Item
1. CONSOLIDATED FINANCIAL STATEMENTS
MANHATTAN
BRIDGE CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
|
|
September
30, 2020
|
|
|
December
31, 2019
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Loans receivable
|
|
$
|
57,883,068
|
|
|
$
|
53,485,014
|
|
Interest receivable on loans
|
|
|
809,975
|
|
|
|
675,996
|
|
Cash
|
|
|
156,715
|
|
|
|
118,407
|
|
Other assets
|
|
|
88,554
|
|
|
|
53,218
|
|
Operating lease right-of-use asset,
net
|
|
|
52,627
|
|
|
|
87,754
|
|
Deferred financing
costs
|
|
|
29,917
|
|
|
|
22,637
|
|
Total
assets
|
|
$
|
59,020,856
|
|
|
$
|
54,443,026
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’
Equity
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Line of credit
|
|
$
|
19,779,851
|
|
|
$
|
15,232,993
|
|
Senior secured notes (net of deferred
financing costs of $416,099 and $472,413, respectively)
|
|
|
5,583,901
|
|
|
|
5,527,587
|
|
Deferred origination fees
|
|
|
452,914
|
|
|
|
322,119
|
|
Accounts payable and accrued expenses
|
|
|
132,582
|
|
|
|
151,823
|
|
Operating lease liability
|
|
|
55,566
|
|
|
|
91,025
|
|
Other liabilities
|
|
|
—
|
|
|
|
15,000
|
|
Dividends payable
|
|
|
—
|
|
|
|
1,159,061
|
|
Total
liabilities
|
|
|
26,004,814
|
|
|
|
22,499,608
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred shares - $.01 par value; 5,000,000 shares authorized;
none issued
|
|
|
—
|
|
|
|
—
|
|
Common shares - $.001 par value; 25,000,000
shares authorized; 9,882,058 issued; 9,619,945 and 9,658,844 outstanding, respectively
|
|
|
9,882
|
|
|
|
9,882
|
|
Additional paid-in capital
|
|
|
33,153,830
|
|
|
|
33,144,032
|
|
Treasury stock, at cost – 262,113
and 223,214 shares
|
|
|
(798,939
|
)
|
|
|
(619,688
|
)
|
Retained earnings
(accumulated deficit)
|
|
|
651,269
|
|
|
|
(590,808
|
)
|
Total
stockholders’ equity
|
|
|
33,016,042
|
|
|
|
31,943,418
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders’ equity
|
|
$
|
59,020,856
|
|
|
$
|
54,443,026
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
MANHATTAN
BRIDGE CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
|
|
Three
Months
Ended
September 30,
|
|
|
Nine
Months
Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Interest income from
loans
|
|
$
|
1,521,474
|
|
|
$
|
1,618,735
|
|
|
$
|
4,485,414
|
|
|
$
|
4,608,936
|
|
Origination fees
|
|
|
264,878
|
|
|
|
298,222
|
|
|
|
753,111
|
|
|
|
875,449
|
|
Total revenue
|
|
|
1,786,352
|
|
|
|
1,916,957
|
|
|
|
5,238,525
|
|
|
|
5,484,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and amortization of debt service
costs
|
|
|
337,901
|
|
|
|
454,307
|
|
|
|
1,016,590
|
|
|
|
1,220,700
|
|
Referral fees
|
|
|
1,641
|
|
|
|
861
|
|
|
|
3,569
|
|
|
|
3,569
|
|
General and administrative expenses
|
|
|
305,407
|
|
|
|
314,820
|
|
|
|
968,914
|
|
|
|
913,175
|
|
Total operating
costs and expenses
|
|
|
644,949
|
|
|
|
769,988
|
|
|
|
1,989,073
|
|
|
|
2,137,444
|
|
Income from operations
|
|
|
1,141,403
|
|
|
|
1,146,969
|
|
|
|
3,249,452
|
|
|
|
3,346,941
|
|
Other income
|
|
|
9,500
|
|
|
|
3,000
|
|
|
|
15,500
|
|
|
|
9,000
|
|
Income before income tax expense
|
|
|
1,150,903
|
|
|
|
1,149,969
|
|
|
|
3,264,952
|
|
|
|
3,355,941
|
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
(645
|
)
|
|
|
(572
|
)
|
Net income
|
|
$
|
1,150,903
|
|
|
$
|
1,149,969
|
|
|
$
|
3,264,307
|
|
|
$
|
3,355,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income per common
share outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—Basic
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
$
|
0.34
|
|
|
$
|
0.35
|
|
—Diluted
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
$
|
0.34
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—Basic
|
|
|
9,625,140
|
|
|
|
9,658,608
|
|
|
|
9,635,107
|
|
|
|
9,657,911
|
|
—Diluted
|
|
|
9,625,140
|
|
|
|
9,659,764
|
|
|
|
9,635,107
|
|
|
|
9,659,012
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
MANHATTAN
BRIDGE CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited)
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2020
|
|
Common
Shares
|
|
|
Additional
Paid in
|
|
|
Treasury
Stock
|
|
|
Retained
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Cost
|
|
|
Earnings
|
|
|
Totals
|
|
Balance,
July 1, 2020
|
|
|
9,882,058
|
|
|
$
|
9,882
|
|
|
$
|
33,150,564
|
|
|
|
255,213
|
|
|
$
|
(771,559
|
)
|
|
$
|
463,050
|
|
|
$
|
32,851,937
|
|
Purchase
of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,900
|
|
|
|
(27,380
|
)
|
|
|
|
|
|
|
(27,380
|
)
|
Non
- cash compensation
|
|
|
|
|
|
|
|
|
|
|
3,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,266
|
|
Dividends
paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(962,684
|
)
|
|
|
(962,684
|
)
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,150,903
|
|
|
|
1,150,903
|
|
Balance,
September 30, 2020
|
|
|
9,882,058
|
|
|
$
|
9,882
|
|
|
$
|
33,153,830
|
|
|
|
262,113
|
|
|
$
|
(798,939
|
)
|
|
$
|
651,269
|
|
|
$
|
33,016,042
|
|
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2019
|
|
Common
Shares
|
|
|
Additional
Paid in
|
|
|
Treasury
Stock
|
|
|
Retained
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Cost
|
|
|
Earnings
|
|
|
Totals
|
|
Balance,
July 1, 2019
|
|
|
9,881,191
|
|
|
$
|
9,881
|
|
|
$
|
33,137,501
|
|
|
|
223,214
|
|
|
$
|
(619,688
|
)
|
|
$
|
597,161
|
|
|
$
|
33,124,855
|
|
Exercise
of warrants
|
|
|
867
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Non-cash
compensation
|
|
|
|
|
|
|
|
|
|
|
3,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,266
|
|
Dividends
paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,158,957
|
)
|
|
|
(1,158,957
|
)
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,149,969
|
|
|
|
1,149,969
|
|
Balance,
September 30, 2019
|
|
|
9,882,058
|
|
|
$
|
9,882
|
|
|
$
|
33,140,766
|
|
|
|
223,214
|
|
|
$
|
(619,688
|
)
|
|
$
|
588,173
|
|
|
$
|
33,119,133
|
|
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020
|
|
Common
Shares
|
|
|
Additional
Paid in
|
|
|
Treasury
Stock
|
|
|
Accumulated
Deficit (Retained
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Cost
|
|
|
Earnings)
|
|
|
Totals
|
|
Balance,
January 1, 2020
|
|
|
9,882,058
|
|
|
$
|
9,882
|
|
|
$
|
33,144,032
|
|
|
|
223,214
|
|
|
$
|
(619,688
|
)
|
|
$
|
(590,808
|
)
|
|
$
|
31,943,418
|
|
Non-cash
compensation
|
|
|
|
|
|
|
|
|
|
|
9,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,798
|
|
Purchase
of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,899
|
|
|
|
(179,251
|
)
|
|
|
|
|
|
|
(179,251
|
)
|
Dividends
paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,022,230
|
)
|
|
|
(2,022,230
|
)
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,264,307
|
|
|
|
3,264,307
|
|
Balance,
September 30, 2020
|
|
|
9,882,058
|
|
|
$
|
9,882
|
|
|
$
|
33,153,830
|
|
|
|
262,113
|
|
|
$
|
(798,939
|
)
|
|
$
|
651,269
|
|
|
$
|
33,016,042
|
|
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2019
|
|
Common
Shares
|
|
|
Additional
Paid in
|
|
|
Treasury
Stock
|
|
|
Accumulated
Deficit (Retained
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Cost
|
|
|
Earnings)
|
|
|
Totals
|
|
Balance,
January 1, 2019
|
|
|
9,874,191
|
|
|
$
|
9,874
|
|
|
$
|
33,110,536
|
|
|
|
218,214
|
|
|
$
|
(590,234
|
)
|
|
$
|
(448,801
|
)
|
|
$
|
32,081,375
|
|
Exercise
of options and warrants
|
|
|
7,867
|
|
|
|
8
|
|
|
|
20,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,440
|
|
Purchase
of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
(29,454
|
)
|
|
|
|
|
|
|
(29,454
|
)
|
Non-cash
compensation
|
|
|
|
|
|
|
|
|
|
|
9,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,798
|
|
Dividends
paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,318,395
|
)
|
|
|
(2,318,395
|
)
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,355,369
|
|
|
|
3,355,369
|
|
Balance,
September 30, 2019
|
|
|
9,882,058
|
|
|
$
|
9,882
|
|
|
$
|
33,140,766
|
|
|
|
223,214
|
|
|
$
|
(619,688
|
)
|
|
$
|
588,173
|
|
|
$
|
33,119,133
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
MANHATTAN
BRIDGE CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
3,264,307
|
|
|
$
|
3,355,369
|
|
Adjustments to reconcile
net income to net cash provided by operating activities -
|
|
|
|
|
|
|
|
|
Amortization of
deferred financing costs
|
|
|
76,136
|
|
|
|
70,867
|
|
Adjustment to operating
lease right-of-use asset and liability
|
|
|
(333
|
)
|
|
|
—
|
|
Depreciation
|
|
|
744
|
|
|
|
1,157
|
|
Non-cash compensation
expense
|
|
|
9,798
|
|
|
|
9,798
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
Interest receivable
on loans
|
|
|
(163,650
|
)
|
|
|
(167,194
|
)
|
Other assets
|
|
|
(35,156
|
)
|
|
|
(26,209
|
)
|
Accounts payable
and accrued expenses
|
|
|
(19,241
|
)
|
|
|
(19,134
|
)
|
Deferred
origination fees
|
|
|
130,795
|
|
|
|
(461
|
)
|
Net
cash provided by operating activities
|
|
|
3,263,400
|
|
|
|
3,224,193
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Issuance of short
term loans
|
|
|
(35,410,076
|
)
|
|
|
(38,246,965
|
)
|
Collections received
from loans
|
|
|
31,041,693
|
|
|
|
33,375,420
|
|
Release of loan
holdback relating to mortgage receivable
|
|
|
(15,000
|
)
|
|
|
—
|
|
Purchase
of fixed assets
|
|
|
(923
|
)
|
|
|
—
|
|
Net
cash used in investing activities
|
|
|
(4,384,306
|
)
|
|
|
(4,871,545
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from line
of credit, net
|
|
|
4,546,858
|
|
|
|
5,241,895
|
|
Dividends paid
|
|
|
(3,181,291
|
)
|
|
|
(3,477,112
|
)
|
Purchase of treasury shares
|
|
|
(179,251
|
)
|
|
|
(29,454
|
)
|
Deferred financing
costs incurred
|
|
|
(27,102
|
)
|
|
|
—
|
|
Proceeds
from exercise of stock options
|
|
|
—
|
|
|
|
20,440
|
|
Net
cash provided by financing activities
|
|
|
1,159,214
|
|
|
|
1,755,769
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
38,308
|
|
|
|
108,417
|
|
Cash, beginning of period
|
|
|
118,407
|
|
|
|
355,057
|
|
Cash, end of period
|
|
$
|
156,715
|
|
|
$
|
463,474
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
|
|
Taxes paid during
the period
|
|
$
|
645
|
|
|
$
|
572
|
|
Interest paid
during the period
|
|
$
|
954,622
|
|
|
$
|
1,144,425
|
|
Operating leases
paid during the period
|
|
$
|
40,973
|
|
|
$
|
39,628
|
|
|
|
|
|
|
|
|
|
|
Non-cash Investing Activities:
|
|
|
|
|
|
|
|
|
Establishment
of right-of-use asset and operating lease liability
|
|
$
|
—
|
|
|
$
|
135,270
|
|
Interest receivable
converted to loans receivable in connection with forbearance agreements
|
|
$
|
29,671
|
|
|
$
|
—
|
|
Loan holdback
relating to mortgage receivable
|
|
$
|
—
|
|
|
$
|
15,000
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
MANHATTAN
BRIDGE CAPITAL, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2020
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”), 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, 2019 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. 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
In
May 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)
2019-05, “Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief,” which requires that
entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of
an allowance for credit losses. This ASU also allows entities to irrevocably elect the fair value option for certain financial
assets previously measured at amortized cost upon adoption of ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.”
The Company adopted both ASU 2016-13 and ASU 2019-05 effective January 1, 2020. The adoption of this guidance did not have a material
impact on the Company’s consolidated financial statements.
In
March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on
Financial Reporting.” This ASU provides optional expedients and exceptions for applying GAAP to contract modifications and
hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued.
The amendments in the ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The adoption of this
guidance did not have a material impact on the Company’s consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have
a material effect on the Company’s consolidated financial statements.
3.
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, generally, 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
September 30, 2020, the Company was committed to $5,191,959 in construction loans that can be drawn by the borrowers when certain
conditions are met.
At
September 30, 2020, no one entity has loans outstanding representing more than 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.
Credit
Risk
Credit
risk profile based on loan activity as of September 30, 2020 and December 31, 2019:
Performing
loans
|
|
Developers-
Residential
|
|
|
Developers-
Commercial
|
|
|
Developers-
Mixed
Used
|
|
|
Total
outstanding loans
|
|
September
30, 2020
|
|
$
|
54,494,205
|
|
|
$
|
1,564,863
|
|
|
$
|
1,824,000
|
|
|
$
|
57,883,068
|
|
December 31,
2019
|
|
$
|
48,395,014
|
|
|
$
|
1,975,000
|
|
|
$
|
3,115,000
|
|
|
$
|
53,485,014
|
|
At
September 30, 2020, the Company’s loans receivable consisted of loans in the amount of $367,500, $1,594,463, $1,520,000
and $5,883,071, originally due in 2016, 2017, 2018 and 2019, respectively. During the second quarter of 2020, the Company agreed
to grant forbearances, due to the COVID-19 pandemic, in an aggregate amount of approximately $30,000 to two of its long term borrowers
deferring two to three months of interest payments to the scheduled payoff date. Since the date of the forbearance agreements,
such borrowers have paid monthly interest.
In
all instances the borrowers are currently paying their interest and, generally, the Company receives a fee in connection with
the extension of the loans. Accordingly, at September 30, 2020, no loan impairments exist and there are no provisions for impairments
of loans or recoveries thereof.
Subsequent
to the balance sheet date, $2,534,425 of the loans receivable at September 30, 2020 were paid off, including $1,005,000 originally
due on or before September 30, 2020.
4.
LINE OF CREDIT
The
Company has executed an Amended and Restated Credit and Security Agreement, as amended (the “Amended and Restated Credit
Agreement”), with Webster Business Credit Corporation (“Webster”), Flushing Bank (“Flushing”) and
Mizrahi Tefahot Bank Ltd (“Mizrahi”), 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, secured
by assignments of mortgages and other collateral. 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, as a default under the credit line.
Effective
July 11, 2018, the Company entered into a Waiver and Amendment No. 1 to the Amended and Restated Credit Agreement (“Amendment
No. 1”) with Webster, Flushing and Mr. Assaf Ran, the Company’s President and Chief Executive Officer, as guarantor.
Pursuant to the terms of Amendment No. 1, the Company’s existing Webster Credit Line was increased by $5 million to $25
million in the aggregate. In addition, the interest rates relating to the Webster Credit Line were amended such that the interest
rates now equal (i) LIBOR plus a premium, which rate aggregated approximately 4.15%, including a 0.5% agency fee, as of September
30, 2020, 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. Amendment No. 1 also permits the Company to 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. 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. Furthermore, on December 31, 2019, the Company entered into Amendment No. 2 to the
Amended and Restated Credit and Security Agreement with Webster and Flushing to amend certain required fixed charge coverage requirements.
On
February 25, 2020, the Company entered into Amendment No. 3 to the Amended and Restated Credit and Security Agreement (“Amendment
No. 3”) with Webster, Flushing, Mizrahi, and Mr. Ran, as guarantor. Pursuant to the terms of Amendment No. 3, the Company’s
existing Webster Credit Line was increased by $7.5 million to $32.5 million in the aggregate and the term of the Webster Credit
Line was extended to February 28, 2023. Amendment No. 3 also provides that the Company may issue up to $20 million in bonds through
its subsidiary, of which not more than $10 million of such notes 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.
The
costs to establish and amend the Webster Credit Line are being amortized over the term of the respective agreement, using the
straight-line method. The amortization costs for the nine months ended September 30, 2020 and 2019 were $19,822 and $14,552, respectively.
The
Company was in compliance with all covenants of the Webster Credit Line, as amended, as of September 30, 2020. At September 30,
2020, the outstanding amount under the Amended Credit Agreement was $19,779,851. The interest rate on the amount outstanding fluctuates
daily. The rate, including a 0.5% Agency Fee, at September 30, 2020 was approximately 4.15%.
5.
SENIOR SECURED NOTES
On
April 25, 2016, in an initial public offering, MBC Funding issued 6% 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, 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, together with
MBC Funding’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 MBC Funding plus MBC Funding’s cash
on hand is less than 120% of the aggregate outstanding principal balance of the Notes, MBC Funding 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 plus, MBC Funding’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.
MBC
Funding 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; provided that (i) if
the Notes are redeemed on or after April 22, 2019 but prior to April 22, 2020, the redemption price will be 103% of the principal
amount of the Notes redeemed and (ii) if the Notes are redeemed on or after April 22, 2020 but prior to April 22, 2021, the redemption
price will be 101.5% of the principal amount of the Notes redeemed plus, in either case, the accrued but unpaid interest on the
Notes redeemed up to, but not including, the date of redemption. No Notes were redeemed prior to April 22, 2020.
Each
Noteholder has the right to cause MBC Funding to redeem his, her or its Notes on April 22, 2021. The redemption price will be
equal to the outstanding principal amount of the Notes redeemed plus the accrued but unpaid interest up to, but not including,
the date of redemption, without penalty or premium. In order to exercise this right, the Noteholder must notify MBC Funding, in
writing, no earlier than November 22, 2020 and no later than January 22, 2021. All Notes that are subject to a properly and timely
notice will be redeemed on April 22, 2021. Any Noteholder who fails to make a proper and timely election will be deemed to have
waived his, her or its right to have his, her or its Notes redeemed prior to the maturity date.
MBC
Funding is obligated to offer to redeem the Notes if there occurs a “change of control” with respect to MBC Funding
or the Company or if MBC Funding 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.
6.
STOCKHOLDERS’ EQUITY
The
Company adopted a share buy back program on February 26, 2020 for the repurchase of up to 100,000 of the Company’s common
shares in the next twelve months. The Company has purchased an aggregate of 38,899 common shares under this repurchase program,
at an aggregate cost of approximately $179,000, as of September 30, 2020.
7.
EARNINGS PER SHARE OF 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.
The
denominator is based on the following weighted average number of common shares:
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Basic weighted average common
shares outstanding
|
|
|
9,625,140
|
|
|
|
9,658,608
|
|
|
|
9,635,107
|
|
|
|
9,657,911
|
|
Incremental shares for assumed exercise
of warrants
|
|
|
—
|
|
|
|
1,156
|
|
|
|
—
|
|
|
|
1,101
|
|
Diluted weighted average common shares
outstanding
|
|
|
9,625,140
|
|
|
|
9,659,764
|
|
|
|
9,635,107
|
|
|
|
9,659,012
|
|
For
each of the three and nine months ended September 30, 2020, vested warrants to purchase 33,612 common shares were not included
in the diluted earnings per share calculation because their effect would have been anti-dilutive. For the three and nine months
ended September 30, 2019, 42,106 and 42,161, exercisable warrants were not included in the diluted earnings per share calculation,
respectively, because their effect would have been anti-dilutive.
8.
STOCK–BASED COMPENSATION
Stock
based compensation expense recognized under ASC 718, “Compensation-Stock Compensation,” for each of the nine months
ended September 30, 2020 and 2019 of $9,798 represents 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.
On
August 15, 2016, in connection with a public offering of the Company’s common shares, the Company issued warrants to purchase
up to 33,612 common shares, with an exercise price of $7.4375 per common share, to the representative of the underwriters of the
offering (the “August 2016 Representative Warrants”). The warrants are exercisable at any time, and from time to time,
in whole or in part, commencing on August 9, 2017 and expire on August 9, 2021. The fair value of these warrants, using the Black-Scholes
option pricing model, on the date of issuance was $47,020. At September 30, 2020 all of the August 2016 Representative Warrants
were outstanding.
9.
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 originated loans may need to be extended. For example, during the second quarter
of 2020, two of our long term borrowers requested forbearance agreements, due to the impact of the COVID-19 pandemic, deferring
two to three months of interest payments to the scheduled payoff date, and we agreed to accommodate the request. Since the date
of the forbearance agreements, such borrowers have paid monthly interest. Since the onset of the COVID-19 pandemic, the Company
has continued to originate loans as well as continued to service its existing loans, though the Company has observed lower demand
for new loans. The Company has also held discussions with its borrowers and they have expressed their general concern about the
uncertain economic condition, though these concerns have been partially alleviated due to lowered interest rates. To date, the
Company has 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 its business. If the COVID-19 pandemic worsens in the geographic areas in which the Company operates,
the pandemic could materially affect its financial and operational results.
10.
SUBSEQUENT EVENT
In
accordance with the dividend declared by the Company’s Board of Directors on July 30, 2020, a cash dividend of $0.10 per
share in an aggregate amount of $961,995 was paid on October 15, 2020 to all shareholders of record on October 9, 2020.
********
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 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 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 in the past seven years ranged from $30,000 to a maximum of $2.5 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 million. Our loans typically have a maximum initial term of 12 months
bearing interest at a fixed rate of 9% to 14% 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.
Since
commencing this business in 2007, we have made approximately 910 loans and never foreclosed on a property. We currently manage
approximately 130 loans. In addition, none of our loans have ever gone into default although sometimes we have renewed or extended
our loans 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.
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 loans and carefully manage 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
the demand for relatively small loans secured by residential and commercial real estate held for investment around the New York
metropolitan market remains relatively strong, but weakened due to the COVID-19 pandemic, and that traditional lenders, including
banks and other financial institutions, that usually address this market are unable to satisfy this demand. This demand/supply
imbalance has created an opportunity for non-bank “hard money” real estate lenders like us to selectively originate
high-quality first mortgage loans and this condition 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 also believe that certain of our competitors will not survive the COVID-19 pandemic.
Since
the onset of the COVID-19 pandemic, we have continued to originate loans as well as continued to service our existing loans, though
we have observed lower demand for new loans. In addition, we may experience difficulties collecting the monthly interest on time,
property values may decline and certain of our originated loans may need to be extended, though to date we have not experienced
many borrowers requiring such accommodations. In that regard, during the second quarter of 2020, two of our long term borrowers
requested forbearance agreements, due to the impact of the COVID-19 pandemic, deferring two to three months of interest payments
to the scheduled payoff date, and we agreed to accommodate the request. Since the date of the forbearance agreements, such borrowers
have paid monthly interest. We have also held discussions with our borrowers and they have expressed their general concern about
the uncertain economic condition, yet we believe that it’s premature to determine the magnitude of the impact at this point.
We
expect the significance of the COVID-19 pandemic, including the extent of its effect on our financial and operational results,
to be dictated by, among other things, its duration, the success of efforts to contain it and the impact of actions taken in response.
For instance, recent government action to provide substantial financial support to businesses has provided helpful mitigation
for us and certain of our borrowers; its ultimate impact, however, is not yet clear. While we are not able at this time to estimate
the future impact of the COVID-19 pandemic on our financial and operational results, it could be material.
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 meeting the needs of 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. We also
receive leads for new business from banks, brokers and from 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 months ended September 30, 2020 and 2019, the total amounts of $35,410,076 and $38,246,965, respectively, have been lent,
offset by collections received from borrowers, under our commercial loans in the amount of $31,041,693 and $33,375,420, respectively.
At
September 30, 2020, we were committed to $5,191,959 in construction loans that can be drawn by the borrowers when certain conditions
are met.
To
date, we have not experienced any defaults and 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 in the future.
We
satisfied all of the requirements to be taxed as a 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 September 30, 2020 compared to three months ended September 30, 2019
Revenue
Total
revenues for the three months ended September 30, 2020 were approximately $1,786,000 compared to approximately $1,917,000 for
the three months ended September 30, 2019, a decrease of $131,000 or 6.8%. The decrease in revenue was primarily attributable
to lower interest rates and origination fees charged on loans due to market conditions and intense competition from other lenders,
as well as lower demand for new loans resulting from the COVID-19 pandemic. For the three months ended September 30, 2020 and
2019, approximately $1,521,000 and $1,619,000, respectively, of our revenues were attributable to interest income on secured commercial
loans that we offer to small businesses, and approximately $265,000 and $298,000, respectively, of our revenues were attributable
to origination fees on such loans. The loans are principally secured by collateral consisting of real estate and, generally, accompanied
by personal guarantees from the principals of the borrowers.
Interest
and amortization of debt service costs
Interest
and amortization of debt service costs for the three months ended September 30, 2020 were approximately $338,000 compared to approximately
$454,000 for the three months ended September 30, 2019, a decrease of $116,000, or 25.6%. The decrease was primarily attributable
to decreased interest expense due to lower LIBOR rates (See Note 4 to the consolidated financial statements included elsewhere
in this quarterly report).
General
and administrative expenses
General
and administrative expenses for the three months ended September 30, 2020 were approximately $305,000 compared to approximately
$315,000 for the three months ended September 30, 2019, a decrease of $10,000, or 3.2%. The decrease is primarily attributable
to decreases in travel expenses and in legal fees, partially offset by an increase in payroll expense.
Net
income
Net
income for the three months ended September 30, 2020 was approximately $1,151,000 compared to approximately $1,150,000 for the
three months ended September 30, 2019.
Nine
months ended September 30, 2020 compared to nine months ended September 30, 2019
Revenue
Total
revenues for the nine months ended September 30, 2020 were approximately $5,239,000 compared to approximately $5,484,000 for the
nine months ended September 30, 2019, a decrease of $245,000, or 4.5%. The decrease in revenue was primarily attributable to lower
interest rates and origination fees charged on loans due to market conditions and intense competition from other lenders, as well
as lower demand for new loans resulting from the COVID-19 pandemic. For the nine months ended September 30, 2020 and 2019, revenues
of approximately $4,485,000 and $4,609,000, respectively, were attributable to interest income on the secured commercial loans
that we offer to small businesses, and approximately $753,000 and $875,000, respectively, of our revenues were attributable to
origination fees on such loans. The loans are principally secured by collateral consisting of real estate and, generally, accompanied
by personal guarantees from the principals of the borrowers.
Interest
and amortization of debt service costs
Interest
and amortization of debt service costs for the nine months ended September 30, 2020 were approximately $1,017,000 compared to
approximately $1,221,000 for the nine months ended September 30, 2019, a decrease of $204,000, or 16.7%. The decrease was primarily
attributable to decreased interest expense due to lower LIBOR rates (See Note 4 to the consolidated financial statements included
elsewhere in this quarterly report).
General
and administrative expenses
General
and administrative expenses for the nine months ended September 30, 2020 were approximately $969,000 compared to approximately
$913,000 for the nine months ended September 30, 2019, an increase of $56,000, or 6.1%. The increase is primarily attributable
to increases in payroll expense, bank fees and compensation to members of our board of directors, as well as a special bonus paid
to our Chief Financial Officer in the first quarter of 2020, partially offset by decreases in travel and meal expenses, and decreases
in appraisal fees.
Net
Income
Net
income for the nine months ended September 30, 2020 was approximately $3,264,000 compared to approximately $3,355,000 for the
nine months ended September 30, 2019, a decrease of $91,000, or 2.7%. This decrease is primarily attributable to the decrease
in revenue, partially offset by the decrease in interest expense.
Liquidity
and Capital Resources
At
September 30, 2020, we had cash of approximately $157,000 compared to cash of approximately $118,000 at December 31, 2019.
For
the nine months ended September 30, 2020, net cash provided by operating activities was approximately $3,263,000, compared to
approximately $3,224,000 for the nine months ended September 30, 2019. The increase in net cash provided by operating activities
primarily resulted from an increase in deferred origination fees, offset by a decrease in net income.
For
the nine months ended September 30, 2020, net cash used in investing activities was approximately $4,384,000, compared to approximately
$4,872,000 for the nine months ended September 30, 2019. Net cash used in investing activities for the nine months ended September
30, 2020 mainly consisted of the issuance of commercial loans of approximately $35,410,000, offset by collection of our commercial
loans of approximately $31,042,000. In the period ended September 30, 2019, net cash used in investing activities consisted of
the issuance of commercial loans of approximately $38,247,000, offset by collection of our commercial loans of approximately $33,375,000.
For
the nine months ended September 30, 2020, net cash provided by financing activities was approximately $1,159,000, compared to
approximately $1,756,000 for the nine months ended September 30, 2019. Net cash provided by financing activities for the nine
months ended September 30, 2020 reflects the net proceeds from the Webster Credit Line of an aggregate of approximately $4,547,000,
offset by the dividend payments of approximately $3,181,000, the purchase of treasury shares of approximately $179,000 and deferred
financing costs of approximately $27,000. Net cash provided by financing activities for the nine months ended September 30, 2019
reflects the net proceeds from the Webster Credit Line of approximately $5,242,000 and proceeds from the exercise of options of
approximately $20,000, offset by the dividend payments of approximately $3,477,000 and the purchase of treasury shares of approximately
$29,000.
We
maintain the Webster Credit Line which currently provides us with a credit line of $32.5 million in the aggregate secured by assignments
of mortgages and other collateral. On August 8, 2017, we entered into the Amended and Restated Credit Agreement. The Amended and
Restated Credit Agreement established the Webster Credit Line.
Effective
July 11, 2018, we entered into a Waiver and Amendment No. 1 to the Amended and Restated Credit Agreement (“Amendment No.
1”) with Webster, Flushing and Mr. Ran, as guarantor. In conjunction with the execution of Amendment No. 1, we also entered
into an Amended and Restated Revolving Credit Note in the principal aggregate amount of $10,000,000 with Flushing (the “Amended
Flushing Note”) and a Second Amended and Restated Fee Letter with Webster and Flushing, each dated July 11, 2018. Pursuant
to the terms of Amendment No. 1, the Company’s existing Webster Credit Line was increased by $5 million to $25 million in
the aggregate. In addition, the interest rates relating to Webster Credit Line were amended such that the interest rates now equal
(i) LIBOR plus a premium, which rate aggregated approximately 4.15%, including a 0.5% agency fee, as of September 30, 2020, 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. Amendment No. 1 also permits the Company to 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. 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. Furthermore, on December 31, 2019, we entered into Amendment No. 2 to the Amended and Restated Credit
and Security Agreement (“Amendment No. 2”) with Webster and Flushing to amend certain required fixed charge coverage
requirements.
On
February 25, 2020, we entered into Amendment No. 3 to the Amended and Restated Credit and Security Agreement (“Amendment
No. 3”) with Webster, Flushing, Mizrahi, and Mr. Ran, as guarantor. In conjunction with the execution of Amendment No. 3,
we also entered into an Amended and Restated Revolving Credit Note in the principal aggregate amount of $7,500,000 with Mizrahi
and a Third Amended and Restated Fee Letter with Webster each dated February 25, 2020. Pursuant to the terms of Amendment No.
3, our existing Webster Credit Line was increased by $7.5 million to $32.5 million in the aggregate and the term of the Webster
Credit Line was extended to February 28, 2023. Amendment No. 3 also provides that the Company may issue up to $20 million in bonds
through its subsidiary, of which not more than $10 million of such notes 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.
We
were in compliance with all covenants of the Webster Credit Line, as amended, as of September 30, 2020. At September 30, 2020,
the outstanding amount under the Amended and Restated Credit Agreement was $19,779,851. The interest rate on the amount outstanding
fluctuates daily. The rate, including a 0.5% agency fee, at September 30, 2020 was approximately 4.15%.
On
February 26, 2020, 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 the Company to purchase any shares and expires on February
25, 2021. 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 September 30, 2020, the Company has purchased a total of 38,899 common shares pursuant to
the share buy back program, at an aggregate cost of approximately $179,000.
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.
As
a result of the COVID-19 pandemic, we have experienced a slow down in the deployment of capital and lower demand for new loans.
In addition, during the second quarter of 2020, two of our long-term borrowers requested forbearance agreements, due to the impact
of the COVID-19 pandemic, deferring two to three months of interest payments to the scheduled payoff date, and we agreed to accommodate
the request. Since the date of the forbearance agreements, such borrowers have paid monthly interest. However, to date, we have
not been materially impacted by the COVID-19 pandemic and have not experienced any material disruptions in our business operations.
We will continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business. If the COVID-19 pandemic
worsens in the New York area in which we operate, the pandemic could materially affect our financial and operational results.
Off-Balance
Sheet Arrangements
We
have not entered into any off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or
other persons that are likely to affect liquidity or the availability of our requirements for capital resources.
Changes
to Critical Accounting Policies and Estimates
Our
critical accounting policies and estimates are set forth in our Annual Report on Form 10-K for the fiscal year ended December
31, 2019.