Item
1. CONSOLIDATED FINANCIAL STATEMENTS
MANHATTAN
BRIDGE CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
The
accompanying notes are an integral part of these consolidated financial statements.
MANHATTAN
BRIDGE CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
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 JUNE 30, 2022
FOR
THE THREE MONTHS ENDED JUNE 30, 2021
| |
Common
Shares | | |
Additional
Paid
in | | |
Treasury
Stock | | |
Retained
| | |
| |
| |
Shares | | |
Amount | | |
Capital | | |
Shares | | |
Cost | | |
Earnings | | |
Totals | |
Balance,
April 1, 2021 | |
| 9,882,058 | | |
$ | 9,882 | | |
$ | 33,160,362 | | |
| 262,113 | | |
$ | (798,939 | ) | |
$ | 702,020 | | |
$ | 33,073,325 | |
Non
- cash compensation | |
| | | |
| | | |
| 3,266 | | |
| | | |
| | | |
| | | |
| 3,266 | |
Dividends
paid | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (1,058,194 | ) | |
| (1,058,194 | ) |
Net
income | |
| - | | |
| - | | |
| | | |
| - | | |
| - | | |
| 1,058,122 | | |
| 1,058,122 | |
Balance,
June 30, 2021 | |
| 9,882,058 | | |
$ | 9,882 | | |
$ | 33,163,628 | | |
| 262,113 | | |
$ | (798,939 | ) | |
$ | 701,948 | | |
$ | 33,076,519 | |
FOR
THE SIX MONTHS ENDED JUNE 30, 2022
| |
Common
Shares | | |
Additional
Paid
in | | |
Treasury
Stock | | |
Accumulated
| | |
| |
| |
Shares | | |
Amount | | |
Capital | | |
Shares | | |
Cost | | |
Deficit | | |
Totals | |
Balance,
January 1, 2022 | |
| 11,757,058 | | |
$ | 11,757 | | |
$ | 45,522,746 | | |
| 262,113 | | |
$ | (798,939 | ) | |
$ | (1,349,322 | ) | |
$ | 43,386,242 | |
Non
- cash compensation | |
| | | |
| | | |
| 6,532 | | |
| | | |
| | | |
| | | |
| 6,532 | |
Dividends
paid | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (1,436,868 | ) | |
| (1,436,868 | ) |
Dividends
declared and payable | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (1,436,868 | ) | |
| (1,436,868 | ) |
Net
income | |
| - | | |
| - | | |
| | | |
| - | | |
| - | | |
| 2,780,891 | | |
| 2,780,891 | |
Balance,
June 30, 2022 | |
| 11,757,058 | | |
$ | 11,757 | | |
$ | 45,529,278 | | |
| 262,113 | | |
$ | (798,939 | ) | |
$ | (1,442,167 | ) | |
$ | 43,299,929 | |
FOR
THE SIX MONTHS ENDED JUNE 30, 2021
| |
Common
Shares | | |
Additional
Paid
in | | |
Treasury
Stock | | |
(Accumulated
Deficit) Retained | | |
| |
| |
Shares | | |
Amount | | |
Capital | | |
Shares | | |
Cost | | |
Earnings | | |
Totals | |
Balance,
January 1, 2021 | |
| 9,882,058 | | |
$ | 9,882 | | |
$ | 33,157,096 | | |
| 262,113 | | |
$ | (798,939 | ) | |
$ | (403,849 | ) | |
$ | 31,964,190 | |
Non
- cash compensation | |
| | | |
| | | |
| 6,532 | | |
| | | |
| | | |
| | | |
| 6,532 | |
Dividends
paid | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (1,058,194 | ) | |
| (1,058,194 | ) |
Net
income | |
| - | | |
| - | | |
| | | |
| - | | |
| - | | |
| 2,163,991 | | |
| 2,163,991 | |
Balance,
June 30, 2021 | |
| 9,882,058 | | |
$ | 9,882 | | |
$ | 33,163,628 | | |
| 262,113 | | |
$ | (798,939 | ) | |
$ | 701,948 | | |
$ | 33,076,519 | |
The
accompanying notes are an integral part of these consolidated financial statements.
MANHATTAN
BRIDGE CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
* |
At January 1, 2021, cash and restricted cash included $327,483
of restricted cash. No other periods above included restricted cash. |
The
accompanying notes are an integral part of these consolidated financial statements.
MANHATTAN BRIDGE CAPITAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
1.
THE COMPANY
The
accompanying unaudited consolidated financial statements of Manhattan Bridge Capital, Inc. (“MBC”), a New York corporation
founded in 1989, and its consolidated subsidiary, MBC Funding II Corp. (“MBC Funding II”), a New York corporation formed
in December 2015 (collectively referred to herein as the “Company”) have been prepared by the Company in accordance with
U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. However, in
the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have
been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s audited
consolidated financial statements for the year ended December 31, 2021 and the notes thereto included in the Company’s Annual Report
on Form 10-K. Results of consolidated operations for the interim period are not necessarily indicative of the operating results to be
attained in the entire fiscal year.
The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amount of revenues and expenses during the reporting period. Actual amounts could differ from those estimates.
The
consolidated financial statements include the accounts of MBC and MBC Funding II. All significant intercompany balances and transactions
have been eliminated in consolidation.
The
Company offers short-term, secured, non–banking loans to real estate investors (also known as hard money) to fund their acquisition,
renovation, rehabilitation or development of residential or commercial properties located in the New York metropolitan area, including
New Jersey and Connecticut, and in Florida.
Interest
income from commercial loans is recognized, as earned, over the loan period.
Origination
fee revenue on commercial loans is amortized over the term of the respective note.
2.
RECENT TECHNICAL ACCOUNTING PRONOUNCEMENTS
Management
does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect
on the Company’s consolidated financial statements.
3.
COMMERCIAL LOANS
Loans
Receivable
The
Company offers short-term secured non–banking loans to real estate investors (also known as hard money) to fund their acquisition
and construction of properties located in the New York metropolitan area, including New Jersey and Connecticut, and in Florida. The loans
are principally secured by collateral consisting of real estate and accompanied by personal guarantees from the principals of the borrowers.
The loans are generally for a term of one year. The short term loans are initially recorded, and carried thereafter, in the financial
statements at cost. Most of the loans provide for receipt of interest only during the term of the loan and a balloon payment at the end
of the term.
At
June 30, 2022, the Company was committed to $9,618,525 in construction loans that can be drawn by the borrowers when certain conditions
are met.
At
June 30, 2022, 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 June 30, 2022 and December 31, 2021:
SCHEDULE
OF CREDIT RISK
Performing
loans | |
Developers-
Residential | | |
Developers-
Commercial | | |
Developers-
Mixed Use | | |
Total
outstanding loans | |
June
30, 2022 | |
$ | 56,995,663 | | |
$ | 9,819,000 | | |
$ | 2,489,000 | | |
$ | 69,303,663 | |
December
31, 2021 | |
$ | 57,432,364 | | |
$ | 5,819,000 | | |
$ | 2,464,000 | | |
$ | 65,715,364 | |
At
June 30, 2022, the Company’s loans receivable consisted of loans in the amount of $310,411, $582,400, $974,000, $3,820,250 and
$8,512,475, originally due in 2016, 2017, 2019, 2020 and 2021, respectively. The receivable also includes loans in the amount of $4,487,000
originally due during the first six months of 2022.
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. In all instances the borrower has either signed an extension agreement or are in the process of signing the extension.
At June 30, 2022, no loan impairments exist and there are no provisions for impairments of loans or recoveries thereof.
Subsequent
to the balance sheet date, $300,000 of the loans receivable at June 30, 2022 were paid off.
4.
LINE OF CREDIT
The
Company 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” and together with Webster and Flushing, the “Lenders”), which established the Company’s credit
line (the “Webster Credit Line”). Currently, the Webster Credit Line provides the Company with a credit line of $32.5 million
in the aggregate until February 28, 2023, 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 II, as a default under the credit line.
The
interest rates relating to the Webster Credit Line equal (i) LIBOR plus a premium, which rate aggregated approximately 5.79%, including
a 0.5% agency fee, as of June 30, 2022, or (ii) a Base Rate (as defined in the Amended and Restated Credit Agreement) plus 2.25% plus
a 0.5% agency fee, as chosen by the Company for each drawdown. Under the Amended and Restated Credit Agreement, the Company may repurchase,
redeem or otherwise retire its equity securities in an amount not to exceed ten percent of our annual net income from the prior fiscal
year. Further, the Company may issue up to $20 million in bonds through its subsidiary, of which not more than $10 million of such bonds
may be secured by mortgage notes receivable, and provided that the terms and conditions of such bonds are approved by Webster, subject
to its reasonable discretion. In addition, Mr. Ran has provided a personal guaranty to the Webster Credit Line, which shall not exceed
the sum of $500,000 plus any costs relating to the enforcement of the personal guaranty.
On
March 7, 2022, the Company entered into a Waiver Agreement (the “Waiver”), with respect to the Amended and Restated Credit
Agreement, with the Lenders and Mr. Ran, as guarantor, to provide the Company with a waiver of its covenant with respect to maintaining
its fixed charge coverage ratio for the period ended December 31, 2021. In addition, the Waiver also provided that an amount of $700,000
of distributions and/or dividends paid during the quarter ended December 31, 2021 shall be excluded from the calculation of fixed charge
coverage ratio for the fiscal quarters ending March 31, 2022, June 30, 2022 and September 30, 2022.
On
April 25, 2022, the Company entered into an amendment (the “2022 Amendment”), with respect to the Amended and Restated Credit
Agreement with the Lenders and Mr. Ran, as guarantor. Pursuant to the terms of the 2022 Amendment, each of the Company and the Lenders
agreed to amend the Amended and Restated Credit Agreement to provide as follows: (i) to increase the limit on individual loans from $1
million to $2 million; (ii) to increase the concentration of any mortgagor (together with guarantors and other related entities and affiliates)
from $2.5 million to $5 million; and (iii) to permit the Company to originate loans in the state of Florida in any county south of, and
including, Palm Beach and Lee counties, in an amount up to $4.875 million.
Except
as set forth in the preceding paragraphs, the Company was in compliance with all covenants of the Webster Credit Line, as amended, as
of June 30, 2022. At June 30, 2022, the outstanding amount under the Amended Credit Agreement was $19,273,526. The interest rate on the
amount outstanding fluctuates daily. The rate, including a 0.5% Agency Fee, was approximately 5.79% as of June 30, 2022.
5.
SENIOR SECURED NOTES
On
April 25, 2016, in an initial public offering, MBC Funding II 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 II, as Issuer, the Company,
as Guarantor, and Worldwide Stock Transfer LLC, as Indenture Trustee (the “Indenture”). The Notes, having a principal amount
of $1,000 each, are listed on the NYSE American and trade under the symbol “LOAN/26”. Interest accrues on the Notes commencing
on May 16, 2016. The accrued interest is payable monthly in cash, in arrears, on the 15th day of each calendar month commencing June
2016.
Under
the terms of the Indenture, the aggregate outstanding principal balance of the mortgage loans held by MBC Funding II, together with MBC
Funding II’s cash on hand, must always equal at least 120% of the aggregate outstanding principal amount of the Notes at all times.
To the extent the aggregate principal amount of the mortgage loans owned by MBC Funding II plus MBC Funding II’s cash on hand is
less than 120% of the aggregate outstanding principal balance of the Notes, MBC Funding II is required to repay, on a monthly basis,
the principal amount of the Notes equal to the amount necessary such that, after giving effect to such repayment, the aggregate principal
amount of all mortgage loans owned by MBC Funding II plus, MBC Funding II’s cash on hand at such time is equal to or greater than
120% of the outstanding principal amount of the Notes. For this purpose, each mortgage loan is deemed to have a value equal to its outstanding
principal balance, unless the borrower is in default of its obligations.
MBC
Funding II may redeem the Notes, in whole or in part, at any time after April 22, 2019 upon at least 30 days prior written notice to
the Noteholders. The redemption price will be equal to the outstanding principal amount of the Notes redeemed plus the accrued but unpaid
interest thereon up to, but not including, the date of redemption, without penalty or premium. No Notes were redeemed by MBC Funding
II as of June 30, 2022.
MBC
Funding II is obligated to offer to redeem the Notes if there occurs a “change of control” with respect to MBC Funding II
or the Company or if MBC Funding II or the Company sell any assets unless, in the case of an asset sale, the proceeds are reinvested
in the business of the seller. The redemption price in connection with a “change of control” will be 101% of the principal
amount of the Notes redeemed plus accrued but unpaid interest thereon up to, but not including, the date of redemption. The redemption
price in connection with an asset sale will be the outstanding principal amount of the Notes redeemed plus accrued but unpaid interest
thereon up to, but not including, the date of redemption.
The
Company guaranteed MBC Funding II’s obligations under the Notes, which are secured by its pledge of 100% of the outstanding common
shares of MBC Funding II that it owns.
Our
principal executive officers consist of Assaf Ran, who serves as our Chief Executive Officer and President, and Vanessa Kao, who serves
as our Chief Financial Officer. Each of Mr. Ran and Ms. Kao own an aggregate of $704,000
and $288,000 of our Notes.
6.
EARNINGS PER COMMON SHARE
Basic
and diluted earnings per share are calculated in accordance with Accounting Standards Codification (“ASC”) 260, “Earnings
Per Share” (“ASC 260”). Under ASC 260, basic earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for the period. The computation of diluted earnings per share
is similar to basic earnings per share, except that the denominator is increased to include the potential dilution from the exercise
of stock options and warrants for common shares using the treasury stock method. The numerator in calculating both basic and diluted
earnings per common share for each period is the reported net income.
The
denominator is based on the following weighted average number of common shares:
SCHEDULE
OF WEIGHTED AVERAGE NUMBER OF COMMON SHARES
| |
| | | |
| | | |
| | | |
| | |
| |
Three
Months Ended June 30, | | |
Six
Months Ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Basic
weighted average common shares outstanding | |
| 11,494,945 | | |
| 9,619,945 | | |
| 11,494,945 | | |
| 9,619,945 | |
Incremental
shares for assumed exercise of warrants | |
| — | | |
| — | | |
| — | | |
| — | |
Diluted
weighted average common shares outstanding | |
| 11,494,945 | | |
| 9,619,945 | | |
| 11,494,945 | | |
| 9,619,945 | |
Vested
warrants to purchase 33,612 common shares, that expired August 2021, were not included in the diluted earnings per share calculation
for the three and six months ended June 30, 2021 because the warrants were not in the money.
7.
STOCK – BASED COMPENSATION
Stock
based compensation expense recognized under ASC 718, “Compensation – Stock Compensation,” for each of the six
month periods ended June 30, 2022 and 2021 of $6,532
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. At June 30, 2022, all 1,000,000
shares remain restricted, and the remaining unrecognized stock based compensation amounted to $54,436.
8.
COVID-19
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.
9.
SUBSEQUENT EVENT
In
accordance with the dividend declared by the Company’s Board of Directors on April 15, 2022, a cash dividend of $0.125 per share
in an aggregate amount of $1,436,868 was paid on July 15, 2022 to all shareholders of record on July 8, 2022.
********
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 during the past seven years ranged from $30,000 to a maximum of $3 million. Our lending policy limits the
maximum amount of any loan to the lower of (i) 9.9% of the aggregate amount of our loan portfolio (not including the loan under consideration)
and (ii) $3 million. Our loans typically have a maximum initial term of 12 months and bear interest at a fixed rate of 8.25% to 12% per
year. In addition, we usually receive origination fees or “points” ranging from 0% to 2% of the original principal amount
of the loan as well as other fees relating to underwriting and funding the loan. Interest is always payable monthly, in arrears. In the
case of acquisition financing, the principal amount of the loan usually does not exceed 75% of the value of the property (as determined
by an independent appraiser) and in the case of construction financing, it is typically up to 80% of construction costs. More recently,
as a result of an increase in interest rates in general, our interest rate expenses, as they relate to our Webster Credit Line, have
increased as well and, as a result, we are making efforts to increase the interest rates charged on our commercial loans to offset the
impact on our net income.
Since
commencing this business in 2007, we have made approximately 1,090 loans and never foreclosed on a property. We currently manage
approximately 125 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 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, including New Jersey and
Connecticut, and in the Florida market remains relatively strong, but weakened due to the COVID-19 pandemic. Our ability to close deals
quickly has created an opportunity for non-bank “hard money” real estate lenders like us to selectively originate high-quality
first mortgage loans and we anticipate that this condition may 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 business competitors will not survive the COVID-19 pandemic
if it continues for an extended period.
To
date, we have not been materially impacted by the COVID-19 pandemic and will continue to closely monitor the impact of the COVID-19 pandemic
on all aspects of our business. 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, 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.
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 to us. We also
receive leads for new business from banks, brokers and a limited amount of advertising. Finally, our Chief Executive Officer also spends
a significant portion of his time on new business development. We rely on our own employees, independent legal counsel, and other independent
professionals to verify titles and ownership, to file liens and to consummate the transactions. Outside appraisers are used to assist
us in evaluating the worth of collateral, when deemed necessary by management. We also use construction inspectors.
For
the six months ended June 30, 2022 and 2021, the total amounts of $37,953,007 and $15,567,677, respectively, have been lent, offset by
collections received from borrowers, under our commercial loans of $34,364,708 and $20,279,776, respectively.
At
June 30, 2022, we were committed to $9,618,525 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 real estate investment trust (“REIT”) and elected to be taxed as a REIT
commencing with our taxable year ended December 31, 2014. In order to maintain our qualification for taxation as a REIT and avoid any
excise tax on our net taxable income, we are required to distribute each year at least 90% of our REIT taxable income. If we distribute
less than 100% of our taxable income (but more than 90%), the undistributed portion will be taxed at the regular corporate income tax
rates. As a REIT, we may also be subject to federal excise taxes and minimum state taxes.
Results
of Operations
Three
months ended June 30, 2022 compared to three months ended June 30, 2021
Revenue
Total
revenues for the three months ended June 30, 2022 were approximately $2,117,000 compared to approximately $1,713,000 for the three months
ended June 30, 2021, an increase of $404,000, or 23.6%. The increase in revenue was due to an increase in lending operations. For the
three months ended June 30, 2022 and 2021, approximately $1,612,000 and $1,424,000, respectively, of our revenues were attributable to
interest income on secured commercial loans that we offer to real estate investors, and approximately $504,000 and $290,000, respectively,
of our revenues were attributable to origination fees on such loans. The loans are principally secured by collateral consisting of real
estate and accompanied by personal guarantees from the principals of the borrowers.
Interest
and amortization of deferred financing costs
Interest
and amortization of deferred financing costs for the three months ended June 30, 2022 were approximately $376,000 compared to approximately
$317,000 for the three months ended June 30, 2021, an increase of $59,000, or 18.6%. The increase is primarily attributable to the increase
in interest expense due to higher LIBOR rates relating to the use of the Webster Credit Line in order to support our ability to increase
loan originations (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 June 30, 2022 were approximately $386,000 compared to approximately $340,000 for
the three months ended June 30, 2021, an increase of $46,000, or 13.5%. The increase is primarily attributable to increases in payroll,
advertising, public relations, travel and Nasdaq listing expenses, partially offset by a decrease in legal fees.
Net
income
Net
income for the three months ended June 30, 2022 was approximately $1,356,000 compared to approximately $1,058,000 for the three months
ended June 30, 2021, an increase of $298,000, or 28.2%. This increase is primarily attributable to the increase in revenue, partially
offset by the increases in interest expense and in general and administrative expenses.
Six
months ended June 30, 2022 compared to six months ended June 30, 2021
Revenue
Total
revenues for the six months ended June 30, 2022 were approximately $4,232,000 compared to approximately $3,443,000 for the six months
ended June 30, 2021, an increase of $789,000, or 22.9%. The increase in revenue was due to an increase in lending operations. For the
six months ended June 30, 2022 and 2021, revenues of approximately $3,256,000 and $2,867,000, respectively, were attributable to interest
income on secured commercial loans that we offer to real estate investors, and approximately $976,000 and $576,000, respectively, were
attributable to origination fees on such loans. The loans are principally secured by collateral consisting of real estate and accompanied
by personal guarantees from the principals of the borrowers.
Interest
and amortization of deferred financing costs
Interest
and amortization of deferred financing costs for the six months ended June 30, 2022 were approximately $708,000 compared to approximately
$634,000 for the six months ended June 30, 2021, an increase of $74,000, or 11.7%. The increase is primarily attributable to the increase
in interest expense due to higher LIBOR rates relating to the use of the Webster Credit Line in order to support our ability to increase
loan originations (See Note 4 to the consolidated financial statements included elsewhere in this quarterly report).
General
and administrative expenses
General
and administrative expenses for the six months ended June 30, 2022 were approximately $748,000 compared to approximately $649,000 for
the six months ended June 30, 2021, an increase of $99,000, or 15.3%. The increase is primarily attributable to increases in payroll,
advertising, appraisal, travel and Nasdaq listing expenses.
Net
income
Net
income for the six months ended June 30, 2022 was approximately $2,781,000 compared to approximately $2,164,000 for the six months ended
June 30, 2021, an increase of $617,000, or 28.5%. This increase is primarily attributable to the increase in revenue, partially offset
by the increases in interest expense and in general and administrative expenses.
Liquidity
and Capital Resources
At
June 30, 2022, we had cash of approximately $118,000, compared to approximately $143,000 at December 31, 2021.
For
the six months ended June 30, 2022, net cash provided by operating activities was approximately $2,847,000, compared to approximately
$2,029,000 for the six months ended June 30, 2021. The increase in net cash provided by operating activities primarily resulted from
the increases in net income and in deferred origination fees.
For
the six months ended June 30, 2022, net cash used in investing activities was approximately $3,590,000, compared to approximately $4,712,000
of net cash provided by investing activities for the six months ended June 30, 2021. Net cash used in investing activities for the six
months ended June 30, 2022 mainly consisted of the issuance of commercial loans of approximately $37,953,000, offset by the collection
of our commercial loans of approximately $34,365,000. Net cash provided by investing activities for the six months ended June 30, 2021
consisted of the collection of our commercial loans of approximately $20,280,000, offset by the issuance of commercial loans of approximately
$15,568,000.
For
the six months ended June 30, 2022, net cash provided by financing activities was approximately $718,000, compared to approximately $7,047,000
of net cash used in financing activities for the six months ended June 30, 2021. Net cash provided by financing activities for the six
months ended June 30, 2022 reflects the net proceeds from the Webster Credit Line of approximately $3,628,000, offset by dividend payments
of approximately $2,874,000 and deferred financing costs of approximately $36,000. Net cash used in financing activities for the six
months ended June 30, 2021 reflects the repayment of the Webster Credit Line of an aggregate of approximately $4,912,000, the dividend
payments of approximately $2,116,000 and pre-offering costs of approximately $19,000 relating to our July 2021 public offering.
Our
Amended and Restated Credit and Security Agreement with Webster, Flushing Bank and Mizrahi provides for the Webster Credit Line. Currently,
the Webster Credit Line provides us with a credit line of $32.5 million in the aggregate until February 28, 2023, secured by assignments
of mortgages and other collateral. The Webster Credit Line contains various covenants and restrictions including covenants limiting the
amount that the Company can borrow relative to the value of the underlying collateral, maintaining various financial ratios and limitations
on the terms of loans the Company makes to its customers, limiting the Company’s ability to pay dividends under certain circumstances,
and limiting the Company’s ability to repurchase its common shares, sell assets, engage in mergers or consolidations, grant liens,
and enter into transactions with affiliates. In addition, the Webster Credit Line contains a cross default provision which will deem
any default under any indebtedness owed by us or our subsidiary, MBC Funding II, as a default under the credit line.
The
interest rates relating to the Webster Credit Line equal (i) LIBOR plus a premium, which rate aggregated approximately 5.79%, including
a 0.5% agency fee, as of June 30, 2022, or (ii) a Base Rate (as defined in the Amended and Restated Credit Agreement) plus 2.25% plus
a 0.5% agency fee, as chosen by the Company for each drawdown. Under the Amended and Restated Credit Agreement, the Company may repurchase,
redeem or otherwise retire its equity securities in an amount not to exceed ten percent of our annual net income from the prior fiscal
year. Further, the Company may issue up to $20 million in bonds through its subsidiary, of which not more than $10 million of such bonds
may be secured by mortgage notes receivable, and provided that the terms and conditions of such bonds are approved by Webster, subject
to its reasonable discretion. In addition, Mr. Ran has provided a personal guaranty to the Webster Credit Line, which shall not exceed
the sum of $500,000 plus any costs relating to the enforcement of the personal guaranty.
On
March 7, 2022, we entered into the Waiver, with respect to the Amended and Restated Credit Agreement, with the Lenders and Mr. Ran, as
guarantor, providing the Company with a waiver of its covenant with respect to maintaining its fixed charge coverage ratio for the period
ended December 31, 2021. In addition, the Waiver also provided that an amount of $700,000 of distributions and/or dividends paid during
the quarter ended December 31, 2021 shall be excluded from the calculation of fixed charge coverage ratio for the fiscal quarters ending
March 31, 2022, June 30, 2022 and September 30, 2022.
On
April 25, 2022, we entered into an amendment, with respect to the Amended and Restated Credit Agreement with the Lenders and Mr. Ran,
as guarantor, pursuant to which the parties agreed to amend the Amended and Restated Credit Agreement to provide as follows: (i) to increase
the limit on individual loans from $1 million to $2 million; (ii) to increase the concentration of any mortgagor (together with guarantors
and other related entities and affiliates) from $2.5 million to $5 million; and (iii) to permit us to originate loans in the state of
Florida in any county south of, and including, Palm Beach and Lee counties, in an amount up to $4.875 million.
Except
as set forth in the preceding paragraphs, we were in compliance with all covenants of the Webster Credit Line, as amended, as of June
30, 2022. At June 30, 2022, the outstanding amount under the Amended and Restated Credit Agreement was $19,273,526. The interest rate
on the amount outstanding fluctuates daily. The rate, including a 0.5% agency fee, was approximately 5.79% as of June 30, 2022.
MBC
Funding II has $6,000,000 of outstanding principal amount of Notes. The Notes mature on April 22, 2026, unless redeemed earlier, and
accrue interest at a rate of 6% per annum commencing on May 16, 2016 and will be payable monthly, in arrears, in cash, on the 15th day
of each calendar month, commencing June 2016.
Under
the terms of the Indenture, the aggregate outstanding principal balance of the mortgage loans held by MBC Funding II, together with its
cash on hand, must always equal at least 120% of the aggregate outstanding principal amount of the Notes at all times. To the extent
the aggregate principal amount of the mortgage loans owned by MBC Funding II plus its cash on hand is less than 120% of the aggregate
outstanding principal balance of the Notes, MBC Funding II is required to repay, on a monthly basis, the principal amount of the Notes
equal to the amount necessary such that, after giving effect to such repayment, the aggregate principal amount of all mortgage loans
owned by it plus, its cash on hand at such time is equal to or greater than 120% of the outstanding principal amount of the Notes. For
this purpose, each mortgage loan is deemed to have a value equal to its outstanding principal balance, unless the borrower is in default
of its obligations.
The
Notes are secured by a first priority lien on all of MBC Funding II’s assets, including, primarily, mortgage notes, mortgages and
other transaction documents entered into in connection with first mortgage loans originated and funded by us, which MBC Funding II acquired
from MBC pursuant to an asset purchase agreement. MBC Funding II may redeem the Notes, in whole or in part, at any time after April 22,
2019 upon at least 30 days prior written notice to the noteholders. The redemption price will be equal to the outstanding principal amount
of the Notes redeemed plus the accrued but unpaid interest thereon up to, but not including, the date of redemption, without penalty
or premium. No Notes were redeemed by MBC Funding II as of June 30, 2022.
MBC
Funding II is obligated to offer to redeem the Notes if there occurs a “change of control” with respect to us or MBC Funding
II or if we or MBC Funding II sell any assets unless, in the case of an asset sale, the proceeds are reinvested in the business of the
seller. The redemption price in connection with a “change of control” will be 101% of the principal amount of the Notes redeemed
plus accrued but unpaid interest thereon up to, but not including, the date of redemption. The redemption price in connection with an
asset sale will be the outstanding principal amount of the Notes redeemed plus accrued but unpaid interest thereon up to, but not including,
the date of redemption.
We
guarantee MBC Funding II’s obligations under the Notes, which are secured by our pledge of 100% of the outstanding common shares
of MBC Funding II that we own.
We
anticipate that our current cash balances and the Amended and Restated Credit Agreement, as described above, together with our cash flows
from operations will be sufficient to fund our operations for the next 12 months. In addition, from time to time, we receive short term
unsecured loans from our executive officers and others in order to provide us with the flexibility necessary to maintain a steady deployment
of capital. However, we expect our working capital requirements to increase over the next 12 months as we continue to strive for growth.
As
a result of the COVID-19 pandemic, at times, we experienced a slowdown in the deployment of capital and lower demand for new loans. 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, as it could materially
affect our financial and operational results.