’s equity  2,392,765   2,205,701 
Total liabilities and stockholder’s equity $8,120,204  $7,899,512 

 

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

 

3
 

 

MBC FUNDING II CORP.

STATEMENTS OF OPERATIONS

(unaudited)

 

  2021  2020  2021  2020 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
  2021  2020  2021  2020 
             
Interest income from loans $204,927  $210,006  $412,409  $425,017 
Total revenue  204,927   210,006   412,409   425,017 
                 
Operating costs and expenses:                
Interest and amortization of deferred financing costs  108,771   108,771   217,543   217,543 
General and administrative expenses  3,341   3,251   7,155   7,130 
Total operating costs and expenses  112,112   112,022   224,698   224,673 
Income before income tax expense  92,815   97,984   187,711   200,344 
Income tax expense  (647)  (645)  (647)  (645)
Net income $92,168  $97,339  $187,064  $199,699 

 

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

 

4
 

 

MBC FUNDING II CORP.

STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY

(unaudited)

 

FOR THE THREE MONTHS ENDED JUNE 30, 2021

 

  Shares  Amount  Paid in Capital  Earnings  Totals 
  Common Stock  

Additional

  Retained   
  Shares  Amount  Paid in Capital  Earnings  Totals 
Balance, April 1, 2021  100  $  $100  $2,300,497  $2,300,597 
Net income for the period      -   -   92,168   92,168 
Balance, June 30, 2021  100  $  $100  $2,392,665  $2,392,765 

 

FOR THE THREE MONTHS ENDED JUNE 30, 2020

 

  Common Stock  

Additional

  Retained   
  Shares  Amount  Paid in Capital  Earnings  Totals 
Balance, April 1, 2020  100  $  $100  $1,917,647  $1,917,747 
Net income for the period      -   -   97,339   97,339 
Balance, June 30, 2020  100  $  $100  $2,014,986  $2,015,086 

 

FOR THE SIX MONTHS ENDED JUNE 30, 2021

 

  Common Stock  

Additional

  Retained   
  Shares  Amount  Paid in Capital  Earnings   Totals 
Balance, January 1, 2021  100  $  $100  $2,205,601  $2,205,701 
Net income for the period      -   -   187,064   187,064 
Balance, June 30, 2021  100  $  $100  $2,392,665  $2,392,765 

 

FOR THE SIX MONTHS ENDED JUNE 30, 2020

 

  Common Stock  

Additional

  Retained   
  Shares  Amount  Paid in Capital   Earnings  Totals 
Balance, January 1, 2020  100  $  $100  $1,815,287  $1,815,387 
Net income for the period      -   -   199,699   199,699 
Balance, June 30, 2020  100  $  $100  $2,014,986  $2,015,086 

 

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

 

5
 

 

MBC FUNDING II CORP.

STATEMENTS OF CASH FLOWS

(unaudited)

 

  2021  2020 
   Six Months Ended June 30, 
  2021  2020 
Cash flows from operating activities:        
Net income $187,064  $199,699 
Adjustment to reconcile net income to net cash provided by operating activities        
Amortization of deferred financing costs  37,543   37,543 
Changes in operating assets and liabilities:        
Interest receivable on loans  2,699   (6,309)
Prepaid expenses     (2,500)
Accrued expenses  2,500    
 Net cash provided by operating activities  229,806   228,433 
         
Cash flows from financing activities:        
Repayment of amounts due to parent company, net  (229,703)  (233,648)
 Net cash used in financing activities  (229,703)  (233,648)
         
Net increase (decrease) in cash  103   (5,215)
Cash, beginning of period  48,913   53,122 
Cash, end of period $49,016  $47,907 
         
Supplemental Cash Flow Information:        
Taxes paid during the period $647  $645 
Interest paid during the period $180,000  $180,000 
         
Noncash Financing and Investing Activities:        
Assignments of loans from parent company $7,414,150  $4,148,385 
Assigned loans repaid to parent company by borrowers $7,190,862  $4,399,138 

 

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

 

6
 

 

MBC FUNDING II CORP.

NOTES TO FINANCIAL STATEMENTS

June 30, 2021

 

1. THE COMPANY

 

The accompanying unaudited financial statements have been prepared by MBC Funding II Corp. (the “Company”), a New York corporation, formed in December 2015 as a wholly-owned subsidiary of Manhattan Bridge Capital, Inc., a New York corporation (“MBC”), 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. Results of operations for the interim period are not necessarily indicative of the operating results to be attained in the entire fiscal year.

 

The preparation of 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.

 

Interest income from mortgage loans held by the Company is recognized, as earned, over the loan period. Costs incurred in connection with the issuance of the senior secured notes are being amortized over ten years, using the straight-line method, as the difference between use of the effective interest method is not material.

 

The Company was formed in December 2015 by MBC specifically for the purpose of conducting an initial public offering (“IPO”) of certain notes. On April 25, 2016, the Company completed the IPO of its 6% senior secured notes due April 22, 2026 (the “Notes”). Prior to the consummation of the IPO, the Company did not have any material operations. As of April 2016, the Company collects payments of interest on the mortgages it holds and uses those funds to make the required interest payments to the holders of the Notes (the “Noteholders”) and certain operating expenses.

 

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 financial statements.

 

3. SENIOR SECURED NOTES

 

The Notes are 6% senior secured notes, due April 22, 2026, and have a principal amount of $1,000 each. On April 25, 2016, the Company issued Notes in the IPO in the aggregate principal amount of $6,000,000 under the Indenture, dated April 25, 2016, among the Company, as Issuer, MBC, as Guarantor, and Worldwide Stock Transfer LLC (“Worldwide”), as Indenture Trustee (the “Indenture”). The Notes 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 the Company, together with the Company’s 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 the Company plus the Company’s cash on hand is less than 120% of the aggregate outstanding principal balance of the Notes, the Company 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 the Company plus, the Company’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.

 

The Company 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. No Notes were redeemed by the Company as of June 30, 2021. Each Noteholder had the right to cause the Company to redeem his, her or its Notes on April 22, 2021 by notifying the Company in writing, no earlier than November 22, 2020 and no later than January 22, 2021. No Noteholder exercised such right during the required time frame and as such the Notes are no longer redeemable by the Noteholders.

 

7
 

 

The Company is obligated to offer to redeem the Notes if there occurs a “change of control” with respect to the Company or MBC or if the Company or MBC 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.

 

4. COMMERCIAL LOANS

 

The Company purchased from MBC a pool of mortgage loans, originated and funded by MBC, each of which is secured by first priority liens on real property, free and clear of all liens and other security interests (see Note 3). To the extent any of the mortgages are satisfied in full, such mortgages will be replaced with one or more mortgages with similar aggregate principal amount. At June 30, 2021, the pool of mortgage loans is comprised of 22 loans with an aggregate outstanding principal balance of $8,008,000. At December 31, 2020, the pool of mortgage loans was comprised of 22 loans with an aggregate outstanding principal balance of $7,784,712.

 

The loans typically have a maximum initial term of 12 months, and bear interest at a fixed rate of 9% to 13% per year, and provide for receipt of interest only during the term of the loan and a balloon payment at the end of the term.

 

Credit risk profile as of June 30, 2021 and December 31, 2020:

SCHEDULE OF CREDIT RISK

Performing loans 

Developers-

Residential

  Developers- Commercial  Developers-Mixed Used  Total outstanding loans 
June 30, 2021 $7,089,000  $375,000  $544,000  $8,008,000 
December 31, 2020 $6,219,850  $1,564,862  $0  $7,784,712 

 

At June 30, 2021, loans receivable from one borrower represented 31.2% of total loans receivable.

 

At December 31, 2020, loans receivable from three borrowers represented 17.8% of total loans receivable. One individual personally guarantees all three loans and is the sole owner of two of those borrowers and a partial owner of the other borrower. In addition, loans receivable from two other borrowers represented 13.6% of total loans receivable. One individual personally guarantees both loans and is the sole owner of one of the borrowers and a partial owner of the other borrower.

 

5. COVID-19

 

As a result of the COVID-19 pandemic, the Company may experience difficulties collecting monthly interest on time from its borrowers, property values may decline and certain of its loans may need to be extended. To date, the Company and MBC have not been materially impacted by the COVID-19 pandemic and will continue to closely monitor the impact of the COVID-19 pandemic on all aspects of their businesses. If the COVID-19 pandemic worsens in the geographic areas in which MBC operates, the pandemic could materially affect the Company’s financial and operational results.

 

********

 

8
 

 

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 financial statements and notes thereto included in this Quarterly 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 statements.

 

We are a wholly-owned subsidiary of Manhattan Bridge Capital, Inc., a New York corporation (“MBC”), and were formed in December 2015 specifically for the purpose of the initial public offering (“IPO”) of the Notes (described below). On April 25, 2016, we sold $6,000,000 aggregate principal amount of our 6% Senior Secured Notes, due April 22, 2026 (the “Notes”), in our IPO for net proceeds of $5,200,000, after deducting the underwriting discounts and commissions and other offering expenses. The Notes are secured by a first priority lien on all of our assets, including, primarily, mortgage notes, mortgages and other transaction documents entered into in connection with first mortgage loans originated and funded by MBC, which we acquired from MBC pursuant to an asset purchase agreement. Under the terms of the indenture governing the Notes (the “Indenture”), the aggregate outstanding principal balance of the mortgage loans held by us, together with our cash on hand, must always equal at least 120% of the aggregate outstanding principal amount of the Notes at all times until the Notes are paid in full. In addition, MBC has guaranteed our obligations under the Notes and has secured that guaranty with a pledge of all of our outstanding common shares.

 

The Notes are listed on the NYSE American and trade under the symbol “LOAN/26”.

 

To the extent any of the mortgages acquired from MBC are satisfied in full, such mortgages will be replaced with one or more mortgages with similar aggregate principal amount. At June 30, 2021, the pool of mortgage loans is comprised of 22 loans with an aggregate outstanding principal balance of $8,008,000.

 

Prior to the consummation of the IPO on April 25, 2016, we did not have any material operations. As of April 2016, we collect payments of interest on the mortgages we hold and use those funds to make the required interest payments to the holders of the Notes and certain operating expenses. Any excess cash will be distributed to MBC or held by us to be used for working capital and general corporate purposes.

 

Results of Operations

 

Three months ended June 30, 2021 compared to three months ended June 30, 2020

 

Total Revenue

 

Total revenues for the three months ended June 30, 2021 and 2020 of approximately $205,000 and $210,000, respectively, represent interest income on the secured commercial loans that we purchased from MBC. The decrease in revenue was primarily attributable to lower interest rates charged on loans due to market conditions.

 

Interest and amortization of deferred financing costs

 

Interest and amortization of deferred financing costs for each of the three months ended June 30, 2021 and 2020 of approximately $109,000 are attributable to the issuance of the Notes.

 

General and administrative expenses

 

General and administrative expenses for each of the three months ended June 30, 2021 and 2020 of approximately $3,000 are comprised of fees paid to the Indenture trustee and NYSE American LLC, as well as bank fees.

 

Six months ended June 30, 2021 compared to six months ended June 30, 2020

 

Total Revenue

 

Total revenues for the six months ended June 30, 2021 and 2020 of approximately $412,000 and $425,000, respectively, represent interest income on the secured commercial loans that we purchased from MBC. The decrease in revenue was primarily attributable to lower interest rates charged on loans due to market conditions.

 

Interest and amortization of deferred financing costs

 

Interest and amortization of deferred financing costs for each of the six months ended June 30, 2021 and 2020 of approximately $218,000 are attributable to the issuance of the Notes.

 

General and administrative expenses

 

General and administrative expenses for each of the six months ended June 30, 2021 and 2020 of approximately $7,000 are comprised of fees paid to the Indenture trustee and NYSE American LLC, as well as bank fees.

 

9
 

 

Liquidity and Capital Resources

 

We had cash of approximately $49,000 at June 30, 2021 and at December 31, 2020.

 

Net cash provided by operating activities for the six months ended June 30, 2021 was approximately $230,000, compared to approximately $228,000 for the six months ended June 30, 2020. Net cash provided by operating activities for the six months ended June 30, 2021 and 2020 primarily resulted from our interest income and amortization of deferred financing costs.

 

Net cash used in financing activities for the six months ended June 30, 2021 was approximately $230,000, compared to approximately $234,000 for the six months ended June 30, 2020. The decrease in net cash used in financing activities primarily resulted from the reduction in revenue. Net cash used in financing activities for the six months ended June 30, 2021 and 2020 reflected the repayment of amounts due to MBC in connection with loans purchased from MBC.

 

We had no cash from or used in investing activities for the six months ended June 30, 2021 or 2020.

 

Under the terms of the Indenture, the aggregate outstanding principal balance of the mortgage loans held by the Company, together with the Company’s cash on hand, must always equal at least 120% of the aggregate outstanding principal amount of the Notes at all times.

 

We anticipate that our current cash balances together with our cash flows from operations will be sufficient to fund our operations for the next 12 months.

 

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.

 

Item 4. CONTROLS AND PROCEDURES

 

(a) Evaluation and Disclosure Controls and Procedures

 

Our management, including 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 June 30, 2021 (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 SEC’s rules and forms and (ii) are accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

(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 June 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

10
 

 

PART II OTHER INFORMATION

 

Item 6. EXHIBITS

 

Exhibit No. Description
31.1 Chief Executive Officer Certification under Rule 13a-14
31.2 Chief 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.INS XBRL Instance Document
101.CAL Inline XBRL Taxonomy Extension Schema Document
101.SCH Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
104 Cover 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.

 

11
 

 

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.

 

 MBC Funding II Corp. (Registrant)

 

Date: July 23, 2021By:/s/ Assaf Ran
  Assaf Ran, President and Chief Executive Officer
  (Principal Executive Officer)

 

Date: July 23, 2021By:/s/ Vanessa Kao
  Vanessa Kao, Chief Financial Officer
  (Principal Financial and Accounting Officer)

 

12