UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the quarterly period ended September 30,
2020
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: 000-25991
MANHATTAN BRIDGE CAPITAL, INC.
(Exact
name of registrant as specified in its charter)
|
New
York |
|
11-3474831 |
|
(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 |
| 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.
[X] 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).
[X]
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 |
[X] |
Smaller
reporting company |
[X] |
| |
|
|
|
|
| |
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 [X]
No
As of
October 20, 2020, the registrant had a total of 9,619,945 common
shares, $.001 par value per share, outstanding.
MANHATTAN BRIDGE CAPITAL, INC.
TABLE OF CONTENTS
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) if we
overestimate the yields on our loans or incorrectly value the
collateral securing the loan, we may experience losses; (v) we may
be subject to “lender liability” claims; (vi) our due diligence may
not uncover all of a borrower’s liabilities or other risks to its
business; (vii) borrower concentration could lead to significant
losses; (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 and (ix) if the effect of
the COVID-19 pandemic on our business is greater than anticipated.
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, of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2019. 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, 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.
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, 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 September 30, 2020 (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 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
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 September 30, 2020 that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART II OTHER
INFORMATION
Item 1A. RISK FACTORS
Other
than the addition of the text below, there have been no material
changes from risk factors previously disclosed in the Company’s
most recent Annual Report on Form 10-K. See the discussion of the
Company’s risk factors under Part I, Item 1A in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31,
2019.
The COVID-19 pandemic may adversely affect our
business.
In
December 2019, a novel strain of coronavirus, COVID-19, was
identified in Wuhan, China. This virus continues to spread globally
including in the United States. 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. To date, we have not been materially impacted by
the COVID-19 pandemic, but 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.
The
extent to which the coronavirus impacts our business will depend on
future developments, which are highly uncertain and cannot be
predicted, including new information which may emerge concerning
the severity of the coronavirus and the actions to contain the
coronavirus or treat its impact, among others. While the New York
area in which we primarily operate has begun to roll back its
“stay-at-home” orders and reopen certain businesses, the current
outlook remains uncertain and it is possible the spread of COVID-19
may re-emerge in the New York area. 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 could provide 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.
Item 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
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
set forth in the table below, during the quarter ended September
30, 2020, the Company repurchased 6,900 shares of the Company’s
common shares under the stock buy-back program at an aggregate cost
of $27,380.
ISSUER
PURCHASES OF EQUITY SECURITIES
|
Period |
|
(a)
Total
Number
of Shares
(or Units)
Purchased |
|
|
(b)
Average
Price Paid
per Share
(or Unit) |
|
|
(c)
Total Number
of Shares (or
Units)
Purchased as
Part of Publicly
Announced
Plans or
Programs |
|
|
(d)
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs |
|
| July 1-31,
2020 |
|
|
0 |
|
|
$ |
— |
|
|
|
0 |
|
|
|
68,001 |
|
| August 1-31,
2020 |
|
|
0 |
|
|
$ |
— |
|
|
|
0 |
|
|
|
68,001 |
|
| September 1-30,
2020 |
|
|
6,900 |
|
|
$ |
3.968 |
|
|
|
6,900 |
|
|
|
61,101 |
|
| Total |
|
|
6,900 |
|
|
$ |
3.968 |
|
|
|
6,900 |
|
|
|
61,101 |
|
Item
6. EXHIBITS
*
Furnished, not filed, in accordance with item 601(32)(ii) of
Regulation S-K.
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 20, 2020 |
By: |
/s/
Assaf Ran |
| |
|
Assaf
Ran, President and Chief Executive Officer |
| |
|
(Principal
Executive Officer) |
| |
|
| Date:
October 20, 2020 |
By: |
/s/
Vanessa Kao |
| |
|
Vanessa
Kao, Chief Financial Officer |
| |
|
(Principal
Financial and Accounting Officer) |
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