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 SEPTEMBER 30, 2021
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 NINE MONTHS ENDED SEPTEMBER 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
|
|
|
Public offering, net
|
|
|
1,875,000
|
|
|
|
1,875
|
|
|
|
12,352,585
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
12,354,460
|
|
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
9,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,798
|
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,495,062
|
)
|
|
|
(2,495,062
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,273,606
|
|
|
|
3,273,606
|
|
|
Balance, September 30, 2021
|
|
|
11,757,058
|
|
|
$
|
11,757
|
|
|
$
|
45,519,479
|
|
|
|
262,113
|
|
|
$
|
(798,939
|
)
|
|
$
|
374,695
|
|
|
$
|
45,106,992
|
|
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
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
MANHATTAN
BRIDGE CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
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, 2021
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, 2020 and the notes thereto included in the Company’s Annual Report
on Form 10-K. Results of consolidated operations for the interim period are not necessarily indicative of the operating results to be
attained in the entire fiscal year.
The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amount of revenues and expenses during the reporting period. Actual amounts could differ from those estimates.
The
consolidated financial statements include the accounts of MBC and MBC Funding II. All significant intercompany balances and transactions
have been eliminated in consolidation.
The
Company offers short-term, secured, non–banking loans to real estate investors (also known as hard money) to fund their acquisition,
renovation, rehabilitation or development of residential or commercial properties located in the New York metropolitan area, including
New Jersey and Connecticut, and in Florida.
Interest
income from commercial loans is recognized, as earned, over the loan period.
Origination
fee revenue on commercial loans is amortized over the term of the respective note.
2.
RECENT TECHNICAL ACCOUNTING PRONOUNCEMENTS
Management
does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect
on the Company’s consolidated financial statements.
3.
CASH - RESTRICTED
Restricted
cash mainly represents collections received, pending check clearance, from the Company’s commercial loans and is primarily dedicated
to the reduction of the Company’s Webster Credit Line established pursuant to the Amended and Restated Credit Agreement (see Note
5).
4.
COMMERCIAL LOANS
Loans
Receivable
The
Company offers short-term secured non–banking loans to real estate investors (also known as hard money) to fund their acquisition
and construction of properties located in the New York metropolitan area, including New Jersey and Connecticut, and in Florida. The loans
are principally secured by collateral consisting of real estate and accompanied by personal guarantees from the principals of the borrowers.
The loans are generally for a term of one year. The short term loans are initially recorded, and carried thereafter, in the financial
statements at cost. Most of the loans provide for receipt of interest only during the term of the loan and a balloon payment at the end
of the term.
At
September 30, 2021, the Company was committed to $5,664,928 in construction loans that can be drawn by the borrowers when certain conditions
are met.
At
September 30, 2021, 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, 2021 and December 31, 2020:
SCHEDULE
OF CREDIT RISK
|
Performing
loans
|
|
Developers-
Residential
|
|
|
Developers-
Commercial
|
|
|
Developers-
Mixed
Used
|
|
|
Total
outstanding loans
|
|
|
September
30, 2021
|
|
$
|
45,511,221
|
|
|
$
|
5,819,000
|
|
|
$
|
2,244,000
|
|
|
$
|
53,574,221
|
|
|
December
31, 2020
|
|
$
|
55,119,107
|
|
|
$
|
1,564,863
|
|
|
$
|
1,414,000
|
|
|
$
|
58,097,970
|
|
At
September 30, 2021, the Company’s loans receivable consisted of loans in the amount of $367,500, $1,052,400, $1,120,000, $2,485,825
and $7,409,749, originally due in 2016, 2017, 2018, 2019 and 2020, respectively. 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. At September 30, 2021, no loan
impairments exist and there are no provisions for impairments of loans or recoveries thereof.
Subsequent
to the balance sheet date, $1,310,000
of the loans receivable at September 30,
2021 were paid off, including $950,000 originally due in 2018.
5.
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 4.1%, including
a 0.5% agency fee, as of September 30, 2021, 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
July 2, 2021, the Company entered into a consent and amendment letter agreement, with respect to the Amended and Restated Credit Agreement,
with the Lenders and Assaf Ran, as guarantor, to amend the definition of “Change of Control” to provide that Mr. Ran would
be required to own at least 20%, instead of 27%, of the equity interests of the Company, on a fully diluted basis.
The
Company was in compliance with all covenants of the Webster Credit Line, as amended, as of September 30, 2021. At September 30, 2021,
the outstanding amount under the Amended Credit Agreement was $3,484,151. The interest rate on the amount outstanding fluctuates daily.
The rate, including a 0.5% Agency Fee, as of September 30, 2021, was approximately 4.1%.
6.
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. No Notes were redeemed by MBC Funding II as of September 30, 2021.
Each
Noteholder had the right to cause MBC Funding II to redeem his, her or its Notes on April 22, 2021 by notifying MBC Funding II in writing,
no earlier than November 22, 2020 and no later than January 22, 2021. No Noteholder exercised such right during the required time frame
and as such the Notes are no longer redeemable by the Noteholders.
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.
7.
EARNINGS PER COMMON SHARE
Basic
and diluted earnings per share are calculated in accordance with Accounting Standards Codification (“ASC”) 260, “Earnings
Per Share” (“ASC 260”). Under ASC 260, basic earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for the period. The computation of diluted earnings per share
is similar to basic earnings per share, except that the denominator is increased to include the potential dilution from the exercise
of stock options and warrants for common shares using the treasury stock method. The numerator in calculating both basic and diluted
earnings per common share for each period is the reported net income.
The
denominator is based on the following weighted average number of common shares:
SCHEDULE
OF WEIGHTED AVERAGE NUMBER OF COMMON SHARES
|
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Basic
weighted average common shares outstanding
|
|
|
11,331,902
|
|
|
|
9,625,140
|
|
|
|
10,196,868
|
|
|
|
9,635,107
|
|
|
Incremental
shares for assumed exercise of warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Diluted
weighted average common shares outstanding
|
|
|
11,331,902
|
|
|
|
9,625,140
|
|
|
|
10,196,868
|
|
|
|
9,635,107
|
|
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.
8.
STOCK–BASED COMPENSATION
Stock
based compensation expense recognized under ASC 718, “Compensation-Stock Compensation,” for each of the nine months ended
September 30, 2021 and 2020 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.
9. PUBLIC
OFFERING
On
July 9, 2021, the Company completed an underwritten public offering of 1,875,000 of its common shares at a public offering price of $7.20
per share (the “Offering”). The gross proceeds raised by the Company from the Offering were $13,500,000 before deducting
underwriting discounts and commissions and other estimated offering expenses. The total net proceeds from the Offering of approximately
$12,354,000 were used to reduce the outstanding balance of the Webster Credit Line. The Company granted the underwriters a 30-day option
to purchase up to an additional 281,250 common shares to cover over-allotments, if any. The option expired unexercised in August 2021.
10. 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 the Company’s originated loans may need to be extended. 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. 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.
11. SUBSEQUENT EVENT
On
September 28, 2021, Mr. Ran, the Company’s chief executive officer, voluntarily agreed to forgo his base salary for the months
of October, November and December 2021 in an aggregate amount of $76,250.
In
accordance with the dividend declared by the Company’s Board of Directors on July 29, 2021, a cash dividend of $0.125 per share
in an aggregate amount of $1,436,868 was paid on October 15, 2021 to all shareholders of record on October 8, 2021.
********
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-bank 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 improvement of 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 $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 and bear interest at a fixed rate of 8% 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 990 loans and never foreclosed on a property. We believe that we maintain
a lower debt-to-equity ratio, compared to our peers. We currently manage a portfolio of approximately 120 loans secured primarily by
residential properties. 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 and stock price appreciation. 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 subject to volatility due to the
COVID-19 pandemic. We believe that 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 currently anticipate this operating environment
to continue 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.
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 addition, due to market conditions and intense competition in the market, we have begun to charge our
customers lower interest rates and origination fees charged on loans. We have also seen a lower demand of new loans resulting from the
COVID-19 pandemic. 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. 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.
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 select advertising. Additionally, 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 as well as mortgage brokers and deal
initiators.
For
the nine months ended September 30, 2021 and 2020, the total amounts of $28,534,303 and $35,410,076, respectively, have been lent, offset
by collections received from borrowers, under our commercial loans of $33,058,052 and $31,041,693, respectively.
At
September 30, 2021, we were committed to $5,664,928 in construction loans that can be drawn by the borrowers when certain conditions
are met.
Since
our inception, 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 September 30, 2021 compared to three months ended September 30, 2020
Revenue
Total
revenues for the three months ended September 30, 2021 were approximately $1,627,000 compared to approximately $1,786,000 for the three
months ended September 30, 2020, a decrease of $159,000 or 8.9%. The decrease in revenue was primarily attributable to lower interest
rates charged on loans due to market conditions and intense competition from other lenders, partially offset by an increase in origination
fees. For the three months ended September 30, 2021 and 2020, approximately $1,323,000 and $1,521,000, respectively, of our revenues
were attributable to interest income on secured commercial loans that we offer to real estate investors, and approximately $304,000 and
$265,000, 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 September 30, 2021 were approximately $185,000 compared to approximately
$338,000 for the three months ended September 30, 2020, a decrease of $153,000, or 45.3%. The decrease was primarily attributable to
the reduced outstanding balance of the Webster Credit Line resulting from a public offering of our common shares in July 2021 and decreased
interest expense due to lower LIBOR rates. (See Note 9 and Note 5 to the financial statements included elsewhere in this quarterly report).
General
and administrative expenses
General
and administrative expenses for the three months ended September 30, 2021 were approximately $335,000 compared to approximately $305,000
for the three months ended September 30, 2020, an increase of $30,000, or 9.8%. The increase is primarily attributable to increases in
payroll, advertising and travel expenses, partially offset by a decrease in bank fees.
Net
income
Net
income for the three months ended September 30, 2021 was approximately $1,110,000 compared to approximately $1,151,000 for the three
months ended September 30, 2020, a decrease of $41,000, or 3.6%. The decrease is primarily attributable to the decrease in interest income
from loans, partially offset by a decrease in interest expense.
Nine
months ended September 30, 2021 compared to nine months ended September 30, 2020
Revenue
Total
revenues for the nine months ended September 30, 2021 were approximately $5,070,000 compared to approximately $5,239,000 for the nine
months ended September 30, 2020, a decrease of $169,000, or 3.2%. The decrease in revenue was primarily attributable to lower interest
rates charged on loans due to market conditions and intense competition from other lenders, partially offset by an increase in origination
fees. For the nine months ended September 30, 2021 and 2020, revenues of approximately $4,190,000 and $4,485,000, respectively, were
attributable to interest income on the secured commercial loans that we offer to real estate investors, and approximately $880,000 and
$753,000, 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 nine months ended September 30, 2021 were approximately $819,000 compared to approximately
$1,017,000 for the nine months ended September 30, 2020, a decrease of $198,000, or 19.5%. The decrease was primarily attributable to
the reduced outstanding balance of the Webster Credit Line resulting from a public offering of our common shares in July 2021 and decreased
interest expense due to lower LIBOR rates. (See Note 9 and Note 5 to the financial statements included elsewhere in this quarterly report).
General
and administrative expenses
General
and administrative expenses for the nine months ended September 30, 2021 were approximately $984,000 compared to approximately $969,000
for the nine months ended September 30, 2020, an increase of $15,000, or 1.5%. The increase is primarily attributable to increases in
travel, rent, insurance and advertising expenses, partially offset by a decrease in bank fees and a special bonus paid to our Chief Financial
Officer in 2020.
Net
income
Net
income for the nine months ended September 30, 2021 was approximately $3,274,000 compared to approximately $3,264,000 for the nine months
ended September 30, 2020, an increase of $10,000. This increase is primarily attributable to the decrease in interest expense, offset
by the decrease in revenue.
Liquidity
and Capital Resources
At
September 30, 2021, we had cash of approximately $110,000 compared to cash of approximately $132,000 at December 31, 2020 (not including
restricted cash, which mainly represents collections received, pending check clearance, from the Company’s commercial loans and
is primarily dedicated to the reduction of the Webster Credit Line).
For
the nine months ended September 30, 2021, net cash provided by operating activities was approximately $3,150,000, compared to approximately
$3,263,000 for the nine months ended September 30, 2020. The decrease in net cash provided by operating activities primarily resulted
from a decrease in accounts payable and accrued expenses, and a decrease in the increase in deferred origination fees compared to the
nine months ended September 30, 2020.
For
the nine months ended September 30, 2021, net cash provided by investing activities was approximately $4,524,000, compared to net cash
used in investing activities of approximately $4,384,000 for the nine months ended September 30, 2020. Net cash provided by investing
activities for the nine months ended September 30, 2021 consisted of the collection of our commercial loans of approximately $33,058,000,
offset by the issuance of commercial loans of approximately $28,534,000. During the period ended September 30, 2020, net cash used in
investing activities mainly consisted of the issuance of commercial loans of approximately $35,410,000 and the release of loan holdback
of $15,000, offset by collection of our commercial loans of approximately $31,042,000.
For
the nine months ended September 30, 2021, net cash used in financing activities was approximately $8,024,000, compared to net cash provided
by financing activities of approximately $1,159,000 for the nine months ended September 30, 2020. Net cash used in financing activities
for the nine months ended September 30, 2021 reflects the repayment of the Webster Credit Line of an aggregate of approximately $16,825,000
and the dividend payments of approximately $3,553,000, offset by the net proceeds from the public offering, as described below, of approximately
$12,354,000. 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.
We
maintain the Webster Credit Line which currently 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. On August 8, 2017, we entered into the Amended and Restated Credit Agreement,
which provides for the current Webster Credit Line.
The
interest rates relating to Webster Credit Line equal (i) LIBOR plus a premium, which rate aggregated approximately 4.1%, including a
0.5% agency fee, as of September 30, 2021, 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.
We
were in compliance with all covenants of the Webster Credit Line, as amended, as of September 30, 2021. At September 30, 2021, the outstanding
amount under the Amended and Restated Credit Agreement was $3,484,151. The interest rate on the amount outstanding fluctuates daily.
The rate, including a 0.5% agency fee, at September 30, 2021 was approximately 4.1%.
As
of September 30, 2021, 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. No Notes were redeemed by MBC Funding II as of September 30, 2021.
Each
Noteholder had the right to cause MBC Funding II to redeem his, her or its Notes on April 22, 2021 by notifying MBC Funding II in writing,
no earlier than November 22, 2020 and no later than January 22, 2021. No Noteholder exercised such right during the required time frame
and as such the Notes are no longer redeemable by the Noteholders.
In
addition, 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.
On
July 2, 2021, we entered into a consent and amendment letter agreement with respect to the Amended and Restated Credit Agreement with
the Lenders and Assaf Ran, as guarantor, to amend the definition of “Change of Control” to provide that Mr. Ran would be
required to own at least 20%, instead of 27%, of the equity interests of the Company, on a fully diluted basis.
On
July 9, 2021, we completed an underwritten public offering of 1,875,000 of our common shares at a public offering price of $7.20 per
share (the “Offering”). The gross proceeds raised by us in the Offering were $13,500,000 before deducting underwriting discounts
and commissions and other estimated offering expenses. The total net proceeds from the Offering of approximately $12,354,000 were used
to reduce the outstanding balance of the Webster Credit Line. We granted the underwriters a 30-day option to purchase up to an
additional 281,250 of our common shares to cover over-allotments, if any. The option expired unexercised in August 2021.
On
September 28, 2021, Mr. Ran voluntarily agreed to forgo his base salary for the months of October, November and December 2021 in an aggregate
amount of $76,250 (the “Salary Waiver”). The reason for the Salary Waiver was to provide the Company with temporary additional
liquidity which was necessary as a result of the dividend payment of $0.125 per share that was paid to all shareholders of record on
July 9, 2021, that also included the shareholders that participated in the recent Offering, which was paid prior to our being able to
deploy the proceeds from the Offering into new loans.
We
anticipate that our current cash balances, the proceeds of the Offering, 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, we have 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. 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, 2020.